Parker-Hannifin Corporation

Greetings and welcome to the Parker Hannafin Fiscal 2024 First Quarter Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Todd Liam Bruno, Chief Financial Officer at Thank you. You may begin.

Thank you, Diego. Welcome to Parker's Fiscal Year 2024 First Quarter Earnings Release Webcast. As Diego said, this is Todd Lee and Bruno, Chief Financial Officer speaking. Thank you to everyone for joining us this morning. With me today is Jenny Parmentier, our Chief Executive Officer, and Lee Banks, our Vice Chairman and President. Our comments today will be addressing forward projections and non-GAAP financial measures. Slide two of this presentation provides specific details to our disclosures in respect to these areas. Actual results could vary from our projections based on the items listed here. Our press release, this presentation, and reconciliations for all non-GAAP measures were released this morning and are available under the investor section at Parker.com, and they will remain available there for one year. Today, Jenny is going to start with some highlights of our outstanding first quarter. She will also reiterate how our portfolio transformation, along with strong aerospace secular trends, position Parker for a promising future. I will then provide some financial details on the quarter and detail our increase to our fiscal year 24 guidance. Jenny is going to wrap up, and then Jenny, Lee, and I will take as many questions as we can fit in the hour. And with that, I would ask you to move to slide three, and Jenny, I'll hand it over to you.

Thank you, Chad. Good morning to everyone and thank you for joining our call today. Q1 was a standout quarter driven by a strong portfolio and our teams executing the win strategy. Starting with safety, a 16% reduction in recordable incidents. Safety has been and will remain our top priority. Record sales of $4.8 billion in the quarter, a 15% increase over prior year with organic growth of 2.3%. Record adjusted segment operating margins of 24.9%, a 220 basis point increase over prior year with all segments coming in above 24%, and 26% adjusted EPS growth along with 11.4% free cash flow margin. The combination of Parker and Meggitt delivered an outstanding quarter for aerospace and a strong start to the year. As a result of this performance, we are increasing our FY24 guidance, and Todd will go over this later in the slide deck. Next slide, please. Many of you have seen this slide before. The transformation of our portfolio over the last eight years has doubled the size of aerospace, filtration, and engineered materials. As a result of this, from FY15 to FY24 guidance, you can see the obvious shift to a longer cycle and secular revenue mix. We have high confidence that by fiscal year 27, we'll have approximately 85% of the company in long cycle end markets and industrial aftermarket. Next slide, please. The mix shift that I just spoke of is evident in our strong backlog. For Total Parker, backlog remains resilient. Coverage has doubled from 27% in fiscal year 16 to 54% today. and this has been consistent for the last several quarters. Aerospace backlog is extremely robust. This coverage will support high single-digit growth well into the future. Industrial backlog coverage continues to be two times what it was in the past. From mid-teens to low-30s, we now have longer-term visibility from the portfolio-changing acquisitions with secular and longer-cycle exposure. Next slide, please. We have transformed the portfolio and we have strong backlog. Let me remind you of the future sales growth drivers. The wind strategy is our business system that delivers growth and financial performance. It is a proven strategy and every tool in this system expands margins. Macro CapEx reinvestment is addressing the last decade of underinvestment as well as investments to strengthen and develop the supply chain. This will result in increased equipment spend, and higher levels of automation. Under innovation, our new product blueprinting tools and simplified design principles have increased our product vitality index, that is the percent of sales from new products, enabling faster growth and support of the secular trends. And as mentioned on the previous slide, the acquisitions we have made are great companies with higher growth rates, aftermarket, and accretive margins. We continue to benefit from the growth related to the secular trends. As previously stated, we expect multiple years of solid growth in aerospace, driven by both commercial and defense. And no matter what the energy source is, from diesel to electric to hybrid, the primary parkour content that we have today increases one and a half to two times with electrification. With two-thirds of our portfolio supporting clean technologies, we are well positioned today, even better for tomorrow, and we are truly energy agnostic. Again, all this giving us high confidence to grow differently than we have in the past and achieve our 4% to 6% organic growth over the cycle. Next slide, please. Now 30% of our business, aerospace is a growth differentiator for Parker, and Parker and Megit are a powerful combination. This team has embraced the wind strategy and is exceeding our expectations. We couldn't be happier with this acquisition. Next slide, please. From nose to tail, we have a comprehensive portfolio of products and services. Parker has a broad product offering for both airframe and engine applications. MEGIT brought new product and system areas, including braking, fire detection and suppression, thermal management, avionics and sensors, and electric power. This breadth of technologies is enabling a more strategic relationship and discussions with our customers, both OEM and aftermarket. Next slide, please. This slide highlights the favorable aerospace secular trend we are experiencing now and will into the future. Taking a look at the sales mix at the top of the page, we are now 45% aftermarket, an 800 basis point increase with the acquisition of Megadeth. and we have a balanced portfolio with strong growth drivers in each of these four areas. At the bottom of the page are the macro growth drivers. On the commercial side, we are expecting double-digit growth in aircraft deliveries and air traffic. On the military side, the Department of Defense budget increases, and our military aftermarket partnerships will drive mid- and long-term growth, a very promising future for aerospace. I'll now turn it over to Todd to go through the summary of our Q1 results.