Parker-Hannifin Corporation

Thank you for standing by, and welcome to the Parker Hennepin Corporation Fiscal Year 2022 Second Quarter Conference Call and Webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press star 1 on your telephone. As a reminder, the program may be recorded. I would now like to introduce your host for today's program, Tom Liam Bruno, Chief Financial Officer. Please go ahead, sir.

Thank you, Jonathan, and good morning, everyone. Welcome to Parker's fiscal year 2022 Q2 earnings release. As Jonathan said, this is Todd Liam Bruno, Chief Financial Officer speaking. Tom Williams, our Chairman and Chief Executive Officer, and Lee Banks, our Vice Chairman and President, are both with me here today for the webcast. I'd like to direct you to slide number two, which details our disclosure statement addressing forward-looking statements and non-GAAP financial measures. Reconciliations for all non-GAAP financial measures are included in today's materials. Those materials, those reconciliations along with this presentation are accessible under the investor section at Parker.com and will be available for one year. As usual today, Tom's going to begin with highlights of the quarter and a few comments on the company's transformation. I'll follow up with a brief financial summary and review the increase to our full year guidance that we announced this morning. Tom is going to handle closing comments, and then we'll open up the lines for your questions. Two comments before we begin today. First, as a reminder regarding the pending MEGIT acquisition, we are still bound by the requirements of the U.K. Takeover Code in respect to discussing certain transaction details. And secondly, we are announcing a date and time change to our upcoming Virtual Investor Day due to a scheduling conflict with another company's Investor Day. Our meeting will now be held on Tuesday, March 8th, from 9 a.m. to 12 p.m. Eastern. It will be a virtual event, and among the topics that we'll cover will be the release of our new long-term financial targets. So with that, I'll ask you to move to slide three, and I'll turn it over to you, Tom.

Thank you, Todd, and welcome, everybody. Thanks for your participation today. I want to start with the title of this slide, which is Exceptional Execution in a Challenging Environment. When you look at the performance of the company in aggregate safety, sales growth, the margin expansion, EPS, it was an extremely strong quarter. This is against arguably one of the most difficult operating environments that we've all faced in our careers when you add up the cumulative effect of inflation, supply chain challenges, and the Omicron virus. My thanks to the global team for just a great job execution in this quarter, related execution for many, many quarters as we go through this presentation. Let's start with the first bullet. Focus on safety continues. It is our number one goal. We're leveraging our high-performance teams, the combination of the natural work teams that we have in our plants and warehouses, as well as the start point teams, and Kaizen. And it's really this combination, this team structure plus Kaizen, that is driving an ownership culture within a company. So ownership of safety, but also ownership of quality, cost, delivery, and engagement. Sales growth was 12% year over year. Organic growth was 13%. It was nice across all the external reporting segments as well as every region participating. Total sales was a second quarter record as well as total segment operating margin. EBITDA margin was 18.2% as reported or 22.7% adjusted. It was 180 basis points. It's a big move versus prior year. A robust demand environment continues. We had over 90% of our end markets in the growth phase, which we're very excited about. In this execution, what you're seeing is really the cumulative effect of wind strategy 2.0 and 3.0 driving this kind of performance. When you add the strategy changes on top of the portfolio things we've done, adding those great acquisitions that we've done over the last number of years and the powerful secular trends, and I'm going to talk about it here momentarily, We see a future that's much longer cycle and more resilient and faster growing. So if you go to the next slide, slide four, I've touched on this before. This kind of frames all of our thinking and our strategies for the company. It's around trying to achieve these three key drivers, living up to our purpose, that higher calling, that North Star that we're driving for, to be great generators and employers of cash, and to be a top quartile performer versus our proxy peers. If you go to slide five, which is the old expression that a picture's worth 1,000 words. This kind of sums up how the company's changed over the last number of years. We've updated this slide for FY22 numbers, and I'm going to just reframe the slide for you. On the left-hand side is adjusted EPS, and on the right-hand side is adjusted EBITDA margin. So if you look on the left and you go to FY16, so we worked real hard as a company for 100 years to get to $6.99 EPS. And then the last six years, we've grown it by two and a half times to a little over $18 in our current guide. If you just look at the gain that we've had since the pandemic, FY20 to FY22 guide, it's almost another $6 just in those two years. Happens to be, and I don't think it's coincidental, that we launched one strategy 3.0 at the beginning of FY20. And you can see what it's done to propel performance. If you look on the right-hand side, and we don't guide on EBITDA margin, but we put in our EBITDA margin year-to-date at 22.4%. If you look at that from FY16 to that, it's 770 basis points improvement, just remarkable improvement. Really the how behind these results, it's been our people, portfolio changes that we've done, and it's been, again, the cumulative effect of One Strategy 2.0 and 3.0. So if you go to the next slide, give you a quick update on the mega transaction. We continue to make progress. There's really four main work streams that we're working. There's two, the economic and national security review that we're working on with the UK government. I would characterize those as constructive and positive and on track. And then the antitrust and FDI filings are proceeding as we had anticipated. We're still anticipating a Q3 calendar 2022 close. And we're really excited about this. This is obviously a compelling combination. It doubles the size of our aerospace business, highly complementary technologies. And we're at the beginning of a commercial aerospace recovery with great synergies as we put these two companies together. Again, bringing this on with everything else we've been doing, a much longer cycle, less cyclical, faster-growing company. And then on slide seven, in addition to the strategic acquisitions that we've been making, We are uniquely positioned with our eight motion control technologies to benefit from the four secular trends that you see on this page. Now, I touched on aerospace and the recovery and momentum of Megan plus Parker. But if you look at electrification, ESG, digitization, what you have here are long-term, multi-year growth enablers. And content growth for us is going to grow both on board as well as infrastructure. And we're excited. This is going to be a big part of what we'll talk about in Investor Day, and we look forward to sharing more about these secular trends on March 8th with you. And with that, I'm going to turn it over to Todd for more details on the quarter.