Parker-hannifin Corporation · NYSE:PH
Parker-hannifin — Q2 2023 Earnings Presentation
33 slides from Parker-hannifin's earnings presentation, Feb 2, 2023
Slide 1: Fiscal 2023 Second Quarter Earnings Presentation
Parker Hannifin Corporation Fiscal 2023 Second Quarter Earnings Presentation February 2, 2023
Slide 2: Forward-Looking Statements and Non-GAAP Financial Measures
Forward-Looking Statements and Non-GAAP Financial Measures 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. Often but
Slide 3: What Drives Parker?
What Drives Parker? Living Up to Our Purpose Great Generators and Deployers of Cash Top Quartile Performance vs. Proxy Peers 3
Slide 4: Focused on Top Quartile Performance
Focused on Top Quartile Performance § Safety, Purpose and Engagement § Delivering Meggitt cost synergies of $300 million § Performance acceleration from The Win Strategy™ 3.0 § Continuing our culture of continuous improvement § Committed to FY27 Targets Parker’s Transformation Continues with a Promi
Slide 5: The Win Strategy
The Win Strategy Our Vision: Engineering Your Success STRATEGIES * Safety #1 * Environment, Social & Governance * Ownership - Entrepreneurial * High Performance Teams & Leaders * Culture of Kaizen Customer Experience STRATEGIES * Quality Solutions On Time * Digital Leadership * Ease of Doing Busines
Slide 6: Win Strategy 3.0 Accelerating Performance
Win Strategy 3.0 Accelerating Performance § Safety #1 § Digital Leadership § High Performance Teams & Leaders § Zero Defects § Culture of Kaizen § Best-in-Class Lead Times § Strategic Positioning § Simplification § Portfolio Transformation § Value Pricing § Global CapEx Spend & Secular Trends § Lean
Slide 7: Capital Deployment Priorities
Capital Deployment Priorities § Dividend: Maintain record and target 5-year average payout 30-35% of net income § CapEx: Target 2% of sales to fund organic growth and productivity § 10b5-1 share repurchase program § Near term: Debt reduction § Strategic acquisitions and/or discretionary share repurc
Slide 8: FY23 Q2: Excellent Operating Performance
FY23 Q2: Excellent Operating Performance § Safety is our top priority, leveraging high-performance teams, lean and kaizen • 16% reduction in incidents vs. prior year § Sales were $4.7B, an increase of 22% vs. prior year; organic growth 10%1 § Strong segment operating margin performance driving full
Slide 9: Excellent Progress on Meggitt Integration
Excellent Progress on Meggitt Integration Recent Highlights § Key leaders in place § 20+ value creation & functional teams § Team member & customer engagement § Win Strategy implementation Proven Track Record of Delivering on Synergy Targets 9
Slide 10: Synergies Driving Meggitt Margin Expansion
Synergies Driving Meggitt Margin Expansion Expect 30% Adj. EBITDA Margin by FY26 Synergies and Operational Excellence 16.5% of Sales Safety, Lean, Kaizen, HPT’s, SG&A $300 Simplification $250 $240 $200 $150 $150 Footprint Supply Chain $60 $70 Optimization FY23E FY24E FY25E FY26E Synergies Cumulative
Slide 11: Summary of Fiscal 2023 2nd Quarter Results
Summary of Fiscal 2023 2nd Quarter Results LISTED
Slide 12: Financial Summary
Financial Summary FY23 Q2 vs. FY22 Q2 $ Millions, except per share amounts Q2 FY23 Q2 FY23 Q2 FY22 YoY Change As Reported Adjusted¹ Adjusted¹ Adjusted Sales $4,675 $4,675 $3,825 +22% Segment Operating Margin 15.3% 21.5% 21.6% (10 bps) EBITDA Margin 19.1% 22.4% 22.7% (30 bps) Net Income $395 $619 $58
Slide 13: Adjusted Earnings per Share Bridge
Adjusted Earnings per Share Bridge FY22 Q2 to FY23 Q2 1. FY22 Q2 As Reported EPS of $2.97. FY23 Q2 As Reported EPS of $3.04. Adjusted numbers include certain non-GAAP financial measures. See Appendix for additional details and reconciliations. 13
Slide 14: FY23 Q2 Segment Performance
FY23 Q2 Segment Performance Segment Segment Sales Operating Operating As Reported $ Margin Margin Organic %¹ As Reported Adjusted1 Order Rates2 Commentary Diversified • Broad based growth continues $2,141M 19.6% 21.8% +2% Industrial +13.5% Organic +50 bps YoY • Gradual supply chain improvement North
Slide 15: FY23 Q2 YTD Cash Flow Performance
FY23 Q2 YTD Cash Flow Performance $ Millions % to Sales 12.1% § Cash Flow from Operations of 12.1% 13.3% 10.0% 11.9% § Free Cash Flow of 10.0%1 • Capex of 2.1% of sales $1,076 $1,005 § Transaction expenses: $890 $900 • A use of cash of ~2% of sales § Free Cash Flow Conversion of 114%1 FY23 FY22 1 Ca
Slide 16: Capital Deployment & Leverage Highlights
Capital Deployment & Leverage Highlights § Quarterly dividend of $1.33 declared on January 26, 2023 • 66 fiscal year record of increasing annual dividends per share paid § Leverage at FY23 Q2: • 3.6x Gross Debt / Adjusted EBITDA1 • 3.4x Net Debt / Adjusted EBITDA1 • ~$200M net debt reduction during
Slide 17: FY23 Adjusted Guidance Increased
FY23 Adjusted Guidance Increased EPS Midpoint: $13.75 As Reported, $19.45 Adjusted Sales Growth vs. Prior Year Reported Organic1 Earnings Per Share As Reported Adjusted1 Diversified Industrial North America 11% - 13% 7.5% - 9.5% Range $13.50 - $14.00 $19.20 - $19.70 Diversified Industrial Internatio
Slide 18: FY23 Adjusted EPS Guidance Bridge
FY23 Adjusted EPS Guidance Bridge Reconciliation of Q2 Beat and Guidance Increase Updates to H2 Guidance ~$0.25 FX benefit to EPS 1. FY23 As Reported midpoint guidance EPS of $13.75. Adjusted numbers include certain non-GAAP financial measures. See Appendix for additional details and reconciliations
Slide 19: Parker's Promising Future
Parker’s Promising Future § Highly engaged global team living up to our purpose § Continue performance acceleration from The Win Strategy™ 3.0 § Strategic portfolio transformation - longer cycle & more resilient § Continue to be great generators and deployers of cash Focused on Top Quartile Performa
Slide 20: Upcoming Event Calendar
Upcoming Event Calendar 3Q FY23 Earnings May 4, 2023 4Q FY23 Earnings August 3, 2023 Annual Meeting of Shareholders October 25, 2023 1Q FY24 Earnings November 2, 2023
Slide 21: Appendix
Appendix • Reconciliation of Organic Growth • Adjusted Amounts Reconciliation • Reconciliation of EPS • Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin • Reconciliation of EBITDA to Adjusted EBITDA • Reconciliation of Gross and Net Debt to Adjusted EBITDA
Slide 22: Reconciliation of Organic Growth
Reconciliation of Organic Growth (Dollars in thousands) (Unaudited) Quarter-to-Date As Reported Adjusted As Reported Net Sales December 31, 2022 Currency Divestitures Acquisitions December 31, 2022 December 31, 2021 Diversified Industrial: North America $ 2,140,685 $ 1,508 $ - $ (91,816) $ 2,050,377
Slide 23: Adjusted Amounts Reconciliation Consolidated Statement of Income
Adjusted Amounts Reconciliation Consolidated Statement of Income (Dollars in thousands, except per share data) (Unaudited) Quarter-to-Date FY 2023 Acquired Business Meggitt Acquisition Amortization As Reported Intangible Asset Realignment Costs to Related of Inventory Adjusted December 31, 2022 % of
Slide 24: Adjusted Amounts Reconciliation Consolidated Statement of Income
Adjusted Amounts Reconciliation Consolidated Statement of Income (Dollars in thousands, except per share data) (Unaudited) Quarter-to-Date FY 2022 Acquired Business Lord Acquisition Loss on As Reported Intangible Asset Realignment Costs to Related Deal-Contingent Adjusted December 31, 2021 % of Sale
Slide 25: Adjusted Amounts Reconciliation Business Segment Information
Adjusted Amounts Reconciliation Business Segment Information (Dollars in thousands) (Unaudited) Quarter-to-Date FY 2023 Acquired Business Meggitt Acquisition Amortization As Reported Intangible Asset Realignment Costs to Related of Inventory Adjusted December 31, 2022 % of Sales Amortization Charges
Slide 26: Adjusted Amounts Reconciliation Business Segment Information
Adjusted Amounts Reconciliation Business Segment Information (Dollars in thousands) (Unaudited) Quarter-to-Date FY 2022 Acquired Business Lord Acquisition Loss on As Reported Intangible Asset Realignment Costs to Related Deal-Contingent Adjusted December 31, 2021 % of Sales Amortization Charges Achi
Slide 27: Reconciliation of Earnings per Diluted Share to Adjusted EPS
Reconciliation of Earnings per Diluted Share to Adjusted Earnings per Diluted Share (Unaudited) Three Months Ended December 31, (Amounts in dollars) 2022 2021 Earnings per diluted share $3.04 $ 2.97 Adjustments: Acquired intangible asset amortization expense 1.09 0.60 Business realignment charges 0.
Slide 28: Reconciliation of Total Segment Operating Margin to Adjusted
Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin (Unaudited) Three Months Ended Three Months Ended (Dollars in thousands) December 31, 2022 December 31, 2021 Operating income Operating margin Operating income Operating margin Total segment operating income
Slide 29: Reconciliation of EBITDA to Adjusted EBITDA
Reconciliation of EBITDA to Adjusted EBITDA (Dollars in thousands) Three Months Ended (Unaudited) December 31, 2022 % of Sales 2021 % of Sales Net sales $ 4,674,811 100.0% $ 3,824,580 100.0% Net income $ 395,461 8.5% $ 387,729 10.1% Income taxes 121,282 2.6% 102,595 2.7% Depreciation 87,488 1.9% 65,
Slide 30: Reconciliation of Gross and Net Debt / Adjusted EBITDA
Reconciliation of Gross and Net Debt / Adjusted EBITDA Reconciliation of Gross and Net Debt / Adjusted EBITDA (Unaudited) (Dollars in thousands) December 31, 2022 Notes payable and long-term debt payable within one year $ 1,994,333 Long-term debt 12,025,860 Add: Deferred debt issuance costs 83,758 T
Slide 31: Reconciliation of Free Cash Flow Conversion
Reconciliation of Free Cash Flow Conversion (Unaudited) Six Months Ended Six Months Ended (Dollars in thousands) December 31, 2022 December 31, 2021 Net income $ 783,498 $ 839,192 Cash flow from operations $ 1,076,134 $ 1,005,469 Capital Expenditures (185,704) (105,606) Free cash flow $ 890,430 $ 89
Slide 32: Supplemental Sales Information
Supplemental Sales Information Global Technology Platforms (Unaudited) Three Months Ended December 31, (Dollars in thousands) 2022 2021 Net sales Diversified Industrial: Motion Systems $ 913,415 $ 843,655 Flow and Process Control 1,173,260 1,103,404 Filtration and Engineered Materials 1,451,709 1,25
Slide 33: Reconciliation of EPS Fiscal Year 2023 Guidance
Reconciliation of EPS Fiscal Year 2023 Guidance (Unaudited) (Amounts in dollars) Fiscal Year 2023 Forecasted earnings per diluted share $13.50 to $14.00 Adjustments: Business realignment charges 0.23 Costs to achieve 0.54 Acquisition-related intangible asset amortization expense 4.00 Acquisition-rel