Is A Beat In Store For Parker-Hannifin (PH) In Q3 Earnings?

Parker-Hannifin Corporation (NYSE:PH) is scheduled to report third-quarter fiscal 2018 results on Apr 26, before the opening bell.

Parker-Hannifin has an excellent earnings surprise history, with an average positive surprise of 8.5% in the trailing four quarters. The company recorded its 10th consecutive earnings beat in the last reported quarter, surpassing estimates by 4.4%. In the to-be-reported quarter, the company is expected to deliver strong numbers in the Diversified Industrial segment business, which constitutes a significant portion of total revenues.

Let’s see how things are shaping up for this announcement.

Earnings Whispers

Our proven model shows that Parker-Hannifin has the right combination of the two key ingredients to beat estimates. A stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is perfectly the case here as you will see below:

Zacks ESP: Parker-Hannifin has an Earnings ESP of +0.68%, as the Most Accurate estimate of $2.64 is pegged higher than the Zacks Consensus Estimate of $2.62. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company carries a Zacks Rank #3, which when combined with a positive ESP, makes us reasonably confident of an earnings beat.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors Driving Better-Than-Expected Earnings

Parker-Hannifin’s top line has been gaining momentum on the back of contribution from the CLARCOR acquisition and consistently outstanding performance in the company’s Diversified Industrial segment, particularly in North America. Further, its diligent global restructuring initiatives are proving conducive to profits. These initiatives enabled the company offset weakness in some vital regions, which strengthened its position in the end markets.

The CLARCOR buyout has reinforced the company’s filtration product suite, consequently driving recurring revenue growth. Further, other bolt-on acquisitions including Arnold Jäger Holding GmbH‘s operating units, President Engineering Group Limited and Helac Corporation are expected to prove conductive to its top-line growth in the upcoming quarters as well.

The company has benefited tremendously from the global restructuring initiatives undertaken over the past few quarters. The initiatives helped combat weakness in some key regions and also served to strengthen its position in end markets.

Recently, the company’s orders have been accelerating as well. Orders improved 13% in aggregate in second-quarter fiscal 2018. This marks the sixth consecutive quarter of order growth for the company, which indicates improving demand in the key end markets and regions.

Parker-Hannifin Corporation Price, Consensus and EPS Surprise

Notably, the Zacks Consensus Estimate for revenues from the Diversified Industrial — North America segment — in the to-be-reported quarter remains high at $1,727 million, reflecting an expected growth of 22.2% year over year. Revenues from Industrial International segment are also projected to be strong, with the estimate pegged at $1,347 million, up 19.3% compared with reported revenues of $1,129 million in the year-ago quarter. Further, the Aerospace segment is expected to rise 2.8% year over year to $593 million.

This apart, the company’s revamped Win Strategy along with a host of simplification initiatives has helped it attain significant cost savings and expand margins. For instance, the company achieved strong adjusted segment operating margins of 14.9% in the second quarter of fiscal 2018, expanding 20 basis points year over year. This trend is likely to continue, which will be reflected in the soon-to-be-reported quarter as well.

Other Stocks That Warrant a Look

Here are some other companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Allegheny Technologies Incorporated (NYSE:ATI) has an Earnings ESP of +5.36% and a Zacks Rank of 1. The company is expected to release quarterly numbers around Apr 24. You can see the complete list of today’s Zacks #1 Rank stocks here.

Century Aluminum Company (NASDAQ:CENX) , with Earnings ESP of +29.41% and a Zacks Rank of 1, is slated to report results on Apr 24.

Watsco, Inc. (NYSE:WSO) has an Earnings ESP of +3.96% and a Zacks Rank of 2. The company is likely to release earnings on Apr 24.

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