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Why Is Parker-Hannifin (PH) Up 7.4% 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 7.4% 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 drivers.

Parker-Hannifin Q4 Earnings Top Estimates, Decrease Y/Y

Parker-Hannifin has reported better-than-expected earnings results for the fourth quarter of fiscal 2020 (ended Jun 30, 2020), with a beat of 73.5%. Also, its sales surpassed estimate by 10.2%.

The company’s adjusted earnings were $2.55 per share in the quarter, surpassing the Zacks Consensus Estimate of $1.47. However, earnings declined 23% from the year-ago quarter’s $3.31 per share.

For fiscal 2020, the company’s adjusted earnings were $10.79 per share, down 8.9% year over year.

Revenue Details

In the quarter under review, the company’s net sales were $3,160.6 million, reflecting a 14.1% year-over-year decline. Organic sales in the quarter declined 21% year over year. Orders were down 22% in the quarter.

Notably, the company’s top line surpassed the Zacks Consensus Estimate of $2,867 million.

For fiscal 2020, net sales were $13,695.5 million, reflecting a 4.4% year-over-year decline.

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

The Diversified Industrial segment’s revenues totaled $2,536.7 million, representing 80.3% of net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues decreased 15.5% year over year.

It is worth mentioning that the segment’s revenues generated in North America totaled $1,440.2 million, decreasing 17.5% year over year. Also, the segment’s International revenues were $1,096.4 million, down 12.9% year over year. Orders in the quarter decreased 29% year over year for Diversified Industrial North America and that for Diversified Industrial International fell 21%.

The Aerospace Systems segment generated revenues of $624 million, accounting for 19.7% of net revenues in the reported quarter. Sales fell 8% year over year. Orders in the quarter decreased 5% year over year.

Margin Profile

In the reported quarter, the company’s cost of sales decreased 14% year over year at $2,357.3 million. It represented 74.6% of the quarter’s net sales versus 74.4% in the year-ago quarter. Selling, general and administrative expenses decreased 9.8% year over year to $352.7 million. It represented 11.2% of net sales in the reported quarter versus 10.6% in the year-ago quarter.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in the quarter decreased 6.8% year over year to $646.2 million. Adjusted EBITDA margin expanded 160 bps to 20.4%. Interest expenses in the quarter increased 48.7% year over year to $74.5 million.

Balance Sheet & Cash Flow

Exiting fiscal 2020, Parker-Hannifin had cash and cash equivalents of $685.5 million, down 1.7% from $697.6 million recorded in the last reported quarter. Long-term debt was down 5.5% sequentially to $7,652.3 million.

In fiscal 2020, the company generated net cash of $2,070.9 million from operating activities, reflecting growth of 19.7% from the year-ago period. Capital spending totaled $232.6 million versus $195.1 million in the year-ago period.

In fiscal 2020, the company paid out cash dividends of $453.8 million, up 10% on a year-over-year basis.

Outlook

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

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted 13.4% due to these changes.

VGM Scores

Currently, Parker-Hannifin has a strong Growth Score of A, a grade with the same score on the momentum front. However, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Parker-Hannifin has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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