Parker-hannifin Corporation · NYSE:PH
Parker-hannifin — Q2 FY2020 Earnings Presentation
37 slides from Parker-hannifin's earnings presentation, Jan 30, 2020
Slide 1: 2nd Quarter Fiscal Year 2020 Earnings Release
Parker Hannifin Corporation Exhibit 99.2 2nd Quarter Fiscal Year 2020 Earnings Release January 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 Comments and Highlights of Quarter Results • Results & Outlook • Questions & Answers 3
Slide 4: Highlights
Highlights Strategic Highlights . Margin and cash flow at all-time high relative to previous downturns . Q2 FY20 adjusted operating margin w/o acquisitions at 16.1% versus 13.5% in Q2 FY16 (last recession) . Cash flow from operations Q2 YTD record . Driven by Win Strategy and stronger portfolio thro
Slide 5: Parker's Competitive Differentiators
Parker’s Competitive Differentiators . The Win Strategy™ . Decentralized business model . Technology breadth & interconnectivity . Engineered products with intellectual property . Long product life cycles . Global distribution, service & support . Low capital investment requirements . Great generato
Slide 6: Diluted Earnings per Share 2nd Quarter FY2020 vs. FY2019
Diluted Earnings per Share 2nd Quarter FY2020 vs. FY2019 As Reported Adjusted $2.54 $2.51 $2.36 $1.57 FY20 Q2 FY19 Q2 FY20 Q2¹ FY19 Q2² 1 Adjusted for Business Realignment Charges, LORD and Exotic Costs to Achieve, Acquisition Related Expenses and the tax effect of such adjustments 6 2 Adjusted for
Slide 7: Influences on Adjusted Earnings per Share 2nd Quarter FY2020 vs. FY2019
Influences on Adjusted Earnings per Share 2nd Quarter FY2020 vs. FY2019 ($0.13) $0.16 ($0.20) $0.10 $0.03 $0.07 $2.51 $2.54 FY19 Q2 Segment Corporate Interest Other Income Average FY20 Q2 Adjusted Operating G&A Expense Expense Expense Tax Shares Adjusted EPS¹ Income EPS² 1 Adjusted for Business Real
Slide 8: Sales & Segment Operating Margin Total Parker
Sales & Segment Operating Margin Total Parker $ in millions 2nd Quarter % FY2020 Change FY2019 Sales As Reported $ 3,498 0.7 % $ 3,472 Acquisitions1 286 8.2 % Currency (15) (0.4)% Organic Sales $ 3,227 (7.1)% % of % of FY2020 Sales FY2019 Sales Segment Operating Margin As Reported $ 486 13.9 % $ 568
Slide 9: FY2020 Q2 Acquisitions Impact on Segment Margins
FY2020 Q2 Acquisitions Impact on Segment Margins As Reported FY19 Q2 FY20 Q2 Total Total LORD + Legacy $M Parker Parker Exotic Parker Sales $3,472 $3,498 $286 $3,212 Operating Income $568 $486 ($20) $506 Operating Margin 16.4% 13.9% (7.0%) 15.8% Adjusted* FY19 Q2 FY20 Q2 Total Total LORD + Legacy $M
Slide 10: Sales & Segment Operating Margin Diversified Industrial North America
Sales & Segment Operating Margin Diversified Industrial North America $ in millions 2nd Quarter % FY2020 Change FY2019 Sales As Reported $ 1,616 (1.0)% $ 1,632 Acquisitions1 119 7.3 % Currency 4 0.2 % Organic Sales $ 1,493 (8.5)% % of % of FY2020 Sales FY2019 Sales Segment Operating Margin As Report
Slide 11: Sales & Segment Operating Margin Diversified Industrial International
Sales & Segment Operating Margin Diversified Industrial International $ in millions 2nd Quarter % FY2020 Change FY2019 Sales As Reported $ 1,147 (6.3)% $ 1,224 Acquisitions1 56 4.5 % Currency (18) (1.4)% Organic Sales $ 1,109 (9.4)% % of % of FY2020 Sales FY2019 Sales Segment Operating Margin As Rep
Slide 12: Sales & Segment Operating Margin Aerospace Systems
Sales & Segment Operating Margin Aerospace Systems $ in millions 2nd Quarter % FY2020 Change FY2019 Sales As Reported $ 735 19.3 % $ 616 Acquisitions1 111 18.0 % Currency (0) 0.0 % Organic Sales $ 624 1.3 % % of % of FY2020 Sales FY2019 Sales Segment Operating Margin As Reported $ 121 16.5 % $ 121 1
Slide 13: Cash Flow from Operating Activities YTD FY2020 vs. FY2019
Consecutive years with 10%+ Cash Flow from Operating Activities 18 CFOA margins1 YTD FY2020 vs. FY2019 11% Increase $826 $826 $741 $541 $ Millions FY20 As Reported FY19 FY20 FY19¹ Adjusted YTD FY 2020 % of Sales FY 2019 % of Sales As Reported Cash Flow From Operating Activities $ 826 12.1% $ 541 7.8
Slide 14: Order Rates
Order Rates Dec 2019 Sep 2019 Dec 2018 Sep 2018 Total Parker (3)% (2)% 1 % 5 % Diversified Industrial North America (7)% (6)% 0 % 8 % Diversified Industrial International (6)% (10)% (2)% 3 % Aerospace Systems 12 % 22 % 10 % 3 % Excludes Acquisitions, Divestitures & Currency 3-month year-over-year co
Slide 15: FY2020 Guidance Including Acquisitions
FY2020 Guidance Including Acquisitions EPS Midpoint: $9.08 As Reported, $10.55 Adjusted Sales Growth vs. Prior Year Diversified Industrial North America (1.1)% - 1.5% Diversified Industrial International (8.8)% - (6.2)% Aerospace Systems 13.3% - 15.9% Total Parker (1.2)% - 1.3% Segment Operating Mar
Slide 16: FY2020 Guidance Reconciliation of Q2 Beat and Updated Guidance
FY2020 Guidance Reconciliation of Q2 Beat and Updated Guidance Q2 Beat H2 Update $0.07 $0.04 ($0.30) $0.08 $0.17 ($0.01) FY20 H2 Guidance Assumes: No Additional 737 MAX Revenues $10.55 $10.50 FY20 Segment Corporate G&A, Income Segment 737 MAX Corporate G&A, FY20 Previous Guide Operating Interest, Ta
Slide 17: Impact of Acquisitions
Impact of Acquisitions As Reported FY19 FY20 LORD + $M Total Parker Total Parker Exotic Legacy Parker Sales $14,320 $14,324 $993 $13,331 Operating Income $2,431 $2,187 $13 $2,174 Operating Margin 17.0% 15.3% 1.3% 16.3% EBITDA Margin 17.9% 16.8% 3.9% 17.8% Adjusted* FY19 FY20 LORD + $M Total Parker T
Slide 18: Key Messages
Key Messages . Excellent cash flow from operations . Raising the floor on operating margins . Parker’s transformation continues . Well on our way to top quartile performance . Confidence in reaching our FY23 5-year targets Thanks again to our Global Team Members 18
Slide 19: Listed NYSE: PH
PH LISTED NYSE
Slide 20: 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 21: Consolidated Statement of Income
Consolidated Statement of Income (Unaudited) Three Months Ended December 31, (Dollars in thousands, except per share amounts) 2019 2018 Net sales $ 3,497,974 $ 3,472,045 Cost of sales 2,682,765 2,602,339 Selling, general and administrative expenses 491,121 397,259 Interest expense 82,891 47,518 Othe
Slide 22: 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 As Reported Realignment Costs to Costs to Related Adjusted December 31, 2019 % of Sales Charges Achieve Achieve Expenses
Slide 23: 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 December 31, 2019 % of Sales Charges Achieve Achieve Expenses December 31, 2019 % of Sal
Slide 24: 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) 2019 2018 Earnings per diluted share $ 1.57 $ 2.36 Adjustments: Business realignment charges 0.08 0.02 Clarcor costs to achieve - 0.04 Lord costs to ac
Slide 25: Business Segment Information
Business Segment Information (Unaudited) Three Months Ended December 31, (Dollars in thousands) 2019 2018 Net sales Diversified Industrial: North America $ 1,615,852 $ 1,632,059 International 1,147,084 1,223,679 Aerospace Systems 735,038 616,307 Total net sales $ 3,497,974 $ 3,472,045 Segment operat
Slide 26: 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, 2019 December 31, 2018 Operating income Operating margin Operating income Operating margin Total segment operating income
Slide 27: Reconciliation of Total Segment Operating Margin to Adjusted (LORD & Exotic)
Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin Three Months Ended Three Months Ended Three Months Ended (Unaudited) December 31, 2019 December 31, 2019 December 31, 2019 (Dollars in millions) Total Parker LORD & Exotic Legacy Parker Operating income Opera
Slide 28: Reconciliation of Total Segment Operating Margin to Adjusted (2015)
Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin (Unaudited) Three Months Ended (Dollars in thousands) December 31, 2015 Operating income Operating margin Total segment operating income $ 330,712 12.2 % Adjustments: Business realignment charges 34,800 Adjus
Slide 29: Reconciliation of EBITDA to Adjusted EBITDA
Reconciliation of EBITDA to Adjusted EBITDA (Unaudited) Three Months Ended December 31, (Dollars in thousands) 2019 2018 Net sales $ 3,497,974 $ 3,472,045 Net income $ 204,598 $ 311,913 Income taxes 50,148 119,241 Depreciation and amortization 144,229 110,052 Interest expense 82,891 47,518 EBITDA 48
Slide 30: Reconciliation of Segment Operating Margin and EBITDA, Twelve Months June 2019
Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin and EBITDA to Adjusted EBITDA RECONCILIATION OF TOTAL SEGMENT OPERATING MARGIN TO ADJUSTED TOTAL SEGMENT OPERATING MARGIN (Unaudited) Twelve Months Ended (Dollars in thousands) June 30, 2019 Operating income
Slide 31: Reconciliation of Forecasted FY2020 Segment Operating Margin and EBITDA
Reconciliation of Forecasted FY2020 Total Segment Operating Margin to Adjusted Total Segment Operating Margin and EBITDA to Adjusted EBITDA RECONCILIATION OF FORECASTED FISCAL 2020 TOTAL SEGMENT OPERATING MARGIN TO FORECASTED FISCAL 2020 ADJUSTED TOTAL SEGMENT OPERATING MARGIN (Unaudited) (Dollars i
Slide 32: Consolidated Balance Sheet
Consolidated Balance Sheet (Unaudited) December 31, June 30, December 31, (Dollars in thousands) 2019 2019 2018 Assets Current assets: Cash and cash equivalents $ 948,355 $ 3,219,767 $ 1,047,385 Marketable securities and other investments 145,120 150,931 30,956 Trade accounts receivable, net 1,973,1
Slide 33: Consolidated Statement of Cash Flows
Consolidated Statement of Cash Flows (Unaudited) Six Months Ended December 31, (Dollars in thousands) 2019 2018 Cash flows from operating activities: Net income $ 543,639 $ 687,812 Depreciation and amortization 253,300 222,543 Stock incentive plan compensation 73,069 64,615 Loss on sale of businesse
Slide 34: Reconciliation of Cash Flow from Operations to Adjusted
Reconciliation of Cash Flow from Operations to Adjusted Cash Flow from Operations (Unaudited) Six Months Ended Six Months Ended (Dollars in thousands) December 31, 2019 Percent of sales December 31, 2018 Percent of sales As reported cash flow from operations $ 825,968 12.1 % $ 541,040 7.8 % Discreti
Slide 35: Reconciliation of Free Cash Flow Conversion
Reconciliation of Free Cash Flow Conversion (Unaudited) Six Months Ended (Dollars in thousands) December 31, 2019 Net income $ 543,639 Cash flow from operations $ 825,968 Capital Expenditures (118,593) Free cash flow $ 707,375 Free cash flow conversion (free cash flow / net income) 130 % 35
Slide 36: Reconciliation of EPS Fiscal Year 2020 Guidance
Reconciliation of EPS Fiscal Year 2020 Guidance (Unaudited) (Amounts in dollars) Fiscal Year 2020 Forecasted earnings per diluted share $8.78 - $9.38 Adjustments: Business realignment charges 0.30 Costs to achieve 0.20 One-time acquisition expenses 1.43 1 Tax effect of adjustments (0.46) Adjusted fo
Slide 37: Supplemental Sales Information Global Technology Platforms
Supplemental Sales Information Global Technology Platforms Three Months Ended (Unaudited) December 31, (Dollars in thousands) 2019 2018 Net sales Diversified Industrial: Motion Systems $ 752,306 $ 856,357 Flow and Process Control 942,249 1,015,200 Filtration and Engineered Material 1,068,381 984,181