Why Is Parker-Hannifin (PH) Down 9.9% Since Last Earnings Report?

It has been about a month since the last earnings report for Parker-Hannifin (PH). Shares have lost about 9.9% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Parker-Hannifin due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Parker-Hannifin's Q2 Earnings & Revenues Top Estimates

Parker-Hannifin reported better-than-expected results for second-quarter fiscal 2020 (ended December 2019), wherein both earnings and revenues beat estimates.

Earnings/Revenues

Quarterly adjusted earnings came in at $2.54 per share, up 1.2% year over year from $2.51. Also, the bottom line outpaced the Zacks Consensus Estimate of $2.29.

Revenues for the fiscal second quarter were about $3,498 million, up 0.7% year over year. Moreover, the top line beat the consensus estimate of $3,464 million.

Segmental Breakup

North American segment’s revenues came in at $1,615.9 million, down 1% year over year.

International’s top-line figure declined 6.3% to $1,147.1 million.

Aerospace Systems generated revenues of $735 million, up 19.3%.

Costs/Margins

Cost of sales in the fiscal second quarter was $2,682.8 million, up 3.1% year over year. Selling, general and administrative expenses were $491.1 million, up from $397.3 million. Adjusted operating margin was 15.8%, down 80 basis points.

Balance Sheet/Cash Flow

Exiting the fiscal second quarter, Parker-Hannifin had cash and cash equivalents of $948.4 million, down from $3,219.8 million recorded on Jun 30, 2019. At the end of the reported quarter, long-term debt was $8,141.2 million compared with $6,520.8 million as of Jun 30, 2019.

In first six months of fiscal 2020, the company generated about $826 million cash from operating activities, up from $541 million in the first six months of fiscal 2019.

Outlook

Parker-Hannifin intends to boost its near-term revenues and profitability on the back of its Win Strategy. The company revised earnings view for fiscal 2020 to $10.25-$10.85 from $10.10-$10.90 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -9.44% due to these changes.

VGM Scores

Currently, Parker-Hannifin has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Parker-Hannifin has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.