Parker-Hannifin Q4 2025 Earnings Report

Parker-Hannifin EPS Results

• Actual EPS: $7.69
• Consensus EPS: $7.08
• Beat/Miss: Beat by +$0.61
• One Year Ago EPS: $6.77

Parker-Hannifin Revenue Results

• Actual Revenue: $5.24 billion
• Expected Revenue: $5.10 billion
• Beat/Miss: Beat by +$140.43 million
• YoY Revenue Growth: +1.10%

Parker-Hannifin Announcement Details

• Quarter: Q4 2025
• Date: 8/7/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, August 7, 2025
• Conference Call Time: 11:00AM ET

Parker-Hannifin (NYSE:PH) manufactures and sells motion and control technologies and systems for various mobile, industrial, and aerospace markets worldwide. The company operates through two segments: Diversified Industrial and Aerospace Systems. The Diversified Industrial segment offers sealing, shielding, thermal products and systems, adhesives, coatings, and noise vibration and harshness solutions; filters, systems, and diagnostics solutions to ensure purity and remove contaminants from fuel, air, oil, water, and other liquids and gases; connectors used in fluid and gas handling; and hydraulic, pneumatic, and electromechanical components and systems for builders and users of mobile and industrial machinery and equipment. This segment sells its products to original equipment manufacturers (OEMs) and distributors who serve the replacement markets in manufacturing, packaging, processing, transportation, construction, refrigeration and air conditioning, agricultural, and military machinery and equipment industries. The Aerospace Systems segment offers products for use in commercial and military airframe and engine programs, such as control actuation systems and components, engine build-up ducting, engine exhaust nozzles and assemblies, engine systems and components, fluid conveyance systems and components, fuel systems and components, fuel tank inerting systems, hydraulic systems and components, lubrication components, avionics, sensors, pneumatic control components, thermal management products, fire detection and suppression systems and components, and wheels and brakes, as well as fluid metering, delivery, and atomization devices. This segment markets its products directly to OEMs and end users. The company markets its products through direct-sales employees, independent distributors, and sales representatives. Parker-Hannifin Corporation was founded in 1917 and is headquartered in Cleveland, Ohio.

Parker-Hannifin Q4 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Achieved a record fiscal 2025 with $19.9 B sales, 26.1% adjusted segment operating margin, 26.4% adjusted EBITDA margin, $3.8 B cash flow from operations, 7% adjusted EPS growth and an $11 B backlog.
• Positive Sentiment: Aerospace delivered record $6.2 B sales (13% organic growth) and a $7.4 B backlog, with a 51% aftermarket/49% OEM split and on track for 940 bps margin expansion from FY 2019 to FY 2026.
• Positive Sentiment: Industrial segment hit a record 25.1% adjusted segment operating margin (+90 bps), and is targeting 700 bps margin expansion from FY 2019 to FY 2026 despite recent negative organic growth.
• Positive Sentiment: Announced acquisition of Curtis Instruments to broaden electrification offerings and secular revenue mix; transaction is EPS-accretive with synergies expected within three years and closing by year-end.
• Neutral Sentiment: Guiding FY 2026 to $20.6 B sales (2–5% reported growth), ~3% organic growth, 26.5% adjusted segment margin (+40 bps), $28.9 adjusted EPS (+6%) and $3–$4 B free cash flow.

Presentation

[Operator]

Please be advised that today's conference is being recorded.

[Operator]

I would now like to turn the call over to Mr. Todd Liambruno, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Thank you so much, Bo. I'd like to welcome everyone to Parker's fiscal year twenty twenty five fourth quarter and full year earnings release webcast. As Bo said, this is Todd Leonbruno, Chief Financial Officer speaking. And with me today, usual, is Jenny Farmateer, our Chairman and Chief Executive Officer. We appreciate your interest in Parker, and we thank everyone for joining us today.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

On Slide two, we address our disclosures on forward looking projections and non GAAP financial measures. Items listed here could cause actual results to vary from our forecast. Our press release, this presentation and reconciliations for all non GAAP measures were released this morning and are available under the Investors section on Parker. The agenda for today has Jenny starting out with the highlights of our record fiscal year 2025 performance. She will then reiterate the strength of our transformed portfolio, the Power of the Win Strategy, which is our business system that drives performance in all economic climates, and then she'll provide some color on our recently announced acquisition of Curtiss Instruments.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

I'm going to follow with a few details on our strong fourth quarter financial results. We did release our initial FY twenty twenty six guidance this morning, and we will discuss the assumptions and provide some color on what we expect to be another record year for Parker. We'll conclude the call with a normal question and answer session, and we will do our best to take as many questions as possible. Now I would ask everyone to call your attention to Slide three. And Jenny, the floor is yours.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Thank you, Todd, and thank you to everyone for joining the call today. The Win Strategy and our culture of high performance delivered another record year. We had a 17% reduction in recordable incident rate, once again achieving top quartile safety performance and record engagement survey results. Top line sales finished at $19,900,000,000 and this team achieved record adjusted segment operating margin of 26.1%, an increase of 120 basis points to prior year and record adjusted EBITDA margin of 26.4%, an increase of 80 basis points to prior year. We generated record cash flow from operations of $3,800,000,000 and delivered 7% adjusted EPS growth.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

We finished the year with a record $11,000,000,000 in backlog and we remain committed to a disciplined, active and balanced capital deployment strategy. Next slide please. Another year of outstanding performance from aerospace with record sales of $6,200,000,000 that's 13% organic growth and 190 basis points of adjusted expansion. Orders continue to outpace sales growth as we finished the year at a record backlog of 7,400,000,000 Today, we enjoy a balanced and diverse aerospace portfolio. We finished FY 2025 with 51% of our sales sales from serving the aftermarket and 49% from serving our OEM customers.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Looking back to FY 2019, I'd like to recognize our aerospace team for navigating and managing through numerous industry challenges, successfully integrating the Parker and Meggitt Aerospace businesses together and staying focused every day on the safety of our team members and improving the experience for all of our customers. The performance is impressive. Sales are approximately 2.5 times higher and we are on track to expand adjusted segment operating margin by nine forty basis points from fiscal year twenty nineteen through our fiscal year twenty twenty six guide and we're not done yet. Our comprehensive offering of proprietary designs on premier programs and our global footprint that supports a diverse customer base well positions us for sustained growth and operating performance. Next slide please.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

The Industrial segment of our business has been a large part of our transformation and margin expansion story. Fiscal year twenty twenty five delivered record adjusted segment operating margin of 25.1, a 90 basis point increase over prior year. Using the Win Strategy, our teams are on track to deliver 700 basis points margin expansion from fiscal year twenty nineteen through our FY 2026 guide. This is a testament of our ability to expand margins through the cycle even in periods of negative organic growth. Our powerhouse of interconnected technologies, global distribution network and global manufacturing footprint are competitive advantages that will drive growth from secular trends across the market verticals.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Our portfolio today is well balanced. Two thirds is now longer cycle secular trends and aftermarket. We are poised for a return to growth. Next slide please. Once again, the transformation of our portfolio further expanded longer cycle and secular revenue mix in fiscal year twenty twenty five.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Acquisitions in both aerospace and industrial along with international distribution growth have greatly contributed to this transformation. We see this transformation continuing and expect 85% of our portfolio to be longer cycle secular and aftermarket by fiscal year twenty nineteen. Next slide please. And on June 30, we announced our intent to acquire Curtis Instruments, further expanding our electrification offering and secular revenue mix. Curtis is the leader in low voltage motor control solutions for zero emission and hybrid mobile equipment.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

This acquisition will add a complementary suite of control solutions to pair with Parker's electric motor and motion control portfolio. This will further enhance our capabilities for in plant and off highway applications. Curtis has a strong market position across diverse and growing end markets. These are markets that we know, customers we have relationships with and products that will be a great addition to our portfolio. We expect to close by end of the calendar year and we look forward to welcoming the Curtis team to Parker.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Next slide please. And a reminder on why we win. First, the win strategy is our business system. We have a decentralized operating structure, 85 divisions run by general managers with full P and L responsibility, acting like owners, close to their customers and executing the Win Strategy every day. We have innovative products that solve customer problems, 85% covered by intellectual property.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Our application engineers provide the expertise that allows us to have a competitive advantage with our technologies to provide efficient solutions for our customers. And finally, our distribution network is the envy of the competition and the best in the world. It took us over sixty years to build it and it is truly an extension of our engineering teams providing solutions to small and mid sized OEMs. These partners are experts at applying our interconnected technologies. I'll now turn it back over to Todd to go through our fiscal year 2025 highlights.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Thank you, Jenny. FY 2025 was really a strong year. I'm going to try and quickly wrap up FY 2025 with the Q4 results and I'm on Slide 10. Fourth quarter was another record setting quarter. In fact, every number on this page is once again a record.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

It was another quarter of continued margin expansion and a quarter of double digit EPS growth. Really impressive considering that sales were up just 1% versus prior year. Organic growth was positive at 2%. That's the highest we've been all fiscal year. Currency did turn favorable at 1% and the divestitures that we previously announced throughout the year were 2% unfavorable to total sales.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Adjusted segment operating margin was 26.9%. That's up 100 basis points from prior year. And adjusted EBITDA margin was 26.8%. That's an increase of 50 basis points from prior year. Adjusted net income was almost $1,000,000,000 was $992,000,000 in the quarter.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

That was an 18.9% return on sales. And adjusted earnings per share were up 14% and they reached $7.69 per share. Just a fantastic quarter really from all the businesses resulting in the best performance that we've had this fiscal year for sales, for organic growth, for adjusted segment margins and for adjusted EPS. We'd really like to thank our global team for a strong finish to the fiscal year. We talk about this a lot internally, finishing strong and everyone certainly delivered.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

If you move to Slide 11, this just highlights the components in the year over year improvements. And adjusted EPS, what I'm proud to say here is 60% of the improvement in EPS in the quarter came from strong operating execution. Segment operating income dollars are up $96,000,000 or 7%. That was $0.56 of our improvement. Income tax was a big favorable in the quarter.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

That's $0.47 favorable. That was really a result of a few discrete tax benefits that were resolved in the quarter. Also, I'd just like to call attention that Q4 last year was our highest tax rate of the year. So comps helped a little bit there. Interest expense continues to be favorable.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

That was $0.12 favorable. That's really just based on our efforts to pay down debt throughout the year. And discretionary share repurchases drove a $09 favorable impact. You can see that on share count bar there. Corporate G and A and other were unfavorable, really a combined $0.32 That's a combination of less favorable pension expense versus prior year, but really a result of foreign currency exchange volatility year over year.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

The EPS growth story has been really consistent throughout the year, just strong operating execution, very tight cost controls driving margin expansion and as Jenny mentioned, disciplined capital allocation. So just a great way to finish the year. If we can go to Slide 12, this just details the performance across our businesses. First, I'll start with orders. Orders continue to be positive.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

It's plus five versus prior year. Aerospace strength continues to drive backlog higher. Jenny mentioned that's a record. We did see gradual improvement in sales growth across our major market verticals. And once again this quarter, every business delivered record segment operating margins.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Very nice to see that. And I already mentioned it, but total in total, we were up 160 basis points from prior year. Looking specifically in the North America businesses, sales were $2,100,000,000 Organic growth was just down 1% versus prior, but we did continue to see a sequential improvement in the organic growth. And quite honestly, that was better than our expectations coming into the quarter. We did see improvement across the market verticals in North America.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

So that was a positive and distribution sentiment continues to be positive across the channel. Adjusted operating margins did increase 170 basis points to a record 26.7%, and that was just again driven by excellent operating execution, cost controls and a little bit of favorable mix. Gradual improvement in distribution kept orders in North America positive at plus 2% versus prior year. And just want to note that this is the third consecutive quarter of positive order growth for North America. Moving to the Diversified Industrial International businesses.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Sales were up to $1,500,000,000 that's up 4%. Organic growth was positive at 1%. It was really nice to see that turn positive. In Asia Pac, organic growth was plus 6%. In Latin America, it was plus 4%.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

While EMEA did improve, it did remain negative 3% from an organic growth standpoint. Our international teams are really committed to using the tools of The Win Strategy to reduce cost, improve efficiency and drive margin expansion no matter what's happening with the top line. And that resulted in adjusted operating margins achieving a record of 24.7%, which is an 80 basis point expansion from prior year. On the order front, international orders were flat versus prior year, really against some tough comps. And just a reminder that orders in Q3 did benefit from a number of significant long cycle orders that remain in the backlog.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Lastly, if I look at Aerospace Systems, the momentum continues in Aerospace. Sales were a record $1,700,000,000 That's up 10% versus prior year. That did exceed our expectations for the quarter. Organic growth was most of that. 9% of that growth is organic, really driven by strong strength in the aftermarket channels.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Adjusted segment operating margins up huge 190 basis points versus prior and reached a record 29%. And Aerospace orders continue to be positive at plus 12%. Really want to commend our Aerospace team members for another outstanding quarter and a strong finish to a stellar year. All right. On Slide 13, this is my last slide for the year.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

This is cash flow. We finished FY 2025 by achieving record cash flow generation. Cash flow from operations is a record at $3,800,000,000 that's 19% of sales. Free cash flow is also a record at $3,300,000,000 or 16.8% of sales with conversion at 109 after adjusting for some non operating items. Both CFOA and free cash flow increased by 12% versus prior year.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

And in addition, we did repurchase an additional $850,000,000 in shares during the quarter and that brought our year to date share repurchases amount to $1,600,000,000 And that is a wrap on our record FY 2025 performance. So I know everyone's interested in guidance. We'll move on to FY 'twenty six guidance. And Jenny, I'm going hand

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

it back to you on Slide 15. Thanks, Todd. This slide shows our fiscal year 'twenty six organic sales growth forecast by key market vertical. So in Aerospace, we are forecasting high single digit growth with higher growth in commercial OEM than commercial aftermarket. We are forecasting low single digit growth in In Plant and Industrial, this is assuming a gradual industrial recovery.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Transportation, our most challenged market this year, we are forecasting a mid single digit organic decline. In Off Highway, we are forecasting a low single digit decline. The ag market has moved past trough, but needs a little more time before returning to positive. Construction is stronger than ag with recovery underway. And we expect positive low single digit growth in energy as well as HVAC and refrigeration.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

At the midpoint, this results in 8% organic growth for aerospace, approximately 1% organic growth for both Industrial North America and Industrial International and approximately 3% total Parker organic growth. I'll give it back to Todd to go through more details guidance.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Okay. Thank you, Jenny. I'm on Slide 16. We'll just go over a few items. Reported sales growth for the year is expected to be in the range of 2% to 5%, that's 3.5% at the midpoint.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

That will be approximately 20,600,000,000.0 annual sales. And we have modeled those sales 48% in the first half, 52% in the second half. And consistent with our practice, this guidance does not include any impact from the We will add Curtiss to our guide once it closes. If you look at organic growth, Jenny mentioned this, but the forecast is in the range of 1.5 to 4.5% or 3% at the midpoint.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Aerospace is again 8% at the midpoint and both North America and international we expect 1%. Organic growth is modeled two percent first half and four percent second half. Currency as usual is based on the June 30 spot rates. And based on our math here, it shows that that's expected to be favorable by 1.5% or roughly $260,000,000 On margins, adjusted segment operating margin guidance is 26.5% at the midpoint. That is an increase of 40 basis points versus the FY 2025 finish.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

And in respect to incrementals, we have modeled roughly 35% for the full year on incrementals. Just a few things to note. Below segment operating income, corporate G and A is approximately $200,000,000 interest expense approximately $390,000,000 and other expense is approximately 80,000,000 midpoint.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Tax rate, we are modeling a 22.5% tax rate. As usual, we are not including any unknown discretes in that number. 22.5% is what we have modeled. And EPS for the full year is expected to be $28.9 on an adjusted basis at the midpoint. That is an increase of 6% versus prior year.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

We have a range of $0.50 on both sides of that $28.9 And the split on EPS is forty six percent first half, fifty four percent second half. Lastly, in respect to cash flow, full year free cash flow is expected to be in the range of 3,000,000,000 to $4,000,000,000 with conversion at approximately 100%. And lastly, on the far right column here, you could see what we have highlighted for Q1. FY 2026, all of these numbers are at the midpoint. Reported sales are roughly 0.5% positive.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Organic growth is 2% positive. And we are forecasting 26.1 for adjusted segment margins and an adjusted EPS of $6.51 As usual, we have some further details in the appendix if those are helpful for your model. Lastly, on Slide 17, this is just the bridge. And I'll just highlight as we walk through this. We are forecasting a 5% increase in adjusted segment operating income dollars, which translates to $1.68 in additional EPS.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Share count based off of that year to date repurchase amount is roughly $0.37 of improvement in EPS for FY 2026. Corporate G and A are forecast to be $0.18 favorable. And again, interest rate will give a little bit of a tailwind $0.11 for the year. The forecasted tax rate of '22 is a headwind of $0.77 compared to our the effective tax rate that we realized in FY 2025. Once again, that does not include any discrete items.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

So in summary, we are guiding FY 2026 at $28.9 and adjusted EPS that is up 6%. And with that, I'm going to ask you to move to Slide 18. And Jenny, I will hand it back to you.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Thank you, Todd.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

So I'll close with a reminder on what drives Parker. And again, thank you to all the Parker team members for a fantastic fiscal year 2025 and a very, very promising FY 2026. Safety and engagement and ownership are the foundation of our culture. It's our people and our purpose that drives top quartile performance, and we remain committed to being great generators and deployers of cash.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Okay. Bo, we are ready to start the Q and A session.

[Operator]

Certainly, Mr. We'll go first today to Joe Ritchie of Goldman Sachs.

[Joseph Ritchie, Managing Director at Goldman Sachs]

Hey, good morning, everybody, and congrats on another great year.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Thanks, Joe.

[Joseph Ritchie, Managing Director at Goldman Sachs]

Can we just maybe talk about the Q1 guide? If you take a look at that relative to the last few years, it's a pretty meaningful sequential step down in EPS relative to what you've seen even just like the last three years. So can you guys maybe just talk about like the bridge between 4Q to 1Q and what's really changing on the margin embedded in your guide?

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Well, I'll start Joe and then I'll let Todd follow-up if he has any more comments. So first of all, we had very little sales growth in Q1 and this EPS guidance for Q1 is a $05 increase year over year. And this margin at 26.1% does have 40 basis points of margin expansion and is a Q1 record, will be a Q1 record. So I think this is a good starting point for the year for us.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Yes, Joe, would add, we do have sequentially it's hard to go from Q4 to Q1, Q1 being obviously the start of our fiscal year. We do have to recognize some of the stock comp that is a big hit in Q1. If you look at that versus prior year, Jenny mentioned this, but we're forecasting 80 basis points of margin expansion, Q1 twenty six versus '25, and EPS is a little over 4% of an increase.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

40 basis points.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Oh, I'm sorry, Yes. 40

[Joseph Ritchie, Managing Director at Goldman Sachs]

Okay. All right. Yes. No, it's just looks to touch conservative, but that's okay. I guess maybe just a broader question.

[Joseph Ritchie, Managing Director at Goldman Sachs]

It sounded like you were seeing some green shoots across your businesses. Maybe just kind of talk through, especially the industrial short cycle businesses, what you're seeing there? And then also, can you just touch on like the self help opportunity for this year as well? Clearly, you've been doing a great job from a margin perspective. If you can just touch on those two points, that'd be great.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Sure. So taking a look at implant and industrial equipment guidance. So we have that at a positive low single digit for the year. And as I mentioned, that does assume a gradual industrial recovery. I mean, I would say, Todd mentioned this already, but distributor sentiment does remain positive.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

And I think we're in a good position to benefit from some of the customer supply chain actions. So we'll benefit from increased MRO activity, any factory retooling or spending that's going on and our distributors will participate in that. They continue to tell us, I was on a distributor visit just in the last month, they continue to tell us that they're quoting. And it's the activity is there, just still some of those delays that we've been talking about now for a few quarters. When you look at transportation, mentioned that that is going to be our most challenged market this year.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

There's some near term pressure in both auto and truck markets. We think their end users, they're delaying their purchasing decisions due to the uncertainty on cost, timing of new emission requirements and current interest rate levels. We think that's all buying into that. So again, will be a challenged market for us. Off highway, our guidance is at negative low single digit, but there's improvement here.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Turned out to be a little bit better. Construction was a little bit better in Q4 than we thought it would be, and we see that continuing. We see that recovery underway. A lot of the ongoing and announced infrastructure here is going to be a plus. But the ag market, while we do believe that it's moved past a trough, we think that it's going to be a little bit of time before it returns to positive.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Again, cost uncertainty, interest rates, crop prices, all factors here. So we see improvement and that's why we have the guide where it is. But obviously there's some opportunity here.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Joe, I would just add your question on self help. Obviously everything we have on The Win Strategy is a self help margin enhancing process of tools. But we are forecasting slightly higher restructuring this year versus what we did last year just in some of those regions or some of those end markets that may need attention?

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Yes. We still you heard me say before, we're very confident in our ability to expand margins with these tools. It's obviously shown what we've done in all of the business in this past fiscal year and the ones before, but we have great teams that are using these tools on a regular basis and really delivering great results. It will continue.

[Joseph Ritchie, Managing Director at Goldman Sachs]

Thank you.

[Operator]

Thank you. We go next now to Jeff Sprague of Vertical Research Partners.

[Jeffrey Sprague, Founder & Managing Partner at Vertical Research Partners]

Hey, thanks. Good morning, everyone.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Good morning, Good morning, Jeff.

[Jeffrey Sprague, Founder & Managing Partner at Vertical Research Partners]

Good morning.

[Jeffrey Sprague, Founder & Managing Partner at Vertical Research Partners]

Jenny or Todd, maybe you could just speak a little bit, more to Curtis, kind of where the margin profile is on a Parker comparable basis, what kind improvement you can get in the business from a synergy standpoint relative to the deal plan that you must have internally? And what's the growth been like in that business recently? How is it performing in 2025?

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Yes, sure Jeff, be happy to. We're really excited about bringing Curtis into the Parker team. So we chose not to disclose their margins more about the size of this deal. But initially, the margins will be dilutive, but we see a clear path to accretion with the Win Strategy, the tools we were just talking about and with synergies. We expect, like you've seen with our past deals, full synergies within three years.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

And relative size would be similar to the Lord and Mega deals. That's what we're looking at right now. Historically, Curtis sales have grown mid single digit to high single digit over the past five to ten years. So really nice growth profile with them.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Jeff, the only thing I would add is if you look at what we are forecasting for 2026, the segment operating income dollars roughly $5,500,000,000 worth of segment operating income that does not include Curtis. So to Jenny's point, this will be slightly dilutive, but it's small in scale compared to where it fits in the total company.

[Jeffrey Sprague, Founder & Managing Partner at Vertical Research Partners]

Right. It would be margin dilutive. I know you don't want to give an EPS number yet, but it looks like it's EPS accretive, right? Margin dilutive, EPS accretive?

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Correct.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Yes.

[Jeffrey Sprague, Founder & Managing Partner at Vertical Research Partners]

Right. Right.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

I think, yes, we expect EPS accretion in the first year.

[Jeffrey Sprague, Founder & Managing Partner at Vertical Research Partners]

Yes, absolutely. Okay. And then just on international orders, I guess, Todd, your comment alluded to the fact that maybe the softness here in Q4 was because you got some chunky orders in Q3. Maybe you could just elaborate a little bit more on that and what's going on sort of in the international order pipeline?

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Sure. Jeff, I'll take that one. So yes, Todd did mention that, that we in Q3, we had very strong long cycle orders in International. We saw that in HVAC and refrigeration, power gen and aerospace and defense. They didn't repeat in Q4, but we did see EMEA slightly positive with energy remaining really strong.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

And then in Asia, orders were slightly negative and that was really more about a challenging comp to the prior year. But if you look at the order dollars, they were flat sequentially to Q3. So that really explains the difference between Q3 and Q4 and that drop that we saw.

[Jeffrey Sprague, Founder & Managing Partner at Vertical Research Partners]

Thank you.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Thank you.

[Operator]

Thank you. We go next now to Scott Davis with Melius Research.

[Scott Davis, Chairman, CEO & Founding Partner – Multi-Industry Research at Melius Research LLC]

Hey, good morning, Jenny and Todd, and congrats on a good year.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Thanks, Scott.

[Scott Davis, Chairman, CEO & Founding Partner – Multi-Industry Research at Melius Research LLC]

Just wanted to follow on just Curtis and then combine that with the big buyback Is that an indication that you expect M and A to continue to be more of kind of the smaller bolt on type stuff? Or am I reading too much into that?

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Well, like you've heard me say many times in the past, Scott, we have deals of all sizes in our pipeline. It can be small and bolt on or there could be something larger out there. As we said, timing is hard to predict. But obviously, strategy remains the same. We want to acquire companies where we're the clear best owner, fits in with our interconnected technologies and follows the secular trends that we've talked about here for a while.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

So it doesn't mean that they'll all be this size, but we're going to continue to work that pipeline. It's building those strong relationships and making sure that we're ready when they're ready.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Yes, Scott, I would just add, you've heard us talk, we want to operate with net gross debt to adjusted EBITDA around two. We finished the year at roughly 1.7. So we do have obviously capacity to do something even below two. But the cash flow generation profile that the company has really gives us lots of optionality. You saw us be active with the share repurchase this year.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

And we'll constantly balance what the best use of our capital is and that's what we expect to do throughout FY 2026.

[Scott Davis, Chairman, CEO & Founding Partner – Multi-Industry Research at Melius Research LLC]

Yes. No, it makes sense. Guys, I don't think you mentioned tariffs. I know it's not wasn't a big deal even last quarter. But just curious, is the lack of kind of mention of tariffs an indication that you've just been able to capture price to offset any impacts?

[Scott Davis, Chairman, CEO & Founding Partner – Multi-Industry Research at Melius Research LLC]

I'm trying to kind of picture how 85 different P and Ls kind of manage something that's such a big complex global issue, but maybe you can address both of those in some way in your answer if you can. Thanks.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Sure, Scott. So first I would just say our teams are doing a fantastic job managing tariffs and making sure that there's no impact to earnings per share. But you probably heard us say pricing is something that is a strong muscle for us. I mean this is a function within Parker Hannifin and these divisions have pricing leaders. And there's a lot of coordination within the groups and across the enterprise, obviously, because a lot of our businesses share the same customers.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

So it's a lot of work. I'm not going to say that it's not. It's been a whole lot of work for them. But they have this down pat. They've done really a great job with it.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

And we have the analytics. We have these robust processes. And we've been able to navigate and act very quickly. So we didn't talk about it because we feel like we have it covered, and it's going to continue to evolve and change, but we're going to make sure that doesn't impact EPS.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Scott, you know us pretty I would just ask, Scott, you know us pretty well. Pricing is one of the levers we're able to flex, but it's also our global footprint. It's our local for local model that we've had for years. It's really our supply chain team being pretty creative with dual sourcing and the ability to ship from multiple regions. So pricing is a big piece of it, but it's not the only tool.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Yes. Our global capacity has been a really good thing for us.

[Operator]

Thank you. We'll go next now to Amit Mehrotra of UBS.

[Amit Mehrotra, MD & Head - Industrial Sector at UBS Group]

Thanks. Good morning. Just a follow-up to that earlier comment. I just wanted to see if you can help us sort of bifurcate the exceptional margin performance in Resilience between price and lower costs. I know each of the 85 divisions has its own pricing management, so obviously pricing is a focus.

[Amit Mehrotra, MD & Head - Industrial Sector at UBS Group]

But one thing I noticed is the absolute cost base of the company also went down in fiscal twenty twenty five, which is pretty amazing just given just inflation has been a little bit higher. So can you help us kind of think about those two things? And is there an opportunity for the OpEx base or the cost base to actually move down an absolute basis after the huge performance in 2025? Or are we just entering a more maybe normalized period where the cost base will mirror kind of normal inflation?

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Well, we thanks for the question, Amit. It gives me the opportunity again to just talk about the Power of the Win strategy. And our teams are focused on reducing cost and expanding margin, like I said earlier, even when we have a negative organic growth environment. So this is our continuous improvement culture. It's our culture of Kaizen.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

It's not we've never been waiting for something to happen. This is just our ongoing way of running our operations and running our businesses. So yes, there is opportunity to further reduce cost and our teams are working on that all the time. Just have a great lean system and a very nice suite of tools that helps each one of those general managers do what they need to do in their business and they're not all the same. So that's the nice thing about the Win Strategy is you can pull from that toolbox as I like to say and improve your business in many ways.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

And obviously the teams are doing a great job of that.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

It a testament to the decentralization of the organization. Those 85 P and Ls have business leaders that are making decisions constantly. We've been taking costs out of the business for over a decade. And you saw that on the charts that Jenny has shown. We talk about this a lot.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

We've changed our compensation structure to reward and be flexible with the flexes of business. And I think that's been a nice plus to the profile of the cost

[Amit Mehrotra, MD & Head - Industrial Sector at UBS Group]

So just a follow-up to that, if that's all true, then why is 35% incrementals the right number for 26%? Because you're in the 40s in Aero and International I mean the decremental margins are, I think, North America were like 2% or something like that. It just would strike me as maybe an opportunity to overachieve when the volumes move up just given where the pricing base is and all that stuff that you just talked about on cost. Is that just conservatism, good placeholder? Or is there something happening that maybe meets the incrementals?

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Well, it is a gradual movement to positive. It's a 1% organic growth in the industrial side of the business. That is 70% of the company. So I don't look at this as being conservative. Normally, say Model 30.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

We're 35%. That's north of 35%. I think we just need to see how it plays out.

[Amit Mehrotra, MD & Head - Industrial Sector at UBS Group]

Okay. All right. Thank you very much. Appreciate it.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Thank you.

[Operator]

We'll go next now to Andy Kaplowitz of Citi.

[Andrew Kaplowitz, Managing Director at Citi]

Morning, everyone.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Morning.

[Andrew Kaplowitz, Managing Director at Citi]

Jenny or Todd, could you give us a little more color on how you're thinking about A and D for '26? Orders were obviously so strong Q4, were they stronger on the defense side versus commercial? When you look at that 8% growth for '20 is the growth pretty balanced between defense and commercial and aftermarket and OE? How are you thinking about that?

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Yes. So I'll take that, Andy. So again, full year organic growth at 8% and we see that on continued MRO strength and gradual OEM recovery. We have commercial OEM to be low double digit growth, commercial MRO of high single digit growth. Defense OEM we have at mid single digit growth and defense MRO we have at mid single digit growth.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

So again, it's going be another great year for aerospace. We're coming off of three years of double digit organic growth. We ended Q4 at about 9% and we have Q1 at 8%. And as I said, we have the year modeled at about 8%. So again, it's going to be another good year.

[Andrew Kaplowitz, Managing Director at Citi]

Very helpful. Then Todd, you're guiding to call it mid single digit plus EPS growth at the midpoint for 26%, but free cash flow at the midpoint is slightly lower. I would have thought that you get a little bit cash tax help from the big beautiful bill. So maybe just reconcile the forecast.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Yes. We are digesting the one big beautiful bill for sure. And that will be a benefit, to be honest with you. That's more of an FY 2027 benefit for us versus an FY 2026 benefit. But on cash flow, there's a few things.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Obviously, when you're looking at net income, we had a few onetime items. We had some divestitures. We had some discrete tax items. We had some facility sales that helped build up the as reported net income. This year, we do expect Industrial to grow.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

So in the previous years, we were getting a benefit from working capital. We do think there'll be some investment there to support growth there. I think you saw we called out 2.5% CapEx. That's higher than what we've historically done. This is really all making sure we have capacity in the businesses that need it and that we are investing appropriately in automation, and robotics and productivity.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

I did mention we do have a little bit more restructuring that we expect to do in FY 2026 versus 2025. And then Jenny mentioned Curtis, we're going to have some onetime costs associated with the acquisition and the integration and the cost to achieve the synergies that we've had laid out there. So we still feel really good about the number. We still think it's very much top quartile from a cash flow standpoint, and we're going to obviously try to out shoot that number.

[Andrew Kaplowitz, Managing Director at Citi]

Appreciate all the color.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Thank you.

[Operator]

Thank you. We go next now to Andrew Obin of Bank of America.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

Yes, good morning.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Good morning, Andrew.

[Scott Davis, Chairman, CEO & Founding Partner – Multi-Industry Research at Melius Research LLC]

Good morning, Andrew.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

Just a question on aerospace. You had a reacceleration in aerospace orders in the past couple of quarters, I think from high single digit to 14% in the third quarter, 12% in the fourth quarter. Can you just talk about this reacceleration, what's driving this?

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

I think, Andrew, for the most part, what we've seen here is the commercial transport rate is increasing and wide body rates are growing to meet international traffic. So I think that's been some of it. And as air traffic growth overall continues, the aftermarket is continuing to grow. And then we have everything that's going on in defense as well. So there's been a continued demand for all of the legacy programs.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

There's continued growth in the Department of Defense budget. So we've seen some nice orders come in. And as you know, are all longer cycle orders.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

And I appreciate you gave some detail here. But last year, you had 7% organic aerospace orders and you delivered 13% organic growth. This year you had 12% organic air orders and guiding to 8% at the midpoint. Can you just help us understand the dynamic between orders and forecast a little bit better versus last year? Thank you.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Well, like I was just saying, Andrew, these orders come in and they're longer cycle, right? We have backlog coverage of over 100% right now in aerospace, and we have a record backlog, right? The orders are coming in higher. There's only so much that can be built at a time. And as rates increase, we'll enjoy more of that.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

But we stay really close to our customers, all of our customers. But aerospace, we know what they're planning on building. We know what those rates are. And we have really good visibility to the demand and their capacity. So we think Aerospace at 8% Q1 8% versus Q4 at 9%. We think it's really right in line.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Andrew, I

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

would also add

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

we're expecting that to be pretty consistent throughout the year. No real ramp on what we're forecasting here. And every one of those numbers will be a quarterly record for Aerospace. So the momentum continues.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

All right. Thanks so much.

[Operator]

We'll go next now to Julian Mitchell of Barclays.

[Julian Mitchell, Equity Research Analyst - US Industrials at Barclays Investment Bank]

Hi, good morning. Maybe just wanted to start with the Industrial growth outlook. So it sounds like Aerospace is sort of pegged at 8% growth in the first quarter and through the balance of the year. Maybe help us understand within Industrial, what's dialed in for sort of the first quarter and then the slope of that acceleration on organic sales? And anything you've seen around pull forward of demand by distributors or OEM customers because of tariffs?

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Yes. I would first just start off saying, Julien, that we're not seeing any evidence of pull forward. There's nothing that I could point to that would show that. For Industrial, for Q1 in North America, we're forecasting negative 1.5% organic growth and positive 05% for International. So total Industrial, we're still showing it slightly negative here at approximately 1%.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

When we look at North America in particular, I talked about what we're seeing across the market verticals. But in North America, we're seeing gradual in plant industrial recovery and as I mentioned positive sentiment from the distribution channel, a lot of increased quoting activity. But as I mentioned, transportation is challenged, so in auto and trucks. Construction getting better. Ag is still weak.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Power gen is strong in our energy vertical. Oil and gas still a little weak. And HVAC, HVAC, it's really coming off of a strong fiscal year twenty twenty five with a lot of the refrigerant changes. We expect it to be low single digit growth in fiscal year twenty twenty six. And that will be more around commercial refrigeration than it was residential in fiscal year twenty twenty five.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

When we look at international, industrial international, again, have that full year expected to be at about 1%, Q1 again at about 0.5%. Again, assumption on a gradual industrial recovery. EMEA flat to slightly positive organic growth for the fiscal year. Uncertainty remains. We expect continued weakness in transportation, especially auto and EMEA as well.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

But we also see that continued strength in energy, both oil and gas and power gen. And we think that this a lot the proposed stimulus that we hear about in future defense spending is really going to be a long term positive. Asia Pacific, low single digit positive organic growth for fiscal year twenty twenty six. We'll continue to see strong demand from electronics and semicon. In plant is mixed.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

There's project delays that are continuing in China, but we do see some growth in India and Japan. Off highway still soft, but both in construction and mining. I would just say just overall continued uncertainty from tariffs across those markets. In Latin America, Todd mentioned we see low single digit organic growth for fiscal year twenty twenty six and that's pretty much balanced growth across the verticals for them.

[Julian Mitchell, Equity Research Analyst - US Industrials at Barclays Investment Bank]

That's very helpful. Thank you. And just my follow-up, maybe circling back to the operating margin expansion guide. So it's up, I think, 40 bps in first quarter and up 40 bps for the year as a whole. And as you said, that's sort of despite volume leverage accelerating through the year.

[Julian Mitchell, Equity Research Analyst - US Industrials at Barclays Investment Bank]

I just wondered maybe on that point, maybe is there some sort of mix effect in aerospace perhaps weighs later in the year, maybe to do with, I don't know, megat synergies being front half loaded or the outgrowth of commercial aero OE versus commercial aftermarket, anything like that sort of moving around in aero? Or it's just pretty steady through the year?

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

It's just it's steady through the year. We are expecting commercial OEM to be low double digit growth and MRO of high single digit growth. So they're kind of changing this year, but we see it pretty much the same throughout the whole year.

[Julian Mitchell, Equity Research Analyst - US Industrials at Barclays Investment Bank]

Great. Thank you.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Thanks, Julian.

[Operator]

We'll go next now to Jamie Cook with Truist.

[Jamie Cook, MD - Equity Research at Truist Securities]

Hi, good morning. Nice quarter and nice year. I take the first question, just North American margins in the quarter struck me like the strength of the margins. I think it's like one of your highest margin quarters despite a decline in sales and in organic growth. So was there anything unusual in that mix pricing or something which drove the margins high with organic sales down?

[Jamie Cook, MD - Equity Research at Truist Securities]

And then I guess just my second question, just on the guide, Todd or Jenny, if we think about the past couple of years, the story with Parker has been while industrial has been weaker, aerospace is making up for any delay in recovery in industrial. I guess as you think about 2026, do you think there's greater risk that if industrial doesn't inflect that aero can't make up for it or perhaps you're just more bullish on industrial just given at least we're seeing some resurgence in orders? Thank you.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Okay. So first question, yes, Q4 in North America was just was great, expanded margins 170 basis points year over year. So really a nice quarter for them. We really had a favorable sales mix specifically in our Engineered Materials group and our Filtration group. So just exceptional performance with those two groups and with strategy execution across the other groups as well, not to take anything away from them, but we had a nice favorable mix in those two areas.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

As far as a risk in the future with industrial, I would say we have 1% organic growth in industrial. And I think our guide accurately reflects what we see in orders, we see in backlog, what we know about what's going on in these market verticals. But all in all, would say that all of us want to be bullish on industrial. It's time, right? And as I said, we're poised for growth here.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

I'm not concerned that we won't be able to continue to expand margins and deliver this guide. I think that what we have here and what we've been able to do in a negative organic growth environment in Industrial and even with Aerospace at an 8%, we're going to be okay. We can make this happen.

[Jamie Cook, MD - Equity Research at Truist Securities]

Great. Thank you very much.

[Operator]

Thank you. We'll go next now to Mig Dobre of Baird.

[Mircea Dobre, Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co]

Thank you. Good morning. I only have one question and it's about the guide too. So I don't know, maybe it's for you, Todd. If I look at the exit rate here, 7.69 really good fourth quarter.

[Mircea Dobre, Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co]

If we annualize that, we end up with something just under $31 of EPS. And what's interesting, my observation here is that going back over the past decade, you're able to do that or better. So you're able to do better than your annualized exit run rate on every single year with the exception of fiscal twenty twenty when you had to deal with COVID. So I guess my question to you is, why this year fiscal twenty twenty six be any different than the norm? Thank you.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Mig, this is Todd. Yes, we would love to take Q4 and annualize that. The math on that looks great. The reality is that's not the way the business operates, right? If you look back over decades, our sales mix is forty eight percent first half, fifty two percent second half.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Obviously, 52% is fully weighted by that strong Q4 result. We also have those things that we talked about that we recognized a bit early in the fiscal year as far as compensation and whatnot goes. I feel really good about what we're guiding here for Q1. Jenny mentioned this, we still expect the industrial businesses to be challenged from the top line. Aerospace is performing extremely well.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

We are calling for roughly 5% EPS growth year over year in Q1. And I think the team is really focused on it. You got to remember every number that we put up in Q4 was an all time record. And when you look at what we are guiding here for Q1, every one of these numbers will be a Q1 record. So there is improvement across every one of the businesses and that's with not a lot of help from the top line.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

So I think the team is executing unbelievably well and I'd be really happy if they're able to post these numbers.

[Mircea Dobre, Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co]

That's it for me. Thank you.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Thanks, Vic.

[Operator]

We'll go next now to Joe O'Dea of Wells Fargo.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Good morning, Joe.

[Joseph O'Dea, Managing Director at Wells Fargo]

Can you talk about the sort of complexion of the call it 8% organic aero growth over the course of the year and how that shifts between commercial OE and aftermarket and really getting at kind of the margin mix considerations within that. I think for a while now that's been a focus topic clearly with Aero margins up again this year that's pretty good. And maybe I'll weave into the question just any color on Meggitt synergy contributions for the year?

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Well, first of all, we don't go into that much detail and disclose all of that mix within the year. I would tell you, as I said with my slides earlier, we ended the year at 51% aftermarket, 49% OEM. We're showing OEM to be aftermarket to be high single digit. But we again have confidence in continuing to expand our margin. So we think that what we have here for the aerospace guide at 8% for the whole year is appropriate for what we see now.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Yes, Joe, I would just add to that. In respect to the synergies, you had a question about synergies for MEGA. We still believe there's $50,000,000 of synergies left to achieve on Meggitt. We would expect that to be ramped throughout the year just like we've seen it for the last three years. So all is going unbelievably well with Meggitt and that's in the mix as well.

[Joseph O'Dea, Managing Director at Wells Fargo]

And then just and I think that the sentiment from North America distributor partners has been a little bit better over the last few quarters. Anything that you're observing in terms of kind of developments there getting areas where it's a little bit better? But then in particular, what you think the gating factor is to seeing quoting really accelerate into orders and the degree to which that's tariffs or it's other factors?

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Yes. So I mentioned that I had been on some distributor visits recently. And again, it's a common theme. Quoting activity is high. No project cancellations, delays.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

But then there's other pockets where some of them are participating in some retooling in automotive and just refurbishments that are happening. So you hear about those pockets of where they're really having some wins. So I think they were overall very bullish on the future. That's what we continue to hear. And the second part of your question again, I'm sorry.

[Joseph O'Dea, Managing Director at Wells Fargo]

It was just what gets some of the encouraging Yes. Signs on quoting the

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

I think one of the things a couple of the things. I think it's uncertainty, right, on tariffs and interest rates, right? I think those two things are what may be holding up projects, holding up purchasing decisions. But as I mentioned before, distribution is bullish. We're ready and it's time for an industrial return.

[Joseph O'Dea, Managing Director at Wells Fargo]

Thank you.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Thanks, Joe. Hey, Bo, I think we've got time for one more. Can we take one more question here?

[Operator]

Certainly, Mr. Liam Bruno. We'll take that final question today from Nigel Coe of Wolfe Research.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

Thanks fitting me in here. That's great. And Jenny, I agree, it is time for this recovery. Bring it on. So I just want to dig into the free cash flow. So Todd, you mentioned CapEx to $0 of CapEx. So that's about $100,000,000 higher, no big deal. But I'm just wondering, do you think that's sort of a medium term shift in CapEx? And the reason I'm asking is because we have heard this from some others.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

I'm curious if you're sort of reinvesting in The U. S. And if that's what's driving it. Maybe just put a finer point as well on the cash restructuring you expect for FY 2026?

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Yes. I think the CapEx, I don't I can't say that that's going to be a go forward rate. We do have a few projects this year that we're investing in. Most of those are in North America, in the North American region. But I think that's more of a one off type of thing versus a run rate going forward.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

On restructuring, we did about $50,000,000 in twenty twenty five million Right now, we're forecasting about 70,000,000 in twenty twenty six million so it's $20,000,000 more. But again, really, don't want you to read too much into this. This is just working capital investments for growth. This is making sure we integrate Curtis according to our schedule and obviously paying all those fees with it and making sure that we continue our multi decade year of free cash flow conversion.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

Great. And then just a quick one on the profile of the Industrial recovery you've seen in FY twenty twenty six. It seems like you've done in flat to maybe slightly down in the first half of the year and then obviously 2%, 3% in the back half. Would that be directionally consistent?

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

That is exactly what we have roughly flat first half to second half. That's total Industrial.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

Great. Okay. Thanks guys.

[Jennifer Parmentier, Chairman & CEO at Parker-Hannifin]

Thank you.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Thank you.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

Okay. That concludes our FY twenty twenty five earnings release webcast. We appreciate your time and attention and thanks again for joining us today. Our IR team will be available. That's Jeff Miller, Jenna Stuckey and Chantel O'Kelly.

[Todd Leombruno, EVP & CFO at Parker-Hannifin]

If there's any need for any follow ups or clarifications. And thank you all again. Have a fantastic day.

[Operator]

Thank you, Mr. Leon Brito, and thank you, Ms. Parmantier. Again, ladies and gentlemen, thank you for joining Parker Hannifin Corporation's fiscal twenty twenty five fourth quarter and full year earnings conference call and webcast. Again, that will conclude our call.

[Operator]

Thank you all so much for joining us, and we wish you all a great day. Goodbye.

Participants

Executives

• Todd Leombruno, EVP & CFO
• Jennifer Parmentier, Chairman & CEO

Analysts

• Joseph Ritchie, Managing Director at Goldman Sachs
• Jeffrey Sprague, Founder & Managing Partner at Vertical Research Partners
• Scott Davis, Chairman, CEO & Founding Partner – Multi-Industry Research at Melius Research LLC
• Amit Mehrotra, MD & Head - Industrial Sector at UBS Group
• Andrew Kaplowitz, Managing Director at Citi
• Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch
• Julian Mitchell, Equity Research Analyst - US Industrials at Barclays Investment Bank
• Jamie Cook, MD - Equity Research at Truist Securities
• Mircea Dobre, Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co
• Joseph O'Dea, Managing Director at Wells Fargo
• Nigel Coe, Managing Director at Wolfe Research, LLC