Parker-Hannifin Underperforms Est - Analyst Blog

Parker-Hannifin Corporation (PH) released its second-quarter fiscal 2012 earnings result before the market opened today, reporting earnings per share of $1.56, below the Zacks Consensus Estimate of $1.64 and above prior-year earnings of $1.39.

Total Revenue              

The company’s sales in the reported quarter increased by 8.4% year over year to $3.1 billion. Parker-Hannifin achieved record sales in the second quarter. Total revenue in the quarter was aided by double-digit growth in Industrial North America business segment. Total orders in the quarter increased by 3%.

Segment Revenue

Industrial International segment increased 13.2% year over year to $1.2 billion. However, the segment revenue declined from $1.3 billion in the first quarter of fiscal 2012.

Industrial North America segment revenue increased by 6.2% to $1.2 billion. Aerospace revenue increased by 8.0% year over year to $496.5 million. Climate and Industrial Controls segment revenue inched down 2.9% to $208.2 million.

Orders increased by 8% in Industrial North America segment, 1% in Industrial International segment, remained unchanged in Aerospace segment and declined 5% in Climate and Industrial Controls segment.

Income and Expenses

Net income for the quarter was $242.3 million, an increase of 4.5% year over year. Total segment operating margin reached a quarterly record of 14.2% for the company, led by strong operating margin in Industrial North America with the segment profit reaching $195.7 million.

SG&A expense was $368.7 million in the quarter compared with $345.7 million in the second quarter of fiscal 2011.

Balance Sheet and Cash Flow

Cash and cash equivalents were $488.0 million at the end of the quarter with long-term debt of $1.7 billion and shareholder’s equity of $5.2 billion.

The company generated cash flow from operations of $540.5 million in the first six month of fiscal 2012 compared with cash flow from operations of $408.2 million in the prior-year period.

Outlook

Parker-Hannifin lowered its fiscal 2012 earnings per share guidance in the range of $6.90 – $7.30 from $7.25 – $7.85. The company adjusted its guidance based on the prevailing business conditions internationally.

We believe Parker-Hannifin is a high-quality company that is showing signs of 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 #4 Rank (Sell recommendation) over the next one-to-three months.

EATON CORP (ETN): Free Stock Analysis Report

HONEYWELL INTL (HON): Free Stock Analysis Report

PARKER HANNIFIN (PH): Free Stock Analysis Report

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