Parker-Hannifin Corporation

Please be advised that today's conference is being recorded, and if you should need operator assistance, please press star zero. I would now like to turn the call over to Mr. Todd Leon Bruno, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you so much, Bo. I'd like to welcome everyone to Parker's Fiscal Year 2025 Fourth Quarter and Full Year Earnings Release Webcast. As Bo said, this is Todd Leon Bruno, Chief Financial Officer, speaking with me today. As usual, it's Jenny Parmentier, our Chairman and Chief Executive Officer. We appreciate your interest in Parker, and we thank everyone for joining us today. On slide two, we address our disclosures on forward-looking projections and non-GAAP financial measures. Items listed here could cause actual results to vary from our forecast. Our press release, this presentation, and reconciliations for all non-GAAP measures were released this morning and are available under the Investor section on Parker.com. The agenda for today has Jenny starting out with the highlights to our record fiscal year 2025 performance. She will then reiterate the strength of our transformed portfolio, the power of the wind strategy, which is our business system that drives performance in all economic climates, and then she'll provide some color on our recently announced acquisition of Curtis Instruments. I'm going to follow with a few details on our strong fourth quarter financial results. We did release our initial FY26 guidance this morning, and we will discuss the assumptions and provide some color on what we expect to be another record year for Parker. We'll conclude the call with a normal question and answer session, and we will do our best to take as many questions as possible. Now I would ask everyone to call your attention to slide three, and Jenny, the floor is yours.

Thank you, Todd, and thank you to everyone for joining the call today. The wind strategy and our culture of high performance delivered another record year. We had a 17% reduction in recordable incident rate, once again achieving top quartile safety performance, and record engagement survey results. Top line sales finished at 19.9 billion, and this team achieved record adjusted segment operating margin of 26.1%, an increase of 120 basis points to prior year, and record adjusted EBITDA margin of 26.4 percent, an increase of 80 basis points to prior year. We generated record cash flow from operations of 3.8 billion and delivered 7 percent adjusted EPS growth. We finished the year with a record 11 billion in backlog, and we remain committed to a disciplined, active, and balanced capital deployment strategy. Next slide, please. Another year of outstanding performance from aerospace with record sales of 6.2 billion. That's 13% organic growth and 190 basis points of adjusted segment operating margin expansion. Orders continue to outpace sales growth as we finish the year at a record backlog of 7.4 billion. Today, we enjoy a balanced and diverse aerospace portfolio. We finished FY25 with 51% of our sales from serving the aftermarket and 49% from serving our OEM customers. Looking back to FY19, I'd like to recognize our aerospace team for navigating and managing through numerous industry challenges, successfully integrating the Parker and Meggett Aerospace businesses together, and staying focused every day on the safety of our team members and improving the experience for all of our customers. The performance is impressive. Sales are approximately two and a half times higher, and we are on track to expand adjusted segment operating margins by 940 basis points from fiscal year 19 through our fiscal year 26 guide, and we're not done yet. Our comprehensive offering of proprietary designs on premier programs and our global footprint that supports a diverse customer base well positions us for sustained growth and operating performance. Next slide, please. The industrial segment of our business has been a large part of our transformation and margin expansion story. Fiscal year 25 delivered record adjusted segment operating margin of 25.1%, a 90 basis point increase over prior year. Using the WIN strategy, our teams are on track to deliver 700 basis points margin expansion from fiscal year 19 through our FY26 guide. This is a testament of our ability to expand margins through the cycle, even in periods of negative organic growth. Our powerhouse of interconnected technologies, global distribution networks, and global manufacturing footprint are competitive advantages that will drive growth from secular trends across the market verticals. Our portfolio today is well-balanced Two-thirds is now longer cycle, secular trend, and aftermarket. We are poised for a return to growth. Next slide, please. Once again, the transformation of our portfolio further expanded longer cycle and secular revenue mix in fiscal year 25. Acquisitions in both aerospace and industrial along with international distribution growth have greatly contributed to this transformation. We see this transformation continuing and expect 85% of our portfolio to be longer cycle, secular, and aftermarket by fiscal year 29. Next slide, please. And on June 30th, we announced our intent to acquire Curtis Instruments, further expanding our electrification offering and secular revenue mix. Curtis is the leader in low voltage motor control solutions for zero emission and hybrid mobile equipment. This acquisition will add a complementary suite of control solutions to pair with Parker's electric motor and motion control portfolio. This will further enhance our capabilities for in-plant and off-highway applications. Curtis has a strong market position across diverse and growing end markets. These are markets that we know, customers we have relationships with, and products that will be a great addition to our portfolio. We expect to close by end of the calendar year, and we look forward to welcoming the Curtis team to Parker. Next slide, please. And a reminder on why we WIN. First, the WIN strategy is our business system. We have a decentralized operating structure, 85 divisions run by general managers with full P&L responsibility, acting like owners, close to their customers, and executing the WIN strategy every day. We have innovative products that solve customer problems, 85% covered by intellectual property. Our application engineers provide the expertise that allows us to have a competitive advantage with our technologies that provide efficient solutions for our customers. And finally, our distribution network is the envy of the competition and the best in the world. It took us over 60 years to build it, and it is truly an extension of our engineering teams providing solutions to small and mid-sized OEMs. These partners are experts at applying our interconnected technologies. And I'll turn it back over to Todd to go through our fiscal year 2025 highlights.