Parker-hannifin Corporation · NYSE:PH
Parker-hannifin — Q4 FY2020 Earnings Presentation
60 slides from Parker-hannifin's earnings presentation, Aug 6, 2020
Slide 1: 4th Quarter & Fiscal Year 2020 Earnings Release
Exhibit 99.2 Parker Hannifin Corporation 4th Quarter & Fiscal Year 2020 Earnings Release August 6, 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 and Full Year Results • CFO Summary of Quarter Results • Questions & Answers 3
Slide 4: Responding to COVID-19 Pandemic
Responding to COVID-19 Pandemic . Safety of our team members and their families • Rigorous prevention, screening, and hygiene protocols . Helping society through the crisis • Our Technologies are Essential • Our Purpose in Action . Manufacturing capacity near normal levels throughout pandemic Two sa
Slide 5: Performance During a Health & Economic Crisis
Performance During a Health & Economic Crisis Our strength comes from: . The Win Strategy™ . A Portfolio of Essential Products & Technologies . Our Culture & Values . Our Purpose . Engaged People 5
Slide 6: Strength of our Portfolio & Our Purpose in Action
Strength of our Portfolio & Our Purpose in Action
Slide 7: Unmatched Breadth of Technologies
Unmatched Breadth of Technologies 7
Slide 8: Transforming Portfolio Through Strategic Acquisitions
Transforming Portfolio Through Strategic Acquisitions . $3 billion in acquired sales1 . Increased resilience from new technologies and aftermarket content . Accretive to growth, margins & cash2 1) As announced at time of acquisition 8 2) Excludes one-time costs and deal related amortization
Slide 9: What is Parker's purpose?
What is Parker's purpose? Enabling Engineering Breakthroughs that Lead to a Better Tomorrow
Slide 10: Our Purpose in Action
Our Purpose in Action Food Supply Helping Patients Essential Manufacturing Transportation Healthcare Applications Power Generation 10
Slide 11: FY20 Fourth Quarter and Full Year Performance Highlights
FY20 Fourth Quarter and Full Year Performance Highlights
Slide 12: Outstanding Performance in FY20 Fourth Quarter
Outstanding Performance in FY20 Fourth Quarter . Sales – (14.1%) YoY; (21.1%) Organic YoY . Paid down $687 million of debt . Improved performance and portfolio drive margin excellence: Without Acquisitions FY20 Q4 FY19 Q4 Change Total Segment Operating Margin, As Reported 16.6% 17.4% Total Segment O
Slide 13: A Year of Continued Progress - FY20 Full Year Highlights
A Year of Continued Progress - FY20 Full Year Highlights . Safety: 35% reduction in recordable incidents; Top quartile performance . Cash flow from operations an all-time record at $2.1 billion . Cash flow from operations margin of 15.1% . Free cash flow conversion rate of 152% . Gross debt to EBITD
Slide 14: Great Margin Performance in FY20
Great Margin Performance in FY20 . Sales – (4.4%) YoY; (9.8%) Organic YoY . Increased adjusted EBITDA margin by 110 bps Without Acquisitions FY20 FY19 Change Total Segment Operating Margin, As Reported 16.6% 17.0% Total Segment Operating Margin, Adjusted1 17.2% 17.2% Flat Decremental Margin vs. Prio
Slide 15: Parker's Transformation
Parker’s Transformation PH LISTED NYSE
Slide 16: The Win Strategy
16 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 17: Parker's Transformation – What's Different?
Parker’s Transformation – What’s Different? . Strategic restructuring FY14-FY16 has reduced cost structure . Simplification has streamlined organization structure: . 126 to 84 divisions inclusive of acquisitions . Two major updates to the Parker Business System: . 2015 – The Win Strategy™ 2.0 . 2019
Slide 18: Raising the Floor on Operating Margins
Raising the Floor on Operating Margins Last five manufacturing recessions 16.8% 15.6% 14.8% 13.9% 13.9% Up 890 bps 13.8% 10.2% 9.7% 7.9% Original Win Strategy Launched 7.3% FY02 FY09 FY13 FY16 FY20 As Reported Operating Margin Adjusted Operating Margin¹ 18 1. Adjusted for business realignment charge
Slide 19: Top Line Resilience - Great Recession vs. COVID-19
Top Line Resilience - Great Recession vs. COVID-19 Time Period Organic Sales Structural Improvements FY09 Q4 (32%) . CLARCOR acquisition – 80% aftermarket . % Revenue from innovative products has doubled . Increased International Distribution mix by 500 bps FY20 Q4 (21%) . Improved customer experien
Slide 20: Great Generators of Cash - Record CFOA in FY20
Great Generators of Cash - Record CFOA in FY20 Consecutive Consecutive FY20 years with 10%+ years with 100%+ CFOA 19 CFOA margins* $2.1B 19 FCF conversion $2.5 16% 14% $2.0 12% $1.5 10% 8% $1.0 6% 4% $0.5 2% $0.0 0% CFOA CFOA Margin 20 *Cash Flow provided by operating activities adjusted for discret
Slide 21: Fiscal 2021 Outlook
Fiscal 2021 Outlook PH LISTED NYSE
Slide 22: Continued Cost Actions Expected in FY21
Continued Cost Actions Expected in FY21 Shifting to more permanent actions FY20 Q4 FY21 Full Year ~12% Permanent ~45% ~55% Discretionary ~88% Savings FY20 Q4 FY21 Discretionary Actions ~175 ~200 Permanent Actions ~25 ~250 Total ~$200 ~$450* Targeting a ~30% decremental margin for FY21 22 *Estimated
Slide 23: Summary of Fiscal 2020 4th Quarter Results
Summary of Fiscal 2020 4th Quarter Results
Slide 24: Diluted Earnings per Share 4th Quarter FY2020 vs. FY2019
Diluted Earnings per Share 4th Quarter FY2020 vs. FY2019 As Reported Adjusted $3.31 $3.17 $2.55 $2.27 FY20 Q4 FY19 Q4 FY20 Q4¹ FY19 Q4² 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 4th Quarter FY2019 vs. 4th Quarter FY2020 ($0.61) $0.07 ($0.15) ($0.08) $0.01 $3.31 $2.55 FY19 Q4 Segment Corporate G&A, Interest Income Average FY20 Q4 Adjusted Operating Other Expense Expense Tax Rate Shares Adjusted EPS¹ Income EPS² 1. Adjusted for Busine
Slide 26: Sales & Segment Operating Margin Total Parker
Sales & Segment Operating Margin Total Parker $ in millions 4th Quarter % FY2020 Change FY2019 Sales As Reported $ 3,161 (14.1)% $ 3,681 Acquisitions1 298 8.1 % Currency (43) (1.1)% Organic Sales $ 2,906 (21.1)% % of % of FY2020 Sales FY2019 Sales Segment Operating Margin As Reported $ 501 15.8 % $
Slide 27: FY2020 Acquisitions Impact on Q4 Segment Margins
FY2020 Acquisitions Impact on Q4 Segment Margins As Reported FY20 Q4 FY19 Q4 Total LORD + Legacy Total $M Parker Exotic Parker Parker Sales $3,161 $298 $2,863 $3,681 Operating Income $501 $27 $474 $641 Operating Margin 15.8% 9.1% 16.6% 17.4% Adjusted* FY20 Q4 FY19 Q4 Total LORD + Legacy Total $M Par
Slide 28: Sales & Segment Operating Margin Diversified Industrial North America
Sales & Segment Operating Margin Diversified Industrial North America $ in millions 4th Quarter % FY2020 Change FY2019 Sales As Reported $ 1,440 (17.5)% $ 1,745 Acquisitions1 133 7.6 % Currency (7) (0.4)% Organic Sales $ 1,314 (24.7)% % of % of FY2020 Sales FY2019 Sales Segment Operating Margin As R
Slide 29: Sales & Segment Operating Margin Diversified Industrial International
Sales & Segment Operating Margin Diversified Industrial International $ in millions 4th Quarter % FY2020 Change FY2019 Sales As Reported $ 1,096 (12.9)% $ 1,258 Acquisitions1 68 5.4 % Currency (37) (2.9)% Organic Sales $ 1,065 (15.4)% % of % of FY2020 Sales FY2019 Sales Segment Operating Margin As R
Slide 30: Sales & Segment Operating Margin Aerospace Systems
Sales & Segment Operating Margin Aerospace Systems $ in millions 4th Quarter % FY2020 Change FY2019 Sales As Reported $ 624 (8.0)% $ 678 Acquisitions1 97 14.3 % Currency (0) (0.0)% Organic Sales $ 527 (22.3)% % of % of FY2020 Sales FY2019 Sales Segment Operating Margin As Reported $ 105 16.9 % $ 122
Slide 31: FY20 Impact of Acquisitions
FY20 Impact of Acquisitions As Reported FY20 FY19 Total LORD + Legacy Total $M Parker Exotic Parker Parker Sales $13,696 $949 $12,747 $14,320 Operating Income $2,138 $22 $2,116 $2,431 Operating Margin 15.6% 2.3% 16.6% 17.0% EBITDA Margin 17.2% 4.3% 18.2% 17.9% Adjusted* FY20 FY19 Total LORD + Legacy
Slide 32: Cash Flow from Operating Activities FY2020 vs. FY2019
Cash Flow from Operating Activities FY2020 vs. FY2019 As Reported Adjusted $2,071 $2,071 $1,930 $1,730 $ Millions FY20 FY19 FY20 FY19¹ FY20 Full Year FY 2020 % of Sales FY 2019 % of Sales As Reported Cash Flow From Operating Activities $ 2,071 15.1% $ 1,730 12.1% Discretionary Pension Plan Contribut
Slide 33: Leverage and Liquidity Highlights
Leverage and Liquidity Highlights . $687M reduction in debt during Q4 FY20 . $1.3M cumulative debt reduction in FY20 . Gross debt to EBITDA reduced to 3.6x from 3.8x at March 31, 2020 . Net debt reduced to 3.3x from 3.5x at March 31, 2020 . Continue suspension of 10b5-1 share repurchase program . Re
Slide 34: Order Rates Impacted by COVID-19 Pandemic
Order Rates Impacted by COVID-19 Pandemic Jun 2020 Mar 2020 Jun 2019 Mar 2019 Total Parker (22)% (2)% (3)% (4)% Diversified Industrial North America (29)% (7)% (4)% (6)% Diversified Industrial International (21)% (2)% (8)% (4)% Aerospace Systems (5)% 12 % 10 % 2 % Excludes Acquisitions, Divestitures
Slide 35: FY2021 Guidance
FY2021 Guidance EPS Midpoint: $7.91 As Reported, $10.30 Adjusted Sales Growth vs. Prior Year Diversified Industrial North America (10.2)% - (6.2)% Diversified Industrial International (6.3)% - (2.3)% Aerospace Systems (19.2)% - (15.2)% Total Parker (10.7)% - (6.7)% Segment Operating Margins As Repor
Slide 36: FY2021 Guidance FY20 Actual vs. FY21 Guidance
FY2021 Guidance FY20 Actual vs. FY21 Guidance $1.68 ($1.95) ($0.36) $0.29 ($0.10) ($0.05) $12.47 $10.79 $10.30 FY20 Acquisition FY20 Segment Corporate Interest Income Tax Average FY21 Adjusted Related Adjusted Operating G&A, Other Expense Rate Shares Adjusted EPS¹ Amortization EPS¹2¹ Income Expense
Slide 37: FY23 Corporate Targets
FY23 Corporate Targets FY23 Target Metrics Growth 150 bps > GIPI Adj. Seg Op Margin 21% Adj. EBITDA Margin 21% FCF Conversion > 100% Adj. EPS CAGR 10%+ 37
Slide 38: LISTED
PH LISTED NYSE
Slide 39: Appendix
Appendix . Supplementary Reconciliation of Segment Operating Margin including acquisition-related intangible asset amortization . Supplementary Reconciliation of EPS including acquisition-related intangible asset amortization . Consolidated Statement of Income . Adjusted Amounts Reconciliation . Rec
Slide 40: Supplementary Reconciliation of Segment Operating Income: Diversified Industrial North America
Supplementary Reconciliation of Segment Operating Income including adjustment for acquisition-related amortization Diversified Industrial North America (unaudited) 3 months 3 months 3 months 3 months 12 months 3 months 3 months 3 months 3 months 12 months (Dollars in thousands) ended ended ended end
Slide 41: Supplementary Reconciliation of Segment Operating Income: Diversified Industrial International
Supplementary Reconciliation of Segment Operating Income including adjustment for acquisition-related amortization Diversified Industrial International (unaudited) 3 months 3 months 3 months 3 months 12 months 3 months 3 months 3 months 3 months 12 months (Dollars in thousands) ended ended ended end
Slide 42: Supplementary Reconciliation of Segment Operating Income: Aerospace Systems
Supplementary Reconciliation of Segment Operating Income including adjustment for acquisition-related amortization Aerospace Systems (unaudited) 3 months 3 months 3 months 3 months 12 months 3 months 3 months 3 months 3 months 12 months (Dollars in thousands) ended ended ended ended ended ended ende
Slide 43: Supplementary Reconciliation of Segment Operating Income: Total Parker
Supplementary Reconciliation of Segment Operating Income including adjustment for acquisition-related amortization Total Parker (unaudited) 3 months 3 months 3 months 3 months 12 months 3 months 3 months 3 months 3 months 12 months (Dollars in thousands) ended ended ended ended ended ended ended end
Slide 44: Supplementary Reconciliation of EPS
Supplementary Reconciliation of EPS including adjustment for acquisition-related amortization 3 months 3 months 3 months 3 months 12 months 3 months 3 months 3 months 3 months 12 months ended ended ended ended ended ended ended ended ended ended (Unaudited) 9/30/2018 12/31/2018 3/31/2019 6/30/2019 6
Slide 45: Consolidated Statement of Income
Consolidated Statement of Income (Unaudited) Three Months Ended June 30, Twelve Months Ended June 30, (Dollars in thousands, except per share amounts) 2020 2019 2020 2019 Net sales $ 3,160,603 $ 3,681,467 $ 13,695,520 $ 14,320,324 Cost of sales 2,357,319 2,739,578 10,286,518 10,703,484 Selling, gene
Slide 46: 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 June 30, 2020 % of Sales Charges Achieve Achiev
Slide 47: 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 3 June 30, 2020 % of Sales Charges Achieve Achieve Expenses June 30, 2020 % of Sales2 Di
Slide 48: Reconciliation of Earnings per Diluted Share to Adjusted Earnings per Diluted Share
Reconciliation of Earnings per Diluted Share to Adjusted Earnings per Diluted Share (Unaudited) Three Months Ended June 30, Twelve Months Ended June 30, (Amounts in dollars) 2020 2019 2020 2019 Earnings per diluted share $ 2.27 $ 3.17 $ 9.29 $ 11.48 Adjustments: Business realignment charges 0.37 0.0
Slide 49: Business Segment Information
Business Segment Information (Unaudited) Three Months Ended June 30, Twelve Months Ended June 30, (Dollars in thousands) 2020 2019 2020 2019 Net sales Diversified Industrial: North America $ 1,440,263 $ 1,745,291 $ 6,456,298 $ 6,808,948 International 1,096,380 1,258,288 4,504,587 5,000,599 Aerospace
Slide 50: Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin
Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin (Unaudited) (Dollars in millions) 12 Months 12 Months 12 Months 12 Months 12 Months ended ended ended ended ended 6/30/02 6/30/09 6/30/13 6/30/16 6/30/20 Net Sales $ 6,149 $ 10,309 $ 13,016 $ 11,361 $ 13,696
Slide 51: Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin
Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin (Unaudited) Three Months Ended Three Months Ended (Dollars in thousands) June 30, 2020 June 30, 2019 Operating income Operating margin Operating income Operating margin Total segment operating income $ 500,64
Slide 52: Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin
Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin Three Months Ended Three Months Ended Three Months Ended (Unaudited) June 30, 2020 June 30, 2020 June 30, 2020 (Dollars in millions) Total Parker LORD & Exotic Legacy Parker Operating income Operating margin
Slide 53: Reconciliation of EBITDA to Adjusted EBITDA
Reconciliation of EBITDA to Adjusted EBITDA (Unaudited) Three Months Ended June 30, Twelve Months Ended June 30, (Dollars in thousands) 2020 2019 2020 2019 Net sales $ 3,160,603 $ 3,681,467 $ 13,695,520 $ 14,320,324 Net income $ 295,695 $ 413,738 $ 1,206,703 $ 1,512,931 Income taxes 74,873 99,610 30
Slide 54: Reconciliation of FY2020 Segment Operating Margin and EBITDA to Adjusted
Reconciliation of FY2020 Total Segment Operating Margin to Adjusted Total Segment Operating Margin and EBITDA to Adjusted EBITDA RECONCILIATION OF FISCAL 2020 TOTAL SEGMENT OPERATING MARGIN TO FISCAL 2020 ADJUSTED TOTAL SEGMENT OPERATING MARGIN (Unaudited) (Dollars in millions) Total Parker LORD & E
Slide 55: Consolidated Balance Sheet
Consolidated Balance Sheet (Unaudited) June 30, June 30, (Dollars in thousands) 2020 2019 Assets Current assets: Cash and cash equivalents $ 685,514 $ 3,219,767 Marketable securities and other investments 70,805 150,931 Trade accounts receivable, net 1,854,398 2,131,054 Non-trade and notes receivabl
Slide 56: Consolidated Statement of Cash Flows
Consolidated Statement of Cash Flows (Unaudited) Twelve Months Ended June 30, (Dollars in thousands) 2020 2019 Cash flows from operating activities: Net income $ 1,206,703 $ 1,512,931 Depreciation and amortization 537,531 436,189 Stock incentive plan compensation 111,375 104,078 Loss on sale of busi
Slide 57: Reconciliation of Cash Flow from Operations to Adjusted Cash Flow 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 FY20 Cash Provided by Operating Activi
Slide 58: Reconciliation of Free Cash Flow Conversion
Reconciliation of Free Cash Flow Conversion (Unaudited) Twelve Months Ended (Dollars in thousands) June 30, 2020 Net income $ 1,206,703 Cash flow from operations $ 2,070,949 Capital Expenditures (232,591) Free cash flow $ 1,838,358 Free cash flow conversion (free cash flow / net income) 152 % 58
Slide 59: Reconciliation of EPS Fiscal Year 2021 Guidance
Reconciliation of EPS Fiscal Year 2021 Guidance (Unaudited) (Amounts in dollars) Fiscal Year 2021 Forecasted earnings per diluted share $7.41 to $8.41 Adjustments: Business realignment charges 0.50 Costs to achieve 0.14 Acquisition-related intangible asset amortization expense 2.46 1 Tax effect of a
Slide 60: Supplemental Sales Information Global Technology Platforms
Supplemental Sales Information Global Technology Platforms Three Months Ended (Unaudited) June 30, (Dollars in thousands) 2020 2019 Net sales Diversified Industrial: Motion Systems $ 698,684 $ 869,190 Flow and Process Control 826,919 1,111,953 Filtration and Engineered Material 1,011,040 1,022,436 A