It has been about a month since the last earnings report for Parker-Hannifin (PH - Free Report) . Shares have added about 13.8% 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 the most recent earnings report in order to get a better handle on the important drivers.
Parker-Hannifin Q3 Earnings and Sales Surpass Estimates
Parker-Hannifin reported better-than-expected earnings results for the third quarter of fiscal 2020 (ended Mar 31, 2020), with a beat of 29.2%. Also, its sales surpassed estimate by 5.7%. The company noted that it is working aggressively in its fight to contain the spread of the coronavirus.
Its adjusted earnings were $2.92 per share in the quarter, surpassing the Zacks Consensus Estimate of $2.26. However, earnings declined 7.9% from the year-ago quarter’s $3.17 per share.
In the quarter under review, the company’s net sales were $3,702.4 million, reflecting 0.4% year-over-year growth. Organic sales in the quarter declined 7.4% year over year. Orders were down 2% in the quarter.
Also, the company’s top line surpassed the Zacks Consensus Estimate of $3,504 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 $2,957.9 million, representing 79.9% of net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues decreased 2.6% year over year.
It is worth mentioning that the segment’s revenues generated in North America totaled $1,775.6 million, increasing 1.4% year over year. However, the segment’s International revenues were $1,182.3 million, down 8% year over year. Orders in the quarter decreased 7% year over year for Diversified Industrial North America and that for Diversified Industrial International fell 2%.
The Aerospace Systems segment generated revenues of $744.6 million, accounting for 20.1% of net revenues in the reported quarter. Sales grew 14.2% year over year. Orders in the quarter increased 12% year over year.
In the reported quarter, the company’s cost of sales was flat year over year at $2,766.7 million. It represented 74.7% of the quarter’s net sales versus 75% in the year-ago quarter. Selling, general and administrative expenses increased 14.6% year over year to $413.5 million. It represented 11.2% of net sales in the reported quarter versus 9.8% in the year-ago quarter.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in the quarter increased 3.3% year over year to $713 million. Adjusted EBITDA margin expanded 60 bps to 19.3%. Interest expenses in the quarter increased 67.5% year over year to $80.8 million.
Balance Sheet & Cash Flow
Exiting the third quarter of fiscal 2020, Parker-Hannifin had cash and cash equivalents of $697.6 million, down 26.4% from $948.4 million recorded in the last reported quarter. Long-term debt was down 0.5% sequentially to $8,097.9 million.
In the first nine months of fiscal 2020, the company generated net cash of $1,290.9 million from operating activities, reflecting growth of 18.1% from the year-ago period. Capital spending totaled $182.5 million versus $145.1 million in the year-ago comparable period.
During the period, the company paid out cash dividends of $340.3 million, up 13.8% from the first nine months of fiscal 2019.
Due to the pandemic-related worries, the company has informed that it is withdrawing its earnings projections for fiscal 2020. However, it did mention that its present efforts (cost reduction, cash preservation and others) along with its business transformation and restructuring actions (done in the past few years) will help it tide over the difficult situation.
The company also mentioned that April order trends suggest a 30-35% decline year over year. For Aerospace Systems, orders are likely to fall 40-45% in the month, and declines of 30-35% for Diversified Industrial North America and 25-30% for Diversified Industrial International are expected.
How Have Estimates Been Moving Since Then?
Since the earnings release, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted 18.78% due to these changes.
Currently, Parker-Hannifin has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Parker-Hannifin has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.