Parker Hannifin Sets New Target of 19% Segment Operating Margins by 2023


Parker Hannifin Corporation reviewed progress being made under the new Win Strategy and provided an update to its five-year financial performance targets at an investor meeting in New York. The Win Strategy is the Parker business system and establishes goals for engaged people, premier customer experience, profitable growth and financial performance.

"We have made substantial progress with the Win Strategy over the past two years against our fiscal year 2020 targets," said Tom Williams, Chairman and CEO. "As we are still in the early days of implementing the Win Strategy we have a lot of opportunity for continued improvement. In addition, we completed a transformative acquisition of Clarcor and just one year into the integration we are expecting to deliver even greater synergies than we originally estimated."

The meeting included a progress report on the success of the new Win Strategy with presentations by Tom Williams, Chairman and CEO and Lee Banks, President and Chief Operating Officer, a financial overview by Cathy Suever, Chief Financial Officer, and detailed reviews of three operating groups from group presidents Roger Sherrard (Aerospace), Jenny Parmentier (Engineered Materials) and Rob Malone (Filtration).

The company noted the following performance improvements from the implementation of the Win Strategy:

  • Safety is the company s first priority. Since December 2014, the company has reduced its recordable incident rate by 54%, demonstrating meaningful progress toward a goal of zero incidents.

  • Parker is actively measuring customer experience and has identified priorities for increased Likelihood-to-Recommend scores throughout the company.

  • As previously communicated on February 1, 2018, the company estimates that it will end fiscal year 2018 with 6.5% organic sales growth, which would exceed the forecasted global industrial production index by 310 basis points, well ahead of its target of 150 basis points by fiscal 2020.

  • Through simplification, lean enterprise, strategic supply chain and value pricing initiatives, Parker has significantly increased profitability and is expected to reach 16.3% adjusted segment operating margins and 17.6% adjusted EBITDA margins in fiscal year 2018.

Williams added, "The dedication of our global team members in implementing the Win Strategy has generated the significant performance improvements. As a result of the progress to date and our focus on continuous improvement, we have established new five year targets that will help position us to achieve top quartile financial performance and create value for our shareholders."

The company outlined the following financial targets by the end of fiscal 2023:

  • Organic sales growth targeted at 150 basis points greater than the Global Industrial Production Index.

  • Profitability as measured by segment operating margins of 19% and EBITDA margins of 20%.

  • Free cash flow conversion of greater than 100%.

  • A greater than 10% compound annual growth rate in adjusted earnings per share.

"We will continue to focus on being great generators and great deployers of cash to create long term shareholder value," said Williams. "While debt reduction will be important in the near-term, our priorities for using cash remain the same as we continue our record of increasing annual dividends and support the investment in our business. We continue to look for acquisitions that will help strengthen what is already a uniquely integrated portfolio of motion and control technologies unmatched anywhere in the world."

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