Parker-hannifin Corporation · NYSE:PH
Parker-hannifin — Q3 FY2020 Earnings Presentation
53 slides from Parker-hannifin's earnings presentation, Apr 30, 2020
Slide 1: 3rd Quarter Fiscal Year 2020 Earnings Release
Parker Hannifin Corporation Exhibit 99.2 3rd Quarter Fiscal Year 2020 Earnings Release April 30, 2020
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. These stat
Slide 3: Agenda
Agenda • CEO Update on Parker’s Response to COVID-19 • CEO Highlights of Quarter Results • CFO Summary of Quarter Results • Questions & Answers 3
Slide 4: Performance During a Health & Economic Crisis
Performance During a Health & Economic Crisis Our strength comes from: . The Win Strategy™ . A Portfolio of Products & Technologies that are needed . Our Culture & Values . Our Purpose . Engaged People 4
Slide 5: Crisis Management Strategy
Crisis Management Strategy . Safety of our team members and their families . Helping society through the crisis: • We are Essential • Our Purpose in Action . Standing strong after the crisis Utilizing our crisis response management team 5
Slide 6: Health & Safety Actions: Early & Decisive
Health & Safety Actions: Early & Decisive . Enhanced hygiene, cleaning & sanitization protocols . Physical distancing . Early travel restrictions . Early cancellation of in-person meetings . Standard work: Investigation, disinfection & return-to-work protocols . Contact tracing and quarantines . Tra
Slide 7: Our Purpose in Action
Our Purpose in Action Food Supply Helping Patients Essential Manufacturing Climate Control Electromechanical Engineered Materials Filtration Fluid & Gas Handling Hydraulics Pneumatics Process Control 7
Slide 8: Our Purpose in Action
Our Purpose in Action Transportation Power Generation Healthcare - Ventilators Climate Control Electromechanical Engineered Materials Filtration Fluid & Gas Handling Hydraulics Pneumatics Process Control 8
Slide 9: Enabling Engineering
Enabling Engineering Breakthroughs that Lead to a Better Tomorrow ENGINEERING SUCCESS.
Slide 10: Facility & Supply Chain Status
Facility & Supply Chain Status % Capacity vs. Supply Chain Pre-virus & Logistics Americas 98% Asia Pacific 95% EMEA 98% Total Parker 97% 10 Note: As of April 24th, 2020
Slide 11: 3rd Quarter Highlights
3rd Quarter Highlights . Safety: 27% reduction in recordable incidents; Top quartile incident rate . Sales – Flat YoY; Acquisitions offset organic decline and FX . Excellent adjusted margin performance: Without Acquisitions FY20 Q3 FY19 Q3 Change Segment Operating Margin, As Reported 16.9% 17.1% Seg
Slide 12: 3rd Quarter Highlights
3rd Quarter Highlights . Strong EPS performance exceeded expectations . Record Q3 YTD cash flow from operations of $1.3 billion . YTD Cash flow from operations margin of 12.3% . YTD Free cash flow conversion rate of 122% . Paid down $611 million of debt . Gross debt to EBITDA reduced from 4.0x at 12
Slide 13: Order Rates
Order Rates Mar 2020 Dec 2019 Mar 2019 Dec 2018 Total Parker (2)% (3)% (4)% 1 % Diversified Industrial North America (7)% (7)% (6)% 0 % Diversified Industrial International (2)% (6)% (4)% (2)% Aerospace Systems 12 % 12 % 2 % 10 % Excludes Acquisitions, Divestitures & Currency 3-month year-over-year
Slide 14: Q3 Order Trends & April
Q3 Order Trends & April . Q3 orders improved through the quarter until mid-March . Estimated April orders1: Diversified Industrial North America (30 – 35%) Diversified Industrial International (25 – 30%) Aerospace Systems (40 – 45%) Total Parker (30 – 35%) 14 1. Estimated daily April order rate. Com
Slide 15: 4th Quarter Cost Reduction Actions
4th Quarter Cost Reduction Actions Discretionary Cost Actions1 . Salaried base wage reductions • Salaried Team Members & Directors (10%) • Officers (20 – 30%) • Chairman & CEO (50%) ~$250 - $300 million . Reduced work schedules . Foregoing annual merit increases . Reduced travel, variable and discre
Slide 16: Cash Actions
Cash Actions . Conserve capital spending . Optimize working capital . Temporarily suspended 10b5-1 share repurchase program . Maintain dividend payout and annual record of increasing dividends paid Confident in CFOA > 10% Performance 16
Slide 17: Parker's Transformation
Parker’s Transformation
Slide 18: The Win Strategy
18 The Win Strategy Engineering Your Success Our Visi STRATEGIES Environmental, Health & Safety Ownership - Entrepreneurial High Performance Teams & Leaders Continuous Improvement ~ Kaizen Customer Experience STRATEGIES * Quality Solutions On Time * Digital Leadership + Ease of Doing Business Profit
Slide 19: Unmatched Breadth of Technologies
Unmatched Breadth of Technologies 19
Slide 20: Transformational Acquisitions
Transformational Acquisitions . $3 billion in acquired sales1 . More resilient . Accretive to growth & margins 20 1. As announced at time of acquisition
Slide 21: Raising the Floor on Operating Margins
Raising the Floor on Operating Margins Last five manufacturing recessions 16.7% 14.8% 15.5% 13.9% 13.9% 13.8% Up 880 bps 10.2% 9.7% 7.9% Original Win Strategy Launched 7.3% FY02 FY09 FY13 FY16 FY20 Q3 YTD As Reported Operating Margin Adjusted Operating Margin¹ 21 1. Adjusted amounts include certain
Slide 22: Financial Performance
Financial Performance * * CFOA CFOA Margin *Cash Flow Provided by Operating Activities adjusted for discretionary pension contributions; 22 Free Cash Flow = Cash Provided by Operating Activities - Capital Expenditures + Discretionary Pension Contribution
Slide 23: FY20 Outlook
FY20 Outlook . Current environment highly uncertain – withdrawing FY20 guidance . Portfolio & cost structure has been transformed over the last five years . Rapidly and aggressively adjusting costs to current environment . Resilient – consistent cash flow from operations* >10% last 18 years Win Stra
Slide 24: Diluted Earnings per Share 3rd Quarter FY2020 vs. FY2019
Diluted Earnings per Share 3rd Quarter FY2020 vs. FY2019 As Reported Adjusted $3.14 $3.17 $2.83 $2.92 FY20 Q3 FY19 Q3 FY20 Q3¹ FY19 Q3² 1. Adjusted for Business Realignment Charges, LORD and Exotic Costs to Achieve, Acquisition Related Expenses, the tax effect of such adjustments, and a net benefit
Slide 25: Influences on Adjusted Earnings per Share
Influences on Adjusted Earnings per Share 3rd Quarter FY2020 vs. FY2019 ($0.07) $0.03 ($0.19) ($0.04) $0.02 $3.17 $2.92 FY19 Q3 Segment Corporate G&A, Interest Income Average FY20 Q3 Adjusted Operating Other Expense Expense Tax Shares Adjusted EPS¹ Income EPS² 1. Adjusted for Business Realignment Ch
Slide 26: Influences on Adjusted Earnings per Share: Reconciliation of Q3 Beat
Influences on Adjusted Earnings per Share Reconciliation of Q3 Beat $0.10 $0.02 $0.01 $0.43 $2.92 $2.36 FY20 Q3 Segment Corporate G&A, Interest Average FY20 Q3 Previous Guide Operating Other Expense Expense Shares Adjusted at Midpoint Income EPS¹ Adj. EPS¹ 1. Adjusted for Business Realignment Charge
Slide 27: Sales & Segment Operating Margin Total Parker
Sales & Segment Operating Margin Total Parker $ in millions 3rd Quarter % FY2020 Change FY2019 Sales As Reported $ 3,702 0.4 % $ 3,688 Acquisitions1 343 9.3 % Currency (56) (1.5)% Organic Sales $ 3,415 (7.4)% % of % of FY2020 Sales FY2019 Sales Segment Operating Margin As Reported $ 584 15.8 % $ 631
Slide 28: FY2020 Q3 Acquisitions Impact on Segment Margins
FY2020 Q3 Acquisitions Impact on Segment Margins As Reported FY20 Q3 FY19 Q3 Total LORD + Legacy Total $M Parker Exotic Parker Parker Sales $3,702 $343 $3,359 $3,688 Operating Income $584 $16 $568 $631 Operating Margin 15.8% 4.7% 16.9% 17.1% Adjusted* FY20 Q3 FY19 Q3 Total LORD + Legacy Total $M Par
Slide 29: Sales & Segment Operating Margin Diversified Industrial North America
Sales & Segment Operating Margin Diversified Industrial North America $ in millions 3rd Quarter % FY2020 Change FY2019 Sales As Reported $ 1,776 1.4 % $ 1,751 Acquisitions1 155 8.9 % Currency (4) (0.4)% Organic Sales $ 1,625 (7.1)% % of % of FY2020 Sales FY2019 Sales Segment Operating Margin As Repo
Slide 30: Sales & Segment Operating Margin Diversified Industrial International
Sales & Segment Operating Margin Diversified Industrial International $ in millions 3rd Quarter % FY2020 Change FY2019 Sales As Reported $ 1,182 (8.0)% $ 1,285 Acquisitions1 79 6.2 % Currency (50) (4.0)% Organic Sales $ 1,153 (10.2)% % of % of FY2020 Sales FY2019 Sales Segment Operating Margin As Re
Slide 31: Sales & Segment Operating Margin Aerospace Systems
Sales & Segment Operating Margin Aerospace Systems $ in millions 3rd Quarter % FY2020 Change FY2019 Sales As Reported $ 745 14.2 % $ 652 Acquisitions1 109 16.7 % Currency (0) (0.1)% Organic Sales $ 636 (2.4)% % of % of FY2020 Sales FY2019 Sales Segment Operating Margin As Reported $ 127 17.1 % $ 135
Slide 32: FY20 Q3 YTD Impact of Acquisitions
FY20 Q3 YTD Impact of Acquisitions As Reported FY20 YTD FY19 YTD Total LORD + Legacy Total $M Parker Exotic Parker Parker Sales $10,535 $651 $9,884 $10,639 Operating Income $1,637 ($4) $1,641 $1,790 Operating Margin 15.5% (0.6%) 16.6% 16.8% EBITDA Margin 16.8% (4.7%) 18.2% 17.8% Adjusted* FY20 YTD F
Slide 33: Cash Flow from Operating Activities YTD FY2020 vs. FY2019
Cash Flow from Operating Activities YTD FY2020 vs. FY2019 As Reported Adjusted $1,291 $1,291 $1,293 $1,093 $ Millions FY20 FY19 FY20 FY19¹ Adjusted YTD FY 2020 % of Sales FY 2019 % of Sales As Reported Cash Flow From Operating Activities $ 1,291 12.3% $ 1,093 10.3% Discretionary Pension Plan Contrib
Slide 34: Liquidity and Credit
Liquidity and Credit . Cash balance $0.7B as of March 31, 2020 – International operations self-financing . Free cash flow > 100% conversion rate for 18+ years – expected to continue • Optimizing working capital • Deferring tax payments per government initiatives • Reducing capex spend . Temporarily
Slide 35: We are confident in our ability to emerge stronger than ever
We are confident in our ability to emerge stronger than ever. ENGINEERING SUCCESS.
Slide 36: gineering
ry ie me gineering reakthroughs that Lead to a Better morrow
Slide 37: Listed NYSE PH
PH LISTED NYSE
Slide 38: Appendix
Appendix . Consolidated Statement of Income . Adjusted Amounts Reconciliation . Reconciliation of EPS . Business Segment Information . Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin . Reconciliation of EBITDA to Adjusted EBITDA . Consolidated Balance Shee
Slide 39: Consolidated Statement of Income
Consolidated Statement of Income (Unaudited) Three Months Ended March 31, (Dollars in thousands, except per share amounts) 2020 2019 Net sales $ 3,702,432 $ 3,687,518 Cost of sales 2,766,693 2,766,744 Selling, general and administrative expenses 413,460 360,865 Interest expense 80,765 48,209 Other (
Slide 40: 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 2020 Business Lord Exotic Acquisition Favorable As Reported Realignment Costs to Costs to Related Tax Adjusted March 31, 2020 % of Sales Charges Achieve Achie
Slide 41: Adjusted Amounts Reconciliation Business Segment Information
Adjusted Amounts Reconciliation Business Segment Information (Dollars in thousands) (Unaudited) Quarter-to-Date FY 2020 Business Lord Exotic Acquisition As Reported Realignment Costs to Costs to Related Adjusted March 31, 2020 % of Sales Charges Achieve Achieve Expenses March 31, 2020 % of Sales2 Di
Slide 42: 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 March 31, (Amounts in dollars) 2020 2019 Earnings per diluted share $ 2.83 $ 3.14 Adjustments: Business realignment charges 0.10 0.03 Lord costs to achieve 0.06 - Acquisition-related ex
Slide 43: Business Segment Information
Business Segment Information (Unaudited) Three Months Ended March 31, (Dollars in thousands) 2020 2019 Net sales Diversified Industrial: North America $ 1,775,578 $ 1,750,554 International 1,182,273 1,284,866 Aerospace Systems 744,581 652,098 Total net sales $ 3,702,432 $ 3,687,518 Segment operating
Slide 44: Reconciliation of Total Segment Operating Margin to Adjusted
Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin (Unaudited) (Dollars in millions) 12 Months 12 Months 12 Months 12 Months 9 Months ended ended ended ended ended 6/30/02 6/30/09 6/30/13 6/30/16 3/31/20 Net Sales $ 6,149 $ 10,309 $ 13,016 $ 11,361 $ 10,535 T
Slide 45: 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) March 31, 2020 March 31, 2019 Operating income Operating margin Operating income Operating margin Total segment operating income $ 584,
Slide 46: Reconciliation of Total Segment Operating Margin to Adjusted
Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin Three Months Ended Three Months Ended Three Months Ended (Unaudited) March 31, 2020 March 31, 2020 March 31, 2020 (Dollars in millions) Total Parker LORD & Exotic Legacy Parker Operating income Operating marg
Slide 47: Reconciliation of EBITDA to Adjusted EBITDA
Reconciliation of EBITDA to Adjusted EBITDA (Unaudited) Three Months Ended March 31, Nine Months Ended March 31, (Dollars in thousands) 2020 2019 2020 2019 Net sales $ 3,702,432 $ 3,687,518 $ 10,534,917 $ 10,638,857 Net income $ 367,369 $ 411,381 $ 911,008 $ 1,099,193 Income taxes 86,788 117,819 231
Slide 48: Reconciliation of FY2020 Q3 YTD Segment Operating Margin and EBITDA
Reconciliation of FY2020 Q3 YTD Total Segment Operating Margin to Adjusted Total Segment Operating Margin and EBITDA to Adjusted EBITDA RECONCILIATION OF FISCAL 2020 Q3 YTD TOTAL SEGMENT OPERATING MARGIN TO FISCAL 2020 Q3 YTD ADJUSTED TOTAL SEGMENT OPERATING MARGIN (Unaudited) (Dollars in millions)
Slide 49: Consolidated Balance Sheet
Consolidated Balance Sheet (Unaudited) March 31, June 30, March 31, (Dollars in thousands) 2020 2019 2019 Assets Current assets: Cash and cash equivalents $ 697,617 $ 3,219,767 $ 1,098,729 Marketable securities and other investments 92,536 150,931 70,190 Trade accounts receivable, net 2,174,425 2,13
Slide 50: Consolidated Statement of Cash Flows
Consolidated Statement of Cash Flows (Unaudited) Nine Months Ended March 31, (Dollars in thousands) 2020 2019 Cash flows from operating activities: Net income $ 911,008 $ 1,099,193 Depreciation and amortization 390,949 330,801 Stock incentive plan compensation 91,857 84,525 Loss on sale of businesse
Slide 51: Reconciliation of Cash Flow from Operations to Adjusted and Free Cash Flow
Reconciliation of Cash Flow from Operations to Adjusted Cash Flow from Operations and Free Cash Flow Cash Provided by Operating Activities Reconciliation to GAAP ($MM) YTD FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 Cash Provided by Operating Activities
Slide 52: Reconciliation of Free Cash Flow Conversion
Reconciliation of Free Cash Flow Conversion (Unaudited) Nine Months Ended (Dollars in thousands) March 31, 2020 Net income $ 911,008 Cash flow from operations $ 1,290,859 Capital Expenditures (182,502) Free cash flow $ 1,108,357 Free cash flow conversion (free cash flow / net income) 122 % 52
Slide 53: Supplemental Sales Information Global Technology Platforms
Supplemental Sales Information Global Technology Platforms Three Months Ended (Unaudited) March 31, (Dollars in thousands) 2020 2019 Net sales Diversified Industrial: Motion Systems $ 778,840 $ 899,948 Flow and Process Control 1,015,430 1,105,176 Filtration and Engineered Material 1,163,581 1,030,29