Parker Reports Fiscal 2014 Third Quarter Sales, Net Income and Earnings per Share

- Strong operational quarter, restructuring proceeding ahead of plan

- Higher than anticipated restructuring expenses of $0.28 per diluted share in the quarter

- Earnings per diluted share were $1.60, or $1.88 excluding restructuring expenses

- Positive order growth continues with 7 percent increase

- Company increases full year adjusted earnings guidance midpoint to $6.50 per diluted share

Apr 29, 2014, 07:30 ET from Parker Hannifin Corporation

CLEVELAND, April 29, 2014 /PRNewswire/ -- Parker Hannifin Corporation (NYSE: PH), the global leader in motion and control technologies, today reported results for the fiscal 2014 third quarter ended March 31, 2014.  Fiscal 2014 third quarter sales increased 2 percent to $3.36 billion compared with $3.31 billion in the same quarter a year ago.  Adjusting for a previously announced joint venture, fiscal 2014 third quarter sales increased 3 percent.  Fiscal 2014 third quarter net income was $242.5 million, or $1.60 earnings per diluted share and when adjusted for restructuring expenses, was $285.0 million, or $1.88 earnings per diluted share.  Net income in the prior year quarter was $256.6 million or $1.68 earnings per diluted share.  A reconciliation of as reported to adjusted sales, net income and earnings per diluted share is included with the financial tables accompanying this news release.

Cash flow from operations for the first nine months of fiscal 2014 was $817.5 million or 8.4 percent of sales compared with $718.8 million or 7.5 percent of sales in the prior year period. Excluding a discretionary contribution to the company's pension plan of $75 million and the impact of restructuring initiatives of $15 million in fiscal 2014, cash flow from operations was 9.4 percent of sales. 

"We are pleased to have delivered strong operating margins in the third quarter, particularly in our Diversified Industrial International businesses," said Chairman, CEO and President, Don Washkewicz. "Our previously announced restructuring initiatives are proceeding ahead of plan, with $86 million in pretax expenses incurred fiscal year-to-date.  In addition, the improved order growth trend is an encouraging sign for the remainder of this fiscal year."

Segment Results 

Diversified Industrial Segment: North American third quarter sales increased 1.9 percent to $1.46 billion, and operating income was $243.0 million compared with $224.5 million in the same period a year ago.  International third quarter sales increased 4.4 percent to $1.36 billion, and operating income was $126.9 million compared with $158.2 million in the same period a year ago.  International operating income in the third quarter adjusted for the impact of restructuring expenses was $186.4 million.

Aerospace Systems Segment: Compared to the same period a year ago, third quarter sales decreased 5.6 percent to $545.7 million, but increased 2 percent adjusting for the impact of the previously announced joint venture between Parker Aerospace and GE Aviation.  Operating income was $64.0 million compared with $80.1 million in the same period a year ago, largely reflecting an unfavorable product mix.

Orders

Parker reported an increase of 7 percent in orders for the quarter ending March 31, 2014, compared with the same quarter a year ago.  The company reported the following orders by business: 

  • Orders increased 6 percent in the Diversified Industrial North America businesses;
  • Orders increased 5 percent in the Diversified Industrial International businesses; and
  • Orders increased 16 percent in the Aerospace Systems segment on a rolling 12-month average basis.

Outlook

For the fiscal year ending June 30, 2014, the company has increased guidance for adjusted earnings per diluted share to the range of $6.40 to $6.60, or $6.50 at the midpoint.   Fiscal 2014 adjusted earnings guidance includes increased restructuring expenses which are anticipated to be approximately $0.55 per diluted share, but does not include the gain associated with the previously announced joint venture and asset write downs recorded in the quarter ended December 31, 2013.  Restructuring expenses were $0.28 per diluted share in the third quarter of fiscal 2014 and $0.40 per diluted share fiscal year-to-date.

Washkewicz added, "We have increased the midpoint of our guidance for fiscal year 2014 to reflect the impact of improved operating margins and positive order trends.  Considering the progress we have made, we expect to close the year strong and be well positioned going into fiscal year 2015."

NOTICE OF CONFERENCE CALL: Parker Hannifin's conference call and slide presentation to discuss its fiscal 2014 third quarter results are available to all interested parties via live webcast today at 11:00 a.m. ET, on the company's investor information web site at www.phstock.com. To access the call, click on the "Live Webcast" link. From this link, users also may complete a pre-call system test and register for e-mail notification of future events and information available from Parker.  A replay of the conference call will also be available at www.phstock.com for one year after the call.

With annual sales of $13 billion in fiscal year 2013, Parker Hannifin is the world's leading diversified manufacturer of motion and control technologies and systems, providing precision-engineered solutions for a wide variety of mobile, industrial and aerospace markets. The company employs approximately 58,000 people in 49 countries around the world. Parker has increased its annual dividends paid to shareholders for 58 consecutive fiscal years, among the top five longest-running dividend-increase records in the S&P 500 index. For more information, visit the company's website at www.parker.com, or its investor information website at www.phstock.com.

Note on Orders

Orders provide near-term perspective on the company's outlook, particularly when viewed in the context of prior and future quarterly order rates. However, orders are not in themselves an indication of future performance. All comparisons are at constant currency exchange rates, with the prior year restated to the current-year rates. All exclude acquisitions until they can be reflected in both the numerator and denominator. Aerospace comparisons are rolling 12-month average computations. The total Parker orders number is derived from a weighted average of the year-over-year quarterly percent change in orders for Diversified Industrial North America and Diversified Industrial International, and the year-over-year 12-month rolling average of orders for the Aerospace Systems segment.

Note on Non-GAAP Numbers

This press release contains references to (a) sales growth excluding the effects of the joint venture, (b) operating income, net income and earnings per diluted share without the effect of restructuring expenses, (c) forecasted earnings per diluted share without the effect of a gain associated with a joint venture and asset write downs, and (d) cash flow excluding discretionary contributions to the company's pension plan and the impact of restructuring.  The effects of a joint venture, asset write downs, restructuring expenses and pension plan contributions are removed to allow investors and the company to meaningfully evaluate changes in sales, operating income, net income, earnings per diluted share, and cash flow on a comparable basis from period to period.

Forward-Looking Statements

Forward-looking statements contained in this and other written and oral reports are made based on known events and circumstances at the time of release, and as such, are subject in the future to unforeseen uncertainties and risks. All statements regarding future performance, earnings projections, events or developments are forward-looking statements. It is possible that the future performance and earnings projections of the company, including its individual segments, may differ materially from current expectations, depending on economic conditions within its mobile, industrial and aerospace markets, and the company's ability to maintain and achieve anticipated benefits associated with announced realignment activities, strategic initiatives to improve operating margins, actions taken to combat the effects of the current economic environment, and growth, innovation and global diversification initiatives. A change in the economic conditions in individual markets may have a particularly volatile effect on segment performance. Among other factors which may affect future performance are: changes in business relationships with and purchases by or from major customers, suppliers or distributors, including delays or cancellations in shipments, disputes regarding contract terms or significant changes in financial condition, changes in contract cost and revenue estimates for new development programs and changes in product mix; ability to identify acceptable strategic acquisition targets; uncertainties surrounding timing, successful completion or integration of acquisitions and similar transactions; the ability to successfully divest businesses planned for divestiture and realize the anticipated benefits of such divestitures; the determination to undertake business realignment activities and the expected costs thereof and, if undertaken, the ability to complete such activities and realize the anticipated cost savings from such activities; the ability to realize anticipated benefits of the consolidation of the Climate and Industrial Controls Group; threats associated with and efforts to combat terrorism; uncertainties surrounding the ultimate resolution of outstanding legal proceedings, including the outcome of any appeals; competitive market conditions and resulting effects on sales and pricing; increases in raw material costs that cannot be recovered in product pricing; the company's ability to manage costs related to insurance and employee retirement and health care benefits; and global economic factors, including manufacturing activity, air travel trends, currency exchange rates, difficulties entering new markets and general economic conditions such as inflation, deflation, interest rates and credit availability. The company makes these statements as of the date of this disclosure, and undertakes no obligation to update them unless otherwise required by law.

 

PARKER HANNIFIN CORPORATION - MARCH 31, 2014

CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

 

Three Months Ended March 31, 

 

Nine Months Ended March 31,

(Dollars in thousands except per share amounts)

2014

2013

2014

2013

Net sales

$        3,358,406

$             3,307,041

$       9,690,556

$       9,587,471

Cost of sales

2,605,893

2,569,189

7,502,273

7,468,608

Gross profit

752,513

737,852

2,188,283

2,118,863

Selling, general and administrative expenses

407,241

379,690

1,212,807

1,141,912

Goodwill and intangible asset impairment

-

-

188,870

-

Interest expense

20,594

23,050

62,403

70,775

Other (income), net

(4,812)

(3,439)

(424,693)

(31,062)

Income before income taxes

329,490

338,551

1,148,896

937,238

Income taxes

86,972

81,959

408,654

259,584

Net income

242,518

256,592

740,242

677,654

Less:  Noncontrolling interests

112

32

232

391

Net income attributable to common shareholders

$           242,406

$                256,560

$          740,010

$          677,263

Earnings per share attributable to common shareholders:

   Basic earnings per share 

$                 1.63

$                      1.72

$                4.96

$                4.54

   Diluted earnings per share

$                 1.60

$                      1.68

$                4.88

$                4.46

Average shares outstanding during period - Basic

149,039,529

149,287,628

149,143,478

149,191,583

Average shares outstanding during period - Diluted

151,739,617

152,360,612

151,562,276

151,853,522

Cash dividends per common share

$                   .48

$                        .43

$                1.38

$                1.25

RECONCILIATION OF NET INCOME AND EARNINGS PER DILUTED SHARE TO ADJUSTED NET INCOME AND EARNINGS PER DILUTED SHARE

 

Three Months Ended March 31, 

 

Nine Months Ended March 31,

2014

2013

2014

2013

Net income 

$           242,518

$                256,592

$          740,242

$          677,654

Adjustments:

  Restructuring charges

42,516

1,205

60,830

5,791

Adjusted net income

$           285,034

$                257,797

$          801,072

$          683,445

Earnings per diluted share

$                 1.60

$                      1.68

$                4.88

$                4.46

Adjustments:

  Restructuring charges

0.28

0.01

0.40

0.04

Adjusted earnings per diluted share

$                 1.88

$                      1.69

$                5.28

$                4.50

BUSINESS SEGMENT INFORMATION BY INDUSTRY

(Unaudited)

 

Three Months Ended March 31, 

 

Nine Months Ended March 31,

(Dollars in thousands)

2014

2013

2014

2013

Net sales

    Diversified Industrial:

       North America

$        1,455,212

$             1,428,430

$       4,168,489

$       4,171,089

       International

1,357,513

1,300,585

3,905,159

3,768,617

    Aerospace Systems

545,681

578,026

1,616,908

1,647,765

Total

$        3,358,406

$             3,307,041

$       9,690,556

$       9,587,471

Segment operating income

    Diversified Industrial:

       North America

$           242,998

$                224,487

$          677,824

$          658,993

       International

126,933

158,194

434,541

439,839

    Aerospace Systems

63,974

80,080

166,306

194,150

Total segment operating income

433,905

462,761

1,278,671

1,292,982

Corporate general and administrative expenses

38,377

41,410

132,406

126,578

Income before interest and other 

395,528

421,351

1,146,265

1,166,404

Interest expense

20,594

23,050

62,403

70,775

Other expense (income)

45,444

59,750

(65,034)

158,391

Income before income taxes

$           329,490

$                338,551

$       1,148,896

$          937,238

 

RECONCILIATION OF NET SALES TO ADJUSTED NET SALES

 

Three Months Ended March 31,

%

2014

2013

 Change 

Total net sales 

$        3,358,406

$             3,307,041

1.6%

Adjustments:

 Sales related to GE joint venture

-

43,731

Adjusted total net sales

$        3,358,406

$             3,263,310

2.9%

Aerospace Systems net sales

$           545,681

$                578,026

(5.6%)

Adjustments:

 Sales related to GE joint venture

-

43,731

Adjusted Aerospace Systems net sales

$           545,681

$                534,295

2.1%

 

CONSOLIDATED BALANCE SHEET

(Unaudited)

 March 31, 

 June 30, 

March 31,

(Dollars in thousands)

2014

2013

2013

Assets

Current assets:

Cash and cash equivalents

$        2,095,989

$             1,781,412

$       1,677,319

Accounts receivable, net

2,098,063

2,062,745

2,017,126

Inventories

1,448,989

1,377,405

1,473,072

Prepaid expenses

183,119

182,669

136,268

Deferred income taxes

122,840

126,955

134,724

Total current assets

5,949,000

5,531,186

5,438,509

Plant and equipment, net

1,827,980

1,808,240

1,829,715

Goodwill

3,164,175

3,223,515

3,229,827

Intangible assets, net

1,210,967

1,290,499

1,313,990

Other assets

950,236

687,458

859,731

Total assets

$      13,102,358

$           12,540,898

$     12,671,772

Liabilities and equity

Current liabilities:

Notes payable

$        1,078,846

$             1,333,826

$       1,527,696

Accounts payable

1,200,466

1,156,002

1,162,125

Accrued liabilities

933,077

894,296

838,376

Accrued domestic and foreign taxes

154,792

136,079

120,352

Total current liabilities

3,367,181

3,520,203

3,648,549

Long-term debt

1,508,611

1,495,960

1,496,026

Pensions and other postretirement benefits

1,306,667

1,372,437

1,693,048

Deferred income taxes

111,508

102,920

127,159

Other liabilities

354,158

307,897

294,582

Shareholders' equity

6,450,996

5,738,426

5,409,058

Noncontrolling interests

3,237

3,055

3,350

Total liabilities and equity

$      13,102,358

$           12,540,898

$     12,671,772

 

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

Nine Months Ended March 31,

(Dollars in thousands)

2014

2013

Cash flows from operating activities:

Net income

$           740,242

$                677,654

Depreciation and amortization

253,150

250,574

Stock incentive plan compensation

84,647

65,516

Goodwill and intangible asset impairment 

188,870

-

Gain on deconsolidation of subsidiary

(412,612)

-

Gain on sale of businesses

-

(13,313)

Net change in receivables, inventories, and trade payables

(52,953)

(13,743)

Net change in other assets and liabilities

9,263

(258,332)

Other, net

6,864

10,443

Net cash provided by operating activities

817,471

718,799

Cash flows from investing activities:

Acquisitions (net of cash of $33,932 in 2013) 

(14,272)

(620,647)

Capital expenditures

(167,371)

(214,061)

Proceeds from sale of plant and equipment

10,785

24,321

Proceeds from sale of business

-

72,190

Proceeds from deconsolidation of subsidiary

202,498

-

Other, net

(3,382)

(9,375)

Net cash provided by (used in) investing activities

28,258

(747,572)

Cash flows from financing activities:

Net payments for common stock activity

(120,890)

(125,325)

Acquisition of noncontrolling interests

-

(1,072)

Net (payments for) proceeds from debt

(255,319)

1,186,679

Dividends

(206,516)

(187,705)

Net cash (used in) provided by financing activities

(582,725)

872,577

Effect of exchange rate changes on cash

51,573

(4,802)

Net increase in cash and cash equivalents

314,577

839,002

Cash and cash equivalents at beginning of period

1,781,412

838,317

Cash and cash equivalents at end of period

$        2,095,989

$             1,677,319

 

RECONCILIATION OF FORECASTED EARNINGS PER DILUTED SHARE TO ADJUSTED FORECASTED EARNINGS PER DILUTED SHARE

(Unaudited)

(Amounts in dollars)

Fiscal Year

2014

Forecasted earnings per diluted share

 $6.82 to $7.02 

Adjustments:

  Asset writedowns

$1.26

  Gain related to joint venture agreement

$(1.68)

Adjusted forecasted earnings per diluted share

 $6.40 to $6.60 

 

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SOURCE Parker Hannifin Corporation



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