Parker-Hannifin Q4 Earnings Call Highlights

Key Points

• Parker-Hannifin reported record fiscal 2026 results: Sales surpassed $21.5 billion, organic growth reached 6.6%, adjusted EPS rose 18% to $32.31, and operating cash flow hit a record $4.4 billion.
• Aerospace remained a major growth driver, with fourth-quarter organic sales growth of 13.4%, a 29.8% operating margin and backlog increasing 15% to a record $8.5 billion.
• The company initiated fiscal 2027 guidance for 5.5%–8.5% sales growth and adjusted EPS of $34.75, while setting a new long-term adjusted operating-margin target of 30% by fiscal 2031 and pursuing the pending Filtration Group and CIRCOR acquisitions.

Parker-Hannifin NYSE: PH reported record fiscal 2026 results, including first-time annual sales above $20 billion, record operating cash flow and adjusted earnings per share growth of 18%, as the industrial and aerospace manufacturer also introduced fiscal 2027 guidance calling for another year of growth.

Chairman and Chief Executive Officer Jennifer Parmentier said fiscal 2026 sales reached $21.5 billion, with organic growth accelerating to 6.6%. Adjusted segment operating margin expanded 120 basis points to a record 27.3%, while adjusted EPS rose to $32.31. Cash flow from operations increased to a record $4.4 billion, surpassing $4 billion for the first time.

Parmentier also said the company reduced its recordable incident rate by 9%, calling fiscal 2026 Parker-Hannifin's safest year on record.

Fourth-quarter records and aerospace strength

Chief Financial Officer Todd Leombruno said the company finished the year with record fourth-quarter sales, margins, net income and adjusted EPS. Quarterly sales rose 10% from a year earlier, including 8% organic growth, while the Curtis Instruments acquisition contributed 1.5 percentage points to sales growth. Currency was slightly unfavorable.

Fourth-quarter adjusted segment operating margin rose 110 basis points to 28.0%, the first time Parker-Hannifin exceeded that level. Adjusted EBITDA margin was 28.6%, and adjusted EPS increased 21% to $9.27. Leombruno said more than 80% of the year-over-year EPS increase came from higher segment operating income.

Orders increased 19% on the company's prior three-month comparison basis and 12% on a rolling 12-month basis. Backlog rose 16% to a record $12.8 billion.

• North American industrial sales were $2.2 billion, with organic growth of about 5% and a record 27.4% adjusted operating margin.
• International industrial sales reached a record $1.6 billion, with 6.5% organic growth. Asia-Pacific organic growth was 16%, while Europe, the Middle East and Africa grew 1% and Latin America declined 3%.
• Aerospace quarterly sales reached a record $1.9 billion, with 13.4% organic growth and a 29.8% margin. Aerospace backlog rose 15% to a record $8.5 billion.

Parmentier said aerospace recorded its fourth consecutive full fiscal year of double-digit organic growth. In the fourth quarter, aerospace orders rose 18%, supported by double-digit growth in commercial original equipment and aftermarket activity, as well as strength in defense OEM markets.

New long-term margin target and order-reporting change

Having exceeded its fiscal 2029 margin target ahead of schedule, Parker-Hannifin set a new adjusted segment operating margin target of 30% by fiscal 2031. The target represents a 300-basis-point increase from the prior 27% objective.

The company retained its longer-term goals of 4% to 6% organic growth through the cycle, a 17% free-cash-flow margin and adjusted EPS growth above 10% through the cycle. Leombruno said the company expects all businesses to contribute to the margin expansion, though he expects industrial operations to expand faster than aerospace as the company works toward the 2031 target.

Parker-Hannifin will also shift industrial order-rate reporting to a rolling 12-month calculation beginning in fiscal 2027. Parmentier said the company has changed significantly since it began reporting quarterly industrial order comparisons two decades ago, with aerospace, engineered materials and filtration technology platforms representing about 65% of pro forma sales following the expected Filtration Group transaction.

Management said the rolling 12-month measure has a stronger correlation with near-term organic sales growth, particularly as Parker-Hannifin has gained greater exposure to longer-cycle markets.

Capital deployment and pending acquisitions

The company deployed or announced more than $15 billion of capital actions during fiscal 2026. Parker-Hannifin completed its $1 billion acquisition of Curtis Instruments in September, expanding its electrification capabilities. It also announced pending acquisitions of Filtration Group Corporation and CIRCOR's commercial Aerospace & Defense business, representing nearly $12 billion in announced transactions.

Parmentier said the Filtration Group deal would expand Parker-Hannifin's proprietary filtration offerings and increase its filtration aftermarket exposure by 500 basis points. The CIRCOR transaction is intended to add complementary flight-critical motion and flow-control technologies.

Management expects both pending acquisitions to close during the second half of the calendar year, subject to customary closing conditions and regulatory approvals. The company said it has not modeled revenue synergies for the CIRCOR business but expects about $26 million of synergies, or roughly 10%.

During fiscal 2026, Parker-Hannifin returned nearly $2 billion to shareholders through approximately $1 billion in buybacks and nearly $1 billion in dividends. It also invested $500 million in capital expenditures. Despite those actions, net debt-to-adjusted EBITDA declined to 1.4 times from 1.7 times a year earlier.

Fiscal 2027 outlook

Parker-Hannifin initiated fiscal 2027 guidance for reported and organic sales growth of 5.5% to 8.5%, with a 7% midpoint that would translate to roughly $23 billion in annual sales. The outlook excludes contributions from the pending Filtration Group and CIRCOR transactions.

The company forecast 6.5% organic growth at the midpoint for North American industrial operations, 5.5% for international industrial operations and 8.5% for aerospace. Adjusted segment operating margin is expected to reach 27.7% at the midpoint, up 40 basis points from fiscal 2026, while adjusted EPS is projected at $34.75, up 8%.

Management forecast positive growth across every major market vertical. Aerospace and defense is expected to grow at a high-single-digit rate, supported by mid-teens commercial OEM growth, sustained commercial aftermarket activity and solid defense demand. Parker-Hannifin expects mid-single-digit growth in industrial, transportation, off-highway, energy, HVAC and refrigeration markets.

For energy, Parmentier said the company expects strong and sustained demand tied to gas-turbine power generation, while oil and gas activity is expected to be flat. She also said data-center-related sales now account for about 1.5% of company revenue and are expected to continue growing, supported by liquid-cooling systems and related components.

About Parker-Hannifin (NYSE:PH)

Parker-Hannifin Corporation NYSE: PH is a global manufacturer and provider of motion and control technologies and systems. The company designs, manufactures and services a broad range of engineered components and systems used to control the movement and flow of liquids, gases and hydraulic power. Its product portfolio is applied across demanding environments and includes solutions for industrial manufacturing, aerospace, mobile equipment and other engineered applications.

Parker-Hannifin's product and service offerings span hydraulic and pneumatic components, fittings and fluid connectors, valves, pumps and motors, electromechanical actuators and motion-control systems, filtration and separation products, and seals and sealing systems.

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