Parker Hannifin Corporation (PH) released its first-quarter fiscal 2012 earnings result before the market opened Tuesday, reporting an earnings per share of $1.90, slightly below the Zacks Consensus Estimate of $1.70 and above prior-year earnings of $1.51. The company reported record earnings result for the quarter, which is an all-time high.
The company’s sales in the reported quarter increased by 14.3% year over year to $3.2 billion, which is also a record level achieved. Sales for the quarter included a 1% contribution from acquisition and 3% from currency effects. Total orders in the quarter increased by 9%.
Industrial International segment achieved highest sales growth on a year-over-year basis, with its revenue increasing by 17.9% year over year to $1.3 billion. However, the segment revenue declined from $1.4 billion in the fourth quarter of 2011.
Industrial North America segment revenue increased by 13.1% to $1.2 billion. Aerospace revenue increased by 13.9% year over year to $497.5 million. Climate and Industrial Controls segment revenue spiked by 3.3% to $242.5 million.
Orders increased by 16% in Industrial North America segment, 4% in Industrial International segment, 14% in Aerospace segment and 4% in Climate and Industrial Controls segment.
Income and Expenses
Net income for the quarter was $298.1 million, an increase of 19.7% year over year. Total segment operating margin reached a quarterly record of 16.1% for the company. Industrial North America segment operating margin was 18.5% while Aerospace operating margin witnessed strongest growth, with its operating profit reaching $68.6 million.
SG&A expense was $386.5 million in the quarter compared with $333.6 million in the fourth quarter of 2010.
Balance Sheet and Cash Flow
Cash and cash equivalents were $424.4 million at the end of the quarter with long-term debt of $1.7 billion and shareholder’s equity of $5.0 billion.
The company generated cash flow from operations of $309.5 million in first-quarter 2012 compared with cash flow from operations of $122.8 million in the prior-year period. The company repurchased about 4.4 million of its outstanding common shares for $292 million during the reported quarter.
Parker Hannifin increased its fiscal 2012 earnings per share guidance to the range of $7.25 – $7.85 from $6.70 – $7.50. The increased expectation was led by excellent first-quarter result, solid order intake and a decline in share count.
We believe Parker Hannifin is a high-quality company that is showing good execution. The company is witnessing a recovery in aerospace demand, which positively favors its future growth. MRO (Maintenance, Repair, and Overhaul) is expected to get a boost from continued deferral of capital investment in new machines. Parker Hannifin’s strong exposure to MRO-type products and ability to convert net income into free cash flow will benefit future earnings.
However, the company’s domestic and foreign operations are subject to significant competitive pressures. To compete successfully, the company’s Industrial Segment and Climate & Industrial Controls Segment must excel in terms of product quality and innovation, customer service, manufacturing and distribution capability and price competitiveness.
Meanwhile, the Aerospace Segment must excel on the basis of technological and engineering capability, quality, delivery and service, and price competitiveness. Major competitors of Parker are Eaton Corporation (ETN) and Honeywell International Inc. (HON)
Parker-Hannifin Corporation is a leading worldwide full-line diversified manufacturer of motion and control technologies and systems, including fluid power systems, electromechanical controls and related components. In addition to motion and control products, the company is also a leading worldwide producer of fluid purification, fluid and fuel control, process instrumentation, air conditioning, refrigeration, electromagnetic shielding and thermal management products and systems.
We continue to maintain a Neutral rating on Parker-Hannifin for the long term. The company has a Zacks #3 Rank (Hold recommendation) over the next one-to-three months.