Parker-Hannifin Corporation

Greetings and welcome to the Parker Hannafin Fiscal 2024 Second 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. Thank you. You may begin.

Well, thank you, Diego, and good morning, everyone. Welcome to Parker Hannafin's Fiscal Year 2024 Second Quarter Earnings Release Webcast. As Diego said, this is Todd Liam Bruno, Chief Financial Officer speaking, and I'm here today with our Chairman and Chief Executive Officer, Jenny Parmentier. We know that this is an extremely busy day for everyone, and we appreciate you joining us, and we appreciate your interest in Parker. On slide two, you'll see our disclosures addressing forward-looking projections and non-GAAP financial measures. Actual results could vary from our forecast based on the items listed here. Our press release, this presentation, and reconciliations for all non-GAAP financial measures were released this morning and are available under the investor section at parker.com. The agenda for today has Jenny starting with the highlights of our record second quarter. She's also going to reinforce how our portfolio, our team members, and the wind strategy, our business system, are driving margin expansion and position partner for a very bright future. I'm going to add some color on the financial results and a few details on the increase to our guidance that we released this morning. And after that, we're going to open up the lines, and Jenny and I will take any questions from those in the queue. I now ask you to move to slide three, and Jenny, I'll turn it over to you.

Thank you, Ted. Good morning to everyone, and thank you for joining our call today. Q2 was a quarter of exceptional results. Excellent operating performance driven by all of our team members executing the win strategy. Starting with safety, a 16% reduction in recordable incidents over prior Q2. Safety has been and will remain our top priority. Record sales of $4.8 billion in the quarter, a 3% increase over prior year with organic growth of 3%. Record adjusted segment operating margin of 24.5%, a 300 basis point increase over prior year with all segments expanding margins. And adjusted EPS growth of 29% along with 11.9% year-to-date free cash flow margin. Aerospace strength was a significant driver of our performance in the quarter. We now expect to achieve $200 million in cumulative synergies in fiscal year 24. a $50 million increase to our original guide for this fiscal year. We remain committed to achieving $300 million in synergies by fiscal year 26. And our backlog remains resilient at $10.8 billion. We had a strong finish to the first half, and as a result, our increasing fiscal year 24 guidance. Tal will go over this later in the slide deck. Next slide, please. I'd like to spend a few minutes highlighting the power of the entire Parker portfolio. We have a technology powerhouse of interconnected solutions that delivers value for customers in both aerospace and industrial markets. Today, two-thirds of our revenue comes from customers who buy four or more of the technologies you see across the top of this page. And two-thirds of our portfolio product solutions that we have today enables clean technologies. Next slide, please. Parker has significant content on leading aerospace programs. We have a comprehensive product offering with proprietary design on premier programs. On the upper left-hand side of this page is our first half sales mix by application. You see a nice balance of commercial and military, as well as business jets, regional transport, and helicopters. This diverse aerospace and defense exposure allows us to have multiple products and technologies on every major aircraft program globally, many of them seen along the bottom of this page. All of this adds up to be a compelling value proposition for all of our aerospace customers. Next slide, please. And equally compelling is our global distribution network, a competitive differentiator for Parker. 50% of our diversified industrial revenue is through distribution, a high-margin channel serving aftermarket and small-to-medium-sized OEMs. Our distribution partners integrate Parker technologies that solve customer problems. They are truly an extension of Parker's sales and engineering teams. Building on the success of the North American distribution channel, we continue to drive an increasing revenue mix of 100 basis points per year in international markets. This past December, we held our North America National Sales Meeting for the first time since the pandemic. Nearly 100 distribution partners attended the meeting, along with Parker divisions and sales teams. It was great to have everyone together again, and despite the destocking we've been talking about for several quarters, the overall sentiment and tone was very positive for the future. Next slide, please. We continue to be very proud of our margin expansion progress. Our people, our business system, the wind strategy, and our portfolio have truly transformed Parker's performance. The progress can be seen in every segment on this page. In addition to our core strategies on lean pricing and procurement, wind 3.0 initiatives like Simple by Design, our focus on demand forecasting, zero defects, and productivity and automation will take us to 25% adjusted operating margins, and beyond. Every strategy and tool in the WIN strategy expands margins. I'll turn it back to Todd.