Todd M. Leombruno
Executive Vice President and Chief Financial Officer at Parker-Hannifin
Thanks, Tom.
I'm going to start on Slide 9. Obviously, it was an impressive quarter. Tom mentioned that. It's a really strong start to our fiscal year. And our team members just really globally continue to execute and deploy The Win Strategy, and we're very proud of the results that they were able to put up.
Tom mentioned this, but sales are up 12.5% versus the prior year. That was a record of $4.2 billion. The organic growth in Q1 was extremely strong, 14%. Everyone is seeing the strengthening of the dollar, and that has created a currency headwind for us. That's about 5.5% of sales. And we're very happy that we closed Meggitt. We also close the Aircraft Wheel and Brake divestiture. All in, net of that, it added 4% to our sales for the quarter.
Adjusted segment operating margins, 22.7%. That's an increase of 70 basis points from prior year. Adjusted EBITDA margins came in at 23.3%. That's an even bigger increase. That's 120 basis points up from prior year. And really, this year-over-year margin, both the adjusted segment operating margins and the EBITDA margin improvements, really just demonstrate the power of Win Strategy 3.0.
When you look at adjusted net income, the number is $616 million, that's a 14.5% ROS. Adjusted earnings per share is $4.74. That is a Q1 record. It's up $0.48 from prior year, and that's really despite some currency headwinds that we saw in the quarter. Both adjusted net income and earnings per share have increased 11% versus prior year.
I would say I just want to make a couple of notes. There were a number of several onetime items incurred this quarter as a result of the Meggitt acquisition and the Wheel and Brake divestiture. We've included a reconciliation to all those items in the appendix. Those are mostly over, but some large onetime items. And I really want to thank our global finance and accounting teams for getting all this done with just two weeks of ownership and closing the quarter really well. So all in, this is really a fantastic start to our fiscal year.
If you go to Slide 10, this is just a bridge on the year-over-year EPS improvement. I've already mentioned it, but the strong Q1 operating performance, obviously, the main driver there. We generated $133 million or 16% additional segment operating income Q1 versus Q1 last year. That equated to $0.80 of the earnings per share improvement. Incrementals were extremely strong, excluding acquisitions and divestitures. Total company did about 36% incrementals.
When you look at everything else, the net of corporate G&A, other tax and shares outstanding, all of that nets to $0.03. And you can see the big line there, interest expense is $0.35 headwind. But 100% of that is related to the Meggitt acquisition, and we knew that that was going to be a headwind. So all in, that's $4.34, that's 11% increase from prior year.
If we go to Slide 11, just looking at the segments, you can see organic growth, again, very strong in the quarter. Orders remained positive in every segment, despite some notably tough comps versus prior year. Total company orders are up 5%, and we continue to see broad-based demand across all the end markets that we serve.
Strong incrementals drove that margin expansion, that 70 basis point margin expansion versus prior year. And again, our team members just really continue to be agile in the current environment, and I'm very proud that they were able to generate record sales and operating margins.
Looking at North America, the organic growth was extremely strong in North America. Nearly 18% sales came in at $2.1 billion, significant margin expansion, 200 basis points over prior year, that reached 23.4%. Volumes obviously were a big driver here. But again, we've talked over the last couple of quarters about the specific regional supply chain challenges. Our team has just been very resilient, working on our operational efficiencies, and that really is the main driver on driving this strong margin performance.
Incrementals in North America, ex-acquisitions was 38%. Orders are positive at plus 3. And again, just operating in all cylinders in North America broad-based demand.
Looking at the international businesses. Organic growth, again, strong there at 12% organic growth. Sales reached $1.4 billion. Organic growth was positive low to mid-teens in every region in our international businesses. And adjusted operating margins expanded 30 basis points from prior year and reached 23.1%. And again, that's all in light of some currency headwinds that obviously more heavily impact this segment.
Our Asia Pacific team continues to outperform. We've talked about that. They have done a great job recovering from those shipment delays that were a result of COVID shutdowns, and we feel that that is kind of mostly played out in Q1 here. Orders are positive in the international business to plus 6. And that clearly reflects a rebound, obviously, from China as well.
Looking at Aerospace Systems. Sales are $746 million now. That's obviously up 26%. If you remember, about 82% of the Meggitt transaction does get reported in this segment. There's about $150 million of sales for Meggitt in Q1 in our Aerospace Systems segment. That makes up 19.5% of the sales increase. But if you look at organic growth, very strong there as well, 7.4%. We just continue to see a strong OEM and MRO commercial volumes continuing throughout the year.
When you look at operating margins, that was impacted really by Meggitt coming in, Wheel and Brake coming out and then there were some nonrecurring program timing charges that were in respect to our OEM business. So all in, that's a onetime issue, and we don't see that continuing going forward.
If you look at Aerospace orders on a 12-month rolling basis, it's plus 5. But you remember, we've talked about these multiyear military orders. That will anniversary next quarter if we adjust for that, orders were positive 29% in Aerospace. And Aerospace dollars continue to remain at extremely high levels. So all in, great performance across all of our segments. We're really happy with the way the team has outperformed there.
Looking at cash, another good story here. If you look at our cash flow from operations, that was 10.8% of sales. Free cash flow was 8.8% of sales. Our capex did hit 2% as we have been signaling and free cash flow conversion was 96%. The transaction costs that we've talked about did impact CFOA and free cash flow pretty significantly in the quarter, it's about 450 basis points of impact. Those will minimize as we go on throughout the year, but I just wanted to call it out that that was a drag in our Q1 cash flow. We do still expect free cash flow for the year to be in the mid-teens, so no worries on that.
On Slide 13, I just want to give you a couple of updates on the capital deployment. I'm sure everyone has seen this. Last week, our Board approved a quarterly dividend payout of $1.33 per share. That is our 290th consecutive quarterly dividend payment and our record of continuing to increase the dividends paid is now at 66 years.
And I want to address leverage because I know that's a number that's been on people's mind. At the end of Q1, leverage now reflects all Meggitt-related debt for the transaction. If you look at our gross debt to adjusted EBITDA at 3.8%, net debt is 3.6%. And those numbers are presented on a trailing 12-month basis, and they do not include any Meggitt pre-closed EBITDA. So that is basically base Parker adjusted EBITDA doesn't really include any Meggitt EBITDA, and we fully expect that to improve as we go throughout the year and we start to include that Meggitt EBITDA.
We are fully committed to our delevering plan, and I'm really proud to say since we made this announcement last August or really August of 2021, we've applied over $2 billion of cash towards the purchase price of Meggitt. So great work on that.
Okay. Looking at guidance, you saw this. We are now including the Meggitt acquisition, and we are excluding the Wheel and Brake divestiture in our guidance. We're providing this on an as-reported and an adjustment basis. And Tom mentioned this, we're increasing the sales growth range now to a range of 11% to 14% or 12.5% at the midpoint. Organic growth forecast has been increased to 6% at the midpoint. Acquisitions net of that divestiture is going to be plus 11. And we do see currency being a larger headwind now. We are now increasing that unfavorable impact of currency of 4.5% and that is using spot rates as of September 30.
When you look at adjusted segment operating margins, the range is now 21.7 to 22.1 or 21.9% at the midpoint. So that is all-in, includes Meggitt and excludes Wheel and Brake, obviously, our strong Q1 performance.
Just a few other items to note. On an adjusted basis, corporate G&A is expected to be $207 million. Interest expense, that's all in, including everything from Meggitt $510 million. And the other income expense line is actually going to be income of $23 million for us. Really no change to the tax rate. We expect that to be 23%. And you can see the full year as reported EPS is now $13.20 at the midpoint or $18.95 adjusted and there's a range of $0.35 on either side of that. And just looking a little bit more forward into Q2, we see adjusted EPS to be $4.46 at the midpoint for our second quarter.
Lastly, all the adjustments that we've been talking about on a pretax level are listed in this table, which now includes at least the current estimate we have for the Meggitt-related intangible amortization of 220. So you can see the total is now 520. And it also includes integration costs to achieve, specifically for Meggitt of $70 million for the remainder of the year. Especially with the acquisition expense to date, we've adjusted for all of those. The majority of those are over, but we will adjust those as they come through.
Okay. Last, on the guidance bridge, let me just give you some details to that. Obviously, we started the year with our initial guidance of $18.50. We had the call at the end of September, which included Meggitt and excluded Wheel and Brakes. So that was another $0.33 of additional EPS that we saw for the year that got us to the $18.83.
Really our strong Q1, there's a little bit of moving pieces here because of Meggitt coming in and Wheel and Brake coming out. We calculate that to be about a $0.54 beat to our original guide. And for the remainder of the year, we've really increased the Q2 organic growth just slightly, and we've held the second half to exactly what we said in our original guidance.
We have incorporated the recent currency rates and their estimated impact on the segment operating income. Right now, we feel like that's a $0.42 headwind. Really, there's nothing else notably changed to our guide for the full year. And all in, we increased our full year adjusted EPS guide to $18.95 at the midpoint.
So with that, I'll hand it back to you, Tom and it's all yours.
