Earnings Preview: Parker-Hannifin

Parker-Hannifin Corp. ( PH - Analyst Report ) is slated to release its second-quarter 2012 results on Friday, January 20, 2012. The current Zacks Consensus Estimate for second-quarter earnings per share (EPS) is $1.63, representing an annualized growth of 17.34%.

Parker-Hannifin’s earnings were above the Zacks Consensus Estimate in the last quarter while was below estimate in the fourth quarter of fiscal 2011. Moreover, in the second and third quarters, the company outperformed the Zacks Consensus Estimate with an average positive surprise of 6.95%.

First Quarter Highlights

Parker-Hannifin reported first-quarter fiscal 2012 earnings per share of $1.90, slightly below the Zacks Consensus Estimate of $1.70 and above prior-year earnings of $1.51. The company reported record earnings result for the quarter, which was an all time high.

Total revenue in the quarter increased by 14.3% year over year to $3.2 billion, which was 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%.

Agreement of Estimate Revisions

In the last 30 days, of the analysts providing estimates on the stock, one increased its estimate for the second quarter while none decreased the same. For fiscal 2012 and 2013, none of the analysts changed their estimates.

For the second quarter, one of the analysts increased its estimate in the last 7 days while none changed the same for fiscal 2012 and 2013.

Magnitude of Estimate Revisions

In the last 30 days, earnings estimates for the second quarter 2012, fiscal 2012 and fiscal 2013 remained unchanged at $1.63, $7.47 and $8.05, respectively.

Our Take

We believe Parker Hannifin is a high-quality company that is showing signs of good execution. The company is witnessing a recovery in aerospace demand, which positively favors its future growth. MRO (Maintenance, Repair, and Overhaul) is expected to get a boost from continued deferral of capital investment in new machines. Parker Hannifin’s strong exposure to MRO-type products and ability to convert net income into free cash flow will benefit future earnings.

However, the company’s domestic and foreign operations are subject to significant competitive pressures. To compete successfully, the company’s Industrial Segment and Climate & Industrial Controls Segment must excel in terms of product quality and innovation, customer service, manufacturing and distribution capability and price competitiveness. Meanwhile, the Aerospace Segment must excel on the basis of technological and engineering capability, quality, delivery and service as well as price competitiveness. Major competitors of Parker are Eaton Corporation ( ETN - Analyst Report ) and Honeywell International Inc. ( HON - Analyst Report )

Overall, we believe Parker-Hannifin is all set to deliver good financial results in the second quarter of fiscal 2012. We continue to maintain a Neutral rating on Parker-Hannifin for the long term. The company, however, has a Zacks #4 Rank (Sell recommendation) over the next one-to-three months.