A month has gone by since the last earnings report for Parker-Hannifin Corporation (NYSE:PH) . Shares have lost about 1.7% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Parker-Hannifin Q3 Earnings Beat, Sales Jump, View Up
Parker-Hannifin kept its impressive streak of beating estimates alive for the seventh consecutive quarter, as its adjusted earnings of $2.11 per share for third-quarter fiscal 2017 trumped the Zacks Consensus Estimate of $1.86 by 13.4%.
The earnings figures reflected an impressive growth of 39.7% on a year-over-year basis.The year-over-year improvement in the bottom line came on the back of remarkable revenue expansion, improved margins and the revamped Win Strategy.
Inside the Headlines
Net sales in the fiscal third quarter jumped 10.3% year over year to $3,119 million and came ahead of the Zacks Consensus Estimate of $3,048 million. Contribution from the CLARCOR acquisition and excellent performance in the company’s Diversified Industrial segment were major growth drivers. Organic sales increased 6% year over year.
Parker-Hannifin’s adjusted total segment operating income for the reported quarter was $460.4 million, up 17.6% from the year-ago tally of $391.6 million. Orders also increased 8% in aggregate for the company.
Segmental Performance
At the Diversified Industrial Segment, North American sales for the quarter increased 13% to $1,413 million. Additionally, this segment recorded 9% growth in orders on a year-over-year basis.
International Industrial, which is also classified under the Diversified Industrial segment, performed strongly as well, as it reported an 11% year-over-year increase in sales to $1,129 million. In addition to robust sales growth, orders at this segment increased 13% on a year-over-year basis.
Revenues at the Aerospace Systems segment rose 3% year over year to $577 million. However, orders at this segment were flat in the quarter under review.
In addition to strong sales growth, Parker-Hannifin achieved robust operating margins during the reported quarter as well.Adjusted segment operating margins during the reported quarter came in at 16.1%, up 140 basis points year over year. In addition to accelerated revenue growth, successful execution of the company’s Win Strategy initiatives drove margins.
Liquidity
As of Mar 31, 2017, Parker-Hannifin’s cash and cash equivalents were $819 million, down significantly from $1,034 million at the end of third-quarter fiscal 2016. Long-term debt was $5,255 million at quarter end, substantially higher than $2,652 million at the same time last year.
Acquisitions
During the quarter, Parker-Hannifin completed its most notable acquisition agreement to buy air filtration systems provider – CLARCOR Inc. – for roughly $4.3 billion in cash. CLARCOR is bringing a range of industrial air and liquid filtration products and technologies to the table, which will significantly bolster Parker-Hannifin’s filtration product suite. Moreover, this acquisition will unlock fresh recurring revenue streams for Parker-Hannifin’s Filtration Group as 80% of CLARCOR’s revenue is generated through aftermarket sales.
The company is bullish on the integration of CLARCOR with its filtration business, which will help it double sales at this unit.
Further, on Feb 1, Parker-Hannifin announced the acquisition of Helac Corporation, which specializes in the design and manufacture of helical rotary actuators. Helac also manufactures a line of attachments used in material handling and construction equipment markets.
Helac will be integrated into Parker-Hannifin’s Cylinder Division within the Hydraulics Group and its sales will be reported under Parker's Diversified Industrial segment. The addition of Helac will aid Parker-Hannifin in expanding its hydraulics product portfolio and cater to customers in a wide variety of markets.
The company is currently integrating these two filtration units into its businesses. We believe that these acquisitions will unlock, significant synergies, and drive growth for the company in the times to come.
Guidance
Parker-Hannifin raised its guidance for the fiscal year ending Jun 30, 2017 for the second time. Adjusted earnings from continuing operations are now expected to come in a range of $7.70–$8.00 per share (up from previous projection of $7.05–$7.55). This guidance is adjusted for expected business realignment expenses of approximately $0.25 per share, and acquisition-related expenses of $0.55 per share, and incorporates the impact of the CLARCOR and Helac acquisitions.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.
Parker-Hannifin Corporation Price and Consensus
VGM Scores
At this time, Parker-Hannifin's stock has a subpar Growth Score of 'D', though it is lagging a bit on the momentum front with an 'F'. The stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Outlook
The stock has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Parker-Hannifin Corporation (PH): Free Stock Analysis Report
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