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Why Is Parker-Hannifin (PH) Up 15.9% Since Last Earnings Report?

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It has been about a month since the last earnings report for Parker-Hannifin (PH - Free Report) . Shares have added about 15.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Parker-Hannifin due for a pullback? 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 catalysts.

Parker-Hannifin Q1 Earnings & Revenues Beat Estimates

Parker-Hannifin has reported better-than-expected first-quarter fiscal 2021 (ended Sep 30, 2020) earnings, with a beat of 34.1%. Also, its sales surpassed estimates by 8.7%.

The company’s adjusted earnings were $3.07 per share in the quarter, surpassing the Zacks Consensus Estimate of $2.29. However, earnings improved 11.2% from the year-ago quarter’s $2.76 per share.

Revenue Details

In the quarter, the company’s net sales were $3,230.5 million, reflecting a 3.1% year-over-year decline. Organic sales in the quarter declined 13% year over year. Orders were down 12% in the quarter.

Notably, the company’s top line surpassed the Zacks Consensus Estimate of $2,973 million.

Parker-Hannifin reports revenues under two segments. A brief discussion on the quarterly results is provided below:

The Diversified Industrial segment’s revenues totaled $2,657.4 million, representing 82.3% of net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues decreased 1.7%.

It is worth mentioning that the segment’s revenues generated in North America totaled $1,528.1 million, decreasing 5.9% year over year. The segment’s International revenues were $1,129.3 million, up 4.7%. Orders in the quarter decreased 11% for Diversified Industrial North America and that for Diversified Industrial International fell 4%.

The Aerospace Systems segment generated revenues of $573.2 million, accounting for 17.7% of net revenues in the reported quarter. Sales fell 9.2% year over year. Orders in the quarter decreased 25%.

Margin Profile

In the reported quarter, the company’s cost of sales decreased 3.8% year over year to $2,384.3 million. It represented 73.8% of the quarter’s net sales versus 74.4% in the year-ago quarter. Selling, general and administrative expenses decreased 7.3% to $369.9 million. It represented 11.5% of net sales in the reported quarter versus 12% in the year-ago quarter.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in the quarter increased 1.7% year over year to $649.3 million. Adjusted EBITDA margin expanded 100 basis points to 20.1%. Interest expenses in the quarter decreased 5.7% to $66 million.

Balance Sheet & Cash Flow

Exiting first quarter of fiscal 2021, Parker-Hannifin had cash and cash equivalents of $742.4 million, up 8.3% from $685.5 million recorded in the last reported quarter. Long-term debt was down 7.8% sequentially to $7,057.7 million.

In first three months of fiscal 2021, the company generated net cash of $737.4 million from operating activities, reflecting growth of 64.2% from the year-ago period. Capital spending totaled $42.1 million compared with $50.3 million in the year-ago period.

In the fiscal first quarter, the company paid out cash dividends of $113.5 million, relatively flat on a year-over-year basis.

Outlook

Parker-Hannifin intends to boost near-term revenues and profitability on the back of its Win Strategy. For fiscal 2021 (ending June 2021), the company currently anticipates generating adjusted earnings of $11.70-$12.30 per share, higher than $9.80-$10.80 guided previously.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 8.34% due to these changes.

VGM Scores

At this time, Parker-Hannifin has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Parker-Hannifin has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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