Parker-Hannifin's (NYSE:PH) fiscal third quarter (calendar first quarter) earnings reflected a lot of my concerns about slowing short-cycle markets, with management noting weakness in "general industrial", machine tool, autos, upstream oil & gas, power gen, and semis - something I've been outlining for a little while now. What's more, with destocking continuing through the June quarter and the possibility for an intensified tariff trade war with China looming, I'm still concerned that the short-cycle markets could decelerate further, even though Parker-Hannifin reported some improvement in orders in April.
I thought Parker-Hannifin shares offered some interesting upside when I last wrote about them if at the cost of some elevated short-term risk. The shares have outperformed the broader industrial space a bit since then, and my feelings about the stock remain more or less the same - this is one of the relatively rare reasonably-priced (if not slightly undervalued) quality industrials, and although I do think there's economic cycle risk over the next 12-24 months, I think this is a solid name for long-term ownership.
Lower Performance, But Against Lower Expectations
Parker-Hannifin's 2% organic growth rate doesn't look great against a curated set of comps like Honeywell (HON), Dover (DOV), or even Eaton (ETN), but Parker-Hannifin did outperform other short-cycle names like 3M (MMM) and Illinois Tool Works (ITW), and perhaps more importantly, the company met top-line expectations and slightly outperformed at the operating line. In other words, management prepared the Street for a slower pace of growth and didn't do any worse than expected (overall, at any rate).
That said, the short-cycle Industrial businesses were a little softer. North American revenue was barely positive on an organic basis, missing expectations by about 1.5%. Segment profits were flat, driving a pretty sizable 6% miss at that line. In the International business, organic revenue growth was closer to 1% (in-line with
