Todd M. Leombruno
Executive Vice President and Chief Financial Officer at Parker-Hannifin
Well, thank you, Jenny. If everyone's following, I'm going to start on Slide 10, and I'm really proud to say, once again, every Q4 number highlighted in this gold box is a record for the company. It was really just an unbelievably strong finish to the fiscal year. I'm going to try to move quickly, because Jenny already spoke to the 22% sales growth and the 24% segment operating margin. But in respect to sales, organic growth was 6%. When you take a look at the Meggitt acquisition and the divestitures that we did in FY '23, the net addition for the quarter was 16%. And the good news here is, on currency, the headwinds have moderated. It now was just a slight headwind of 0.4% in the quarter.
One thing I do want to note is adjusted EBITDA margins, 24.4%. That's an increase of 130 basis points versus prior year. And if you continue down the page, both net income and adjusted earnings per share did increase by 18% versus the prior year. Our adjusted net income was $791 million or a 15.5% return on sales and adjusted EPS was $6.08 in the quarter. That is an increase of $0.92 or 18% versus prior year. Internally, we always stress how important it is to finish strong. And really, these results are just really a testament to the resilience of our global team. So thank you to everyone for a great Q4 and a great fiscal year '23.
If you move to Slide 11, this is just a bridge on how we generated that $6.08. This is $0.92 walk. And I'm proud to say again, you can see the biggest bar on this page is increased segment operating income. If you look at that, we increased segment operating dollars by $264 million. That's nearly 28% increase year over year. That added $1.63 of EPS to our total for the quarter. There were a few headwinds below the segment that are really no surprise. Obviously, that interest is 100% related to Meggitt. That's consistent with what we've seen in past quarters. And income tax was favorable this year in the quarter. Even though we did finish favorable, it was a headwind of $0.19 compared to what we did last quarter. And if you think about that, last quarter, we did have a few one-time items that were related with the acquisition that were favorable and some higher discretes last year. Those were obviously non-repeating issues this year. So the story on the walk is just really strong operating execution, and it's really across the board.
If you move to Slide 12, just some details on the segment performance. Every segment delivered positive organic growth this quarter, but they also delivered positive margin expansion. You can see across the board here. Incrementals were very strong and all of these margins are records. And I'm also proud to say, even with the challenging comparisons, orders did increase from last quarter to a plus 3% versus prior year, and our backlog did increase 1% sequentially and did reach a record $11 billion. So this is really the result of robust aerospace activity but, also, the changes to the portfolio that we spoke to throughout the year.
Just jumping into the North American businesses, sales were very strong, $2.3 billion. That was 5% organic. That's really right in line with our guide. Adjusted operating margins did increase 60 basis points to 23.5%, really just driven by excellent execution across those North American businesses. Incrementals also did improve sequentially, and that helped drive our margin expansion. One thing to note, orders did turn negative to 8%, but that really still is against tough comps. We still have strong backlog coverage that we believe will continue to support growth, and customer sentiment overall remains positive in North America. So all in all, a great quarter and a great finish by our North American team members.
If you look at the international businesses, sales were $1.5 billion, organic growth nearly 4%. Organic growth did remain positive in all of our international regions, really led by Asia-Pacific 8.5%, almost 8.6%. Excuse me. Latin America was 2.5% positive. And even EMEA, which we've seen some softness in, did post a 1% positive organic growth. Even with all that said, margins did increase 90 basis points, finished at 23.3% versus prior year and, really, still continue to reflect consistent performance, productivity improvement, good cost controls, and that increase in distribution mix that we've talked about periodically. Orders in the international business did improve from last quarter. They are still negative 1%, but it is a nice improvement from last quarter. And again, from our international team members, great consistent performance and glad to see these results.
If you move to aerospace, this is really the story of the quarter, really a standout, just fantastic results all around. Sales are $1.3 billion, 16% organic. Total sales are a 90% increase versus prior year. That's really obviously benefiting from the Meggitt acquisition. But if you look at the business, commercial OEM and MRO continue to be very strong. Both of those businesses are growing at plus 20% versus prior in the quarter.
The military OEM business did return to growth this quarter, with high single-digits organic performance. That was really nice to see. And operating margins, a new record high, really increasing an impressive 160 basis points to 25.8%. Those strong margins reflect that growth in the commercial aftermarket businesses, and really notably, a nice favorable mix of spares versus repairs. So you can also see the addition of Meggitt has also increased our aftermarket exposure. That was one of the compelling aspects of that acquisition. We're glad to see that materialize in the results.
The aerospace team is really doing a phenomenal job, obviously dealing with growth. The integration is ahead of schedule and on track, and these results are really fantastic to see. It's really truth that Parker and Meggitt are really better together. If you look at aerospace order rates, plus 28% continues to be robust and then obviously is helping our backlog. Great performance across the segments.
If I jump to Slide 13, I just want to highlight our cash flow performance. We finished the year with extremely strong cash flow. It was a record in FY '23. We increased cash flow from operations 22%. We reached a record $3 billion of cash flow from operations. That's 15.6% of sales. Free cash flow also very strong, $2.6 billion or 13.6% of sales. Our capex came in right where we were forecasting 2%. And just as a note, because this was the closing of Meggitt, we did have some transaction-related expenses that were a drag to cash flow. That was about 1% of sales. So those obviously aren't going to repeat next year. And we have set ourselves up extremely well to be great generators of cash.
If you look at conversion, free cash flow conversion for the year 125%. And I just really want to thank our teams for the great work on working capital. We strive to be great generators, great deployers of cash. And reaching this $3 billion milestone is really the result of significant effort from our team across the globe.
If you go to Slide 14, you can see what we did with all that cash. We reduced debt by $850 million in the quarter. Since we closed Meggitt just this fiscal year in September, we have reduced our debt by $1.4 billion. Since announcing Meggitt way back in August of 2021, we have already paid down approximately 35% of the total consideration of nearly $10 billion, so very impressive work across the board by our team.
If you look at leverage, gross debt to adjusted EBITDA finished the year at 2.8% [Phonetic] and net debt to adjusted EBITDA finished the year at 2.7 -- excuse me, 2.7 times. We've spoken about our great track record of how we are so dedicated to quickly deleveraging after the deals. And since closing the transaction in September, we have already reduced leverage by one full term. So we're proud of that. Looking forward to next year, we expect to generate significant cash flow. We think we can reduce debt by an additional $2 billion in FY '24, and we are targeting leverage of 2 times in early FY '25.
Okay, so moving to guidance and putting FY '23 to bed, you can see what we are looking at here is Slide 15, and I'll start with the top line. Reported sales growth for the year is forecasted to be in the range of 3% to 6% or 4.5% at the midpoint. That equates to approximately $19.9 billion in total sales. If you look at the split, the first half is 49% and the second half is 51%. Speaking specifically to organic growth, for the full year, we expect it to be 1.5% at the midpoint. In respect to aerospace, we're expecting high single-digit growth in aerospace, a little over 8%. North America organic, we expect that to still be positive at plus 1%. And international, we are forecasting slightly negative 2.5%. Those are all full-year numbers.
The backlog that I just spoke of earlier does support our growth. So we feel confident in these numbers. And if you look at the breakdown, the guidance does assume acquisition sales, roughly $500 million from Meggitt, offset by $400 million of the divestitures that we did complete in FY '23. So the net impact is $460 million or about 2.5% of our total sales.
I mentioned currency earlier. Based on spot rates as of June 30, we do expect that currency to be a slight tailwind of 0.5% or roughly $100 million. So that is based on currency rates as of June 30. We still see margin expansion this year. 30 basis points is what we're forecasting for FY '24. And that is all based on continuing to accelerate our performance across all of our businesses using the Win Strategy and, of course, delivering on Meggitt synergies that we have communicated.
If you look at adjusted segment operating margin, our guidance is 23.2% at the midpoint, and there is a range of 20 basis points on either side of that midpoint. If you look at operating income dollars, segment operating income dollars, the split is 47% first half, 53% second half. And for the full year, we are forecasting incremental margins of 30%.
Few other items in respect to guidance. Corporate G&A is $240 million. That's a full-year number. Interest expense is $525 million. That is a $40 million reduction from where we finished in FY '23 really just based on our strong debt paydown. And other expense is $25 million. Full tax rate, we're guiding at 23.5%. That is without any discrete items. That is really our continuing rate from operations, 23.5%. And finally, we expect full year as reported EPS of $18.55 or, on an adjusted basis, $22.40. The range -- those are both midpoint numbers. The range on either side of those is $0.50 plus or minus. And the split is 46% first half, 54% second half. And just specifically for Q1 of FY '24, we are forecasting adjusted EPS to be $5.10 at the midpoint.
Looking at cash flow, full year free cash flow is expected to be between $2.6 billion and $3 billion. So we'll be mid-teens free cash flow, and our conversion will be over 100%. Also included in the appendix is some segment guidance details and some other specifics that you might find helpful.
If I move to Slide 16, this is just the bridge and really highlights as follow. Again, very similar to what's happened throughout this fiscal year. That organic growth, the acquisition, sales margin expansion, and the $75 million of incremental Meggitt synergies for the year translate to an increase in segment operating income of a $1.47. We will have less interest expense next year based on that debt reduction that we've done, but -- and that will add $0.23 to EPS. Our forecasted tax rate of 23.5% is a headwind of $0.26, but you remember we had a lot of favorable items in FY '23. We're not forecasting those to continue.
We also had lower interest income. If you remember, we prefunded those -- the Meggitt transaction in June of last year. So we had interest income in the first quarter of last year. That was about $35 million. Just to note, that is reported in the other expense/income line on the business segment statement. That was a one-off benefit that obviously will not repeat in FY '23. That's a $0.21 headwind. The rest is just forecasted $0.20 unfavorable to EPS, and there's just some -- really some non-repeating items in there. And obviously, share count is also a $0.10 headwind that we hope to make up. So that's the walk from FY '23 to FY '24. EPS at the midpoint is forecasted to be $22.40.
So with that, Jenny, I'll hand it back to you and ask everyone to move to Slide 17.
