Parker-Hannifin Reiterates at Neutral

We recently maintained a Neutral recommendation on Parker-Hannifin Corporation (PH - Analyst Report).

Parker-Hannifin Corporation is a leading worldwide full-line diversified manufacturer of motion and control technologies and systems, including fluid power systems, electromechanical controls and related components. In addition to motion and control products, the company is also a leading worldwide producer of fluid purification, fluid and fuel control, process instrumentation, air conditioning, refrigeration, electromagnetic shielding and thermal management products and systems.

Parker-Hannifin’s manufacturing, service, distribution and administrative facilities are located in 40 states and in 47 foreign countries. The company’s motion and control technologies and systems are used in the products of its three principal business segments: Industrial; Aerospace; and Climate& Industrial Controls. The products are sold as original and replacement equipment through product and distribution centers worldwide

On October 18, 2011, the company came out with record first-quarter fiscal 2012 earnings per share of $1.91, which was above the Zacks Consensus Estimate of $1.70 and prior-year earnings of $1.51.

The company’s total revenue increased by 14.3% year over year to $3.2 billion, which is also a record level achieved. Sales for the quarter included 1% contribution from acquisition and 3% from currency effects. Total orders in the quarter increased by 9%.

Industrial International segment achieved highest sales growth on a year-over-year basis, with its revenue increasing by 17.9% to $1.3 billion. However, the segment revenue declined from $1.4 billion in the fourth quarter of 2011.

Industrial North America segment revenue increased 13.1% to $1.2 billion. Aerospace revenue increased 13.9% year over year to $497.5 million. Climate and Industrial Controls segment revenue spiked 3.3% to $242.5 million.

Parker Hannifin increased its fiscal 2012 earnings per share guidance in the range of $7.25 – $7.85 from $6.70 – $7.50. The increased expectation was led by excellent first-quarter result, solid order intake and a decline in share count.

The company had a good start in 2012, with first-quarter sales reaching an all-time record of $3.2 billion, an increase of 14% over last year. Parker-Hannifin’s incremental margin return on sales was 20% for the quarter, which was above the company’s guidance of about 16%.

Parker-Hannifin continues to benefit from a recovering economy and implementation of the Win Strategy. The company focuses on providing leading services to its customers, lean operations and investments in new developments, which will help it to achieve strong earnings growth ahead. Net income in the quarter reached a record high of $298 million. Net income margin was a record 9.2%. Diluted earnings in the quarter were also at an all time high.

However, a depressed market condition remains a matter of concern for the company. Orders for the Climate and Industrial Control segment inched down 1% due to weakness in some of their markets. Major competitors of Parker-Hannifin are Eaton Corporation (ETN - Analyst Report), EMERSON ELECTRIC CO. (EMR - Analyst Report) and Honeywell International Inc. (HON - Analyst Report).

We expect the company to perform in line with the market and hence maintained a Neutral recommendation.