Parker-Hannifin (PH) 8-K Results of Operations and Financial Condition

Parker Hannifin Corporation

Quarterly Earnings Release

2nd Quarter FY 2006

January 18, 2006

Exhibit 99.2

Forward-Looking Statements

Forward-Looking

Statements:

Forward-looking

statements

contained

in

this

and

other

written

and

oral

reports

are

made

based

on

known

events

and

circumstances

at

the

time

of

release,

and

as

such,

are

subject

in

the

future

to

unforeseen

uncertainties

and

risks.

All

statements

regarding

future

performance,

earnings

projections,

events

or

developments

are

forward-looking

statements.

It

is

possible

that

the

future

performance

and

earnings

projections

of

the

company

and

individual

segments

may

differ

materially

from

current

expectations,

depending

on

economic

conditions

within

both

its

industrial

and

aerospace

markets,

and

the

company's

ability

to

achieve

anticipated

benefits

associated

with

announced

realignment

activities,

strategic

initiatives

to

improve

operating

margins,

and

growth

and

innovation

initiatives.

A

change

in

economic

conditions

in

individual

markets

may

have

a

particularly

volatile

effect

on

segment

results.

Among

the

other

factors

which

may

affect

future

performance

are:

changes

in

business

relationships

with

and

purchases

by

or

from

major

customers

or

suppliers,

including

delays

or

cancellations

in

shipments;

uncertainties

surrounding

timing,

successful

completion

or

integration

of

acquisitions;

threats

associated

with

and

efforts

to

combat

terrorism;

competitive

market

conditions

and

resulting

effects

on

sales

and

pricing;

increases

in

raw-

material

costs

that

cannot

be

recovered

in

product

pricing;

the

company’s

ability

to

manage

costs

related

to

employee

retirement

and

health

care

benefits

and

insurance;

and

global

economic

factors,

including

manufacturing

activity,

air

travel

trends,

currency

exchange

rates,

difficulties

entering

new

markets

and

general

economic

conditions

such

as

inflation

and

interest

rates.

The

company

makes

these

statements

as

of

the

date

of

this

disclosure,

and

undertakes

no

obligation

to

update

them.

Non-GAAP Financial Measure

This

presentation

reconciles

sales

amounts

reported

in

accordance

with

U.S.

GAAP

to

sales

amounts

adjusted

to

remove

the

effects

of

acquisitions

and

divestitures

made

within

the

prior

four

quarters

as

well

as

the

effects

of

currency

exchange

rates

on

sales.

The

effects

of

acquisitions

and

currency

exchange

rates

are

removed

to

allow

investors

and

the

company

to

meaningfully

evaluate

changes

in

sales

on

a

comparable

basis

from

period

to

period.

This

presentation

contains

references

to

earnings

per

share

amounts

excluding

the

effect

of

the

adoption

of

FAS

123R

and/or

a

loss

recognized

on

the

sale

of

a

division.

The

removal

of

both

the

FAS

123R

effect

and

the

loss

on

the

sale

of

a

division

allows

investors

and

the

company

to

meaningfully

evaluate

performance

on

a

comparable

basis

with

the

prior

period,

which

was

not

impacted

by

FAS

123R

or

the

sale

of

a

division.

Discussion Agenda

Financial Highlights

Outlook

Questions & Answers

CEO Comments

Financial Highlights

EPS –

2nd Quarter and YTD as of Dec 31st

FY2006

FY2005

FY 2006

FY 2005

EPS as Reported

1.07

$          

1.41

$          

2.51

$          

2.52

$          

Discontinued Operations

-

0.50

0.24

0.56

EPS from Continuing Operations as reported

1.07

$          

0.91

$          

2.27

$          

1.96

$          

Loss on Sale of Thermoplastics

0.08

-

0.08

-

FAS 123R expense

0.03

-

0.13

-

EPS from Continuing Operations Adjusted

1.18

$          

0.91

$          

2.48

$          

1.96

$          

First Six Months

Second Quarter

Financial Highlights

EPS  from Continuing Operations

2nd Quarter and YTD as of Dec 31st

$0.91

$1.96

$2.27

$1.07

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

Q2 FY06

Q2 FY05

YTD FY06

YTD FY05

Influences on Earnings

Increased Volume

Win Strategy

Restructuring/Move to Low Cost Countries

Sales Mix –

Aerospace

Inventory Changes

Financial Highlights

Sales –

2nd Quarter and YTD through December 31

FY06

FY05

FY06

FY05

Sales

$2,158

$1,906

$4,271

$3,784

% change

13%

13%

Sales from acquisitions & divestitures

$162

$298

Sales without acquisitions & divestitures

$1,996

$1,906

$3,973

$3,784

% change

5%

5%

Currency effects

($46)

($30)

Sales without acquisitions, divestitures & currency

$2,042

$1,906

$4,003

$3,784

% change

7%

6%

2nd  Quarter

YTD

Influences on Sales

Continued Industrial End Market Strength

Aerospace

Commercial OEM

Globalization Trends

Acquisitions

Segment Reporting

Industrial North America

2nd Qtr

YTD

2nd Qtr

YTD

Sales

As reported

$930

$1,859

$819

$1,652

% change

13%

13%

Acquisitions

$65

$118

without Acquisitions

$865

$1,741

$819

$1,652

% change

6%

5%

Currency effects

$3

$7

without Acquisitions & Currency

$862

$1,734

$819

$1,652

% change

5%

5%

Operating Margin

As reported

$130

$267

$100

$220

% of sales

14%

14%

12%

13%

FY2006

FY2005

Segment Reporting

Industrial Rest of World

2nd Qtr

YTD

2nd Qtr

YTD

Sales

As reported

$677

$1,297

$583

$1,132

% change

16%

15%

Acquisitions

$95

$133

without Acquisitions

$582

$1,164

$583

$1,132

% change

0%

3%

Currency effects

($45)

($35)

without Acquisitions & Currency

$627

$1,199

$583

$1,132

% change

7%

6%

Operating Margin

As reported

$68

$149

$62

$128

% of sales

10%

11%

11%

11%

FY 2006

FY 2005

Segment Reporting

Aerospace

2nd Qtr

YTD

2nd Qtr

YTD

Sales

As reported

$345

$694

$327

$658

% change

6%

5%

Acquisitions

without Acquisitions

$345

$694

$327

$658

% change

6%

5%

Currency effects

($3)

($3)

without Acquisitions

$348

$697

$327

$658

% change

6%

6%

Operating Margin

As reported

$47

$102

$50

$101

% of sales

14%

15%

15%

15%

FY 2006

FY 2005

Segment Reporting

Climate & Industrial Controls

2nd Qtr

YTD

2nd Qtr

YTD

Sales

As reported

$206

$421

$177

$342

% change

17%

23%

Acquisitions

$2

$47

without Acquisitions

$204

$374

$177

$342

% change

15%

9%

Currency effects

($1)

$1

without Acquisitions & Currency

$205

$373

$177

$342

% change

16%

9%

Operating Margin

As reported

$10

$29

$9

$25

% of sales

5%

7%

5%

7%

FY 2006

FY 2005

Fiscal YTD Results

Sales Increased 12.9%

Cash flow from operations -

1

st

Half record,

reaching 10.1% of sales

Earnings from continuing operations per

diluted share of $2.27, up 16% from $1.96

last year

Current month vs. prior year

Parker New Order Rates

Industrial North America

13

-40

J

O

J

9

6

A

J

O

J

9

7

A

J

O

J

9

8

A

J

O

J

9

9

A

J

O

J

0

0

A

J

O

J

0

1

A

J

O

J

0

2

A

J

O

J

0

3

A

J

O

J

0

4

A

J

O

J

0

5

A

J

O

-30

-20

-10

0

10

20

30

Industrial R.O.W.

Current month vs. prior year

14

Parker New Order Rates

-15

-10

-5

0

5

10

15

20

25

30

J

O

J

A

J

O

J

A

J

O

J

A

J

O

J

A

J

O

J

A

J

O

J

A

J

O

J

A

J

O

J

A

J

O

J

A

J

O

J

A

J

O

Climate & Industrial Controls

Current month vs. prior year

-20

-15

-10

-5

0

5

10

15

20

25

30

J

O

J

0

2

A

J

O

J

0

3

A

J

O

J

0

4

A

J

O

J

0

5

A

J

O

20

Parker New Order Rates

Aerospace

Average last 12 months orders to previous 12 months orders

Parker New Order Rates

-30

-20

-10

0

10

20

30

J

9

6

A

J

O

J

9

7

A

J

O

J

9

8

A

J

O

J

9

9

A

J

O

J

0

0

A

J

O

J

0

1

A

J

O

J

0

2

A

J

O

J

0

3

A

J

O

J

0

4

A

J

O

J

0

5

A

J

O

13

Balance Sheet Summary

Cash

Working Capital

Inventory

Accounts Receivable

PP & E

Shareholders Equity

Financial Leverage

Debt to Debt Equity

31.0%

20.0%

22.0%

24.0%

26.0%

28.0%

30.0%

32.0%

34.0%

36.0%

38.0%

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

Target

Strong Cash Flow –

Cash From Operations

FY06 YTD $429

459

538

529

631

551

638

864

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

4.0%

6.0%

8.0%

10.0%

12.0%

FY 2006  Earnings Outlook Assumptions

Segment Sales & Operating Income

FY 2006 Sales Change versus FY 2005

18.5%

-

17.0%

CIC

7.8%

-

7.0%

Aerospace

18.0%

-

16.6%

Industrial ROW

12.8%

-

12.4%

NA Industrial

FY 2006 Operating Margin Percentages

9.1%

-

8.9%

CIC

14.7%

-

14.3%

Aerospace

11.8%

-

11.2%

Industrial ROW

14.6%

-

14.2%

NA Industrial

FY 2006  Earnings Outlook assumptions

below Operating Margin

Corporate Admin

+11.5% to +12.5%

vs. FY 2005

Interest Expense

+11.6% to  +12.5% vs. FY 2005

Other Exp. (Income) *

+25% to +35%

vs. FY 2005

Tax Rate

28.5%

*Adoption of FAS 123R by the Company will result in additional expense of approximately $.20 per diluted share in

Fiscal Year 2006 all of which will be reflected in the Other Expense (Income) line.  Loss on sale of Thermoplastics is also

included in the Other Expense (Income) line.

Earnings Outlook

Low

High

Previous guidance, income from continuing operations

$4.85

$5.30

Revised guidance, income from continuing operations

$4.97

$5.22

including loss from divestiture

Revised guidance, income from continuing operations

$5.05

$5.30

excluding loss from divestiture

Questions & Answers...

Appendix

Income Statements

&

Quarterly Segment Data

* * * * * * * * * * * * * * * *

*

*

*

*

*

Income Statement –

2nd Quarter

% of Sales

% of Sales

Net sales

$2,157.5

100.0%

$1,905.9

100.0%

Cost of sales

1,705.7

79.1%

1,516.9

79.6%

Gross profit

451.8

20.9%

389.0

20.4%

S, G & A

245.8

11.4%

217.8

11.4%

Interest expense

19.6

0.9%

17.2

0.9%

Other expense

10.9

0.5%

(1.4)

-0.1%

Income from Cont'g Operations b/f taxes

175.5

8.1%

155.4

8.2%

Income taxes

46.5

2.2%

45.0

2.4%

Income from Cont'g Operations

$129.0

6.0%

$110.5

5.8%

     Discontinued Operations

0.0%

60.7

3.2%

Net Income

$129.0

6.0%

$171.2

9.0%

FY 2006

FY 2005

Income Statement –

2nd Quarter YTD

% of Sales

% of Sales

Net sales

$4,271.1

100.0%

$3,783.8

100.0%

Cost of sales

3,361.4

78.7%

2,994.6

79.1%

Gross profit

909.7

21.3%

789.2

20.9%

S, G & A

482.9

11.3%

412.3

10.9%

Interest expense

36.1

0.8%

33.4

0.9%

Interest & other income

11.2

0.3%

9.5

0.3%

Income from Cont'g Operations b/f taxes

379.6

8.9%

334.0

8.8%

Income taxes

106.7

2.5%

97.6

2.6%

Income from Cont'g Operations

$272.9

6.4%

$236.4

6.2%

     Discontinued Operations

$28.9

0.7%

$67.5

1.8%

Net Income

$301.8

7.1%

$303.9

8.0%

FY 2006

FY 2005

Restated Income Statement

CONSOLIDATED STATEMENT OF INCOME - Restated

Restated to present divestiture of business units as discontinued operations

(Dollars in thousands, except per share amounts)

9/30/2004

12/31/2004

3/31/2005

6/30/2005

Total

Net sales

1,877,915

$ 

1,905,931

$

2,112,462

$ 

2,172,497

$

8,068,805

$    

Cost of sales

1,477,694

1,516,905

1,688,804

1,708,074

6,391,477

Gross profit

400,221

389,026

423,658

464,423

1,677,328

Selling, general and

   administrative expenses

194,396

217,856

215,231

232,795

860,278

Interest expense

16,179

17,236

17,079

16,375

66,869

Other expense (income), net

10,975

(1,433)

2,026

342

11,910

Income from continuing operations

  before income taxes

178,671

155,367

189,322

214,911

738,271

Income taxes

52,635

44,954

48,676

58,840

205,105

Income from continuing operations

126,036

110,413

140,646

156,071

533,166

Income (loss) from discontinued operations

6,747

60,714

(1,276)

5,341

71,526

Net income

132,783

$    

171,127

$   

139,370

$    

161,412

$   

604,692

$       

Basic earnings per share:

  Income from continuing operations

1.06

$          

0.93

$         

1.18

$          

1.32

$         

4.49

$             

  Income (loss) from discontinued operations

0.06

0.51

(0.01)

0.04

0.60

  Net income per share

1.12

$          

1.44

$         

1.17

$          

1.36

$         

5.09

$             

Diluted earnings per share:

  Income from continuing operations

1.05

$          

0.91

$         

1.16

$          

1.30

$         

4.43

$             

  Income (loss) from discontinued operations

0.06

0.50

(0.01)

0.04

0.59

  Net income per share

1.11

$          

1.41

$         

1.15

$          

1.34

$         

5.02

$             

Note:  Basic and diluted earnings per share amounts are computed independently for each of the quarters

presented, therefore, the sum of the quarterly basic and diluted earnings per share amounts may not equal the total

computed for the year.

Fiscal 2005

Restated Quarterly Segment Data

BUSINESS SEGMENT INFORMATION BY INDUSTRY - Restated

Elimination of Other Segment due to divestiture of business units

(Dollars in thousands)

9/30/2004

12/31/2004

3/31/2005

6/30/2005

Total

Net sales

   Industrial:

       North America

832,338

$    

819,243

$   

924,975

$    

940,071

$   

3,516,627

$    

       International

548,973

583,221

623,343

642,902

2,398,439

   Aerospace

331,134

326,961

337,313

364,023

1,359,431

   Climate & Industrial Controls

165,470

176,506

226,831

225,501

794,308

Total

1,877,915

$ 

1,905,931

$

2,112,462

$ 

2,172,497

$

8,068,805

$    

Segment operating income

   Industrial:

       North America

119,809

$    

99,862

$     

120,133

$    

128,409

$   

468,213

$       

       International

66,473

61,615

63,079

76,040

267,207

   Aerospace

51,294

49,540

43,945

54,408

199,187

   Climate & Industrial Controls

15,817

8,911

26,513

23,602

74,843

Total segment operating income

253,393

219,928

253,670

282,459

1,009,450

Corporate general and administrative expenses

25,306

30,563

23,395

32,351

111,615

Income from continuing operations before

  interest expense and other

228,087

189,365

230,275

250,108

897,835

Interest expense

16,179

17,236

17,079

16,375

66,869

Other

33,237

16,762

23,874

18,822

92,695

Income from continuing operations

   before income taxes

178,671

$    

155,367

$   

189,322

$    

214,911

$   

738,271

$       

Fiscal 2005