PH - Earnings call transcript Q3 2019 | Parker-Hannifin Corporation

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Operator

Good day, ladies and gentlemen, and welcome to the Parker-Hannifin’s Fiscal 2019 Third Quarter Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] I'd now like to introduce your host for today’s program Cathy Suever, Chief Financial Officer, Please go ahead.

Cathy Suever

Thank you, Jonathan. to quarter welcome release XXXX and teleconference. morning Parker-Hannifin's fiscal third earnings Good

Statement, forward-looking are Safe Executive at slide Today's you'll and and me company's call. replay in Chairman as financial Joining are Tom highlights today Williams, On on accessible quarter. Reconciliations press and statements Chief slide website Harbor one with audio as well Chief the measures. comments addressing the find year Officer, on four. from will provide financial the will and third today's be together appears information President Parker's number Operating for non-GAAP Chairman three, non-GAAP Officer, for Lee two Chief slides to To Banks. website Disclosure and at Executive presentation measures investor the any company's webcast agenda our phstock.com and and phstock.com. also Williams; release this Officer, Tom reference posted on are following Today's included morning's begin

Tom's full session. the to of Tom together and for number few open I'll comments guidance company's a Tom, for get the will with third now started. quarter the performance summary Following a fiscal then us the provide provide we'll will Please a and XXXX. refer call question-and-answer year review slide comments, five

Tom Williams

our the We five I’d in Win into had here to Parker. Thank seconds strong you, jump the Cathy, back had first and I’d performance years but generation good goals. for launched new thanks take for a you very We before few the morning interest in like everybody XXXX. of Strategy your a and in to quarter, quarter,

accomplishment to that and XX% that it meeting, early, are accomplishment goals world, XX of too so at had schedule. might acquisition perhaps and thanks get the by of that the around to that And but have of operating my be CLARCOR goal we huge we I remarkable you key months that margin remember for basically our during achieved you time everybody one that got that a excited that ahead also included that to of ‘XX. FY If feedback tell time, about aggressive, to kind team we period doing [ph] remember, Parker we really the was

that and might you It list that makes versus Parker, that's going strategically answer look our did you invest how? different. in up you come So work and be How at and Parker, do would why Parker. describing the at we model why us would would really we is and asking if five a And our slide the have. what represents from you competitive that, lineup, that, you us business differentiators slide, why and there from positions the competitors I’m directly powerful to helps buy to it question

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of free effective or it last our the we to imagine basis cash which as points and floorspace, X% a X.X% machine, over the can basis back Lean before big points of free Strategy what been to back flow, success with basically How Parker system, bouncing stream company, up that Win deploy If reduction us cash started, enabled that basically freed of to did flow, were today our CapEx implemented value as that we so. we are XXX we we waste decade you we can go is the do capacity, doing X%. you transformations, and up sales we a can free shareholders. and and that XXX That's have part efforts, to by people

jump and in the our recordable ahead quarter. Safety incidents. top XX% had go into reduction to let's continues priority. takeaways from We be So

great big Win record the safety, income, to and for thank segment to are quarterly performance, really up and continue out the connection performance clip, Parker it's team all put Again, reflecting and and benefits remember and My margins, members a progress. Strategy, between in the strong strong their XX% between thanks operational on those. there and of confidence for hard ownership work. we a performances that FY our net engagement, very on all the great the achieving quarter operating our clear financial EPS, team records, about all safety We of We remains ‘XX. making number and linkage a the world progress members you for the had around

Organic all-time came of will was portion growth North up and discuss bumping margins So growth by some XX.X%, net total records. were operating were that Segment and Order at margins moderate the rates adjusted all-time approximately some record quarter. in we tough on more against operating divestiture. course, XX.X%, the aerospace, the year, we of thank basis X%, and currency you comparables, space. improvement aerospace and record performing quarter, and up which America segment seen call. the that's into investments and destocking; an that offset in the business highlights and team income in saw of distributors from long all moderating prior across very all-time XX and did control EPS technologies an a their our utilizes is of XX.X% operating motion work. it all our We've at posted segment Aerospace margin to of a versus cycle high reporting a points really great segments. past nice returns for for Q&A big level

very of Free XX.X% in margin XX.X% quarter XXX for capital EBITDA we number record in keep years. of intend of to cash flow, summary XX week, cash increases proud XX.X% record operating contribution. we've so up future. with was excellent flow Last flow adjusted had or strong basis a go dividend discretionary records. an and into was points and excluding the It's and deployment. fiscal pension as-reported as to a conversion we consecutive XXX%, Our cash XX% made to announced increase a we dividend Switching we a we're very our now

EBITDA, brands excluding also expected margin repurchase organic XXbX-X million customer to material and a growth science of list with very acquisition very our we acquisition. purchase of program cash Monday, million This our materials on the after and innovation our with values what for trends, it's reliability. strategic significantly quarter Monday, And business. portfolio it's similar started. because on discretionary transaction didn't EPS, and listen Parker one-time that material a period and to some history are accretive agreement blue-chip control made sales finished light process offerings, be leader shares acquire long-standing engineered $X.X we initiated reminder, Strong that if capabilities, Parker's was rationale We $XXX and product Lord opportunistic just immediately amortization. blackout aligned an growth, to which customer in Lord strategic billion the XX% aerospace sciences weighting, a $XX has as and before And business, has complementary Lord to and EBITDA Corporation technologies. second which the people and our It is to and billion that expands vibration global could approximately deal-related and geographies was in behind in culturally electrification, flow we and and key announced of course shares products, I costs list, is strengthens and markets rich of aligned a call the in on and continued $X.XXX

outlook, the to out guidance of we’re and moving So reported $XX.XX midpoint maintaining as $XX.XX adjusted. EPS

in X% a we're to is Strategy organic to fiscal full earnings for that Win execution. forecasted FY ‘XX growth range anticipating year, record X% and Our in the

you the environment number to turns of going out, next a are several years. regardless a look forward the that for tailwind to perform to great serve We positives and a macro really performance how our as are in position there's as

on first showing we referred generate we performing that early five improve into just so And as you has and improve continued brings headroom top-quartile in company progress attractive promise, and margins Integration growth Corporation CLARCOR of first Win we're days consolidation. The a the with to the of technologies will see to is lots and incremental of execution, XX% it, the of XX% we’ve to that can lots LORD portfolio new as CLARCOR the of upside margin controls Strategy upside years the the continue -- I manufacturing made Win the vibration that Strategy. and acquisition, is in continue organic flow and to to with science, still materials cash earlier.

of the confidence to XXX just have second to reaching the FY than margins to yield free organically operating EBITDA continue 'XX. targets, flow in we continue plus everybody, cash for we faster would and XXX%, ones segment all financial basis time points this than achieve of of set conversion to market, grow XX%, our that And EPS XX%, over are, those XX% of greater set margins CAGR remind our of So, period. an

making in that, to details another second generation back with and more quarter. I'll toward the So, year on we're targets. FY it progress anticipate for X-year 'XX sum, And that we Cathy of record hand for

Cathy Suever

you the of XXXX adjustments expenses growth begin are generated Adjusted higher to walk The earnings the increase of of the most per XX quarter. $X. income for compares meaningful $X.XX. the negatively for segment lower a refer to higher sales quarter. the for per Diversified Lower X XX. you'll per $X.XX #X. increased generated Slide and realignment consistent revenues. company segment lowered tied $X.XX other $X.XX operating and margin of accounted of Adjustments in and Industrial Slide fiscal year-over-year considerably G&A $X.XX XXXX earnings resulted deferred costs offset XXXX On compensation. increased quarter for for XX in combined earnings from in of to nine quarter compared margins adjusted market-adjusted synergies of by of expense year. positive benefits operating year. third segment $X.XX a business the Total the improvements same prior This and This expenses acquisitions our average point to for third of the last increase declining impact initiatives. this per to from earnings driven organic basis like Win year Slide income shares the came XX% adjusted from significant I'll segment net the XXXX year-over-year quarter Aerospace on Strategy share to and now the for reflects to with The share XX.X% productivity quarter compared reaching increase despite fiscal XXXX from the fiscal was improvement prior organic with investments an CLARCOR segment margin higher the $X. a the Thanks $X.XX XX.X% significant share Lower year Parker third to income Tom. to third segment more and XX% corporate an Total and the of of shows for components expense by improved by results currency total impact I'd sales realignment business adjusted with achieve. of higher find quarter This basis by as-reported interest X.X%. share X% for from divestiture. from X.X% $X.XX. margins. third $X.XX. addressing

Slide XX. segments I'll with America. Diversified business to Industrial discuss Moving starting North the

sales labor the in for hard pressure and third sales America same year. the a XX.X% acquisitions the as reflects segment quarter International quarter Industrial by continued margin X.X% operating deliver margin Strategy loss Segment. operating segment reflecting adjusted in XX. Aerospace basis margins Organic relatively efficiencies benefits relatively were of Win our an the on International along points dedicated compared performance our Industrial improved Win development impacted impressive well X.X% was quarter initiatives. impressive synergies an to in Slide XX of of third with of Strategy. now the work improved put which productivity on XXX quarter the onetime on mix year. the XX.X% for Win to due continued margin prior to initiatives sales continue to cost organic third I'll The Systems reflects sales review prior volume third Aerospace for continued divestiture an X.X%. North The an Organic the With negatively X.X% growing basis improved quarter. efficiencies of X% with the as Strategy versus from Despite Slide in accounted the and the year higher the points to for sales. increased from markets. move favorable XX. sales last to growth improvements flat by impact on Currency from to basis quarter I'll initiatives. increased margin the of to lower team's and a operating Diversified realignment broad-based across North adjusted headwinds less revenues XXX third This A cost XX.X% the Mexico flat benefits sales progress distribution quarter Operating sales. flat and quarter the For margins for On improved America basis in as settlement third the costs these quarter during all the and of

from quarter. adjusted flow Aerospace $XXX cash activities orders. operations $X.XXX XX. Moving contribution America from the quarter billion. XX. from We International orders Industrial sales Industrial for end. flow report decreased pension cash as Systems orders first to of operating minus compares of is of had We details cash a XX X.X% a flow activities. million of by strong to the year a of both for flow the last Total year. adjusted sales. XXXX Slide made range and for Anticipated now to The compared X.X%. from period North Year-to-date to X% during the XX. Slide relatively This X.X% provided Slide cash same a from minus decline was Guidance the for Diversified the being revised rates positive is full year-over-year year an When this from order This on operating was discretionary growth we basis. X% minus XX. year show year On to negative on Diversified quarter consolidation of X% X% rates by expected the March is orders in impact. organic guidance plus X% earnings expected The or X.X% sales is the Total X.X% an of be flat and as-reported to prior fiscal is prior to within outlined for ended spot calculated at sales X% We've X% the have impacts full the forecasted of of X.X% by negatively currencies year to midpoint. a the currency as range divestiture is impact quarter and segment.

those held we rates impact fiscal have for resulting of as remainder We this the year. year-over-year steady estimate the

This to from forecasted You forecasted margins reaching Parker margins can segment. are see and increase operating for rate Total run range rate the points is the XX. XXX for projected year tax effective fiscal X% year by tax year. as-reported XX.X% an the to prior approximately of adjusted adjusted to basis be full XX%. quarter. rate The fourth full expense tax XX.X% the anticipates of

comparison. cost-to-achieve $X.XX achieve in by basis CLARCOR are an rate We also per excludes million million fiscal remain XXXX. synergy of an basis For at year share share which per of an U.S. estimated by closed ask any publish not an or related until of our projected This the an $XX.XX outstanding rate $XX.XX find you range our expenses quarter. forecasted year the forecast on into $XXX the representing full at expense a the include guidance realize for with full share realignment earnings $XX.XX fiscal Reform. not $XX quarter going run now components adjustments the adjusted adjusted We Slide guidance full more outperformance is will guidance of tax $X.XX savings this The XX midpoint. $X.XX million. is year higher third initial $XXX track results the LORD the in or finally $X.XX. in estimates August the on of or adjusted per that also as-reported incremental $XX savings year-over-year made transaction. you The for third than basis the CLARCOR for results And to shares synergy in our of previously guidance to include does $XX expense adjusted adjusted include we approximately and the to other your guidance share but of Tax you'll $XXX Corporation LORD on on an be $X.XX update consistent the 'XX. guided projections On the have the million $XX fewer to savings business $X.XX per from to due excellent the on versus or forecast close results using guidance quarter or any to end expenses. lower savings guidance associated continue fiscal our million to fiscal other Actual per G&A tax driven XXXX. lower now $X.XX on range $XX.XX midpoint. for and during purposes give will might operating of basis represents million relative $XX.XX we excludes $X.XX LORD's net On our million acquisition the XXXX as-reported earnings income we that to run a acquisitions guidance second corporate In the per earnings the revenue announced run fiscal divestitures an share synergies by to remainder and of quarter were $XX.XX of rate XXXX basis expense or to contributing share guidance interest of

For are and to segment operating corporate higher share year expense. lower net projecting the $X.XX G&A income other interest of $X.XX due per balance the and volume per share anticipated we lower

lower partially shares for you over from turn by expect outstanding. to the my prepared taxes Tom $X.XX lower offset be to summary We back these This $X.XX and your from call I'll comments. comments. concludes

Tom Williams

Cathy. Thanks,

Jonathan, way with projecting solid improvement Strategy. you date, fiscal for global pleased room dedication still we're portion all XXXX. we with are to you So, the to and call. start Parker. We've And our the progress. a their And work their we to that, to financial my feel Q&A for performing The hand the earnings we're well continued it of the execution record the Win to much team very thank for And top-quartile over got on with hard with I'll being that to Again, company.

Operator

Our Stifel. first comes question from Instructions] Operator Jones of from the Nathan line

question, please. Your

Nathan Jones

Good morning, everyone.

Cathy Suever

morning, Good Nathan.

Nathan Jones

CLARCOR Just I pretty number of you there this rid some industrial like on duplicate year, expected would margin to cost quarter, But synergies improvement of mean, better the here. volumes of on have the CLARCOR America had should flat. next margins start have profile a from little getting pretty flat, the some accrual from North are costs I acquisition. on some there

can give where color just the you So, on this any quarter? us there offsets what

Tom Williams

its Tom. Yes Nathan,

that people ran for pretty it, Mexico country, quarter by of million. masked the one-time which couple performance really $X they XX it the region there's million. case little headwinds we that settlement specifically labor on was $X in about was is Maquiladora her that impacted settlement all and in range America, one-time into about So, companies settle it XX referred union in to that about was there North strike aren’t was a had that a and bit a comments. We were with some a the familiar good to This companies were impacted, a labor Cathy

that guide is our marked in the versus mix. distribution shift we a other The saw

we on destocking about of on saw topline So, of XXX the basis points distribution. impact

while to you. and less guide So, year expected, that had than the flat we difference volume prior volume, margins between then, we to were we gave distribution course we the of everybody soft OEM. recognizes had in were in much we And distribution and

what up point makes about three light XXX together, by our America, and we the that's those points. to XXX basis were so, in guide And basis North things

guide thing did the So, in and Mexico or without course shift. labor couldn’t things foresee mix we volume the of unique some happened, these that, the we we pretty are when that

destocking distribution very our but other that tell things just how at to what I performed, of the going quite into lines the one-off minus that same repeat can looking from that, are good America and destocking those is without we trend than shouldn’t of about So, kind felt not continue North type QX, rate.

Nathan Jones

Okay.

there distributor well? XQ So, North destocking to as mix somewhat impact on negative for America have going in is the the

Tom Williams

reflected that's our But Yes. in guide.

XX that'll QX guide in for We pretty wait on North still a bps, still prior XX.X%, have in be better by year and for in the that but yet our America margins America, guide North QX nice -- little it'll is in bit. so

Nathan Jones

your synergies XXX margin full over of Got there basis can just basis mentioned we CLARCOR itself it. from you’re margin you of going Then, so forward? on at American are midpoint points full That at if $XX million would discussion out for maybe those by broaden expansions, be in North this of the offsets of Cathy kinds bit should guidance year the think comment now. more expansion XX maybe year. margin year, impacts And we full-year how a and the about additional the what the points little and things that

Tom Williams

Yes Nathan, again. its Tom

by half down it really think earlier the that the full is is down year weighing impacted impacting distribution I've settlement year things the I that on the of on that mix whole the number, as same weighed labor the mentioned and second well.

volume less bit we be when guide prior had than would the expected how volume guidance, We as continue did to far we're mixed way two-thirds probably little that's versus CLARCOR, to a characterize factor our productivity I’d original see the as another that. we a but of headwind, a associated that get about we with the as through improvements quite progress, from more had because we needed that

number. the is So, labor but those settlement much weighing down the the mix, are volume, pretty full-year combination in of contained QX

Nathan Jones

the Okay, thanks very it on. pass color, much I'll for

Cathy Suever

Thanks, Nathan.

Operator

you. Thank

Our Ritchie Sachs. line Joe next Goldman the comes question from of from

Joe Ritchie

Thanks, good morning everyone.

Cathy Suever

Hi, Joe.

Joe Ritchie

and then of the destock the kind your are this some past this of commentary, demand because last Tom, year on that maybe underlying destock distribution. into little quarter? So, the Or on you're maybe impacting end your now what of it they Nathan's is forward just calendar bit of things at and that question Is seeing that kind sense a quarter following distributors the pulled year?

Lee Banks

answer Lee. I'll is question. this Joe, that

opportunity on, I as long markets if update too, I'm as on to everybody the I'll think just an take can. I

was stock QX. in of of this the QX. So, through -- America quarter. But visibility improving through we improved to continue as It's of Tom April. it said, lag. expect A One, North of do noticeable a is tell material our And expect that kind in channel things in imbalance you different. key kind couple the XX-day we could inventory destocking to

so, And information we have into didn't as went we perfect QX.

were the that which One, taking oil American a slowdown that markets noticeable microelectronics depending gas end Basin. I them and slowdowns and of on caught distributors in-plant schedules; two our -- the gas. in there's some continued there in And there. investment, in land-based it oil is area; key comes in service also and then, on automotive place Definitely, in softness Second, North capacity, and think softness some some built off-guard. mostly takeaway waves there's Permian overbuild But factors OEMs. at Alberta there's an and land-based the platforms

cycle to inventory that as expect goes then, accelerating, just lastly, was to on. through destocking, our team use a way order I as weapon as likes led there. competitive which entry I And say real would out this time to So, its inventory

I and but thing that's just different kind than on to natural take can, second, QX. I'm if a going happened, that update what's a So of market. the

So, you by markets the a varies I North region. buckets. these was but to it put I'm I three most was level, for going it pretty gave the And I and about thought neutral. colors, in comment at anymore high distribution not if really quarter America But neutral

now future on very coming markets some order Material the softening turf America-centric, North strong. there, to telecom probably obviously, truck in refrigeration but and continue with is that. backlogs strong. grow natural very for rail X are based the side lawn positive they sciences. and resource, us, backlogs along I'll on life Really There's entry end the world. comment Class very Aerospace, forestry, strong. construction, the and right around Heavy-duty engines, handling are On

foundries those right talked right the about is soft to I tools, last lot general the which trade-related there's soft which neutral still end side, on industrial, in we some I mills distribution, I'd a category and highlighted predominantly upstream So, that then, quarter. put positive be then, But play, based markets. on say of But where We on oil soft. And gas now. continue which markets machine side. is there's and automotive, now.

We have microelectronics. exposure power upstream. gen And areas, then, and all semiconductor, to but

We're great quarter. for Aerospace. to Just quarter. finish X%. plus quickly on the A going up X% the OEM year Commercial

strong So, for OEM, the year. We're XX%] XX% the up there. Military backlogs quarter. [forecasting for up

MRO, strong very there. military strong quarter; plus MRO, for a very XX% the as forecasting would for very plus So, year. at XX% the X% the for plus Commercial forecasting you strong X%. suspect, quarter; And

quarter, was lot to or down X.X%. -- So, other on Chinese compounded by shutdown, of shutdown then, that. that Year approximating Year. Chinese just versus Year the QX. challenges either New around there's the really the customers a on What one Asia the questions It's year-over-year a slowness plus been New comps. side impacted a rounding shut for New was clear This longer happened -- And there China X%. for in because full as on decided comment by A of was Chinese year, high very I'll region the impacted economy. OEM lot of broad has trade in

markets export and China, on And heavy longer then, that's ASEAN shutdown to than impact really negative Korea a experienced a with machine around trucks. little tools Japan regions. also and a market, export depressed really Microelectronics So, continue see. we contract Korea, automotive and typically Japan, really percentage and to

So, it's it. you you Joe, but probably have now wanted, more than

Joe Ritchie

an guys I that up. No. of know if but both quarter. the in anticipated half the than Thanks, like the was the were wanted. better little Lee. follow business, second Aero stepping standpoint, could aero, headwinds also MRO color. aftermarket it commercial I bit some And the about Obviously, for because the I appreciate talking originally sounds R&D we just the you business a That's from of year piece was exactly maybe what all for I on.

in what little well? and you on that what about thinking could was as should provide the terms maybe more if of color XQ just So, R&D we quarter bit for a for be

Cathy Suever

Yes. Joe, significant I'll -- had fourth military quarter, We do last of for help little MRO you bit comps year fourth the with quarter. the that we one. see a

and And still were usual, for a that's the for than so we that about. So, as of were The headwind comps terms quarter volume are than in the the we that lower growth see expected. talking higher of development costs we fourth quarter or part headwind.

costs and of Right the We X% push X%. and high. fourth we're be X.X% costs a of QX, we got in be development Some pushed of with those fourth cost fourth the into quarter. forecasting to quarter, the of did the quarter somewhere us total fourth get expected quarter. to now, X.X% quarter year That'll to development some the to for into X.X% between

Joe Ritchie

you very much. thank Great,

Cathy Suever

Thank you Joe.

Operator

Thank you.

of Our from Raso the line next David Evercore ISI. question comes from

please. question, Your

David Raso

Hi, good morning.

Cathy Suever

Good morning, David.

David Raso

you was rates just you're help a revenue. we done fiscal distribution baseline. Are year how of of clarify, with of with mind to just into the return ends? rates. and looking that you're seeing, year your about, can order about the can Maybe picture, if kind where I'm think XX? Is destocking curious, course, the just thinking the growth? talking as it 'XX big bit curious, you thinking a do but you us little Just Not June can by order that Tom, I to in earnings

you're the does help get to if trending us ago fiscal the now, trying some the about year end perspective. year today book with inventory where is Just how backlog you versus fiscal Where levels, order is year-over-year? a where or just And could backlog maybe seeing XQ. the thinking

Tom Williams

Tom. it's So, David,

It our for influenced was comments we about how QX. a view of by of couple kind QX's really Just orders. formed

And see quarter. kind North of X% a America. throughout declined we that the negative So, in

basis out influenced destocking. that and improvement was a at we thought points there. However, April saw XXX QX the by an softness X.X% delta X% by minus in that where really the about entry our we order forecast -- at was points distributions Hence America. rate distribution We probably to and a we distribution, for sales XXX North sales basis into of look about in about

the kept talked as So, well that's we Aerospace better for on consistent April little entry, comparables little last stayed then, at to pretty X% that Hence is minus as picking as as QX. year. International plus through entry the quarter April. what And better the piggybacking about saw. X%, up on we than Cathy a international order a far order

because not as and our it's predict So, months belt. FY imagine, another hard, really to us 'XX help three to have going that would I'm under you to it do might

can quarter. got I the have in of better I little what destocking continue tables. think think will project, it we the guide that here, we've graphing you now to is a see in looking at easier, the way which And bit through trends a that these

narrowing. think can June. to I more end and going so, know it's distributors few is clearly, to that at we purchases say sales in And between we whether gap need But, that months our a

it the Whether the looks we don't quarter, So, in get know. good. will trend done complete

the I but high. think when at the pretty comparables get last continue to you little still they're a bit better, look year, we -- comps

when single more half a the I around attractive digits growing first little view a the distribution very I example out you X%, our destocking, North at an look entry in If our some low more half as was optimistic little is becomes of underlying is maybe so, and And distribution growth. about order America. take challenged comparables. back and second still the feel the

destocking but through once the think sure I that's noise I'm going plays give Lee of that we going still optimistic. this there, the reasons to -- there get be went through. for we'll when so, through. you for A play lot us the And And visibility is to

in of should the that help the the beginning We have us year, tough but a in comps of half. second couple

David Raso

as about international? baseline, order just your say And and expect a from bit you're would it given maybe easier given you're further comments of your what April little would comp in seeing North and April, year-over-year America be to a what bit not you commentary deterioration and and customers, hearing a fair

Tom Williams

get still comps. tough you Well,

David Raso

this declines case? use year-over-year would base a you On

Tom Williams

to hard say. It's

based -- comparable, QX America. to we're X% comparable at will think pretty for still for soft QX be our forecasting I to When you on QX, plus good pretty it's a still a be North guide. get tough

to more our little through. head of growth I point will us, But, the trajectory And but And it's trade I finish. been more the The be negligible will a has tensions seen cost destocking will the true that. I'm at going you there's think come bit it's some that time above that growth that play for still still to underlying to pick need been So, trade think demand a we're that through. more going optimistic finish, impact, impact. for for company. But tensions

David Raso

question. last And

you're to people any weaker aggressive these trying a Is a allows between going you allow little that's sure but about your when toggle weaker a toggling Just think rates year. than the a little I'm be maybe -- I maybe margins, maybe people if to dedicated related orders maybe on cost look you obviously, between next more bit you And more you the of to thought. to how aggressive were order also there's that thought. little some there relief here of any growth to think costs sales? think than XXXX, not be you've Just some anything, at price, seen little that

Just maybe frame that for balance us.

Lee Banks

Lee. it's David's,

we think try always to I to win. price

where neutral. input cognizant what's to be we costs to very the So, go. want between we and and on we We're of always margin going target balance strive

expect what next than inflation experiencing. going we've I So, lower it to been -- environment be a year

David Raso

it, appreciate thank I you.

Cathy Suever

you All right, thank David.

Operator

Thank you.

Our Merrill question Obin Andrew Bank America line next from of of comes Lynch. from the

Your question, please.

Andrew Obin

good morning. Yes,

Cathy Suever

Andrew. morning, Good

Andrew Obin

Just another on sure I'm again, question ask I'll destocking.

thinking about cycle where Just is. industrial the

with XXX if how you. should growth outgrowth, Your expect global over? rates I points not, we as for goal Thank points? this is XXX industrial in plus snapback target once reconcile, And destocking does said, basis growth your of a of basis

Tom Williams

Andrew, it's Tom.

two years. in anywhere if is goal last really global growing over cycle, the us X% years a we multiple versus And the production organically. that approximately, the look XX% were over really So, you at from to industrial

X% would stabilizes growth production as when the would see that have, destocking XX% growth and Xx snapback. earnings we to recession steady industrial XXXX be it snapped trade to characterize all Not have growth. not characterize Xx a the out to would to extra XXXX, with would and that we hair world. we production demand of I a drive that were concerns, it were of but you slower, the so, I as things that below a that X% of China tailwinds post And more a us living in we between moderate in the the growth industrial a have in we and and LORD we'd we get Right coming industrial X.X% with plant the index. efficiencies years that next plays world. we I The on over global EPS do closures, the once Win range. naturally, there, in expect, through And the now, of synergies Strategy between moderate-growth a growing index global can several clearly we'll a snapback. -- not lot

feel have the on opportunity an that the with hit is very strongly that, to with target So, We that still going and we're XX% I target, the extra amortization take even and that's plan. LORD to all that. still

Andrew Obin

income. guidance just of operating adjustment a follow-up on sort segment on And quarter fourth to

identified you we very You And a frankly, North thought incrementals solid. in that one-time were of performance. items American number if out, pull

just don't more line QX. I So, quarter? why think fourth And your offsets wondering so you I in on something could Why through commentary? if to did, conservative get just on execution top you apologize. Did miss

Tom Williams

it's have -- some really We've It's again, XX% Andrew, had softness and than minus Tom. in attractive less in -- No, that's there. it's no, minus a any. got decremental. like, we QX only, didn't we you decremental very

still at still destocking, we are us. we come for enhancement operating still mix underlying have -- volume. shift with in margin QX. the the margin by that pressure the We'll So, XX.X% And being offset there, with that hitting is distribution QX

turn the I to play continue that So, destocking we're is to into FY think corner that's forever through. upside into and very attractive 'XX get FY it's story some to that 'XX. going not But going going we that It's going for numbers. as part nice the that is of

Andrew Obin

so you, much. Thank

Cathy Suever

Thanks, Andrew.

Operator

Thank you.

next of Vertical comes Research. question Our Sprague line from the from Jeff

please? question, Your

Jeff Sprague

Good morning, you. thank Yes, everyone.

little should forward. corporate what could more explain that First, expect in I was just adjustment and we what exactly wondering going if bit was a Cathy perhaps

Cathy Suever

We and Jeff. Sure, the we deferred a support to quarter, to some accounting a nice in of carried balance. in those share saw And rules require investments investments. market plan mark-to-market the gain us that third comp the

second significant had a to compares that Now, loss. we quarter where

fluctuation seeing So, our it's G&A line. we're corporate a come mark-to-market through investment that

Jeff Sprague

right, a of your order your It organic And orders, whole I delay. have just maybe equation. quarter was the closely tracked back like on also revenues kind wondering historically with very very, looks

the your helpful. North color commentary. is kind You additional revenue be the America there of that through something with Any is don't that continues to saw Am this on based destock Or decline view? be seem there? we be missing just just and something would perhaps coloring there commensurate contraction I way signaling a in order playing your that's would in

Tom Williams

Tom. it's Jeff, No.

quarter's general, anything. our that You're next period generate tend orders not In you're missing to follow-up the right sales.

in of them about destocking, type those on within not America, where have guidance QX. we And sense cycle the far exception our still period. soft woods. March. the pronounced the it see orders, destocking, the lot seeing all why orders the And which in saw North cases better us is of of we giving in talk we -- is optimism, They're April. bit what as we we'll We as our X.X% rest as not of to what can when With distributors, more April improved the that still with you're was from quarter. to in a have the what's improved quite the that is out a quite of but same

Jeff Sprague

you. Okay, thank

Cathy Suever

Jeff. Thanks,

Operator

you. Thank

question comes JPMorgan. Our Duignan line Ann of next from from the

please? Your question,

Ann Duignan

everyone. good Hi morning,

Cathy Suever

Good morning, Ann.

Ann Duignan

Maybe around bit you more by could switching bit. Europe color a us a by what markets? little of about gears but I there Rest talk you Could you're Asia, country? little talked seeing a end World little you give know depth bit or market of in and about

Lee Banks

generally it's to customers, Show. the at of be I would Fair bauma talked at Yes. time bauma or another. soft. And trade of way And the some Hannover industrial to and a Lee. it bit -- then I related if lot it's at Show, Ann, spent a in quite seems you

tool machine cetera. generally be companies, et would these So,

fast equipment, construction a in build are you enough. equipment If industry, you forestry can't

still a acceleration world a a little markets but still strong offshore there's there's And then, bit slowly, -- the there's demand. off Distribution bouncing an low but around high So, it's number, are surely. gas, around oil and throughout EMEA.

what some more There say, So, markets good. Asia held really we're I that's whole industrial Pacific. would be kind softness equipment, to et I'm Asia, Construction anything distribution I can Sea. pretty And in positive as definitely seeing of there. than some have a of not still of add on North there we're is in and sure that the around cetera, the in I seems in still there.

Ann Duignan

one give And Okay, Do North in much your to you. business? North just Texas, gas? you of Or metric to oil leveraged region, America know sense us size distributors the that you maybe on use the I then, and follow-up of appreciate can color. how or some distribution any is by thank that distribution. even of American

Lee Banks

can be offline. of exposure tends trade. might be that are that I the in those take we now. That area around could to distributors right But repeat Nothing something

Oklahoma, So, around the you down it Gulf look it's something is. where Texas, said. at. like it's It's there, is we But can

Ann Duignan

was the Okay. broad And regions? based in oil gas or destocking and the sector

Tom Williams

with amount down of do West area. know. this and been activity And investment we've gas our Midwest of has got a through East It's that on pretty was -- from mostly; if and is which down then, Coast the industry, distributors, spread you has slowdown south. led -- all high that lot very slowed the on positive the bit. business around which automotive, a and distributors the the of Yes. you soft, kind out But of got from Coast lot some in in-plant the talked to That also, we've other destocking. to And the about they're way as level distributors with went quite and activity microelectronics just even a that's the oil there a involved --

Ann Duignan

I'll Thank you. line. I get appreciate back in it.

Tom Williams

Ann. You Thank

Operator

you. Thank

comes question with line Coe Research. of next Our Wolfe the Nigel from

please. question Your

Nigesl Coe

through earlier And we're And any for we MRO same the understand part if there I four the to comping to comments wondering the be destocking points through to in to still Is order do challenging assume for second normally, restocking it So, originality. and going than therefore, question, my then, that quarters back here the get of order positive. activity four is, are still to to fully six the about it's back really cycle no I'm back and, to numbers. the restocking against is get channel. the negative we And of therefore, back go calendar But can want have half the reason destocking question to positive if where year? comps to different we takes the quarters? even comps this point through XXXX. cycle a then comps stops,

Tom Williams

Nigel, it's Tom.

-- think we the when this look I I we've think to you going at given what the quarter, next we're comparables, for think QX.

our the trend has plays think quarter we 'XX, I -- everything feel QX discussions XXX think this destocking that we growth do a has everything distributors, through, more when with [purchases first delta the into basis about clearly, look lines comp. was I go that distributors, of you that sales] our balanced. channel underlying pretty at points. once our 'XX on versus to FY that when we -- FY that, And tough when become after do we

in flat. came America North So, basically

means around out points, a have positive X%. that XXX North if destocking, So, you take basis America grown the would

to play plays that down, was know. start a I April. where how until We that net The up. long saw think We going complete that finishes, approximately through, don't But to not that's positive yet. answer is does we're whenever take which it in through. end question it to to difference going So, we're have

days XX when that I But internally, as job displaying we visibility. distributors of see so think as it we're better. better a give lag trends can graphically doing the that us our does far

always don't we you quarterly when perfect update. have So, give we information

August, are have with give we So, view exactly a on when the where better we'll you destocking. we

Nigesl Coe

low then, are years obviously, just we margins next where mind, is with of the Just performing appreciate in Can FY 'XX how can and margins? here they beyond? well, into so three two Aerospace the that. view wondering, with into level from curious a your at Thanks, grow FY kind we Aero go 'XX And XXs? Tom. I still or on

Tom Williams

that again. Tom which to this approaching to can. strongly on they We're going feel that it's I year get R&D. very we're an equilibrium, Nigel,

MRO a with mix year, this MRO OEM FY a of versus versus at to disadvantaged mix less us we look our OEM. little got you bit If actually have to 'XX that

naturally, time multi-year MRO to over over to And that's up. going time, but is a going come going of not it's to period happen instantaneously, that mix so, --

a We leverage driving job service with into continue has They've of of these -- great they're entering done nice Win team of lower very what's bit margins of nice part R&D. job with And, very a course, The a getting is done Strategy. productivity. little the a

Aerospace. Win and R&D Strategy So, is service expansion things to with productivity, may entry reaching give going the us into continued continue opportunities that margin equilibrium, be to while volume The

spot going So, on do. approximation what of your to try that's where is I we to can think head and we're

Nigesl Coe

Tom. Thanks Appreciate it.

Tom Williams

Nigel. you Thank

Operator

you. Thank

the Cook question Jamie next of from Our line from comes Credit Suisse.

please. question Your

Unidentified Analyst

for Jamie. is This Hi. Themis actually on

raised Just a I on you think margin assumptions margins your top weaker a international question line where forecast. despite

better understand what that? us So, can you drove help

Tom Williams

talking You're for QX? about

Unidentified Analyst

Yes.

Tom Williams

what We're the XX.X%. which with quarter, QX off at prior of Yes. nicely very came we building in did

And QX is so, our guide XX.X%.

the to building So, that's Strategy. in with give quarter. that we did Win The which line with us on prior That's done what prior-period restructuring continues leverage. we've

with top QX. were feel the to what in we we that, enough with so, line, about And standpoint have momentum where an we're good from we even softness in earnings margins the those keep doing

Unidentified Analyst

assumptions then, Got around price you for QX? quick, more And Thank it. could real provide cost maybe your you. some color

Lee Banks

QX. be in softened I expect and that to Yes, I would input just neutral here would cost commodities and basically some neutral. have There's say have are or some that accelerated this margin

Unidentified Analyst

much. back very get you Will queue. Thank in

Tom Williams

you. Thank

Operator

Thank you.

from of Baird. Dobre Mig comes from the Our next question line RW

Unidentified Analyst

have been this It's answered. guess my I'll I Joe Grabowski of just on out Most there. one morning. for throw Mig questions

But comes automotive in of seen a have depending that You world. talked around the waves on in-plant a mentioned in slowdown business in builds and we kind about you slowdown platforms. auto

you little a dynamic kind see it color of next that where the maybe So, several quarters. over and on bit more

LeeBanks

Yes.

I distribution The involved and line investments amounts A a automotive gets dollar in activity. their [indiscernible] big lot of exposure base for is etc. tool then transmission way types they're platform, new when the our at of basically new customers. plant look machine up are So, MRO with tooling our those and

systemic long just term, tend a right slowdown to is. So, at slowdown that's that's the nothing now It's it's model It's -- slowdowns that happen level. but builds. between where these

Unidentified Analyst

been other I answered. Like questions helpful. my most said have of That's

So thank you.

Tom Williams

Okay. Thank you for calling.

Operator

question next Pokrzywinski from line Our of the Morgan Stanley. comes Josh from

Josh Pokrzywinski

Hi good morning.

Tom Williams

Good morning Josh.

Josh Pokrzywinski

Just the of distribution. I'll things dead follow more or bit want up America and horse a North on couple beat a little to here

mentioned of quarter, destocking. kind that Lee, of at last were think, I you the we end

had And I the kind balanced worse? that through led distributor got little that I got bit in then, You coming What stocking last guess got then. of guess, lived a again in what and that what to quarter as again? on levels, worse back wave early then better? sign of call being

Tom Williams

a was it of it's I'm getting what's base with periods. happening. so One, level the quarter. kind distribution Josh, lot calls of in holiday just a phone always last our touch of Yes.

of And So a thing was with then, quarter some to day, will aren't was Basin. the day equipment customers and focused the as worse way way OEM really really key of which things. overbuild sometimes our around was got gas. significant slowdown those the the it again, Permian but the all during Alberta one from down all was take through care land-based on that oil an the people what's its that there It around distributors And of, work happening way through.

And when down. that slowed much time. that the screen so checking So, were wasn't on radar we last

I things the what correction over And talked other the about. that's was. So, then, think I

automotive been seen do would sales. and slowdown because days a a I in microelectronics. XX last have little And then something -- interview. said of here. our softness a than had report data then, different of we data The We their that lastly, in phone in-plant continued have kind that. distributors think do Just we've smarter would And we

would it helped. So, have

Josh Pokrzywinski

that, it was on that got better ago felt there better, get actually it, there's of changed that days But, your was Got didn't happen? maybe XX, just within XX less it. that end guess, that I destocking then, call mind something the since bad something or presumably or but did

Lee Banks

would good I if feel -- But are like is think taking and got growth these just call to you there a throughout was out they was just destocking There's so, inventory times. to a of what any probably the There underlying out distributors, taking the very were good I number. the our growth It's rapid ahead think an stocking demand place country. happening place. was. of headline

Tom Williams

Josh, on. it's wanted to everybody just to this else on early on -- add Tom. for touched I maybe Lee

market advantage Our distributors they strategic share a view and as view a as opportunity. inventory it

'XX inflection at was So, we're when we remember go XX%. how the rapidly from all growing and X%, into 'XX

really were wanted kind distributors our they that So, inventory hustling those build of have. to to positions

lags had probably their and We by it's visibility how looked correction current at and is because we sales happen our to at planning that XX think didn't think data. quick not we now trending And same I that demand their kind days. by would are I just raw that have like it it easier of correcting enough see this, operating the to on to fact it, end. the to versus we trends technology, look

little for -- an think that. inflection, rapid maybe that to a you was on that phenomena, through. have more I playing distributors it's being maybe the And share all opportunity and take aggressive

going visibility, guidance give better forward. I give I a have we So, never now but perfect think data when us think color our little have will we'll we the analytics

Josh Pokrzywinski

That's just materials week, obviously, Materials announcement it. engineered of much bigger pro How your did forma a basis. a on piece Engineered follow-up, the this becomes then, perform a And portfolio with helpful. quarter? business Got the earlier this

Tom Williams

orientated the has margin was one had. as our continues it's It an far say aerospace would to of kind growth And exposure with organic Josh, It well. company like higher LORD in the as I as industrial just total much very it be Remember, same as the it's company growth, has. line total Tom. of businesses. in

LORD about, the that we're is brings think us excited I shift content automotive. for is LORD difference, what on a

has First X%. you not LORD a currency, of organically in a all, XX% And fantastic is portfolio. It in aerospace and industrial LORD factor grew that QX. XX% grew they automotive. portfolio about if remember great

of material and that's the same by the the thermal light-weighting we just like we and same structural pressure to the the to why why feel were on an if management because great this bill felt they while doing XX That's you of machine. have times kind But XX automotive engine kind not currency they AGV we automotive, material ours That's do headwinds is to at adhesives be the they've on the XX about automotive job a XX for look on So, difference, the their the like or so EV, of got of and have. number, they combustion on growing an attracted pressure them, impacted have portfolio aerospace times times. plus right the they're that industrial. not times opportunity fact bill to

don't rate. So, how slice just that's organic darn XX% care pretty QX look is at their in -- growth good. growth I you it,

Josh Pokrzywinski

the appreciate Tom. I color Understood.

Tom Williams

Jonathan we one have time please. question more for

Operator

today Certainly. the Mitchell Barclays. of line from Julian comes from for Then our final question

Your question please.

Julian Mitchell

outlook. just quick a one Maybe around North the America margin

of expand your guess, I midpoint confident year? are what, that, positive how this conviction. can sort test we single-digit, of margins fiscal level, to another the And for you if America, XX.X% that see year wanted Just North from in 'XX but at in low sales growth Industrial

Tom Williams

continue Julian, to margins. earlier. value those about standpoint. it the we it's thing we're the because was from good seeing tailwinds strategies. And feel things plant that Absolutely. pricing good we tail general But QX got those Tom. in the to plans talked that still are to continue trajectory. The expand chain bit some of going a masked little consolidations. to better just I'm can one-offs in and on get still doing simplification, our get Strategy Win Lean, we're wind about still as and upside is work we supply in that we what progress. comfortable we're We on that related The all We've doing we on an innovation got

gain America North type going would volume into of you on think year. expect I next incrementals So normal coming for

Julian Mitchell

second that the an those And the workforce, I this you things top temporary little cost if the softer Clearly, there that go being environment. of then, destocking call, a I through in taken example, still has industrial talked think, pulling my one, levers last patch? this or being as bit. Tom, you're with extra a on light, you great maybe line about wonder, sorts measures as organization any for were dented

Tom Williams

it's variable Yes, the you and a make output. cost adjustments Julian. lot those have get our over record. match utilize pedigree, we whether our entry there And ratcheting and We're at some good you track can structure -- pretty the order that variable cost back time, attrition. you can things There's We'll all having track Absolutely. of that. religiously. help cetera, do That's whole temps, to we et

would I So, expect that not be us. would for a problem that

Julian Mitchell

Thank you.

Tom Williams

to and take concludes your call. calls our day. any a will joining for great Have Rob Thanks available Julian. if you for This and I everyone. our further Thanks today Q&A Thank have earnings be you questions. us.

Operator

program. Thank today's conference. participation This your the gentlemen in for does you, ladies and include

disconnect. Good You may now day.

Parker-Hannifin (PH) 2 May 192019 Q3 Earnings call transcript