Parker Hannifin Reports Q2


Parker Hannifin Corporation reported second quarter records in sales, income from continuing operations, and cash flow from operations. For the second quarter of fiscal-year 2006, sales were $2.2 billion, up 13 percent, as compared to sales of $1.9 billion from the same period last year.

Income from continuing operations in the second quarter of fiscal 2006 was $1.07 per diluted share, compared to 91 cents in the prior year. The current quarter includes a loss of 8 cents per diluted share resulting from the divestiture of the Thermoplastics division on December 21, 2005, and an expense of 3 cents per diluted share related to FAS 123R, which requires the expensing of equity-based compensation. Before the impact of the Thermoplastics divestiture and FAS 123R, income from continuing operations in the second quarter was $1.18 per diluted share.

"The strong sales and income growth over last year's record second quarter results keeps us solidly on track for another record year in fiscal 2006," said Chairman and CEO Don Washkewicz. "Parker employees across the world continue to execute our Win Strategy, which is providing very clear and positive results in premier customer service, improved operating margins, record cash flows, and profitable growth."

Second Quarter Segment Results

In the North American Industrial segment, second quarter operating income improved 30.4 percent over the prior year to $130.2 million, on sales of $929.7 million.

The International Industrial segment second quarter operating income increased 10.5 percent over the prior year to $68.1 million, on sales of $676.5 million.

In the company's Climate & Industrial Controls segment, second quarter operating income increased 11.3 percent over the prior year to $9.9 million, on sales of $206.0 million.

The Aerospace segment reported a second quarter decline in operating income of 4.5 percent over the prior year to $47.3 million, on sales of $345.3 million.

The expense in the current quarter related to the adoption of FAS 123R, and the loss related to the divestiture of Thermoplastics, are included in "Other Expense" for segment reporting purposes, and are not included in the operating segment results.

Fiscal Year to Date Results

For the first six months of fiscal-year 2006, sales were $4.27 billion, up 12.9 percent, as compared to sales of $3.78 billion from the same period last year. Income from continuing operations for the first six months of fiscal 2006 was $2.27 per diluted share, up 16 percent over the same period in the prior year.

Cash flow from operations reached a first half record $429.5 million, or 10.1 percent of sales, surpassing $354.4 million in the same period last year, or 9.4 percent of sales.

"We are especially pleased with our ability to generate record levels of cash, with cash flow from operations as a percentage of sales reaching double digits," added Washkewicz. "Our focus on improving cash flow was recently recognized by Barron's magazine, which identified Parker as one of the top 50 companies in North America with a strong record of free-cash flow growth."

The company continues to expect total FAS 123R expense for equity-based compensation in fiscal 2006 of approximately 20 cents per diluted share, which includes the 13 cents per diluted share expense already incurred fiscal year to date.


"As part of our Win Strategy, we have set a goal to grow the company on an organic basis by at least 5 percent each year, and 10 percent overall," said Washkewicz. "I am very pleased to report that of our 13.2 percent growth in the quarter, more than half came from organic growth. Our focus on serving the customer, providing systems solutions, and getting products to customers where and when they need it through our global network of distributors is helping to drive sales growth with current and new customers."

Washkewicz continued, "Our growth from acquiring new businesses for the Parker portfolio is the other half of our growth story. Investing in our industry through acquisitions this quarter has added over $490 million in annual revenues to our company. We're especially excited over our recent acquisition of Domnick Hunter, headquartered in the UK. The combination creates a powerful array of filtration, separation, and purification solutions, extending our customer reach in Europe and North America through the complementary products, and similar cultures, of our two organizations."


The company has narrowed the range of its annual guidance by raising the lower end of the range.

"Parker's current quarter's results and the strong order increases we have recently seen, reinforce our optimistic outlook for the remainder of the year," added Washkewicz. "We have effectively raised our guidance for the fiscal year. The diversity of the markets we serve remains a strength, enabling us to mitigate temporary swings in individual business sectors. Our unrivaled distribution network extends our brand of premier customer service to our customers in every region of the world, and our breadth of product continues to provide customers with systems solutions. In addition, we continue to add value through the fast and efficient integration of the companies we have recently acquired, while maintaining the strong balance sheet to invest with purpose and discipline in other motion and control businesses and innovative technologies. The foundation of our success rests upon the diverse talents of the 50,000 Parker employees from around the world."

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