Parker-Hannifin (NYSE:PH) Reports Sales Below Analyst Estimates In Q4 Earnings
Industrial machinery company Parker-Hannifin (NYSE:PH) fell short of the market’s revenue expectations in Q4 CY2024, with sales falling 1.6% year on year to $4.74 billion. Its non-GAAP profit of $6.53 per share was 4.9% above analysts’ consensus estimates.
Revenue: $4.74 billion vs analyst estimates of $4.79 billion (1.6% year-on-year decline, 1.1% miss)
Adjusted EPS: $6.53 vs analyst estimates of $6.23 (4.9% beat)
Adjusted EBITDA: $1.09 billion vs analyst estimates of $1.23 billion (22.9% margin, 11.2% miss)
Management reiterated its full-year Adjusted EPS guidance of $26.70 at the midpoint
Operating Margin: 19.8%, in line with the same quarter last year
Free Cash Flow Margin: 17.2%, up from 12.4% in the same quarter last year
Organic Revenue rose 1% year on year (2.9% in the same quarter last year)
Market Capitalization: $85.7 billion
“Our performance this quarter reflects our focus on operational excellence and the strength of our balanced portfolio,” said Jenny Parmentier, Chairman and Chief Executive Officer.
Company Overview
Founded in 1917, Parker Hannifin (NYSE:PH) is a manufacturer of motion and control systems for a wide variety of mobile, industrial and aerospace markets.
Gas and Liquid Handling
Gas and liquid handling companies possess the technical know-how and specialized equipment to handle valuable (and sometimes dangerous) substances. Lately, water conservation and carbon capture–which requires hydrogen and other gasses as well as specialized infrastructure–have been trending up, creating new demand for products such as filters, pumps, and valves. On the other hand, gas and liquid handling companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Parker-Hannifin’s 7% annualized revenue growth over the last five years was mediocre. This fell short of our benchmark for the industrials sector, but there are still things to like about Parker-Hannifin.
Parker-Hannifin Quarterly Revenue
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Parker-Hannifin’s annualized revenue growth of 7.6% over the last two years aligns with its five-year trend, suggesting its demand was stable.
Parker-Hannifin Year-On-Year Revenue Growth
Parker-Hannifin also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don’t accurately reflect its fundamentals. Over the last two years, Parker-Hannifin’s organic revenue averaged 3.7% year-on-year growth. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.
Parker-Hannifin Organic Revenue Growth
This quarter, Parker-Hannifin missed Wall Street’s estimates and reported a rather uninspiring 1.6% year-on-year revenue decline, generating $4.74 billion of revenue.
Looking ahead, sell-side analysts expect revenue to grow 2.6% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and indicates its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.
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Operating Margin
Parker-Hannifin has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 17.4%. This result isn’t too surprising as its gross margin gives it a favorable starting point.
Looking at the trend in its profitability, Parker-Hannifin’s operating margin rose by 5.1 percentage points over the last five years, showing its efficiency has meaningfully improved.
This quarter, Parker-Hannifin generated an operating profit margin of 19.8%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
Parker-Hannifin’s EPS grew at a spectacular 15.8% compounded annual growth rate over the last five years, higher than its 7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
Parker-Hannifin Trailing 12-Month EPS (Non-GAAP)
Diving into the nuances of Parker-Hannifin’s earnings can give us a better understanding of its performance. As we mentioned earlier, Parker-Hannifin’s operating margin was flat this quarter but expanded by 5.1 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.
For Parker-Hannifin, its two-year annual EPS growth of 15.5% is similar to its five-year trend, implying strong and stable earnings power.
In Q4, Parker-Hannifin reported EPS at $6.53, up from $6.15 in the same quarter last year. This print beat analysts’ estimates by 4.9%. Over the next 12 months, Wall Street expects Parker-Hannifin’s full-year EPS of $26.01 to grow 9.6%.
Key Takeaways from Parker-Hannifin’s Q4 Results
It was encouraging to see Parker-Hannifin beat analysts’ EPS expectations this quarter despite a revenue miss. The company then reiterated its previous full-year EPS guidance. Overall, this was a mixed quarter. The stock remained flat at $670.51 immediately after reporting.
