Parker Reports Fiscal 2016 Fourth Quarter and Full Year Results


  • Fourth quarter EPS $1.77 as reported, or $1.90 adjusted for realignment expenses
  • Strong fourth quarter segment operating margins of 14.8% as reported, or 15.6% adjusted
  • Company sets guidance for fiscal year 2017 EPS in the range of $6.15 to $6.85 as reported, or $6.40 to $7.10 adjusted for realignment expenses

CLEVELAND, Aug. 04, 2016 (GLOBE NEWSWIRE) -- Parker Hannifin Corporation (NYSE:PH), the global leader in motion and control technologies, today announced results for the fiscal 2016 fourth quarter and full year ended June 30, 2016.  Fiscal 2016 fourth quarter sales decreased 6% to $2.96 billion compared with $3.14 billion in the same quarter a year ago.  Fiscal 2016 fourth quarter net income increased 35% to $241.9 million compared with $179.6 million in the fourth quarter of fiscal 2015.  Fiscal 2016 fourth quarter earnings per share were $1.77, an increase of 39% compared with $1.27 per share in the prior year quarter.  Adjusted earnings per share were $1.90 in the fiscal 2016 fourth quarter, an increase of 33% compared with adjusted earnings per share of $1.43 in the prior year quarter.  A reconciliation of as reported to adjusted earnings per share and segment operating margins is included with the financial tables accompanying this news release. 

For the full year, fiscal 2016 sales were $11.4 billion, an 11% decline compared with $12.7 billion in fiscal 2015.  Net income for fiscal 2016 was $807.2 million, a 20% decline compared with $1,012.6 million in fiscal 2015.  Fiscal 2016 earnings per share were $5.89, a 15% decline compared with $6.97 per share in fiscal 2015.  Adjusted earnings per share for fiscal 2016 were $6.46, an 11% decline compared with adjusted earnings per share of $7.25 in the prior year.  Cash flow from operations for fiscal 2016 was $1.2 billion or 10.3% of sales.  Excluding a discretionary contribution to the company's pension plan of $200 million, fiscal 2016 cash flow from operations was 12.1% of sales.

"I am pleased we ended fiscal year 2016 on such a positive note with strong fourth quarter margin and cash flow performance, which largely reflects the actions we have taken under the new Win Strategy™,” said Tom Williams, Chairman and Chief Executive Officer. “Demand levels remained weak globally. Despite these conditions, we achieved adjusted segment operating margins of 15.6% for the fourth quarter, compared with 14.9% in the prior year quarter.  Our adjusted decremental marginal return on sales was exceptional at 2.9% for the quarter and less than 25% for the sixth consecutive quarter.  This level of performance is a credit to Parker team members globally for acting decisively and implementing structural cost improvements.  We continue to make meaningful progress toward the goals we have established under the Win Strategy.”

Segment Results
Diversified Industrial Segment: North American fourth quarter sales decreased 11% to $1.26 billion and operating income was $221.2 million, compared with $228.9 million in the same period a year ago.  International fourth quarter sales decreased 4% to $1.09 billion and operating income was $118.6 million, compared with $118.1 million in the same period a year ago. 

Aerospace Systems Segment: Fourth quarter sales increased 2% to $602.3 million and operating income was $97.5 million, compared with $93.5 million in the same period a year ago.

Orders
Parker reported the following orders for the quarter ending June 30, 2016, compared with the same quarter a year ago:

  • Orders decreased 1% for total Parker;
  • Orders decreased 10% in the Diversified Industrial North America businesses;
  • Orders increased 3% in the Diversified Industrial International businesses; and
  • Orders increased 14% in the Aerospace Systems segment on a rolling 12-month average basis.

Share Repurchases
During the fourth quarter, the company repurchased approximately $108 million of Parker shares bringing the total repurchases for fiscal 2016 to approximately $558 million. 

Outlook
For the fiscal year ending June 30, 2017, the company has issued guidance for earnings from continuing operations in the range of $6.15 to $6.85 per share, or $6.40 to $7.10 per share on an adjusted basis.  Fiscal year 2017 guidance is adjusted for expected business realignment expenses of approximately $0.25 per share.

Williams added, “In many of our key markets we are seeing a decelerating rate of decline.  While we see progress toward stabilization, we remain cautious in our outlook and are not anticipating any meaningful turnaround in global market conditions.  In fiscal year 2017, we are estimating flat sales and significant margin improvement, reflecting the benefits of our Simplification and business restructuring actions and the new Win Strategy. Our primary focus will be on executing the fundamentals of the Win Strategy, which I am confident will allow us to take Parker's performance to new levels and will result in a positive impact for our customers and shareholders.  While we still have much more to accomplish, Parker is in a very strong position entering fiscal year 2017.”

NOTICE OF CONFERENCE CALL: Parker Hannifin's conference call and slide presentation to discuss its fiscal 2016 fourth quarter and full year 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 $11 billion in fiscal year 2016, 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 has operations in 49 countries around the world.  Parker has increased its annual dividends paid to shareholders for 60 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 % 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) segment operating margins and earnings per share without the effect of business realignment and voluntary retirement expenses; (b) the effect of business realignment expenses on forecasted earnings from continuing operations per share; and (c) cash flows from operations without the effect of a discretionary pension contribution. The effects of business realignment and voluntary retirement expenses and the discretionary pension contribution are removed to allow investors and the company to meaningfully evaluate changes in segment operating margin, earnings per share and cash flows from operations 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; ability to implement successfully the company’s capital allocation initiatives, including timing, price and execution of share repurchases; 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;  threats associated with and efforts to combat terrorism and cyber-security risks; 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; 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 - JUNE 30, 2016
 
CONSOLIDATED STATEMENT OF INCOME
 
           
      Three Months Ended June 30,   Twelve Months Ended June 30,  
(Dollars in thousands except per share amounts)  2016    2015   2016    2015  
             
Net sales   $   2,957,150   $  3,144,508  $   11,360,753   $  12,711,744  
Cost of sales     2,272,455      2,420,780     8,823,384      9,655,245  
Gross profit      684,695      723,728     2,537,369      3,056,499  
Selling, general and administrative expenses    338,572      391,796     1,359,360      1,544,746  
Interest expense     32,715      34,797     136,517      118,406  
Other (income), net     (22,798)    (6,838)    (73,236)    (38,893) 
Income before income taxes     336,206      303,973     1,114,728      1,432,240  
Income taxes     94,295      124,388     307,512      419,687  
Net income      241,911      179,585     807,216      1,012,553  
Less:  Noncontrolling interests     115      131     376      413  
Net income attributable to common shareholders$   241,796   $  179,454  $   806,840   $  1,012,140  
             
Earnings per share attributable to common shareholders:        
Basic earnings per share   $   1.80   $  1.29  $   5.96   $  7.08  
Diluted earnings per share  $   1.77   $  1.27  $   5.89   $  6.97  
             
Average shares outstanding during period - Basic    134,385,814      138,674,443     135,353,321      142,925,327  
Average shares outstanding during period - Diluted    136,255,977    141,000,940     136,911,690    145,112,150  
             
Cash dividends per common share  $.63  $.63  $   2.52   $  2.37  
             
RECONCILIATION OF NET INCOME AND EARNINGS PER DILUTED SHARE TO ADJUSTED NET INCOME AND EARNINGS PER DILUTED SHARE 
             
Net income   $   241,911   $  179,585  $   807,216   $  1,012,553  
Adjustments:          
Voluntary retirement expense     -      15,034     -      15,034  
Business realignment charges     17,828      7,014     78,069      25,180  
Adjusted net income  $   259,739   $  201,633  $   885,285   $  1,052,767  
             
Earnings per diluted share  $   1.77   $  1.27  $   5.89   $  6.97  
Adjustments:          
Voluntary retirement expense     -       0.11     -       0.11  
Business realignment charges     0.13      0.05     0.57      0.17  
Adjusted earnings per diluted share $   1.90   $  1.43  $   6.46   $  7.25  
             
             
             
BUSINESS SEGMENT INFORMATION
 
   Three Months Ended June 30,   Twelve Months Ended June 30,  
(Dollars in thousands)   2016    2015   2016    2015  
Net sales           
Diversified Industrial:          
North America  $   1,260,203   $  1,413,098  $   4,955,211   $  5,715,742  
International     1,094,585      1,142,231     4,145,272      4,741,376  
Aerospace Systems     602,362      589,179     2,260,270      2,254,626  
Total   $   2,957,150   $  3,144,508  $   11,360,753   $  12,711,744  
           
Segment operating income            
Diversified Industrial:          
North America  $   221,158   $  228,861  $   789,667   $  955,501  
International     118,634      118,134     448,457      583,937  
Aerospace Systems     97,526      93,494     337,531      298,994  
Total segment operating income    437,318      440,489     1,575,655      1,838,432  
Corporate general and administrative expenses    46,620      63,077     173,203      215,396  
Income before interest and other        390,698      377,412     1,402,452      1,623,036  
Interest expense     32,715      34,797     136,517      118,406  
Other expense     21,777      38,642     151,207      72,390  
Income before income taxes  $   336,206   $  303,973  $   1,114,728   $  1,432,240  
             
RECONCILIATION OF TOTAL SEGMENT OPERATING MARGIN TO ADJUSTED TOTAL SEGMENT OPERATING MARGIN
 
             
             
     Three Months
Ended June 30,
2016
   Three Months
Ended June 30,
2015
   
        Operating margin    Operating margin  
Total segment operating income $   437,318    14.8% $  440,489   14.0% 
Adjustments:          
Voluntary retirement expense     -        18,057    
Business realignment charges     25,024        9,150    
Adjusted total segement operating income $   462,342    15.6% $  467,696   14.9% 
             
     Twelve Months
Ended June 30,
2016
   Twelve Months
Ended June 30,
2015
   
        Operating margin     Operating margin  
Total segment operating income $   1,575,655    13.9% $  1,838,432   14.5% 
Adjustments:          
Voluntary retirement expense     -        18,057    
Business realignment charges     106,642        31,849    
Adjusted total segement operating income $   1,682,297    14.8% $  1,888,338   14.9% 
             
             
             
CONSOLIDATED BALANCE SHEET
 
      June 30,
   June 30,      
(Dollars in thousands)     2016   2015      
Assets           
Current assets:          
Cash and cash equivalents  $   1,221,653   $  1,180,584      
Marketable securities and other investments    882,342      733,490      
Trade accounts receivable, net     1,593,920      1,620,194      
Non-trade and notes receivable     232,183      364,534      
Inventories      1,173,329      1,300,459      
Prepaid expenses     104,360      241,684      
Total current assets     5,207,787      5,440,945      
Plant and equipment, net     1,568,100      1,664,022      
Goodwill      2,903,037      2,942,679      
Intangible assets, net     922,571      1,013,439      
Other assets     1,455,243      1,218,197      
Total assets  $   12,056,738   $  12,279,282      
             
Liabilities and equity          
Current liabilities:          
Notes payable  $   361,840   $  223,142      
Accounts payable     1,034,589      1,092,138      
Accrued liabilities     841,915      894,555      
Accrued domestic and foreign taxes     127,597      139,285      
Total current liabilities     2,365,941      2,349,120      
Long-term debt     2,675,000      2,723,960      
Pensions and other postretirement benefits    2,076,143      1,699,197      
Deferred income taxes     54,395      63,222      
Other liabilities     306,581      336,214      
Shareholders' equity     4,575,255      5,104,287      
Noncontrolling interests     3,423      3,282      
Total liabilities and equity  $   12,056,738   $  12,279,282      
             
             
             
CONSOLIDATED STATEMENT OF CASH FLOWS         
     Twelve Months Ended June 30,     
(Dollars in thousands)   2016    2015      
             
Cash flows from operating activities:         
Net income   $   807,216   $  1,012,553      
Depreciation and amortization     306,843      317,491      
Stock incentive plan compensation     71,293      96,093      
Gain on sale of businesses     (10,666)    (6,420)     
Loss on disposal of assets     414      14,953      
(Gain) loss on sale of marketable securities    (723)    3,817      
Net change in receivables, inventories, and trade payables   85,414      (13,948)     
Net change in other assets and liabilities    (47,012)    (63,679)     
Other, net      (42,936)    (58,919)     
Net cash provided by operating activities    1,169,843      1,301,941      
Cash flows from investing activities:         
Acquisitions (net of cash of $3,814 in 2016 and $8,332 in 2015)   (67,552)    (18,618)     
Capital expenditures     (149,407)    (215,527)     
Proceeds from sale of plant and equipment    18,821      19,655      
Proceeds from sale of businesses     24,325      37,265      
Purchases of marketable securities and other investments   (1,351,464)    (1,747,333)     
Maturities and sales of marketable securities and other investments   1,300,633      1,391,396      
Other, net      (39,995)    (46,001)     
Net cash (used in) investing activities    (264,639)    (579,163)     
Cash flows from financing activities:         
Net payments for common stock activity    (546,304)    (1,371,662)     
Net proceeds from debt     85,843      667,307      
Dividends      (341,962)    (340,389)     
Net cash (used in) financing activities    (802,423)    (1,044,744)     
Effect of exchange rate changes on cash    (61,712)    (111,005)     
Net increase (decrease) in cash and cash equivalents    41,069      (432,971)     
Cash and cash equivalents at beginning of period    1,180,584      1,613,555      
Cash and cash equivalents at end of period $   1,221,653   $  1,180,584      
             
             
             
RECONCILIATION OF FORECASTED EARNINGS PER DILUTED SHARE TO ADJUSTED FORECASTED EARNINGS PER DILUTED SHARE
 
(Unaudited)           
(Amounts in dollars)          
     Fiscal Year       
      2017        
Forecasted earnings per diluted share  $6.15 to $6.85        
Adjustments:          
Business realignment charges  .25       
Adjusted forecasted earnings per diluted share  $6.40 to $7.10        
             



            

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