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Parker Reports Fiscal 2014 Second Quarter Sales, Net Income and Earnings per Share

Companies mentioned in this article: Parker Hannifin Corporation

CLEVELAND, Jan. 22, 2014 /PRNewswire/ -- Parker Hannifin Corporation (NYSE: PH), the global leader in motion and control technologies, today reported results for the fiscal 2014 second quarter ended December 31, 2013. Fiscal 2014 second quarter sales increased 1.3 percent to $3.11 billion, compared with $3.07 billion in the prior year quarter. Organic growth was 3.1 percent, which excludes an increase of 0.3 percent from acquisitions, a decrease of 0.7 percent from foreign currency translation, and a decrease of 1.4 percent from a joint venture agreement with GE Aviation. Fiscal 2014 second quarter as reported net income was $253.4 million, or $1.66 earnings per diluted share compared with $181.1 million or $1.19 earnings per diluted share in the prior year quarter. Adjusted net income for the fiscal 2014 second quarter was $189.9 million, or $1.24 earnings per diluted share. Fiscal 2014 second quarter adjusted net income and earnings per diluted share exclude asset write downs and a previously announced gain associated with a joint venture agreement between Parker Aerospace and GE Aviation. A reconciliation of as reported net income and earnings per diluted share to adjusted net income and earnings per diluted share is included with the financial tables attached to this news release.

(Logo: http://photos.prnewswire.com/prnh/19990816/PHLOGO )

Cash flow from operations was $540.1 million or 8.5 percent of sales for the first six months of fiscal 2014 compared with $347.3 million or 5.5 percent of sales in the prior year period. Excluding a discretionary contribution to the company's pension plan of $75 million for the first six months of fiscal 2014 cash flow from operations was 9.7 percent of sales.

"Earnings on an adjusted basis were ahead of what we expected for this quarter as we continue to perform well operationally," said Chairman, CEO and President, Don Washkewicz. "With continued positive order growth and modestly improved macro-economic trends, we remain optimistic about stronger operating performance in the second half of fiscal year 2014."

Segment Results

Diversified Industrial Segment: North American second quarter sales increased 0.6 percent to $1.33 billion, and operating income was $200.6 million compared with $190.4 million in the same period a year ago. International second quarter sales increased 4.7 percent to $1.28 billion, and operating income was $134.2 million compared with $125.0 million in the same period a year ago.

Aerospace Systems Segment: Second quarter sales decreased 4.7 percent to $503.8 million, reflecting the impact of the previously announced joint venture between Parker Aerospace and GE Aviation, and operating income was $45.0 million compared with $52.2 million in the same period a year ago.

Orders

Parker reported an increase of 5 percent in orders for the quarter ending December 31, 2013, compared with the same quarter a year ago. The company reported the following orders by business:

    --  Orders increased 3 percent in the Diversified Industrial North America
        businesses compared with the same quarter a year ago.
    --  Orders increased 6 percent in the Diversified Industrial International
        businesses compared with the same quarter a year ago.
    --  Orders increased 7 percent in the Aerospace Systems segment on a rolling
        12-month average basis.

Outlook

For the fiscal year ending June 30, 2014, the company has provided guidance for adjusted earnings per diluted share in the range of $6.20 to $6.60. Fiscal 2014 adjusted earnings guidance includes previously announced restructuring expenses of approximately $0.47 per diluted share, but does not include the following non-recurring items: a gain of $1.68 per diluted share associated with the previously announced joint venture agreement between Parker Aerospace and GE Aviation and asset write downs of $1.26 earnings per diluted share recorded in the quarter ended December 31, 2013. Restructuring expenses were $0.07 per diluted share in the second quarter of fiscal 2014 and $0.13 per diluted share year-to-date.

Washkewicz added, "Operationally, our outlook is essentially unchanged. We are optimistic that modestly improved macro-economic trends will continue and anticipate that we will deliver another strong year."

NOTICE OF CONFERENCE CALL: Parker Hannifin's conference call and slide presentation to discuss its fiscal 2014 second quarter results are available to all interested parties via live webcast today at 11:00 a.m. ET, on the company's investor information web site at www.phstock.com. To access the call, click on the "Live Webcast" link. From this link, users also may complete a pre-call system test and register for e-mail notification of future events and information available from Parker. A replay of the conference call will also be available at www.phstock.com for one year after the call.

With annual sales of $13 billion in fiscal year 2013, Parker Hannifin is the world's leading diversified manufacturer of motion and control technologies and systems, providing precision-engineered solutions for a wide variety of mobile, industrial and aerospace markets. The company employs approximately 58,000 people in 49 countries around the world. Parker has increased its annual dividends paid to shareholders for 57 consecutive fiscal years, among the top five longest-running dividend-increase records in the S&P 500 index. For more information, visit the company's web site at www.parker.com, or its investor information web site at www.phstock.com.

Note on Orders

Orders provide near-term perspective on the company's outlook, particularly when viewed in the context of prior and future quarterly order rates. However, orders are not in themselves an indication of future performance. All comparisons are at constant currency exchange rates, with the prior year restated to the current-year rates. All exclude acquisitions until they can be reflected in both the numerator and denominator. Aerospace comparisons are rolling 12-month average computations. The total Parker orders number is derived from a weighted average of the year-over-year quarterly percent change in orders for Diversified Industrial North America and Diversified Industrial International, and the year-over-year 12-month rolling average of orders for the Aerospace Systems segment.

Note on Non-GAAP Numbers

This press release contains references to (a) sales growth excluding the effects of acquisitions, divestitures and currency exchange rates, (b) net income without the effect of a gain associated with a joint venture agreement and asset write downs, (c) actual and forecasted earnings per diluted share without the effect of a gain associated with a joint venture agreement and asset write downs, and (d) cash flow excluding discretionary contributions to the company's pension plan. The effects of acquisitions, divestitures, currency exchange rates, gain associated with a joint venture agreement, asset write downs, and pension plan contributions are removed to allow investors and the company to meaningfully evaluate changes in sales, net income, earnings per diluted share, and cash flow on a comparable basis from period to period.

Forward-Looking Statements

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. All statements regarding future performance, earnings projections, events or developments are forward-looking statements. It is possible that the future performance and earnings projections of the company, including its individual segments, may differ materially from current expectations, depending on economic conditions within its mobile, industrial and aerospace markets, and the company's ability to maintain and achieve anticipated benefits associated with announced realignment activities, strategic initiatives to improve operating margins, actions taken to combat the effects of the current economic environment, and growth, innovation and global diversification initiatives. A change in the economic conditions in individual markets may have a particularly volatile effect on segment performance. Among other factors which may affect future performance are: changes in business relationships with and purchases by or from major customers, suppliers or distributors, including delays or cancellations in shipments, disputes regarding contract terms or significant changes in financial condition, changes in contract cost and revenue estimates for new development programs and changes in product mix; ability to identify acceptable strategic acquisition targets; uncertainties surrounding timing, successful completion or integration of acquisitions and similar transactions; the ability to successfully divest businesses planned for divestiture and realize the anticipated benefits of such divestitures; the determination to undertake business realignment activities and the expected costs thereof and, if undertaken, the ability to complete such activities and realize the anticipated cost savings from such activities; the ability to realize anticipated benefits of the consolidation of the Climate and Industrial Controls Group; threats associated with and efforts to combat terrorism; uncertainties surrounding the ultimate resolution of outstanding legal proceedings, including the outcome of any appeals; competitive market conditions and resulting effects on sales and pricing; increases in raw material costs that cannot be recovered in product pricing; the company's ability to manage costs related to insurance and employee retirement and health care benefits; and global economic factors, including manufacturing activity, air travel trends, currency exchange rates, difficulties entering new markets and general economic conditions such as inflation, deflation, interest rates and credit availability. The company makes these statements as of the date of this disclosure, and undertakes no obligation to update them unless otherwise required by law.


    PARKER HANNIFIN CORPORATION - DECEMBER 31, 2013

    CONSOLIDATED STATEMENT OF INCOME

                                                                                                                                                                    Six Months Ended December
                                                                                                                                                                                          31,
    (Unaudited)                                                                                               Three Months Ended December
                                                                                                                                      31,

    (Dollars in thousands except per share amounts)                                                                                  2013                                                2012                   2013                       2012


    Net sales                                                                                                                  $3,106,006                                          $3,065,495             $6,332,150                 $6,280,430

    Cost of sales                                                                                                               2,419,971                                           2,421,972              4,896,380                  4,899,419
                                                                                                                                ---------                                           ---------              ---------                  ---------

    Gross profit                                                                                                                  686,035                                             643,523              1,435,770                  1,381,011

    Selling, general and administrative expenses                                                                                  398,636                                             381,100                805,566                    762,222

    Goodwill and intangible asset impairment                                                                                      188,870                                                             -                    188,870                    -

    Interest expense                                                                                                               20,851                                              24,216                 41,809                     47,725

    Other (income), net                                                                                                          (417,638)                                            (24,422)              (419,881)                   (27,623)
    -------------------                                                                                                          --------                                             -------               --------                    -------

    Income before income taxes                                                                                                    495,316                                             262,629                819,406                    598,687

    Income taxes                                                                                                                  241,912                                              81,515                321,682                    177,625
    ------------                                                                                                                  -------                                              ------                -------                    -------

    Net income                                                                                                                    253,404                                             181,114                497,724                    421,062

    Less: Noncontrolling interests                                                                                                    116                                                 152                    120                        359
    ------------------------------                                                                                                    ---                                                 ---                    ---                        ---

    Net income attributable to common shareholders                                                                               $253,288                                            $180,962               $497,604                   $420,703
    ----------------------------------------------                                                                               --------                                            --------               --------                   --------


    Earnings per share attributable to common shareholders:
    -------------------------------------------------------

    Basic earnings per share                                                                                                        $1.70                                               $1.21                  $3.34                      $2.82
    ------------------------                                                                                                        -----                                               -----                                             -----

    Diluted earnings per share                                                                                                      $1.66                                               $1.19                  $3.28                      $2.77
    --------------------------                                                                                                      -----                                               -----                  -----                      -----


    Average shares outstanding during period - Basic                                                                          149,153,599                                         149,001,273            149,195,452                149,143,561

    Average shares outstanding during period - Diluted                                                                        152,151,024                                         152,198,704            151,743,389                152,018,025


    Cash dividends per common share                                                                                                  $.45                                                $.41                   $.90                       $.82
    -------------------------------                                                                                                  ----                                                ----                   ----                       ----


    RECONCILIATION OF NET INCOME AND EARNINGS PER DILUTED SHARE TO ADJUSTED NET INCOME AND EARNINGS PER DILUTED SHARE


    Net income                                                                                                                   $253,404                                            $181,114               $497,724                   $421,062

    Adjustments:

    Asset writedowns                                                                                                              192,188                                                             -                    192,188                    -

    Gain related to joint venture agreement                                                                                      (255,652)                                                            -                   (255,652)                   -
                                                                                                                                 --------                                                           ---                   --------                  ---

    Adjusted net income                                                                                                          $189,940                                            $181,114               $434,260                   $421,062
    -------------------                                                                                                          --------                                            --------               --------                   --------


    Earnings per diluted share                                                                                                      $1.66                                               $1.19                  $3.28                      $2.77

    Adjustments:

    Asset writedowns                                                                                                                 1.26                                                             -                       1.26                    -

    Gain related to joint venture agreement                                                                                         (1.68)                                                            -                      (1.68)                   -
                                                                                                                                    -----                                                           ---                      -----                  ---

    Adjusted earnings per diluted share                                                                                             $1.24                                               $1.19                  $2.86                      $2.77
    -----------------------------------                                                                                             -----                                               -----                  -----                      -----





    BUSINESS SEGMENT INFORMATION BY INDUSTRY
                                                                                                              Three Months Ended December                           Six Months Ended December
                                                                                                                           31,                                                  31,
    (Unaudited)

    (Dollars in thousands)                                                                                                           2013                                                2012                   2013                       2012

    Net sales

    Diversified Industrial:

    North America                                                                                                              $1,325,402                                          $1,317,380             $2,713,277                 $2,742,659

    International                                                                                                               1,276,851                                           1,219,459              2,547,646                  2,468,032

    Aerospace Systems                                                                                                             503,753                                             528,656              1,071,227                  1,069,739

    Total                                                                                                                      $3,106,006                                          $3,065,495             $6,332,150                 $6,280,430
    -----                                                                                                                      ----------                                          ----------             ----------                 ----------

    Segment operating income


    Diversified Industrial:

    North America                                                                                                                $200,628                                            $190,431               $434,826                   $434,506

    International                                                                                                                 134,198                                             125,047                307,608                    281,645

    Aerospace Systems                                                                                                              45,034                                              52,172                102,332                    114,070
                                                                                                                                   ------

    Total segment operating income                                                                                                379,860                                             367,650                844,766                    830,221

    Corporate general and administrative expenses                                                                                  46,819                                              45,401                 94,029                     85,168
    ---------------------------------------------                                                                                  ------                                              ------                 ------                     ------

    Income before interest and other                                                                                                                        333,041                              322,249                    750,737              745,053

    Interest expense                                                                                                               20,851                                              24,216                 41,809                     47,725

    Other (income) expense                                                                                                       (183,126)                                             35,404               (110,478)                    98,641
    ----------------------

    Income before income taxes                                                                                                   $495,316                                            $262,629               $819,406                   $598,687
    --------------------------                                                                                                   --------                                            --------               --------                   --------




    CONSOLIDATED BALANCE SHEET

    (Unaudited)                                                                                                                                       December 31,                             June 30,               December 31,

    (Dollars in thousands)                                                                                                                                     2013                                 2013                       2012
    ---------------------

    Assets
    ------

    Current assets:

    Cash and cash equivalents                                                                                                  $2,139,522                                          $1,781,412               $497,635

    Accounts receivable, net                                                                                                    1,861,849                                           2,062,745              1,802,405

    Inventories                                                                                                                 1,448,628                                           1,377,405              1,515,325

    Prepaid expenses                                                                                                              169,262                                             182,669                152,477

    Deferred income taxes                                                                                                         125,612                                             126,955                127,905

    Total current assets                                                                                                        5,744,873                                           5,531,186              4,095,747

    Plant and equipment, net                                                                                                    1,820,312                                           1,808,240              1,844,643

    Goodwill                                                                                                                    3,161,699                                           3,223,515              3,295,141

    Intangible assets, net                                                                                                      1,220,547                                           1,290,499              1,367,978

    Other assets                                                                                                                  916,505                                             687,458                857,852

    Total assets                                                                                                              $12,863,936                                         $12,540,898            $11,461,361
    ------------                                                                                                              -----------                                         -----------            -----------


    Liabilities and equity
    ----------------------

    Current liabilities:

    Notes payable                                                                                                              $1,217,292                                          $1,333,826               $510,006

    Accounts payable                                                                                                            1,074,512                                           1,156,002              1,073,233

    Accrued liabilities                                                                                                           839,095                                             894,296                810,546

    Accrued domestic and foreign taxes                                                                                            172,204                                             136,079                 94,475

    Total current liabilities                                                                                                   3,303,103                                           3,520,203              2,488,260

    Long-term debt                                                                                                              1,507,019                                           1,495,960              1,509,238

    Pensions and other postretirement benefits                                                                                  1,303,527                                           1,372,437              1,704,349

    Deferred income taxes                                                                                                         112,561                                             102,920                128,892

    Other liabilities                                                                                                             339,440                                             307,897                301,633

    Shareholders' equity                                                                                                        6,295,226                                           5,738,426              5,325,717

    Noncontrolling interests                                                                                                        3,060                                               3,055                  3,272

    Total liabilities and equity                                                                                              $12,863,936                                         $12,540,898            $11,461,361
    ----------------------------                                                                                              -----------                                         -----------            -----------



    CONSOLIDATED STATEMENT OF CASH FLOWS
                                                                                                                Six Months Ended December
                                                                                                                                      31,
    (Unaudited)

    (Dollars in thousands)                                                                                                           2013                                                2012
    ---------------------                                                                                                            ----                                                ----


    Cash flows from operating activities:

    Net income                                                                                                                   $497,724                                            $421,062

    Depreciation and amortization                                                                                                 170,090                                             163,827

    Stock incentive plan compensation                                                                                              75,370                                              46,527

    Goodwill and intangible asset impairment                                                                                      188,870                                                             -

    Gain on deconsolidation of subsidiary                                                                                        (412,612)                                                            -

    Gain on sale of businesses                                                                                                                                  -                              (12,708)

    Net change in receivables, inventories, and trade payables                                                                     53,841                                             102,612

    Net change in other assets and liabilities                                                                                    (80,362)                                           (408,895)

    Other, net                                                                                                                     47,188                                              34,913

    Net cash provided by operating activities                                                                                     540,109                                             347,338
    -----------------------------------------                                                                                     -------                                             -------

    Cash flows from investing activities:

    Acquisitions (net of cash of $33,160 in 2012)                                                                                     728                                            (621,716)

    Capital expenditures                                                                                                         (111,847)                                           (140,221)

    Proceeds from sale of plant and equipment                                                                                       8,790                                              14,173

    Proceeds from sale of businesses                                                                                                                            -                               68,569

    Proceeds from deconsolidation of subsidiary                                                                                   202,498                                                             -

    Other, net                                                                                                                       (728)                                             (7,765)

    Net cash provided by (used in) investing activities                                                                            99,441                                            (686,960)
    ---------------------------------------------------                                                                            ------                                            --------

    Cash flows from financing activities:

    Net payments for common stock activity                                                                                        (81,784)                                           (101,160)

    Acquisition of noncontrolling interests                                                                                                                    -                               (1,072)

    Net (payments for) proceeds from debt                                                                                        (116,834)                                            168,712

    Dividends                                                                                                                    (134,718)                                           (123,328)

    Net cash (used in) financing activities                                                                                      (333,336)                                            (56,848)
    ---------------------------------------                                                                                      --------                                             -------

    Effect of exchange rate changes on cash                                                                                        51,896                                              55,788
    ---------------------------------------                                                                                        ------                                              ------

    Net increase (decrease) in cash and cash equivalents                                                                          358,110                                            (340,682)

    Cash and cash equivalents at beginning of period                                                                            1,781,412                                             838,317

    Cash and cash equivalents at end of period                                                                                 $2,139,522                                            $497,635
    ------------------------------------------                                                                                 ----------                                            --------



    RECONCILIATION OF FORECASTED EARNINGS PER DILUTED SHARE TO ADJUSTED FORECASTED EARNINGS PER DILUTED SHARE

    (Unaudited)

    (Amounts in dollars)

                                                                                                                                           Fiscal Year

                                                                                                                                                               2014
                                                                                                                                                               ----

    Forecasted earnings per diluted share                                                                                                         $6.62 to $7.02

    Adjustments:

    Asset writedowns                                                                                                                $1.26

    Gain related to joint venture agreement                                                                                        $(1.68)
                                                                                                                                   ------

    Adjusted forecasted earnings per diluted share                                                                                                $6.20 to $6.60
    ----------------------------------------------                                                                                                --------------

SOURCE Parker Hannifin Corporation