Parker(PH) - 2025 Q3 - Quarterly Results

Fiscal 2025 Third Quarter Performance Highlights Parker Hannifin achieved record third-quarter performance with substantial margin expansion, record earnings per share, and strong cash flow, alongside strategic capital deployment Executive Summary & CEO Commentary Parker Hannifin reported record third-quarter performance, achieving substantial margin expansion across all businesses, surpassing 26% adjusted segment operating margin for the first time, delivering record earnings per share and cash flow from operations, alongside significant capital deployment actions - Achieved record adjusted segment operating margin, surpassing 26% for the first time[2] - Produced record earnings per share and generated record cash flow from operations[2] - Repurchased $650 million of shares in the quarter and announced a 10% increase in quarterly cash dividend[2][3] - Committed to actively deploying capital to drive shareholder value, including acquisitions and increased share repurchase activity, and achieving fiscal year 2029 financial targets[2] Key Financial & Operational Highlights (Q3 FY25 vs. Q3 FY24) The third quarter of fiscal 2025 saw a slight decline in sales but significant improvements in net income, EPS, and operating margins, both on a reported and adjusted basis, along with strong cash flow generation Key Financial & Operational Highlights (Q3 FY25 vs. Q3 FY24) | Metric | FY25 Q3 | FY24 Q3 | Change | Adjusted FY25 Q3 | Adjusted FY24 Q3 | Adjusted Change | | :-------------------------------- | :------ | :------ | :----- | :--------------- | :--------------- | :-------------- | | Sales | $5.0 billion | $5.1 billion | -2.2% | - | - | - | | Organic Sales Growth | 1% | - | - | - | - | - | | Net Income | $961 million | $727 million | +32% | $904 million | $851 million | +6% | | EPS | $7.37 | $5.56 | +33% | $6.94 | $6.51 | +7% | | Segment Operating Margin | 23.2% | 21.5% | +170 bps | 26.3% | 24.7% | +160 bps | | YTD Cash Flow from Operations | $2.3 billion | $2.1 billion | +8% | - | - | - | | YTD Cash Flow from Operations (% of sales) | 15.8% | - | - | - | - | - | | Shares Repurchased (Q3) | $650 million | - | - | - | - | - | Fiscal Year 2025 Outlook Parker Hannifin updated its guidance for the fiscal year ending June 30, 2025, forecasting slight sales decline but strong adjusted operating margin and EPS, with mitigation actions fully offsetting tariff effects Fiscal Year 2025 Forecasted Financials | Metric | Forecasted FY25 | Adjusted Forecasted FY25 | | :-------------------------------- | :-------------- | :----------------------- | | Sales Growth | ~ (1%) | ~ 1% (organic) | | Total Segment Operating Margin | ~ 22.7% | ~ 25.9% | | EPS | $25.92 to $26.12 | $26.60 to $26.80 | - Forecasted EPS includes the effect of announced tariffs fully offset by mitigation actions[4] Segment Performance This section details the sales, operating income, and order rate performance across the Diversified Industrial and Aerospace Systems segments Diversified Industrial Segment - North America The North America Diversified Industrial segment experienced a sales decline in Q3 FY25, primarily due to softness in transportation, off-highway, and energy markets, but achieved a record adjusted segment operating margin and positive orders for the second consecutive quarter Diversified Industrial Segment - North America Performance (Q3 FY25 vs. Q3 FY24) | Metric | FY25 Q3 | FY24 Q3 | Change | Organic Growth | | :-------------------------- | :------ | :------ | :----- | :------------- | | Sales | $2,031 million | $2,231 million | -9.0% | -3.5% | | Segment Operating Income | $467 million | $490 million | -4.8% | - | | Segment Operating Margin | 23.0% | 22.0% | +100 bps | - | | Adjusted Segment Operating Income | $513 million | $538 million | -4.8% | - | | Adjusted Segment Operating Margin | 25.2% | 24.1% | +110 bps | - | - Achieved record adjusted segment operating margin[5] - Orders were positive for the second consecutive quarter, despite softness in transportation, off-highway, and energy markets[5] Diversified Industrial Segment - International The International Diversified Industrial segment also saw a sales decrease but delivered a record adjusted segment operating margin, with orders accelerating on long-cycle strength and varied organic growth across regions Diversified Industrial Segment - International Performance (Q3 FY25 vs. Q3 FY24) | Metric | FY25 Q3 | FY24 Q3 | Change | Organic Growth | | :-------------------------- | :------ | :------ | :----- | :------------- | | Sales | $1,358 million | $1,434 million | -5.3% | -2.8% | | Segment Operating Income | $312 million | $310 million | +0.7% | - | | Segment Operating Margin | 23.0% | 21.6% | +140 bps | - | | Adjusted Segment Operating Income | $340 million | $337 million | +1.2% | - | | Adjusted Segment Operating Margin | 25.1% | 23.5% | +160 bps | - | - Achieved record adjusted segment operating margin[6] - Organic growth was 2% in APAC, (7%) in EMEA, and 8% in LA, with orders accelerating on long-cycle strength[6] Aerospace Systems Segment The Aerospace Systems segment demonstrated strong performance with record sales, driven by continued aftermarket strength, and achieved a record adjusted segment operating margin, with its backlog also reaching a new high Aerospace Systems Segment Performance (Q3 FY25 vs. Q3 FY24) | Metric | FY25 Q3 | FY24 Q3 | Change | Organic Growth | | :-------------------------- | :------ | :------ | :----- | :------------- | | Sales | $1,572 million | $1,409 million | +11.6% | +11.7% | | Segment Operating Income | $373 million | $289 million | +28.9% | - | | Segment Operating Margin | 23.7% | 20.5% | +320 bps | - | | Adjusted Segment Operating Income | $451 million | $376 million | +19.8% | - | | Adjusted Segment Operating Margin | 28.7% | 26.7% | +200 bps | - | - Achieved record sales on continued aftermarket strength and delivered record adjusted segment operating margin[7] - Aerospace backlog increased to a record $7.3 billion[7] Order Rates by Segment Parker's overall order rates increased significantly, reflecting a transformed portfolio and long-cycle strength, with all reported businesses showing positive order growth Order Rate Changes by Segment (Q3 FY25) | Segment | FY25 Q3 Order Rate Change | | :------------------------------------ | :------------------------ | | Parker (Total) | +9% | | Diversified Industrial - North America | +3% | | Diversified Industrial - International | +11% | | Aerospace Systems Segment | +14% | - Parker's overall order rates increased to 9%, driven by a transformed portfolio and long-cycle strength[8] - Aerospace orders increased by 14%, fueled by strength in both commercial and defense sectors[8] Corporate Information & Disclosures This section provides an overview of Parker Hannifin, investor relations information, and important disclosures regarding non-GAAP financial measures and forward-looking statements About Parker Hannifin Parker Hannifin is a Fortune 250 global leader in motion and control technologies, with over a century of engineering innovation - Parker Hannifin is a Fortune 250 global leader in motion and control technologies, with a history of over a century of engineering breakthroughs[9] Investor Relations & Webcast Information regarding investor contacts and access to the fiscal 2025 third-quarter results conference call and webcast replay - Conference call and slide presentation for fiscal 2025 third quarter results are available via live webcast and replay at investors.parker.com[9] Notes on Non-GAAP Financial Measures This section clarifies the use and purpose of non-GAAP financial measures, such as adjusted net income, adjusted EPS, adjusted segment operating margin, and organic sales growth, emphasizing their utility for comparable period-to-period evaluation - Non-GAAP financial measures (adjusted net income, EPS, segment operating margin, organic sales growth) are presented to allow investors and the company to meaningfully evaluate changes on a comparable basis from period to period[11] - Reconciliations of non-GAAP measures are included in the financial tables of the press release[11] Forward-Looking Statements This disclosure advises readers that forward-looking statements are subject to unforeseen uncertainties and risks, and actual future performance may differ materially from expectations due to various factors - Forward-looking statements are based on known events and circumstances at the time of release and are subject to unforeseen uncertainties and risks[12] - Future performance may differ materially from expectations due to factors including changes in business relationships, acquisition uncertainties, supply chain disruptions, economic conditions, and regulatory developments[12][13] Consolidated Financial Statements This section presents the company's consolidated statements of income, balance sheet, and cash flows for the reported periods Consolidated Statement of Income The consolidated statement of income for the three and nine months ended March 31, 2025, shows a decrease in net sales but a significant increase in net income and EPS compared to the prior year, primarily due to lower income taxes and other income Consolidated Statement of Income (in thousands of dollars) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Nine Months Ended March 31, 2025 | Nine Months Ended March 31, 2024 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :------------------------------- | :------------------------------- | | Net sales | $4,960,349 | $5,074,356 | $14,606,926 | $14,742,791 | | Cost of sales | $3,129,951 | $3,279,650 | $9,249,899 | $9,478,961 | | Selling, general and administrative expenses | $784,355 | $816,337 | $2,415,565 | $2,496,830 | | Interest expense | $95,942 | $123,732 | $309,835 | $387,229 | | Other income, net | $(44,713) | $(65,406) | $(404,230) | $(228,872) | | Income before income taxes | $994,814 | $920,043 | $3,035,857 | $2,608,643 | | Income taxes | $33,628 | $193,309 | $427,494 | $548,780 | | Net income | $961,186 | $726,734 | $2,608,363 | $2,059,863 | | Diluted earnings per share | $7.37 | $5.56 | $19.97 | $15.82 | Consolidated Balance Sheet As of March 31, 2025, Parker Hannifin's balance sheet shows a slight decrease in total assets compared to June 30, 2024, driven by reductions in current assets and intangible assets, while shareholders' equity increased Consolidated Balance Sheet (in thousands of dollars) | Metric | March 31, 2025 | June 30, 2024 | | :------------------------------------ | :------------- | :------------ | | Total current assets | $6,777,140 | $6,798,624 | | Property, plant and equipment, net | $2,821,566 | $2,875,668 | | Intangible assets, net | $7,370,524 | $7,816,181 | | Goodwill | $10,461,946 | $10,507,433 | | Total assets | $28,917,808 | $29,297,842 | | Total current liabilities | $5,614,466 | $7,313,309 | | Long-term debt | $7,421,370 | $7,157,034 | | Shareholders' equity | $13,390,974 | $12,071,972 | | Total liabilities and equity | $28,917,808 | $29,297,842 | Consolidated Statement of Cash Flows For the nine months ended March 31, 2025, net cash provided by operating activities increased significantly, while net cash used in financing activities also increased, primarily due to higher net payments for common stock activity and debt Consolidated Statement of Cash Flows (in thousands of dollars) | Metric | Nine Months Ended March 31, 2025 | Nine Months Ended March 31, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $2,308,761 | $2,147,077 | | Net cash provided by (used in) investing activities | $344,670 | $(194,301) | | Net cash used in financing activities | $(2,681,045) | $(2,005,528) | | Net decrease in cash and cash equivalents | $(13,292) | $(69,698) | | Cash and cash equivalents at end of period | $408,735 | $405,484 | - Proceeds from sale of businesses significantly increased cash from investing activities to $622,697 thousand in FY25 from $75,561 thousand in FY24[23] Reconciliations and Supplemental Data This section provides detailed reconciliations for organic growth, adjusted financial metrics, and forecasted financials, along with supplemental business segment information Organic Growth Reconciliations This section provides reconciliations of reported sales growth to organic sales growth for the total company and by segment, adjusting for currency fluctuations and divestitures for both the three and nine months ended March 31, 2025 Organic Growth Reconciliations by Segment (Q3 FY25) | Segment | Q3 FY25 As Reported | Q3 FY25 Currency Impact | Q3 FY25 Divestitures Impact | Q3 FY25 Organic Growth | | :------------------------------------ | :------------------ | :---------------------- | :-------------------------- | :--------------------- | | Diversified Industrial Segment | (7.6)% | (1.5)% | (2.9)% | (3.2)% | | Aerospace Systems Segment | 11.6% | (0.1)% | — % | 11.7% | | Total | (2.2)% | (1.0)% | (2.1)% | 0.9% | Diversified Industrial Segment Organic Growth Reconciliations by Region (Q3 FY25) | Diversified Industrial Segment: | Q3 FY25 As Reported | Q3 FY25 Currency Impact | Q3 FY25 Divestitures Impact | Q3 FY25 Organic Growth | | :------------------------------------ | :------------------ | :---------------------- | :-------------------------- | :--------------------- | | North America businesses | (9.0)% | (0.8)% | (4.7)% | (3.5)% | | International businesses | (5.3)% | (2.5)% | — % | (2.8)% | | - Europe | (8.6)% | (1.7)% | — % | (6.9)% | | - Asia Pacific | (0.8)% | (3.0)% | — % | 2.2% | | - Latin America | (0.2)% | (8.1)% | — % | 7.9% | Adjusted Net Income & EPS Reconciliations This section details the adjustments made to reported net income and diluted earnings per share to arrive at adjusted figures, including items like acquired intangible asset amortization, business realignment charges, integration costs, and discrete tax benefits Adjusted Net Income Reconciliations (in thousands of dollars) | Metric | Q3 FY25 | Q3 FY24 | YTD FY25 | YTD FY24 | | :------------------------------------ | :------ | :------ | :------- | :------- | | Net income attributable to common shareholders | $960,866 | $726,574 | $2,607,828 | $2,059,252 | | Acquired intangible asset amortization expense | $135,964 | $141,216 | $414,211 | $438,763 | | Business realignment charges | $10,379 | $8,468 | $40,740 | $35,914 | | Integration costs to achieve | $5,447 | $13,256 | $18,751 | $29,676 | | Gain on divestitures | — | — | $(249,748) | $(25,651) | | Discrete tax benefit | $(179,849) | — | $(179,849) | — | | Adjusted net income attributable to common shareholders | $903,843 | $850,735 | $2,566,860 | $2,429,551 | Adjusted Earnings Per Diluted Share Reconciliations (in dollars) | Metric | Q3 FY25 | Q3 FY24 | YTD FY25 | YTD FY24 | | :------------------------------------ | :------ | :------ | :------- | :------- | | Earnings per diluted share | $7.37 | $5.56 | $19.97 | $15.82 | | Acquired intangible asset amortization expense | $1.04 | $1.08 | $3.17 | $3.36 | | Business realignment charges | $0.08 | $0.06 | $0.31 | $0.27 | | Integration costs to achieve | $0.04 | $0.10 | $0.14 | $0.23 | | Gain on divestitures | — | — | $(1.91) | $(0.20) | | Discrete tax benefit | $(1.37) | — | $(1.37) | — | | Adjusted earnings per diluted share | $6.94 | $6.51 | $19.68 | $18.66 | Adjusted Segment Operating Margin Reconciliations This section provides detailed reconciliations of reported segment operating margins to adjusted segment operating margins for the Diversified Industrial and Aerospace Systems segments, including breakdowns for North America and International businesses, by adjusting for items like acquired intangible asset amortization and business realignment charges Adjusted Segment Operating Margin Reconciliations by Segment | Segment | Q3 FY25 Operating Margin | Q3 FY25 Adjusted Operating Margin | YTD FY25 Operating Margin | YTD FY25 Adjusted Operating Margin | | :------------------------------------ | :----------------------- | :------------------------------ | :------------------------ | :------------------------------- | | Diversified Industrial Segment | 23.0% | 25.2% | 22.5% | 24.8% | | Aerospace Systems Segment | 23.7% | 28.7% | 22.9% | 28.3% | | Total Segment | 23.2% | 26.3% | 22.6% | 25.9% | Adjusted Segment Operating Margin Reconciliations for Diversified Industrial Segment by Region | Diversified Industrial Segment: | Q3 FY25 Operating Margin | Q3 FY25 Adjusted Operating Margin | YTD FY25 Operating Margin | YTD FY25 Adjusted Operating Margin | | :------------------------------------ | :----------------------- | :------------------------------ | :------------------------ | :------------------------------- | | North America businesses | 23.0% | 25.2% | 22.7% | 25.0% | | International businesses | 23.0% | 25.1% | 22.2% | 24.4% | Forecasted Financial Reconciliations This section provides reconciliations for forecasted organic growth, adjusted segment operating margin, and adjusted earnings per diluted share for fiscal year 2025, detailing the adjustments made to reported forecasts Fiscal Year 2025 Forecasted Financial Reconciliations | Metric | Fiscal Year 2025 Forecasted | Adjustments | Fiscal Year 2025 Adjusted Forecasted | | :------------------------------------ | :-------------------------- | :---------- | :----------------------------------- | | Net sales growth | ~ (1%) | Currency: 0.5%, Divestitures: 1.5% | ~ 1% (organic) | | Segment operating margin | ~ 22.7% | Business realignment: 0.3%, Costs to achieve: 0.1%, Intangible amortization: 2.8% | ~ 25.9% | | EPS | $25.92 to $26.12 | Business realignment: $0.47, Costs to achieve: $0.17, Intangible amortization: $4.22, Net gain on divestitures: $(1.91), Gain on sale of building: $(0.08), Saegertown incident: $0.06, Tax effect: $(0.88), Discrete tax benefit: $(1.37) | $26.60 to $26.80 | Supplemental Business Segment Information This section provides a more granular breakdown of net sales and segment operating income for the Diversified Industrial segment, separating North America and International businesses for both the three and nine months ended March 31, 2025 Supplemental Business Segment Information (in thousands of dollars) | Metric | Q3 FY25 | Q3 FY24 | YTD FY25 | YTD FY24 | | :------------------------------------ | :------ | :------ | :------- | :------- | | Diversified Industrial Net Sales: | | | | | | North America businesses | $2,030,970 | $2,231,478 | $6,059,302 | $6,571,587 | | International businesses | $1,357,789 | $1,434,165 | $4,038,421 | $4,227,057 | | Diversified Industrial Segment Operating Income: | | | | | | North America businesses | $467,064 | $490,452 | $1,378,194 | $1,458,355 | | International businesses | $312,039 | $309,759 | $895,017 | $900,944 |