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Parker-Hannifin (PH) Up 9.2% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Parker-Hannifin Corporation (PH - Free Report) . Shares have added about 9.2% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is PH due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Parker-Hannifin Beats on Q3 Earnings, Lifts View Again

Parker-Hannifin kept its impressive streak of beating estimates alive for the 11th consecutive quarter, as its third-quarter fiscal 2018 adjusted earnings of $2.80 per share trumped the Zacks Consensus Estimate of $2.62 by 6.9%.

The earnings figure was even more impressive on a year-over-year basis, reflecting an improvement of 33%. The uptrend came on the back of remarkable revenue expansion, improved margins and the revamped Win Strategy.

Inside the Headlines

Net sales in the quarter under review jumped 20% year over year to a record $3,750 million and also trumped the Zacks Consensus Estimate of $3,690 million. Contribution from the CLARCOR acquisition and consistent performance in the Diversified Industrial segment were major growth drivers. Organic sales increased 8% year over year.

Parker-Hannifin’s adjusted total segment operating income for the reported quarter came in at $610.1 million, up 16.3% from the year-ago quarter’s tally of $509.9 million. Orders also increased 11% in aggregate for the company. The company witnessed order growth for the seventh consecutive quarter, mirroring improving demand in the key end markets and regions.

Segmental Performance

In the Diversified Industrial segment, North American sales for the quarter climbed 25% to $1,761.8 million, maintaining its striking momentum. Additionally, this segment recorded 11% growth in orders on a year-over-year basis.

Industrial International, which is also classified under the Diversified Industrial segment, performed strongly as well, delivering a 23% year-over-year jump in sales to $1,389.3 million. In addition to robust sales growth, orders in this segment also advanced 8% on a year-over-year basis.

Revenues in the Aerospace Systems segment charted positive growth in the quarter review and rose 4% year over year to $598.4 million. Orders grew 17% in this segment on a rolling 12-month average basis.

In addition to strong sales growth, Parker-Hannifin achieved robust operating margins during the reported quarter as well. Adjusted segment operating margins during the quarter came in at 16.3%, expanding 20 basis points (bps) year over year. Apart from accelerated revenue growth, successful execution of the company’s Win Strategy initiatives drove margins.

Liquidity

As of Mar 31, 2018, Parker-Hannifin’s cash and cash equivalents were $1,089.5 million, higher than $819.6 million in the prior-year quarter. Long-term debt was $4,818.6 million at year end, lower than $5,255.2 million recorded a year ago.

Acquisitions

In third-quarter fiscal 2017, Parker-Hannifin closed its most notable acquisition agreement to buy air filtration-systems provider — CLARCOR Inc. — for roughly $4.3 billion in cash. The acquisition will unlock fresh recurring revenue streams for Parker-Hannifin’s Filtration Group as 80% of CLARCOR’s revenues are generated through aftermarket sales. The company is bullish on the integration of CLARCOR with its filtration business, which will help it double sales in this unit and optimize the after-market mix of Parker-Hannifin.

Further, Parker-Hannifin announced the acquisition of Helac Corporation in 2017, which specializes in the design and manufacture of helical rotary actuators. Helac will aid Parker-Hannifin in expanding its hydraulics product portfolio and cater to customers in a wide variety of markets.

The company is currently integrating these two filtration units into its businesses. We believe that these acquisitions will unlock significant synergies and drive growth for the company in the times to come.

Guidance

Once again, Parker-Hannifin raised its guidance for the fiscal year ending Jun 30, 2018. Adjusted earnings from continuing operations are projected in the range of $9.95-$10.15 per share (previous projection: $9.65-$10.05). The guidance is adjusted for expected business realignment expenses of approximately $50 million and CLARCOR acquisition-related expenses of $45 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been five revisions lower for the current quarter.

VGM Scores

At this time, PH has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.

Based on our scores, the stock is equally suitable for value, growth, and momentum investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, PH has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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