Parker Hannifin Corp. (PH) reported earnings per share from continuing operations of $1.35 for the fourth quarter of 2010, exceeding the Zacks Consensus Estimate of $1.08. Fiscal 2010 fourth-quarter revenue was $2.8 billion, an increase of 26.0% compared with the fourth quarter of fiscal 2009. This was higher than the Zacks Consensus revenue estimate of $2.72 billion.
Cash flow from operations in the quarter was $377.4 million, or 13.5% of sales. At the end of the quarter, cash and cash equivalents were $575 million with long-term debt at $1.4 billion and shareholders’ equity at $4.3 billion.
Segment Details
In the Industrial North America segment, fourth-quarter sales increased 33.1% to $1 billion and operating income increased 203% to $162.9 million, compared with the year-ago period.
In the Industrial International segment, fourth-quarter sales increased 30.4% to $1 billion and operating income increased to $140.3 million, compared with losses in the corresponding quarter of the prior year.
In the Aerospace segment, fourth-quarter sales grew 5.9% to $477.6 million and operating income increased 9.5% to $64.1 million, both on a year-over-year basis. Aerospace results were to an extent impacted by lower commercial MRO sales and continued weakness in the business and regional aircraft markets.
In the Climate & Industrial Controls segment, fourth-quarter sales increased 27% to $240.3 million and operating income increased to $20.5 million, compared to negligible profit in the similar period in 4Q09.
Order Intake
The company reported an increase of 27% in total value of orders for the quarter, compared with the same quarter a year ago. Orders increased 46% in the Industrial North America segment, compared with the same quarter in the year-ago period. Industrial International segment orders increased 46%. Orders declined 3% in the Aerospace segment on a 12-month moving average basis, while it increased by 35% in the Climate and Industrial Controls segment, compared with the year-ago period.
For fiscal year 2010, revenues declined 3.1% year over year to $10 billion. Net income for the year increased 9.0% to $554.1 million compared with 2009
Guidance
For 2011, the company issued guidance for earnings from continuing operations in the range of $3.60 to $4.40 per diluted share.
We believe Parker-Hannifin is a high-quality company and is showing good execution through its cost-saving efforts. Although Parker-Hannifin stands to benefit from any recovery in global manufacturing activity, the company’s increased scale in its international business (where Europe represents by far the largest geography) as well as its meaningful aerospace presence increases its late-cycle exposure relative to past economic cycles.
We expect MRO (Maintenance, Repair, and Overhaul) to get a boost from continued deferral of capital investment in new machines. Parker-Hannifin’s strong exposure to MRO-type products and ability to convert net income into free cash flow will benefit future earnings.
Although Parker-Hannifin operates in fragmented and cyclical markets, its strong distribution system provides an edge over competitors. We believe this distribution system is likely to result in asset turnover and returns on invested capital above those of peers, despite the impact of the weak economy. In addition, to stay ahead of competitors, the company emphasizes product innovation and technological improvement.
Parker-Hannifin is a leading worldwide full-line diversified manufacturer of motion and control technologies and systems, including fluid power systems, electromechanical controls and related components. In addition to motion and control products, the company is also a leading worldwide producer of fluid purification, fluid and fuel control, process instrumentation, air conditioning, refrigeration, electromagnetic shielding and thermal management products and systems.
We currently have a Neutral recommendation on Parker-Hannifin Corp.
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