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

Companies mentioned in this article: Parker Hannifin Corporation

CLEVELAND, April 29, 2014 /PRNewswire/ -- Parker Hannifin Corporation (NYSE: PH), the global leader in motion and control technologies, today reported results for the fiscal 2014 third quarter ended March 31, 2014. Fiscal 2014 third quarter sales increased 2 percent to $3.36 billion compared with $3.31 billion in the same quarter a year ago. Adjusting for a previously announced joint venture, fiscal 2014 third quarter sales increased 3 percent. Fiscal 2014 third quarter net income was $242.5 million, or $1.60 earnings per diluted share and when adjusted for restructuring expenses, was $285.0 million, or $1.88 earnings per diluted share. Net income in the prior year quarter was $256.6 million or $1.68 earnings per diluted share. A reconciliation of as reported to adjusted sales, net income and earnings per diluted share is included with the financial tables accompanying this news release.

Cash flow from operations for the first nine months of fiscal 2014 was $817.5 million or 8.4 percent of sales compared with $718.8 million or 7.5 percent of sales in the prior year period. Excluding a discretionary contribution to the company's pension plan of $75 million and the impact of restructuring initiatives of $15 million in fiscal 2014, cash flow from operations was 9.4 percent of sales.

"We are pleased to have delivered strong operating margins in the third quarter, particularly in our Diversified Industrial International businesses," said Chairman, CEO and President, Don Washkewicz. "Our previously announced restructuring initiatives are proceeding ahead of plan, with $86 million in pretax expenses incurred fiscal year-to-date. In addition, the improved order growth trend is an encouraging sign for the remainder of this fiscal year."

Segment Results

Diversified Industrial Segment: North American third quarter sales increased 1.9 percent to $1.46 billion, and operating income was $243.0 million compared with $224.5 million in the same period a year ago. International third quarter sales increased 4.4 percent to $1.36 billion, and operating income was $126.9 million compared with $158.2 million in the same period a year ago. International operating income in the third quarter adjusted for the impact of restructuring expenses was $186.4 million.

Aerospace Systems Segment: Compared to the same period a year ago, third quarter sales decreased 5.6 percent to $545.7 million, but increased 2 percent adjusting for the impact of the previously announced joint venture between Parker Aerospace and GE Aviation. Operating income was $64.0 million compared with $80.1 million in the same period a year ago, largely reflecting an unfavorable product mix.

Orders

Parker reported an increase of 7 percent in orders for the quarter ending March 31, 2014, compared with the same quarter a year ago. The company reported the following orders by business:

    --  Orders increased 6 percent in the Diversified Industrial North America
        businesses;
    --  Orders increased 5 percent in the Diversified Industrial International
        businesses; and
    --  Orders increased 16 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 increased guidance for adjusted earnings per diluted share to the range of $6.40 to $6.60, or $6.50 at the midpoint. Fiscal 2014 adjusted earnings guidance includes increased restructuring expenses which are anticipated to be approximately $0.55 per diluted share, but does not include the gain associated with the previously announced joint venture and asset write downs recorded in the quarter ended December 31, 2013. Restructuring expenses were $0.28 per diluted share in the third quarter of fiscal 2014 and $0.40 per diluted share fiscal year-to-date.

Washkewicz added, "We have increased the midpoint of our guidance for fiscal year 2014 to reflect the impact of improved operating margins and positive order trends. Considering the progress we have made, we expect to close the year strong and be well positioned going into fiscal year 2015."

NOTICE OF CONFERENCE CALL: Parker Hannifin's conference call and slide presentation to discuss its fiscal 2014 third 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 58 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 website at www.parker.com, or its investor information website 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 the joint venture, (b) operating income, net income and earnings per diluted share without the effect of restructuring expenses, (c) forecasted earnings per diluted share without the effect of a gain associated with a joint venture and asset write downs, and (d) cash flow excluding discretionary contributions to the company's pension plan and the impact of restructuring. The effects of a joint venture, asset write downs, restructuring expenses and pension plan contributions are removed to allow investors and the company to meaningfully evaluate changes in sales, operating income, 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 - MARCH 31, 2014

    CONSOLIDATED STATEMENT OF INCOME


    (Unaudited)

                                                                                                                      Three Months Ended March 31,  Nine Months Ended March 31,

    (Dollars in thousands except per share amounts)                                                                                           2014                         2013         2014         2013


    Net sales                                                                                                                           $3,358,406                   $3,307,041   $9,690,556   $9,587,471

    Cost of sales                                                                                                                        2,605,893                    2,569,189    7,502,273    7,468,608
                                                                                                                                         ---------                    ---------    ---------    ---------

    Gross profit                                                                                                                           752,513                      737,852    2,188,283    2,118,863

    Selling, general and administrative expenses                                                                                           407,241                      379,690    1,212,807    1,141,912

    Goodwill and intangible asset impairment                                                                                                     -                            -      188,870            -

    Interest expense                                                                                                                        20,594                       23,050       62,403       70,775

    Other (income), net                                                                                                                     (4,812)                      (3,439)    (424,693)     (31,062)
    -------------------                                                                                                                     ------                       ------     --------      -------

    Income before income taxes                                                                                                             329,490                      338,551    1,148,896      937,238

    Income taxes                                                                                                                            86,972                       81,959      408,654      259,584
    ------------                                                                                                                            ------                       ------      -------      -------

    Net income                                                                                                                             242,518                      256,592      740,242      677,654

    Less:  Noncontrolling interests                                                                                                            112                           32          232          391
    -------------------------------                                                                                                            ---                                       ---          ---

    Net income attributable to common shareholders                                                                                        $242,406                     $256,560     $740,010     $677,263
    ----------------------------------------------                                                                                        --------                     --------     --------     --------


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

       Basic earnings per share                                                                                                              $1.63                        $1.72        $4.96        $4.54
       ------------------------                                                                                                              -----                        -----                     -----

       Diluted earnings per share                                                                                                            $1.60                        $1.68        $4.88        $4.46
       --------------------------                                                                                                            -----                        -----        -----        -----


    Average shares outstanding during period - Basic                                                                                   149,039,529                  149,287,628  149,143,478  149,191,583

    Average shares outstanding during period - Diluted                                                                                 151,739,617                  152,360,612  151,562,276  151,853,522


    Cash dividends per common share                                                                                                           $.48                         $.43        $1.38        $1.25
    -------------------------------                                                                                                           ----                         ----        -----        -----


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




                                                                                                                      Three Months Ended March 31,  Nine Months Ended March 31,

                                                                                                                                              2014                         2013         2014         2013
                                                                                                                                              ----                         ----         ----         ----


    Net income                                                                                                                            $242,518                     $256,592     $740,242     $677,654

    Adjustments:

      Restructuring charges                                                                                                                 42,516                        1,205       60,830        5,791
                                                                                                                                            ------                        -----       ------        -----

    Adjusted net income                                                                                                                   $285,034                     $257,797     $801,072     $683,445
    -------------------                                                                                                                   --------                     --------     --------     --------


    Earnings per diluted share                                                                                                               $1.60                        $1.68        $4.88        $4.46

    Adjustments:

      Restructuring charges                                                                                                                   0.28                         0.01         0.40         0.04
                                                                                                                                              ----                         ----         ----         ----

    Adjusted earnings per diluted share                                                                                                      $1.88                        $1.69        $5.28        $4.50
    -----------------------------------                                                                                                      -----                        -----        -----        -----



    BUSINESS SEGMENT INFORMATION BY INDUSTRY

    (Unaudited)

                                                                                                                      Three Months Ended March 31,  Nine Months Ended March 31,

    (Dollars in thousands)                                                                                                                    2014                         2013         2014         2013

    Net sales

        Diversified Industrial:

           North America                                                                                                                $1,455,212                   $1,428,430   $4,168,489   $4,171,089

           International                                                                                                                 1,357,513                    1,300,585    3,905,159    3,768,617

        Aerospace Systems                                                                                                                  545,681                      578,026    1,616,908    1,647,765

    Total                                                                                                                               $3,358,406                   $3,307,041   $9,690,556   $9,587,471
    -----                                                                                                                               ----------                   ----------   ----------   ----------

    Segment operating income


        Diversified Industrial:

           North America                                                                                                                  $242,998                     $224,487     $677,824     $658,993

           International                                                                                                                   126,933                      158,194      434,541      439,839

        Aerospace Systems                                                                                                                   63,974                       80,080      166,306      194,150
                                                                                                                                            ------

    Total segment operating income                                                                                                         433,905                      462,761    1,278,671    1,292,982

    Corporate general and administrative expenses                                                                                           38,377                       41,410      132,406      126,578
    ---------------------------------------------                                                                                           ------                       ------      -------      -------

    Income before interest and other                                                                                                       395,528                      421,351    1,146,265    1,166,404

    Interest expense                                                                                                                        20,594                       23,050       62,403       70,775

    Other expense (income)                                                                                                                  45,444                       59,750      (65,034)     158,391
    ---------------------

    Income before income taxes                                                                                                            $329,490                     $338,551   $1,148,896     $937,238
    --------------------------                                                                                                            --------                     --------   ----------     --------


    RECONCILIATION OF NET SALES TO ADJUSTED NET SALES


                                                                       %

                                          Three Months Ended March 31,

                                                                  2014         2013  Change
                                                                  ----         ---- ------

    Total
     net
     sales                                                  $3,358,406   $3,307,041           1.6%

    Adjustments:

     Sales
      related
      to GE
      joint
      venture                                                        -       43,731
                                                                   ---       ------

     Adjusted
     total
     net
     sales                                                  $3,358,406   $3,263,310           2.9%
     --------                                               ----------   ----------           ---


     Aerospace
     Systems
     net
     sales                                                    $545,681     $578,026         (5.6%)

    Adjustments:

     Sales
      related
      to GE
      joint
      venture                                                        -       43,731
                                                                   ---       ------

     Adjusted
     Aerospace
     Systems
     net
     sales                                                    $545,681     $534,295           2.1%
     ---------                                                --------     --------           ---


    CONSOLIDATED BALANCE SHEET

    (Unaudited)                          March 31,    June 30,   March 31,

    (Dollars in thousands)                    2014        2013        2013
    ---------------------

    Assets
    ------

    Current assets:

    Cash and cash equivalents           $2,095,989  $1,781,412  $1,677,319

    Accounts receivable, net             2,098,063   2,062,745   2,017,126

    Inventories                          1,448,989   1,377,405   1,473,072

    Prepaid expenses                       183,119     182,669     136,268

    Deferred income taxes                  122,840     126,955     134,724

    Total current assets                 5,949,000   5,531,186   5,438,509

    Plant and equipment, net             1,827,980   1,808,240   1,829,715

    Goodwill                             3,164,175   3,223,515   3,229,827

    Intangible assets, net               1,210,967   1,290,499   1,313,990

    Other assets                           950,236     687,458     859,731

    Total assets                       $13,102,358 $12,540,898 $12,671,772
    ------------                       ----------- ----------- -----------


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

    Current liabilities:

    Notes payable                       $1,078,846  $1,333,826  $1,527,696

    Accounts payable                     1,200,466   1,156,002   1,162,125

    Accrued liabilities                    933,077     894,296     838,376

    Accrued domestic and foreign taxes     154,792     136,079     120,352

    Total current liabilities            3,367,181   3,520,203   3,648,549

    Long-term debt                       1,508,611   1,495,960   1,496,026

    Pensions and other postretirement
     benefits                            1,306,667   1,372,437   1,693,048

    Deferred income taxes                  111,508     102,920     127,159

    Other liabilities                      354,158     307,897     294,582

    Shareholders' equity                 6,450,996   5,738,426   5,409,058

    Noncontrolling interests                 3,237       3,055       3,350

    Total liabilities and equity       $13,102,358 $12,540,898 $12,671,772
    ----------------------------       ----------- ----------- -----------


    CONSOLIDATED STATEMENT OF CASH
     FLOWS

    (Unaudited)                      Nine Months Ended March
                                                         31,

    (Dollars in thousands)                              2014        2013
    ---------------------                               ----        ----


    Cash flows from operating
     activities:

    Net income                                      $740,242    $677,654

    Depreciation and amortization                    253,150     250,574

    Stock incentive plan
     compensation                                     84,647      65,516

    Goodwill and intangible asset
     impairment                                      188,870           -

    Gain on deconsolidation of
     subsidiary                                     (412,612)          -

    Gain on sale of businesses                             -     (13,313)

    Net change in receivables,
     inventories, and trade payables                 (52,953)    (13,743)

    Net change in other assets and
     liabilities                                       9,263    (258,332)

    Other, net                                         6,864      10,443

    Net cash provided by operating
     activities                                      817,471     718,799
    ------------------------------                   -------     -------

    Cash flows from investing
     activities:

    Acquisitions (net of cash of
     $33,932 in 2013)                                (14,272)   (620,647)

    Capital expenditures                            (167,371)   (214,061)

    Proceeds from sale of plant and
     equipment                                        10,785      24,321

    Proceeds from sale of business                         -      72,190

    Proceeds from deconsolidation of
     subsidiary                                      202,498           -

    Other, net                                        (3,382)     (9,375)

    Net cash provided by (used in)
     investing activities                             28,258    (747,572)
    ------------------------------                    ------    --------

    Cash flows from financing
     activities:

    Net payments for common stock
     activity                                       (120,890)   (125,325)

    Acquisition of noncontrolling
     interests                                             -      (1,072)

    Net (payments for) proceeds from
     debt                                           (255,319)  1,186,679

    Dividends                                       (206,516)   (187,705)

    Net cash (used in) provided by
     financing activities                           (582,725)    872,577
    ------------------------------                  --------     -------

    Effect of exchange rate changes
     on cash                                          51,573      (4,802)
    -------------------------------                   ------      ------

    Net increase in cash and cash
     equivalents                                     314,577     839,002

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

    Cash and cash equivalents at end
     of period                                    $2,095,989  $1,677,319
    --------------------------------              ----------  ----------


    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                                                                       $6.82 to $7.02

    Adjustments:

      Asset writedowns                                                                                                   $1.26

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

    Adjusted forecasted earnings per diluted share                                                              $6.40 to $6.60
    ----------------------------------------------                                                              --------------

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SOURCE Parker Hannifin Corporation