PH - Earnings call transcript Q4 2019 | Parker-Hannifin Corporation

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Operator

Good day, ladies and gentlemen, and welcome to the Parker Hannifin Fourth Quarter 2019 Earnings Conference Call. At this time, all phone participants are in a listen-only mode. [Operator Instructions] Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today’s conference maybe recorded.

I'd now like to introduce your host for today's conference, Ms. President, Administration Vice Officer. Chief Executive Suever, Finance and & Financial Cathy go Please ahead.

Catherine Suever

morning. Hannifin's to earnings Liz. Welcome Thanks Good Parker release fourth teleconference. XXXX quarter

Tom accessible Chief for today's Joining and with Today's at the today are phstock.com replay and one company's together Executive me call. will investor webcast be website Chairman presentation slides following President the Officer, Operating Officer, and audio Lee on Banks. year Chief Williams; information

Harbor will On Reconciliations addressing Parker's disclosure release slide on non-GAAP website posted Safe X included the number press as for measures. this are are in to statement you statements, financial find at well X, reference as financial phstock.com. forward-looking measures also and morning's company's and non-GAAP any

our comments Executive Tom fiscal Today's agenda appears highlights on and year slide quarter with and Williams, XXXX. Officer, Chairman number and providing the begin X. fourth from full Chief We'll

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

Tom Williams

for Thanks participation. Thanks, good morning, Cathy. And everybody. your

a Looking history. year ever and strong at in we slide completed X, had our quarter fourth Parker's best

very minute a I through market before is perform on reflect and the and a company to jump company. better remarkable record for Parker performance But into of to pause all wanted the now, I cycles. just able transformation our delivering results, different

we've last years. done of portfolio businesses the stronger the three following transformational a have acquisitions three We in

points. over to margins percentage operating points XXX you and adjusted basis at improved back improved last years, five adjusted and margin If look performance basis EBITDA XXX go

margins flow We the and but are better cycle, now over cash been cycle. on on performer we're EPS the always over cycle. much better we're We've good the over

performance our just industrial I performance a QX, that in and all margin negative during was Particularly the they last order improved margin our and to. if you the recession 'XX growth, quarter referring 'XX performance note, to point

On company lift the the on portfolio three acquisitions, they're two going and levels, to performance. up

side, on we've add to the cycle. we air these Engineered because Filtration, that about resilience talked are Aerospace, wanted portfolio the parts the over On of to Materials to the and

On growth great adding performance the the side, three that businesses accretive we're are to margins. and

cash Our goal to evidence strategy Capital cycle, build seeing our generates Win better the you're already. business that the and business and Strategy is here flow through and a higher growth, Deployment through that of margins

to best going Parker in a company. is this in result is being this class Ultimately,

team the thanks hard in, members several my to point. all but So the Parker who last really year, their last us get over to this to listening for years are work all

you our competitive model on briefly, this to that and us turn the of just special we'll slide what makes is and company page If business the is X, through transforming part talk differentiators these bullets

The it's behind it Win is results. the Strategy, our our system, business engine

entrepreneurial decentralized structure an Our really spirit company. drives the in divisional

big advantage from buy of strategically good customers portfolio a from our all And that of fact of revenue our that us have value The versus really control that technologies. that comes I've breadth the those we That's customers motion our to before, technologies the and XX% our talked a creates competition. technologies. that recognizing this positions about breadth of have and evidence

element it. portfolio, to property our typically and of has tied we intellectual strong Our property, some intellectual what ship XX% of

channel the best as have we distribution have cycles, We in long aftermarket, long balanced control decades life go, space. and motion the arguably OEM product and it

We have CapEx low requirements.

in action that deployment enables over you've cash a deployers us us years we're lean our seen of very that CapEx Our and has drive low capital have robust and five great transformation regard. really to driven And in and process. a generators the to last business

if some turn to top X, to priority. you continues quarter. be our from So fourth the highlights Safety slide

reportable were XX%. down quarter the incidents for Our

to drive are teams performance high these Our results. helping

run is how an zero to of goal company. incidents. Our That's not the really an aspirational it's going we're goal, expectation

ownership high to and naturally process the quality, performance culture team and safety is that and also of company. start a applied that's created the be the performance the And delivery, cost from going up lift to will the of

segment negative was of and All-time organic fourth of for records Industrial and notes a composed EPS. sales income negative Couple negative on the segment a operating total the quarterly total and X.X% quarter: that operating net margin, quarter, X% a X.X%. margin, were

quarter the tough International My in fourth record currency had a and team on comparables some segment we declined Our as the International great for quarter. X% Industrial a margins well. orders against to thanks job

turn full-year want a course, total to a We margins, flow. segment for of all-time of do So now, cash records so number only results had EPS and on basis, we ‘XX. FY operating income, to operating I they sales, reported are net records,

we full the year. sales on organic organic We operating versus year, the growth global prior production. of X.X% of in industrial excellent outpacing improvement and had for in margins Couple EBITDA came segment highlights margin

back Adjusted We're From dollar standpoint, EBITDA XX.X%. CLARCOR, billion when EBITDA are now an we were and we go acquired $X.X billion. at you to we now margins, if at $X.X XX.X%. we were

enable growth both that we've that dollars do EBITDA and That growth has acquisitions to LORD helped in us margins, Exotic announced. recently in really

the a a obviously but and margins, there, of original to a year not we're time reach. first we're us segment huge proud history, that our operating number And of that was target. XX% stopping our for achieved in milestone extremely We XX% ahead

that a CFOA, we you excluding do XX.X%. cash Tremendous on the at and pension $X.X billion will in generation, flow XX.X% cash. contribution, be resulting basis, came in operating in percent When it

is the and about be me of goal you've heard talk cash. to Switching to capital generators and deployers this, great and cash deployment,

side, So, cash on flow flow credit XX the conversion of FY years ended consecutive free cash free That of ‘XX XXX% generation conversion. at makes we cash XXX%.

growth out net XX% is we income, XX% to net result as dividends annual by pay increased was side, XX%. income. deployment to paid of Dividends, it stated year. on our And And a big of out in our target a

had as purchased that of well, We of acquisitions. paid we're dividends two side, We repurchase $XXX one very million on share we on annual year keep. we XXbX-X proud consecutive our XXrd and program intend increases million discretionary announced we to and transformational did And out, our record to $XXX on the a basis. a

to Debt going reduction a forward. higher is priority going be

Our target the there. is X.X get from get gross multiple pause and within we we'll to EBITDA three activity years multiple, until to debt M&A a

Metals; on to to Just Corporation our LORD great Engineered comments adding really to our portfolio, with acquisitions the days, are shareholders. the high XX Aerospace Exotic business for that of on margin Materials the growth last our a generate businesses. few in value We acquisition announced the and high going group transformational and and

pro by basis the take and in that period more margin, with your When XXX forma EBITDA to Exotic five-year you improve legacy set than time. out forecast EBITDA going LORD we're look Parker points years, margins for at of five over

quartile we of fits both That's companies really and integration. going to referring these I help we LORD both that to, and am propel company a seamless us cultural great in expect that are to and desire, top be Exotic,

and X% during talk outlook, market for to conditions, to we moderating midpoint Q&A. I'll that turning FY negative forecasting more X.X% got We've of the of sales flat, we're guidance about XXXX. so the minus issuing are Now

be being When guidance, on historically think margins FY margins, would our observed. you 'XX negative record EPS. look I guide, growth, at effectiveness posting But expanding and segment the is Strategy we with of organic operating we're we're really reducing the Win this a

we midpoint, and realignment did not Adjusted at or $XX.XX of $XX LORD at $XX.XX million, guidance. this the is EPS business to Exotic in $XX.XX, 'XX or include FY

they guidance update course We will close. of after

So our well going if you achieving our recent look we acquisitions, we're Win forward, that on FY targets. 'XX way results, momentum with to in at the FY coupled FY the the our 'XX Strategy guide, with have really 'XX

points growth the And XXX EPS greater sales global people, to for free for targets plus. global the production we're flow EBITDA just cash really of of of returns margins to generate cycle, time remind XX% XX%, FY shareholders. growth The that members of of 'XX are are than operating helping CAGR period XX%, over segment industrial margins those conversion and XXX%, our greater strong team our actions over taking, dedication than basis

I'll back for review that, the detailed hand to quarter. Cathy it with on more a And

Catherine Suever

like XXXX compared fiscal to slide refer share presents now reported slide per to full X. XXXX. adjusted and you This and number Thanks, year earnings quarter to as Tom, for I'd the fourth

$X.XX earnings quarter totaled share the per increased $X.XX. prior reported acquisition business Adjusted of expenses $X.XX. integration LORD as reaching year, and and realignment fourth for X% XXXX to Adjustments of $X.XX including the compared expenses results from

$X.XX adjustment. a CLARCOR realignment to business loss achieve, US and write-down compares to for XXXX reform sale fiscal and adjustments costs This net of assets and of on tax expenses,

of $X.XX. increase details per For financial share $X.XX. to the reported tables XXXX fiscal This XXXX the fiscal XX% Adjustments to are non-GAAP measures. totaled the was The all an earnings from XXXX. adjustments adjusted as XXXX fiscal for compared full these for included adjustments in reconciliation of of results compares $XX.XX, of year

walk to for this you'll quarter adjusted of $X.XX the the prior-year Moving the $X.XX share components quarter from X, significant per of slide to fourth number year. earnings find fourth

tax We gained for lower $X.XX from $X.XX expense and average count expense and expense. interest accounted share Lower $X.XX. other contributed G&A, income lower corporate

costs as result segment higher X.X% income with our a prior year decreased versus gains, by Aerospace sales volume, these operating the in lower incurred of down segment. also a and Offsetting development as $X.XX of quarter, result

components segment significant $X.XX $X.XX expense interest the improvement reduced income. lower of share $X.XX. $X.XX earnings year. $X.XX, from margins walk year-over-year. accounted of for fiscal an basis and This came largest average from The by income the from find total for of contributed expense. XXX with per this XXXX you'll XX, slide to $XX.XX to segment $XX.XX operating accounted Moving adjusted points for Lower for increase improving shares came tax

Slide and XXXX. fourth segment margin full the XX for and sales operating shows Parker year quarter total

an currency year. For quarter year-over-year a in impact last X.X%. segment operating on XX.X% quarter, negative the sales, to fourth improved had the Despite decreased sales decline versus X.X% a and adjusted fourth total basis XX.X% margin by of organic

improvements Win of impacts and with the acquisitions, This positive Strategy initiatives. our synergies benefits from the combined improvement reflects productivity from

sales XXX the and points basis margins to For full increased by X.X% increased total operating XX.X%. segment organic year,

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

basis. quarter, lower improved for nicely quarter the down X.X%. margin adjusted sales sales, on an with fourth Even America fourth operating XX.X% to the For North organic were

dedicated work synergies which as North hard impact to Strategy initiatives. margins, acquisitions the productivity America reflects continued deliver from well as Win of improvements our and to the improved

I'll America increased basis adjusted and For XX.X%. X.X% on Diversified points to XX XX. margins Industrial the full increased year, North slide sales continue segment with the organic International

the also quarter basis XXXX, of for quarter on sales, negatively segment sales. International impacted sales by operating XX improved the fourth quarter the adjusted Despite in an by the decreased fourth to Industrial lower the X.X%. X.X%. for Organic Currency XX.X% margin points of basis,

efficiencies cost the benefits realignment operating improved team's our reflects from initiatives performance Win Strategy. margin This of the and

sales at adjusted full X.X% Industrial the increased increased points basis year, XX.X%. For for by the organic to International XXX and year operating finish margins

slide growth sales I'll commercial XX the along to to in X.X% and during now review to the increased primarily aftermarket. segment. Systems due Organic fourth Aerospace growth, OE quarter military commercial move with

XXX development year. quarter due and the as compared fourth a mix to sales the aftermarket for in to margin decreased military Operating quarter costs by basis of prior higher points lower the

our organic segment at X.X% the year, Aerospace adjusted an XX.X%. segment sales improvement growth full and the For point basis of margin, impressive great delivered finishing in XXX Systems year

in find share quarter compared performance earnings guidance results actual the into to XXXX the per our you'll the fiscal the quarter. full differences going the from XX, slide year out in year fourth On between

share per guided. sales. was operating an higher despite the earnings lower-than-expected expected segment higher improvements At productivity than year driven full adjusted finished than Final operations previously $X.XX level, income the by on $X.XX basis

We we from interest regulations to benefited G&A, expense tax $X.XX. income US lower lower reform discrete from benefited and in $X.XX average recognized resulted and And in quarter. new $X.XX expense other related tax corporate benefits an resulting adjustments lastly, due the Lower to tax shares. additional from additional

flow activities $X.XX XX, strong we activities. report this record slide XXXX operating was billion. cash year. had from On flow from year whole We operating a cash flow cash Full

sales. from for operations the pension made flow the XX.X% last adjusted quarter, of during discretionary sales This same a of was for compares $XXX first to XX.X% When year. million contribution period cash

slide On free of we flow Parker's XX, conversion history rate. cash show a

flow during generation at conversion of their periods. than For our XXXX good the XXth XXX%, great even proud team working cash greater consecutive capital. finishing fiscal XXX%. is generated year, management free at of We're growth of cash Parker very for year Parker

Industrial of International America, year-over-year Industrial Systems details by North within Moving orders Diversified to segment. within slide of by X% XX, within the minus show Total as we and XX% the X% minus order decline a ending quarter Diversified Aerospace consolidation June. rates a is of decreased orders. X% This positive

year Guidance now within slide decrease is as an outlined year year, being on fiscal and to sales XX. basis. reported the for compared on The X.X% adjusted XXXX minus both expected prior of X%. Total is an provided the to are for a X% full range earnings year guidance to to

full for impact expected no the the same range minimal. midpoint X.X%. divestiture organic is to growth There be and is year of in Anticipated impact currency forecasted at minus or prior-year acquisition the is a approximately

We've currency steady of for as as year-over-year calculated XX, resulting quarter impact We've held those impact the fiscal spot the XXXX. ended of year to rates June we rates the estimate XXXX.

margins You adjusted and see the can by operating segment. forecasted as reported

points adjusted prior Parker forecasted year. total from midpoint, the At are XX approximately increase basis margins to

the full year. guidance, are For adjusted estimating of range for an XX.X% fiscal to we XX.X%

XX%. to effective The full projected be is tax year rate

earnings guidance basis, or guidance the range at to to $XX.XX adjusted earnings share at midpoint. an For the the On year, as on is basis share $XX.XX, per an $XX.XX the is $XX.XX full or reported per range midpoint. $XX.XX $XX.XX the

$X.XX The share as adjustments savings the to fiscal $XX for realignment are year reported the to forecast million approximately XXXX, or guidance per be associated include projected in expenses but business million. this made of $XX full the

segment second assumptions key second XX% are: for XX% half; XX%, first half; half, the share, first per second is guidance Some sales operating adjusted additional divided first full-year XX%. half, adjusted half at XXXX XX% XX% half, divided is divided earnings income midpoint are

share per midpoint, this the and projected XXXX business fiscal of quarter realignment to $X.XX earnings share be excludes expenses. $X.XX at First projected is per adjusted

from a the include midpoint corporate prior fiscal year share the per increases you'll per components of from from of On shares. adjusted reconciliation share. XXXX compared average $X.XX $X.XX and $XX.XX year of Slide $X.XX the expense, find share XX, major of The earnings $XX.XX G&A, guidance at to lower other per

issued expense being in from repeat in of proceeds June in the in unusual charges $X.XX to that which XXXX. numerous The includes transaction. are income expected incurred we Other XXXX, related primarily interest of not is are the XXXX for remainder the LORD other bonds that held to fiscal

impact volume Offsetting income year. expense share operating higher from partially income. are The $X.XX these a income operating is from segment decrease sales from $X.XX higher margin drop throughout be the The per from increases tax per and offset will the decreases improvement $X.XX expense. by in remaining share interest

in expense cost to includes change compared due paper XXXX from anticipated we partially decrease an year additional in income by to The is the tax June, not that forecast interest in outstanding items higher XXXX. commercial do tax discrete bonds issued fiscal The lower in XXXX. from expense in as fiscal $X.XX offset interest

acquisitions the of not not we to acquisitions close until for consistent transaction. does forecast ask to of and continue the more Metals results representing our any do LORD that We adjusted able include pending or a you year-over-year estimates Corporation you guidance announced publish that This from Forming include comparison using your Company. Exotic purposes are

to to Please turn to I'll This slide it XX. concludes over comments. number summary provide Tom turn prepared my comments.

Tom Williams

Cath. Thanks,

results comments. So, year the our the being bright earnings with company their we just a a FY all that We're couple of very to that hard work, way record on and we're of global their continued and to be. to 'XX delivering company being from 'XX, are our My to in quick forward progress, thanks of team well a we're top together. dedication, looking and for quartile best-in-class aspiring future FY pleased projecting

of to start that, Liz, call. Q&A with happy portion the the And we're

Operator

Suisse. with from the Our of comes Jamie Instructions] [Operator Cook Credit line first question

now is line Your open.

Jamie Cook

could for for quarter. about growth some how of just around morning. second provide half? good versus half question, Tom, organic implied Nice the just what's first if thinking drive context XXXX, you're I you guess Hi, first sort

start then terms we you why inventory then seeing results weigh And I fine. long start before, continues mentioned So the in guess, there know, there? I what That's clear guess to don't that channel and channel? you yeah, you’re on versus - of, how

Tom Williams

Okay, mind to Happy of do for obviously because that's Jamie. everybody. top Tom, that It's probably

obviously our lot companies calendar course in input of process own from We that talking and through one divisions of the customers, distributors or models. start me do we is 'XX. this about assumptions we're a economic first let our take to of So you take

So, minus a about plus growth the the at organic X.X%, midpoint our talked at half, first entry, that turns X%, we which second order into on our that the really at minus mirrors X%. half current

better half, bit a second have easier comps. volume, we slightly little the on So

at North Aerospace look you that as I I international of X.X% regional here plus X.X%, it. to go If at at rounding X.X%, it's at minus organically a and halves am a X.X% minus kind on through basis, minus America

While that curve history. that's a important another there's predictor we our point have it's not of data and future, at pressure looked our

look particular [ph] the it less anytime XX less tends is. gone duration to to XX business X depending cycle you that where If to years, last XX at a on XX X, curve than has months go for months than down X,

than been Our curves months. current pressure less have for about X X

So, guidance XX in have we approximately not cycles. crosses months XX what when it curve X, started, from other too assumes this the different seen from that X so

at this course, Of that's our time. best and estimate

Let clarifying driving FY just 'XX, you markets little I'll give color market. the see what the how as do, as think you this to the our to going take negative, this list the perform just positive about on market, comments I'm the forecast in is is market. our for is Don't neutral entire make Parker second usually like I we me that and my markets I'm and a take speaking is and half. a comment going for through quick we to

handling, side semi refrigeration, con, pretty big agriculture, section, gen, telecom forestry and gas, positive Neutral, distribution, power material a ground life Aerospace, is defense. a sciences. and and modern construction, military and tariff, on oil is So which

marine, rubber. negative and the side and machine and On mining, engines, automotive, is truck, duty heavy rail mills tools, tires foundries,

the view the earlier, in help on in compare Jamie, what part, on our -- comparables easier alluding second you which is So driving markets to the one be what's will besides some half were distribution.

The for into the slight and that to early much QX our come channel a at an view continue diminishing then in we equilibrium on destocking but be will for will that seeing a half, are and of positive QX year first distribution pretty calendar rate, the the this second half. and turns in

Sciences as from negative as in the in Life positive turning to for second well power us be second gen positive half will the half.

category, to we moving half. that's one So see things that second in positive the

There they obviously. big of are category negative is in going half, is that of currently a so become don't us neutral tailwind, headwind, the we another to necessarily provide markets less they that but see second

mills negative the So to automotive, tires. list tools, mining, these half ones, and are rail, second to gas, I'm to and half semi foundries, just going first again, construction, con, out, neutral oil and machine

So I'm pretty optimistic.

you less curves, When the but are than they they look XXX at X, flattening. are

of positive the being our look Phase a that's X, have we in cycle, about four decline X indicator. When at business of two-thirds accelerating the Phase that are phases markets business a four-phase of So you cycle. our phase

decline, starting growth. accelerating phase And move we're moving that is next you're to because what of to phase next decelerating the means which after after is through patch way the then signals decline soft that the and out us that, is that our

us, a going to albeit The view, self-help bit some is here. will turn, tart small to lots little start help our in to markets provide FY later 'XX, of in it and tailwind. So are wills but there

really environment. growth LORD higher We've acquisitions the for to producing give us these us about margins. and and that that organic negative in we come integration The in just markets slight the sales Exotic got get And going is in time time a start also the these up deals margin Win transformational and Strategy two be and the in running about start to expansion back close tailwind. is really some bring to

going is align very to all that think nicely. I So

going I good best-in-class to continue feel the think and the I to started to we're well company. we're So that message 'XX to and cycle, positioned about call comes back the it try the be I all with for

I give not? or So a Jamie, don't follow-up,

Jamie Cook

mean, a sales can markets North and in just implied see going margin American in in to think in even I XXXX color get I with The queue. No, I if decline, the I that that the particular back just guess, have follow-up. any then on resilience I'll we're

Tom Williams

Yeah.

activity we a for the really International, 'XX. that. that margins points expand It's America volume they resilient to in the be the is have continued up hold bad are creating And that on strategy win basis North So America's as going the be as XX productivity got, about we've North capacity have going efforts, kaizen versus down, not of margin being able all us we and up fact because to margins the to more side.

Jamie Cook

Okay. hop back queue. Thanks. I'll in

Catherine Suever

Thanks, Jamie.

Operator

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

line now open. Your is

Mig Dobre

morning, everyone. Good

you want some to the So something is back Tom, transformation about of talked investors I your we time comments speaking early to that go to when this business, on, spent the about.

are can perhaps today, help your business of you in you fiscal is is one maybe customers that under Exotic get last that I business cycle looking build, mix drivers, traditionally at in say, been versus, 'XX the you how a perceived as you at counting think And me. key or even and OEM cycle that especially we LORD I and appreciated when you're is looking the is your there as in Because key heavy in to aspect as that? what well think even with CLARCOR your it when and questions here by prior looked the business machinery count us way have often look mix the

Tom Williams

because listening are been choice start when and talking I presentations, space going all this we Yeah, the as capital consolidator you're we're space investor the right. mean one. of everybody Mig about be was, else my I I talked think number and I almost about on to call, know, like you in that's that we deployment, the

want to continue that. to we So add

filtration, aerospace, you've engineered of instrumentation, heavier to out four like us we'd equal, being do things far. seen materials invest in so a all the three and little But

balance that of had Fluid fluid Lord, that the to And on trying our which and is our traditionally are purpose now we on in you density motion that technologies add company referred out cycle and we And maybe would largest balances of of the our out Aerospace connectors company short which a to Power filtration, side groups. of a got to one the Materials high one great Engineered margin that's nature larger and with our the trajectory. groups, with be growth add business,

$X roughly targeted that So billion since clearly us of years, we've parts three portfolio, of revenue clearly more added in the resilient. that will those goes make into that portfolio

any think during You the can't flat cycle, you had ever can reaction the industrial have 'XX dent past. on feels see held that. versus in everybody in be I virtually what of lows the - margin performance and of margins We the to not But business recession evidence the you 'XX almost you And it. QX.

before phenomenal and pretty course, it's adding in QX Exotic. LORD it, CLARCOR are had before, but results of even Those and was that

is is mix help to we're continue to to stopping XX% the margin. too, operating not at help going Strategy the continue So and going Win because to us us

Mig Dobre

your I And then thinking line you're a ask implies that I presuming guidance. Industrial I'm in orders growth on organic guidance see, okay. kind may organic year sort with of of your decline. question International, keep if full obviously

Maybe some surprised degree announcing so of from baking you're you in outlook? not a that addressing am in can what basically year structure really to environment of Thank perspective, contraction comment International, And here. with row now sort on restructuring years your into I that are decline your you've cost some of you and the changed Two of your volume second you. has of done? kind in that international how everything sorts,

Tom Williams

'XX have on restructuring the aggressive you North lot and to versus restructuring on almost Yeah, long International been levels margins XX.X% getting a ever thought we look and at very the America, falls could year, last been that. time. of restructuring International Never we do a XX.X%, either a since so for we've FY side, if of

we've we've agile the creating improving the been been that and because been So OEM. and a International has more restructuring distribution moving much doing, versus mix of organization of

International. helping that's So been

restructuring. to at new So lack we levels we of things. where needs organization of to it don't normal works, variable over level cost those will feel the least some temps trigger of do obviously and need time the the decline in reductions be, these sales same got of at We've and to voluntary type

a that's you why we I'm I internationally we've really everything But not and the we've you wanted what margins had. Mig, think cover, done hit to job see sure great then.

Mig Dobre

of I wondering, No, two or ways, orders than some row you in of, little in kind I'm actually here. what That's a decline right? in it's unusual volume years worse did. see to say, bit a guess happened XXXX,

in So I'm more has trying been past. than dynamic understand That's that variable to of the understand here I cost and your also to it's trying if kind of kind structure become where was going.

Tom Williams

Yeah.

minus your International it sooner. down, was did little but year, to Yeah, question and bit it so grow X% last So was to the I least at a of start part the Mig, first missed. go that felt

[ph] International lot the So course of on a X.X it had of organically declined last year, currency, currency. minus

the But work think realistic in a almost X.X% the QX. to first we've starting its time QX been then we We've down we International half about International. type with by got exit do and neutral to way of -- positioning I

So it the have guide we I was in, for first and it think fine. what And go to be in International. pretty realistic will is I think

Mig Dobre

All right. Thank you.

Catherine Suever

Thanks, Mig.

Operator

comes Sachs. Goldman Our Ritchie next from question with Joe

Your line now is open.

Joe Ritchie

Thanks, good morning.

Catherine Suever

Good morning, Joe.

Joe Ritchie

about next earlier. couple my of like from as guess I comments to think destock you're going quarters, the I it's you expecting inventory guess the first and question sounds back just it So to continue.

side occurring you like price any distributors adjustments I with your or experienced heard on or that distributor backdrop? have those guess you how the given conversations in just have context, the are pricing

Tom Williams

- let me of things. the pricing the Lee in start let I'll side inventory, chime So on with and

sales referred I into least in to visibility do call. So last with the that sales-in that North good at out have America, and we

look so North destocking. at And basis see about we America, about growth with points we organically XXX a of flat

QX. in was distribution So X% about minus a XXX at destocking came minus America growth. North on about of That in bps

a So points XXX we improvement, of little saw improvement. about basis bit of

was the And obviously have with as sales-in, get to last have destocking. first the I bps we And conversations side. that our into then were I'll our quarter, hence so through Lee comment that can we every little through that's for 'XX, the another distributors and let plotting of get trend. better a that's we so about go really sales-out, six to months referred like visibility XXX half on of thinking we plotting, quarter, the we pricing

Lee Banks

commenting distribution. Just on

as - region would really I on Tom and it the the America, quarter, North about Speaking destocking said, depends during continue. mixed was

say exactly still side, is still the that, I'm of activity still if and a which momentum in there place speaking pricing the if a were lot CapEx say lot at power in taking slightly you would what there's on. on in still channel, you're this environment. is still indicator not a sure pricing quite pricing taking mostly I'm inflationary point through, promising there's still We're place, there of time, that America positive and asking. I'd North asking is good still that I which a going of

Joe Ritchie

that really back more was the implications in all around on on whether North backdrop. price comment this your has And distributors to at my your like of trying business. Lee, understand kind American whether Yes, leverage were in any pushing

Tom Williams

that of really No, now. there none is right place taking

Joe Ritchie

my the order trajectory an Got aero continues just do obviously Okay. of to follow-on, about well business, the thinking just the it. perspective. aero then maybe from And and

the at that little based look trends expectations the been on a they we've XXXX, seem take growth you seeing. and light for If a

we so XXXX? head some commentary maybe And that into as around

Tom Williams

Okay. Tom. Joe, it's

plus don't be or So remember, translate fiscal were X% dates long to on plus due XX% orders orders, months we MRO. and That year, next they into XX% out lumpy on you XX the commercial the directly are cycle OE, OE, always XX% XX% and MRO, on on you've plus but was plus minus composition military like seen. on commercial and military tend

big for the some military the OE. drove some of of on So that things F-XX really the spikes

bomber, side. F-XXX A and [ph] F-XX, pretty and broad kind a On but the side, mixture the some the XXX a of a MRO a fighters F-XXX, it base really commercial of progress XXX lot of was there. good XXX, on nice military MRO, orders And is pretty on mixture

at at plus X.X%, and forecast MRO best plus commercial at XX%, that moment. at is MRO this that's plus and X%, OE our our military military is view sales, composition X%, about at For plus OE commercial X%,

Joe Ritchie

color. the Appreciate

Catherine Suever

Thanks, Joe.

Operator

David Evercore comes ISI. from Raso Our with next question

open. Your line now is

David Raso

good What's question margin morning. my to in is company bps. but the on you down your half sales first have the total Hi, XX focuses volumes. guidance up of of sensitivity Yes, to implied year, margins X%, X% me striking the

doesn't seem there's of are not much half volume to up your the improvement. differently. up second margins and is the XX margin like It The year, the sensitivity bps, terribly revenue

that ago isn't I just is coming that do Now year with understand comp, improvement analysis really from you can where mix, sensitive? the bit, that to trying a accurate but volume I'm see appreciate know, margin currency mess the your you

Tom Williams

it's now. at if XX% sales loss Well, total range XX% the Again, of if Parker, I'm minus half. the that you got minus like I take over the half, on just doing increase. in XX% I second so a to look numbers, relatively tour MROS, modest plus we're And it's for first

far lift as some are in nice that go. pretty So half MROS you as second seeing

David Raso

carry I Tom, would destocking Well, you am of seeing really got the opposite, to half same because aren't has the saying way. distributors the margin on your improvement, the the year second the just load think

revenues down. because You have up, volume not overhead you absorption have that's improving

margins. have of almost guide it's you me up this, it, if really up you word up, sensitivity, the volume some nothing I credibility regardless the mean, it can volumes impressive striking But obviously interesting I that is -- margins yeah, can but do that volumes sense saying and makes what of volumes, it grow won't it can the at use is much if I but impressive, see do to you without just improve. a interesting can down margins you're

I'm in confidence doing I at volume but all, would can So math I'm margin when it's you're right, half. are figure right. year it we tied to trying clear trying in have even say, just you understand, I'm down out am that the that not other I reading the things because grow to to know what that's this improvement yeah, the really first implying bottoms margin just

Tom Williams

simplification, doing spoke The lean, beginning of at it the been on combination of reading activity I to the we've the the right and started type the absolutely year, the in. really CLARCOR those Win things, heavy the transformation that the synergies things of all really You're all through, kaizen are the that last for of fall Strategy inefficiencies kicking we've us in that part call. of that's worked

we enabling All have margins better to things shift be portfolio adding softness on we're portfolio, far sales. us those our as the course, things when to of and are as the

feel yes, that. good So we about

David Raso

second lag neutral from through price reason sure. It next benefit helpful kind price from have you because and of seem in more that couple a get I the of the you increase like lower increases, you price Yeah. put the part July the you quarters, half. much some the any know, the wasn't of in Maybe over cost still is, channel, now if of the cost a prior doesn't but particularly is X. goes benefit

sure price, benefit not half over carry the you'll should but months, then six there it much benefit next and from be increase, how have the maybe I'm on costs. lower fiscal the So your still from maybe prior second a in price

handle was that that not what there that cost am the of that about, we where that's CLARCOR price and if do driving some of we're the you seems know it 'XX. but get to can lingering We I to believe That's sensitive. sensitive. at. all our couple make know good I just you're just have that half here, blessing it aren't volume still we volume first -- at feel inefficiencies not us in fiscal trying impressive, is not it's a I'm buckets you on it just So, with

Tom Williams

pronounced the you CLARCOR Yeah, more I have think half on inefficiencies we right, you're in that were clearly buckets. The hit 'XX. at all the of first

helps 'XX. at And that so we us as look

is if half. we it the first was better to bit more be of margin neutral, first bit of total little the help in half. on pricing do I the but would for year, the over carry a general, In in little the pricing Some do get a

I So right. think you're

David Raso

color. I All you. Thank right. the appreciate

Catherine Suever

David. Thanks,

Operator

next comes DeBlase from Bank. with Our question Deutsche Nicole

now is line Your open.

Nicole DeBlase

good morning. Yeah. Thanks,

Catherine Suever

morning, Good Nicole.

Nicole DeBlase

first with So, I wanted the quarter. to just start

between and the guys in could a you But give in helpful. the would what's us that second XQ first and that baked So half of if $X.XX really margin was the be for organic color from a guidance midpoint half an perspective sense helpful?

Catherine Suever

Sure, expecting Nicole. I'll look the But X.X% about X.X see improving anticipating for for margins, at point year-over-year. first as help with impact decline of quarter from you currency. to America you the We're North currency, say minimal year-over-year just we're organic a X.X% of margins here.

lower improving decline, Again though first inefficiencies year of that relates to improving. decremental half nice have International, with we Aerospace some the the last see margins year, the there, of saw than last and a will will at that margins. are

Nicole DeBlase

Okay, That's me about And secondly guidance. then helpful. like you've XX% in incrementals margins, looks you. embedded on it. Aerospace Thank XXXX got to it

how to much factors Just about year-on-year curious to margins maybe increase driving that, the R&D in contributes substantial pretty the XX%.

Catherine Suever

lot 'XX anticipate fourth in portion of to development with compared or incurred especially costs the we of we what we in and do to fiscal quarter. Yeah. that A in the 'XX what what fiscal has a that incurred good and

development costs pretty the our X.X% this in fourth sales. was year, of were high. So That quarter of

X.X%. for overall year the Our average was

than forecasting X.X% X%. fiscal and to costs year that expect 'XX, development In the of to we're less be range we in

development that just productivity implement Strategy in are and and Win to with some getting So along incremental, lower the are improving costs shops and other continuous of making processes teams more driving the improvements the productive. initiatives

Nicole DeBlase

Thanks, I'll pass Okay, on. it. it got

Catherine Suever

Nicole. Thanks,

Operator

question comes Obin of Bank Our from Andrew America. next with

is open. Your now line

Andrew Obin

Yes, good morning.

Catherine Suever

Andrew. morning, Good

Andrew Obin

Can in how talk implementing touch, manufacturing, we going to of do specifically really is spending, how you sort two-part money you talk are deploying labor, about we capital XD think capital much stuff internal it's question, and impact question. a on the Just about deployment? And back A, and just of robotics, strategy can making? much terms could of how sort capital, it if you capital

the an tensions, and me. North are you second so your the be what chain? question And capital by question, America, know, supply the of one only how of would seeing the the expansive is, deploying about I guys in trade you from given it's rest geography, are sort all world, that thinking

Tom Williams

Tom. it's Andrew,

the CapEx with me start side. let So

round So be would I to a productivity is And before additive. about around active good X%. growth on CapEx for number organic well are and as robotics we think and as very this for fund is think the in

kaizen, first. the and then we have we're you the to automate We going streamline our would kaizen on was do strategy we're and that I automate tell believe optimize what automation it just to robotics processes. do not to remaining processes we'll is waste, going

would automation, we've on of number bit then we've lot we're it. little working great And manufacturing of of all a got had curve so is learning think and up with the this we're the all automation. I organization a there sessions our and engineers, summit say a of that strategy, a is is about with, jazzed first, a I And putting really kaizen learning partners good

gain you've well starting traction. of ahead as think margin why to I And do as activities just are seen kaizen the is the as part

So X%. some can done towards of into transformation, that more robotics. more as that our much need in will don't in dollars. And divert robotics we traditionally coming that what forward, but of because we will We lean be invest that, CapEx we've

centers a strategically process kind three big side, have of have every going got deal we've On that's to not that We've going us. like for the to the this decided division. so them, XX we're -- is you're to excellence, of one additive of not

processes. material for blending centers for company also Industrial as incubator acts two one have and Aerospace as for Aerospace, that and powder we're we So of company, entire on an for the and well as got the really the all divisions and working we've one excellence proprietary for entire

I'd that for we're designing and there's Aerospace So both first other of to to tell additive. on additives. close work you, the production lot parts having into very utilizing our industrially is field make additive a good the it thing

a products it process have the design designing an it the important very additive working because program we designing it's to generation So manufacturing thinking versus world, next of about on in subtraction world. for additive

You and were to the for buy supply supply always view and region we make, region. about chain, chain, been, on sell the like in we've asking so

over really huge a still happy I feel centers we to We extended. that over with. China, do and not for China? country that. we've about us in So And very China we service about low-cost think mean asking to there ourselves there where good need is you're we're maybe have positioned still still be do, China we're we we

think so much doing you bunch I like don't see a can building shifts CapEx And big us plants Indonesia. in of

footprint immaterial. be have minor We the and but lines, just will tweaking maybe some need it we up

Andrew Obin

a just in big in you of terms I kaizen follow-up more sort capacity? I out program, that robotics. I'll rollout physical And sneak know actual you had versus that Where one of did. collaborative rolling on you are believe

Tom Williams

activity, kaizen robots. the the collaborative early in on still days Heavy

strategically have of lots kaizen's in emphasized but first. them all our of we particularly factories, We several,

same experts You talk to dollars most and And do this senseis line more CapEx that to in lot bottom transformation, are the friendly. of a lot to the kind thing. will a faster it's encourage they

been, but I And has to do the don't that the an It's get going be see collaborative touch robotics is CapEx really as processes -friendly well. issue, right CapEx. kaizen, light on a the let's thrust first. as let's

Andrew Obin

Really you very Thank much. appreciate it.

Catherine Suever

Andrew. Thanks,

Operator

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

Your line is now open.

Ann Duignan

throw been but maybe I'll one have answered, at you. Tom, questions this specific my of Most hi. Yeah,

look look or where negative it into more end today when your as at industrial broad were end based. where it's that and are markets right we we now, much are at of down went the the that versus we strikes recession in you markets 'XX number If 'XX, me

XXXX, all of me you Boeing a broad-based heavy-duty to It we're when at heading declining. of we've pretty production that the market worry truck, schedule into set you year if that you MAX, automotive, facing decline calendar take Do much broader looks impact XXX got end like declines? include

Tom Williams

second. a the a MAX me quickly on real comment, let Okay. Ann, I'll for Tom, make touch it's

to XX you change, much of immaterial that fit and the know in MAX months schedule low most in pretty us, want because of just to there and is we a for put it's margin, first put So it's us guidance content it I to XX. is our our we but in very

we're in that. shape good on think I So

industrial accurate. your recession but a as was deep natural is and broad 'XX in a think softness. is of resources. I not 'XX This pretty based, But type characterization more The sharp contraction

that down So so was resource and we But and earlier we more you significantly This that on an on a we're decline based, accelerating and a all markets little all hopeful natural broader have semiconductor, a and are to remember, is that our power isolated. some indicator are bottom, unusually my related on like we the find comment to power bottom well. starting gen, end also hopeful as that pockets gen. we starting find things down, it's that's markets, semiconductors, that of actually two-thirds went had is more have as

Ann Duignan

again your I of you that wanted Boeing XXX. supply that second risk yes, not impact a there And lot a just are Isn't that just derivative of It's kind follow more to about based? could up what becomes on impacts the but broad business. the onto airplane, there

Tom Williams

our be sure exactly just of would what you're reflecting referring because to, not it materials bill there. I'm

are You the chain supply that Boeing? talking supports general about

Ann Duignan

am just at of schedule how impact the thinking your facility pulling down and I might businesses. of large some that industrial impact one the manufacturing about Distribution Yeah.

Tom Williams

you Okay. are I saying. what see

very would that minor. you think it. I able find won't be to Basically, be

whatever days XX do us things industrial So as down for Redmond immaterial or side. temporary a plant It to would shut on as the basis. they on the far implant, be we at that the

Ann Duignan

it there. I that. you. leave Thank I'll appreciate Okay,

Catherine Suever

Thank you, Ann.

Operator

Our next Wolfe with question Research. comes Coe from Nigel

line Your is open. now

Nigel Coe

guys. Thanks. Good morning,

Catherine Suever

Nigel. Hi,

Nigel Coe

Yes.

year-over-year last deteriorating We orders. international on on easier touch quarter from to want just I So saw comp. an the

if incremental talk you the weakness? geographically where got just maybe saw you I'm then just And about curious a I've So follow-up.

Tom Williams

Tom. it's Nigel, Yeah

both So had that same, digit low-single about -- at we positive not it's America minus Pacific really of composition we had and enough small, the the so high-single and Asia Latin EMEA remember to at X%, declines, international, needle. on Latin move America's that

stable that May, in And in weakened in Asia is that the the quarter trended stayed way Pacific but June.

flat. So to well but May May, and were June -- down from April May stepped pretty

consistent. was entire Europe digit that level pretty high-single then And the quarter. in was It

but America general, to real growth. in in Latin variation some variation, we in slight June, no and saw So, going April

Nigel Coe

is any still Europe, bottom it And of have or signs then there you seen [indiscernible]? a in very consistent

Tom Williams

good of earlier think that indicator description the through for I well. markets is as I on pretty a Europe went my

The America, in difference So that difference. a the will how would than characterize in here. but distribution little channel we be have Europe key we weaker North that's be only maybe will

Nigel Coe

And follow-up what just was on then maybe touching really is my into. digging Ann

'XX the saw what and 'XX support to what what characterize from America today, to you're you're take numbers XX%. certainly, a you're you 'XX? what maybe But don't order back And step 'XX, kind and Going the today seeing channel that saw hearing and and hearing partners North characterize field we in negative from your just of deterioration. back

Tom Williams

a different, this different. 'XX reduction. mean, Nigel, commodity-driven 'XX distinctly Yeah, and very feels was I

weakened had you and the there, dramatically. prices The that dried oil remember, in equipment the up. demand We dropped prices commodity If dramatically. went only gas

downturn. of So it was very type a different

This earlier like mentioned one is I on, based. broader is,

broader -- fairly months resources sharp forecast our markets, the natural that lot XX down was broader interval of studied those and not think of spike months today, look what over Part history has why years we at cycles. back, me I for just shown XX going more severe. was based to XX a consistent difference those financial base data But across but pressure realistic. end is before, curves back one crisis and a as the us and was big this

Nigel Coe

Thanks. Okay.

Catherine Suever

Thanks Nigel. we Liz, think question. more one for I have time

Operator

Stifel. of line Jones the from come will question last Nathan Our with

is now open. Your line

Nathan Jones

morning, everyone. Good

Catherine Suever

Nathan. morning, Good

Nathan Jones

fitting Thanks me for in.

shallowness when of duration. from it and about outlooks of to pullback correlations we for this its this businesses. follow the First based just this on the your want on outlook question, sounds perhaps historical a conversation for recover Tom, I historical is like lot and up

Do is resolution that here kind make those about a of say longer trade you're of that a you hard of 'XX this it deeper it decline you're it than how this don't things projecting you're recovery? things? any makes projecting maybe but thinking maybe just than difference that kinds they is need and geopolitical need Brexit, to to order some see You you avoid there did 'XX. Do in are and here

Tom Williams

Yeah, Nathan, it's Tom.

our one data I how customers, point we So our our regression cetera, models using it's sales. additions curve another It's pressure divisions, one wanted future it's of okay? just many case distributors, to to So wrong share. want in a the on element just of my We're took predict way. that have, anybody to just clarify, the we not et top history comments but I as to

far kind any does forecast, as think this of not You know, that trade as assume resolution. it I

we So there us. to would a trade and some be upside had was kind positive, if of that resolutions, really

this to or can't big happens, immaterial resolution the was doesn't but needle. that enough will forecast however and Brexit be type not that move I of Obviously, -- our to something control, And if us, out it's subject things. of always of we're there geopolitical those event to,

not markets, It's the or went the we negative of on think and really are entry full trade. for current the all kind on And assume we to that go this as Let's help have half from we get neutral those order where the upside are comps. in your mirroring they that then and first end when and And start we to we neutral going markets of to turn, to an any through going is from those phases. indicator some that's have four that's X, you're decline, forecast. that to put markets we then positive, in is [indiscernible] all and in them these in phase going to be what you two-thirds track next Phase

was looked there angles a we it. whole different bunch So of at

as we'll is the As data update you you current and even quarter hopefully most give every only forecast information. good as better you and know,

Nathan Jones

on the a in longer-term follow-up more Aerospace little My Okay. margins. questions,

XXXX. X.X% to to decline that in expenses continue in Does X.X% said XXXX, guys You engineering in X% going forward?

the go on out can as we you years. maybe few then comment And mix a

ends heavily at go aftermarket the margin moment, as at and clearly commercial OE I and think fairly a to those of switch little on that are we you're forward scale. commercial should more the opposite

could give the just any progress qualitative you should years. So you Aerospace how over next in on commentary think few margins

Tom Williams

Tom it's Nathan, Yeah. again.

margins three years. in aftermarket. And The good So you're five Aerospace mix that OE to aftermarket is in to won't about Aerospace next change XX% the years the say, necessarily current over OE, right, of much, future. we for very XX% feel

we to and gradually airframe move, you to the going movement future X% to content But and that think that a it's having two well. big on visits us our shop number you are going a looking content, I or for that margin NRE, once deal good beyond a guiding engine start start start is X.X% The to from is and the standpoint. as a of to point use that FYXX, at pretty

rest the And on Aerospace It's that of Win to has you so Strategy. is still has, the the other it just opportunity besides opportunities kaizen. got on the the like referred advantage that ample mix company

that the going to entry doing into your your It has all they first pump, additional opportunities XXXth and that are we're pump today, your XXXth down part which service next we months, cost that pump work versus versus will learning curve cost this and learning. on service not through to advantages, to but advantages going XX some that, entering we're have have as you work in

on business very from a it's a So expansion. margin we're bullish

Nathan Jones

helpful. for Very fitting me Thanks in.

Catherine Suever

us Q&A day. to concludes further Jeff any this All great should you, be Nathan. joining Okay, available and right, questions. our calls earnings today. your you have Thank and for you. take Everybody everyone have thank will Thank our you call. Robin a

Parker-Hannifin (PH) 1 Aug 192019 Q4 Earnings call transcript