Parker-Hannifin Q2 2025 Earnings Report

Ladder Capital EPS Results

• Actual EPS: $6.53
• Consensus EPS: $6.23
• Beat/Miss: Beat by +$0.30
• One Year Ago EPS: N/A

Ladder Capital Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $4.81 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Ladder Capital Announcement Details

• Quarter: Q2 2025
• Date: 1/30/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, January 30, 2025
• Conference Call Time: 11:00AM ET

Ladder Capital (NYSE:LADR) operates as an internally-managed real estate investment trust in the United States. It operates through three segments: Loans, Securities, and Real Estate. The Loans segment originates conduit first mortgage loans that are secured by cash-flowing commercial real estate; and originates and invests in balance sheet first mortgage loans secured by commercial real estate properties that are undergoing transition, including lease-up, sell-out, and renovation or repositioning. It also invests in note purchase financings, subordinated debt, mezzanine debt, and other structured finance products related to commercial real estate. The Securities segment invests in commercial mortgage-backed securities, U.S. treasury and agency, corporate bonds, and equity securities. The Real Estate segment owns and invests in a portfolio of commercial and residential real estate properties, such as leased properties, office buildings, student housing portfolios, hotels, industrial buildings, shopping center, and condominium units. The company qualifies as a real estate investment trust for federal income tax purposes. It generally would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. The company was founded in 2008 and is headquartered in New York, New York.

Parker-Hannifin Q2 2025 Earnings Call Transcript

Presentation

[Operator]

Greetings, and welcome to the Parker Hannafin Corporation Fiscal twenty twenty five Second Quarter Earnings Conference Call and Webcast. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Todd Liam Bruno, Chief Financial Officer.

[Operator]

Thank you. You may begin.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Thank you, Shalini. We appreciate it so much. Welcome to Parker's fiscal year twenty twenty five second quarter earnings release webcast. This is Todd Lee and Bruno, Chief Financial Officer speaking and with me today is Jenny Parmentier, our Chairman and Chief Executive Officer. We appreciate your interest in Parker, and thank you for joining us today.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

On Slide 2, we will address our disclosures on forward looking projections and all non GAAP financial measures. Items listed here could cause actual results to vary from our forecast. Our press release, this presentation and all reconciliations for any non GAAP measures were released this morning and are available under the Investors section on parker.com. The agenda for the call today has Jenny starting with the highlights to our record performance. She will also highlight how our business system, The Wind Strategy, drives operational excellence in Parker, and then she will give an update to our market vertical outlook for the rest of our fiscal year FY 'twenty five.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

I will follow Jenny with more details on our strong second quarter financial results and provide additional color to our updated guidance. We'll then conclude as usual with the question and answer portion of the call, and we will do our best to address as many questions as possible within the hour. Now I'd like to draw your attention to Slide number 3, and Jenny, I will turn it over to you.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

Thank you, Ted, and thank you to everyone for attending the call today. Our performance this quarter reflects our focus on operational excellence and the strength of our balanced portfolio. We produced top quartile safety performance aligned with our goal to be the safest industrial company in the world and saw continued strength from our aerospace aftermarket. Consistent execution of the wind strategy delivered 110 basis points of margin expansion, resulting in a record of 25.6% adjusted segment operating margin. In addition, our teams delivered record adjusted segment operating margin across all businesses as well as record earnings per share.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

Record year to date cash flow from operations, coupled with proceeds from previously announced divestitures, allowed us to substantially reduce debt by $110,000,000,0.0 this quarter. And finally, we are encouraged to see industrial orders turn positive in our longer cycle businesses. Next slide, please. With our win strategy, I'm often asked how do we continue to expand margins and more importantly, can we continue to do so? I've talked about this several times in the past.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

It is our business system, the Win Strategy, that drives operational excellence. We trust the process. It is a proven strategy and it works. The next few slides will show you how our teams use the Win Strategy to drive performance over the cycle. Next slide, please.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

Embedded in the win strategy is the Parker Lean system. It is fundamental to our culture and drives continuous improvement at all 85 divisions. Within the same pillars of the win strategy are the critical tools used by all of our general managers and their teams to expand margins and drive organic growth. Disciplined execution of the Parker and Lean system reduces variations and eliminates waste from the business. This system allows us to keep taking performance to the next level.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

And important to point out here is that we are never done improving our business. Next slide, please. On this slide, we have an example of how the wind strategy drives performance through the cycle in 1 of our North American divisions. This is a division in our filtration group that has diverse exposure across industrial market verticals and a balanced OEM aftermarket mix. This is an engaged team that has utilized our high performance team structure to execute the win strategy.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

Looking at their results on the far right hand side of the page. They have achieved first quartile safety by bringing attention and ownership to concerns, tracking them to closure and scheduling audit follow ups to ensure sustained results. They are utilizing the Parker lien system, specifically Kaizen, to expand margins and achieve the FY 2025 profitability goals for their division, even in a negative growth environment. In addition, they have utilized the Simple by Design tools to reduce complexity and cost as well as increased dual sourcing to strengthen their supply chain. And finally, use of our 0 defects tools has resulted in a 52% reduction in rejected parts per million, thus providing their customers a better experience.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

Next slide please. Parker is a transformed company today. The chart on the left side of this page shows the strength of our portfolio over the last two point five years. Order rates increased across all reported business in coming in at 5% for the quarter. Aerospace order strength continued in both aftermarket and OEM.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

And although we are seeing a continued delay in the expected industrial recovery, we are encouraged to see industrial orders turn positive in our longer cycle businesses. Next slide, please. Taking a look at our updated sales forecast by market vertical. We are raising Aerospace and Defense to 11% on the strength of the aftermarket and gradual OEM rate increases. On the Industrial side of the business, although orders have turned positive, there continues to be pressure in many of these markets.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

We are expecting in plant and industrial equipment growth to be slightly lower within our low single digit framework. We are continuing to see delays in recovery, while distribution sentiment does remain positive. We're changing our forecast on transportation from low single digit to neutral, primarily driven by weakness in automotive and higher dealer inventory. The bright spot here is that work truck demand does remain strong. Off highway stepped down to negative mid teens as OEM destocking and production cuts continue and the weakness in ag persists.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

We expect energy markets to remain neutral as projects and CapEx delays continue. And finally, we are increasing HVAC from low single digit to mid single digit growth, driven by refrigerant changes in the industry. All of this adds up to an organic growth forecast of approximately 2% for I will now turn it over to Todd to summarize our results.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Thanks, Jenny. Okay, everyone. I'm going to begin with results on Slide 10, and then we'll get to some more details on the outlook that Jenny just touched on. As Jenny mentioned, the was a strong quarter, lots of records. It was another quarter of strong margin expansion and EPS growth despite some real top line pressures.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Sales were down 1.6% versus prior. Most of that decline is the result of the divestitures that we announced. The divestiture impact in the quarter was an unfavorable 1.4%. Currency also flipped on us this quarter. While we were forecasting a slight positive, ninety days ago, it turned out to be unfavorable at 0.9.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

And on a good note, organic growth was positive at almost 1%. If you look at segment operating margins, 25.6% is a record. That's an increase of 110 basis points versus prior year. And adjusted EBITDA margins was also a record of 26.8%. Half has also been an increase of 110 basis points from prior year.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Adjusted net income of 8.53% or 18% return on sales, both of those are also records. And lastly, adjusted earnings per share were up 6% to a record of $6,.53 Jenny mentioned this also, but the strong performance was consistent across all of our businesses and really just a nice solid finish to the first half of our fiscal year. If we could move to Slide 11, this shows the walk for that $0,.38 or 6% increase in adjusted EPS. And again, it was just a nice high quality quarter from an operating standpoint. Segment operating income dollars did increase by $33,000,000 or 0.2 despite the 1.6% lower top line.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

And while strong aerospace performance was the primary driver, the industrial businesses delivered record segment operating margins despite negative organic growth pressure and FX pressures as well. In total, interest expense was $0,.17 favorable. That was driven by our continued focus on debt reduction. Income tax and other both contributed $0,.03 which was mostly offset by slightly higher corporate admin and share count. So the adjusted EPS of $6,.53 I already said it, it's a record.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

And I really commend our team members around the world for strong operating performance, really diligent cost actions where necessary and really a focus on cash flow that helped us achieve these results. If we move into the segments, if I look on Slide 12, it really is a testament to the win strategy that our team members were able to deliver such broad based margin expansion. We're so proud of the hard work and all of their efforts. Every business delivered record segment operating margins, whether they had a positive 14% organic growth or whether they were negative 5%. Margin expansion for the entire company was 110 basis points.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

And another positive sign was that orders moved to plus 5% versus prior year mainly off of a longer cycle end market strength. If you look at the diversified industrial North America businesses, sales were $190,000,000,0.0 That equated to an organic growth of negative 5% versus prior. That was lower than our expectations going into the quarter. We continue to see delays in the industrial recovery, specifically in transportation and off highway markets. A recovery has also yet to materialize in the distribution channel.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

But if you look at adjusted segment operating margins, we were able to increase those by 40 basis points to a record 24.6%, driven by just unbelievable operating execution. A nice positive sign in North America where orders did turn positive after a few quarters of negative, so we are happy to see that. And again, it's specifically driven by some of our longer cycle verticals. If we move to the Industrial International business, the sales were $130,000,000,0.0 Organic growth in international came in at negative 3% Asia Pac was a positive 3% that's similar to what we had last quarter Latin America positive at plus 10 while EMEA remains challenged with organic growth at negative 8. But if you look at adjusted segment operating margins, the international team achieved a record high of 24.1% and expanded margins by 110 basis points.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

As Jenny mentioned, it's really just the power of the win strategy in action. Our international team continues to focus on productivity, cost controls, all things in the win strategy to expand margins and really are operating with unbelievable resiliency and a very tough growth environment. Order rates here also moved further positive from plus 1 last quarter to plus 4, and that was mainly driven by improvement out of Asia Pacific. If we look at aerospace, aerospace continues to outperform. Sales were a record $150,000,000,0.0 in aerospace that is up 14% versus prior year.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

That did exceed our expectations for the quarter. All of that growth was organic, 14% organic growth, and that was really driven by 20% plus growth in the aftermarket area and mid single digit positive growth in the OEM markets. Adjusted segment operating margin, same story here, a record 28.2%. That is an increase of an incredible 170 basis points versus prior. Just really robust top line, favorable aftermarket mix continues to drive this great margin performance and aerospace orders continue at a positive clip of plus 9%.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

So just great job across all of our businesses in the quarter. On Slide 13, just to touch on our year to date cash flow performance. Year to date cash flow from operations was 17.4 of sales. That equates to about $170,000,000,0.0 And CFOA, that is a record, and it's also an increase of 24% versus prior year. Year to date free cash flow increased 17% from prior year.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

We finished at $150,000,000,0.0 or 15.2% of sales for free cash flow. Jenny mentioned some of that divestiture activity. Divestiture activity in the quarter generated cash proceeds of approximately $6.20,000,000 dollars and an as reported post tax gain of $2.23,000,000 dollars We have excluded that gain from our adjusted results in the quarter. And 100% of the proceeds from those transactions were used to further reduce debt. Jenny mentioned in the quarter, we paid down $110,000,000,0.0 That moves our year to date debt reduction to $150,000,000,0.0 And our gross debt to adjusted EBITDA is now $170,000,000,0.0 So good work on cash flow across all elements of the business.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Okay. Moving to Slide 14 and guidance. Let me give you some more details on this. Our reported sales growth for the year is now forecasted to be in the range of minus 2% to positive 1% with 0.5% negative at the midpoint. Keep in mind, divestitures are 1.5% of that unfavorable impact and 100% of that divestiture activity is from the Industrial North America businesses.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Currency headwinds are now expected to be a 1% negative headwind. That is based on December '31 exchange rates as we always do. That did flip from what we were expecting ninety days ago, just currency rates continue to show significant volatility. In respect to organic growth, we have raised the Aerospace organic growth midpoint by 100 basis points to now 11% for the full year. But the offset is on Industrial segment.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Midpoint has been decreased as followed. In Industrial North America, organic growth is now forecasted to be negative 2.5 at the midpoint for the year. And the midpoint of the Industrial International organic growth is now forecasted to be flat. For the full year, we expect Parker's organic growth to be a positive 2% at the midpoint. Despite all of that, we are raising our adjusted segment operating margin guidance by an additional 10 basis points for the full year and moving our expectations to 25.8 for the year.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

That is now a forecasted margin expansion of 90 basis points versus our FY fiscal year finish up last year. Tax rate is now slightly down to approximately 22%. We are modeling 22.5% for the second half of the year, and that there's more details of that in the appendix along with assumptions we're using for corporate G and A interest and other as we usually provide those. Despite the currency headwinds and the delayed industrial recovery that Jenny talked about, we are maintaining our full year adjusted EPS midpoint at $2,6.7 Full year as reported EPS is now expected to be $24,.76 And like I just said, adjusted EPS midpoint is expected to be $2,6.7 Both of those have a range of plus or minus $0.3 on either side. We also remain committed to our free cash flow forecast in the range of $3,000,000,000 to $330,000,000,0.0 for the full year.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

If we look specifically at the for FY 'twenty five, reported sales are expected to be approximately $490,000,000,0.0 with organic growth of positive $150,000,000,0.0 Adjusted segment operating margin is $2,560,000,000,0.0 and adjusted EPS for the quarter is expected to be 6.65. So Jenny, that's all I have. I will hand it back to you and I'll drive everyone's attention to Slide 15.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

Thank you, Todd. And a reminder on what drives Parker, safety, engagement and ownership are the foundation of the culture. It's our people and living up to our purpose that drives top quartile performance. And we remain committed to being great generators and deployers of cash. Todd just showed you our cash generation year to date, and we talked about all the great performance across all of the divisions.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

We are actively focused in extending our track record of deploying capital to deliver the best shareholder value possible.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Okay. Thanks, Jane.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Shane, we are ready to begin the Q and A session. So we'll take whoever you got first in the queue.

[Operator]

Thank you. As I said, we are we would like to we'll be conducting a question and answer session. Our first question comes from the line of Jeff Sprague with Vertical Research Partners. Please proceed with your question.

[Jeffrey Sprague, Founder and Managing Partner at Vertical Research Partners]

Thank you. Good morning, everyone. Hey, Jenny, maybe to start just more complexion on what you're seeing in the industrial long cycle. I guess,

[Jeffrey Sprague, Founder and Managing Partner at Vertical Research Partners]

when you're kind of addressed it, pointing to

[Jeffrey Sprague, Founder and Managing Partner at Vertical Research Partners]

the strength in industrial long cycle, is this the aerosol that sits inside industrial? Or maybe you could elaborate on what verticals specifically are looking better on the long cycle side?

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

Yes, Jeff. Primarily, it is the long cycle strength of the Aerospace and Defense sitting in those industrial businesses. But it's also positive in HVAC and in semicon. So that's really what's helping those orders in Asia Pacific increase this last quarter.

[Jeffrey Sprague, Founder and Managing Partner at Vertical Research Partners]

And so that kind of sales conversion cycle on that stuff is we're talking more six, nine, twelve months in your view?

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

Right, beyond our fiscal year and more into

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Okay, great. And then I was

[Jeffrey Sprague, Founder and Managing Partner at Vertical Research Partners]

just hoping Todd could give a little bit more color on just the pattern organic pattern of industrial revenues and to close out the year, what's embedded in the 06/65, for example, for the industrials?

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Yes, absolutely, Jeff. So we did pull down slightly. When you look at what we're looking at for the full year, Jenny, I may ask you to grab that if you got it handy.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

Yes. So we have for our guidance, the industrial organic sales guidance is 2.5% for North America and 5% for International. It does assume a recovery, right? So basically, what we've done here is push things out a quarter. This guide is in line with prior growth periods when you look at sequentially to So that's an assumption that we're making in there.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

Aerospace, we've raised the growth outlook, as Todd mentioned earlier, to 11% for the full year. And if you look at for Aerospace last year, we were at a positive 19%. So it's a tough comp for Aerospace, but that's what we're showing for the rest of this year.

[Jeffrey Sprague, Founder and Managing Partner at Vertical Research Partners]

Great. Thank you. I'll leave it there.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Thanks, Jeff.

[Operator]

Thank you. Our next question comes from the line of Joe L'Ritchie with Goldman Sachs. Please proceed with your question.

[Joseph Ritchie, Analyst at Goldman Sachs]

Hey, good morning guys.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Good morning, Joe.

[Joseph Ritchie, Analyst at Goldman Sachs]

So I know that one month doesn't necessarily make a trend, but I'm just curious as we've started 2025, have you seen like any discernible differences or changes in trend based on how you exited 2020 calendar year 2024?

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

What we have right now is the best look that we have for this quarter and for the second half. So nothing notable that I would comment on at this point, just the best look we have today.

[Joseph Ritchie, Analyst at Goldman Sachs]

Okay. Fair enough. And then I guess the the following question to that, Jenny, look, you guys have done an amazing job and you described it a little bit earlier in your prepared remarks regarding your ability to expand margins in the industrial businesses despite this like very weak environment. If the current like trends hold through the remainder of your fiscal year, I mean, do you still expect to see some margin expansion coming out of both North America and international or has it become a lot harder?

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

I think we're still going to expand margins. I feel very strongly about the power of the wind strategy and the toolset that's available to our general managers. I mean, obviously, everybody likes volume, right? That's something that is a positive. But I don't pull back on my margin expansion story.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

We have the tools and our teams are doing a great job.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Yes, Joe, I would

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

say, we

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

do have margin expansion in the guide here for the second half. It is more muted just because there's some currency headwinds and obviously the top line headwinds. But to Jenny's point, if you look at across all 3 businesses, we're still showing strong margin expansion across all 3 of those businesses.

[Joseph Ritchie, Analyst at Goldman Sachs]

All right. Thanks guys.

[Operator]

Thanks Joe. Thank you. Our next question comes from the line of Scott Davis with Melius Research. Please proceed with your question.

[Scott Davis, CEO & Chairman at Melius Research LLC]

Hey, good morning, Jenny and Todd.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

Good morning, Scott.

[Scott Davis, CEO & Chairman at Melius Research LLC]

There's not much to pick on. There hasn't been for some time for you guys. So I'll kind of add some nuances around M and A. We keep hearing about kind of some of the enthusiasm of stuff coming out of PE, but historically you guys have had kind of probably tilted a little bit more towards carve outs. But what do you see out there in the M and A environment?

[Scott Davis, CEO & Chairman at Melius Research LLC]

And is your enthusiasm or I should say confidence in getting deals done in 'twenty five higher than it was in, do you think in 'twenty four or comparable?

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

So it is an exciting time and we do have a robust pipeline. And we put a lot of stock in the fact that many of the assets in the pipeline are relationships that built over many years. And obviously, we've worked really hard and we've done a good job paying down debt. So we're in a position to do that. So I don't know if I would comment that it's easier, but it's definitely a focus for us.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

And we're going to make sure that we continue to keep a close eye on everything. Targets of all sizes in the pipeline, you've heard me say that a couple of times. We still have the same criteria. We want to acquire companies where we're the clear best owner, accretive to growth, resiliency, margins, cash flow, EPS, all with synergies. So we're really committed to deploying our capital in a way that's going to deliver the shareholder value that we've shown we can deliver in the past.

[Scott Davis, CEO & Chairman at Melius Research LLC]

Yes, that makes sense. And because I have to ask the question just because orders are a little better than I would have thought they'd be. Any kind of weird stuff out there as it relates to either buying ahead of tariffs or buying out of price increases or anything else that you can kind of point to that would have impacted orders a little bit or was it just pretty much things are getting better and that's the story?

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

No, I wouldn't say nothing at all under those couple of items that you just said. I mean, we're seeing the strength of aerospace and defense in our industrial businesses and HVAC and semi con. So longer cycle, nothing strange.

[Scott Davis, CEO & Chairman at Melius Research LLC]

Okay. Congrats and best of luck this

[Scott Davis, CEO & Chairman at Melius Research LLC]

year.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

Thank you.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Thanks, Scott.

[Operator]

Thank you. Our next question comes from the line of Amit Dobre with Baird. Please proceed with your question.

[Mircea Dobre, Associate Director of Research & Senior Research Analyst at Robert W. Baird & Co]

Thank you. Good morning. Just to follow-up on that tariff discussion. I'm wondering sort of how your own thinking has evolved around this issue. What are you hearing from customers in terms of how they're preparing to deal with the tariffs, especially if Canada and Mexico is involved?

[Mircea Dobre, Associate Director of Research & Senior Research Analyst at Robert W. Baird & Co]

And again, what Parker's strategy would be around this, whether with your production or anything else that you're planning to do with your business?

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

Well, I mean, obviously, there will be an impact depending on what actually happens. But we've dealt with tariffs before. We have the visibility, we have the tools and we have the agility to act when something does happen, if and when something happens. So I would also say that over the past decade, we've built a local for local model because we want to be close to our customers. So if it happens, there will be impact, but that definitely helps us.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

And we've been focused on supply chain leadership now for a couple of years. A lot of new tools and strategies have been put into place to enforce that local for local and reduce lead times. So we don't see a big need for a supply chain realignment. We don't foresee any of that. And because we've dealt with this before and our customers know how we've handled this before, The teams will get to work when they need to.

[Mircea Dobre, Associate Director of Research & Senior Research Analyst at Robert W. Baird & Co]

Understood. My follow-up, looking at Slide 8 where you kind of talk about your growth forecast by key end market verticals. I'm wondering a little bit about mix, maybe you can comment on that. I know we talk about it in aerospace and defense, but within your industrial businesses, we're seeing some verticals like off highway, for instance, more pressure relative to

[Mircea Dobre, Associate Director of Research & Senior Research Analyst at Robert W. Baird & Co]

others. Is there anything to

[Mircea Dobre, Associate Director of Research & Senior Research Analyst at Robert W. Baird & Co]

call out here in terms of some of these end markets during maybe higher margins versus the segment average? Thank you.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

I don't think there's anything to call out here, anything that would be of a concern or change the way that we're looking at the forecast or how we can expand margins. So nothing within some of these verticals, you've heard us talk of, for instance, within off highway, ag is weaker than construction. But there's nothing there that I would say we would point to a mix concern.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Yes. I think the only thing I would tell you is, our distribution channel has a more positive margin profile than the OEM channel, but it's not anything out of line than what we've seen in normal periods at this time. So the margin expansion is really coming from the team working really hard on productivity, working really hard on cost and managing what they can control.

[Mircea Dobre, Associate Director of Research & Senior Research Analyst at Robert W. Baird & Co]

All right. That's great. Thanks.

[Operator]

Thank you. Our next question comes from the line of David Raso with Evercore ISI. Please proceed with your question.

[David Raso, Analyst at Evercore]

Hi. Thank you for the time. Jenny, earlier you were mentioning, I believe you said organic growth rates. And

[David Raso, Analyst at Evercore]

I won't bore

[David Raso, Analyst at Evercore]

you with the math right now, but I'm just trying to make sure I understand the cadence seems to have a very light organic growth for aero in the to the full company organic, but then a big bounce in the I'm just trying to make sure I'm reading that correctly the way you laid out the industrial growth.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

So aerospace in the is projected to be 9.5%. Fourth quarter is 5%. And what I mentioned earlier was year was 19%. So still strong aerospace growth, but pretty tough comp there. Total year at 11% for aerospace.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

David, I really do think it's just the comps. If we look at the sheer dollars, Q4 would be the highest aerospace shipments we've ever had as a company and it would be obviously the highest we shipped all year.

[David Raso, Analyst at Evercore]

Okay, helpful. And then when you know that you expect some improvement in the can you highlight where are you seeing that? Are there already conversations, some restocking levels, maybe on some of the short cycle? Just where do you expect to see that improvement?

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

Well, we expect to see some gradual industrial recovery based off of the fact that, as Todd just mentioned, our distributor sentiment is very positive. And we've been here at that average time of impact. We're here at 5 quarters of negative growth and the average is 6. And at the North America International, we're at 6 quarters of negative growth and the average is 6. So we're just expecting that this turn is coming, but it's been pushed out another quarter from what we see right now.

[David Raso, Analyst at Evercore]

And when it comes to the mix of what is picking up versus what you expect to pick up, I'm just trying to get a sense of how much should we think about is it an accelerator in the margin expansion all else equal with what's supposed to pick up in a couple of quarters? I mean usually you think of, for example, distribution is some of your highest margin business and that sounds like that maybe hasn't necessarily accelerated yet. Is that still on the come or maybe you can explain a little bit how to think about the mix of what's starting to recover

[David Raso, Analyst at Evercore]

and what's

[David Raso, Analyst at Evercore]

on the come?

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

Yes. Distribution is still on the come, right? I mean, they're positive. They're expecting it to happen.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

They're ready for a recovery, but it hasn't come yet. So yes, obviously, distribution is the higher margin for us. But again, our margin expansion is going to come from the teams continuing to do all the great work that they do on productivity and driving out costs in our plants as well.

[David Raso, Analyst at Evercore]

Yes. The spirit of the question is everybody after the next quarter, even after this call, start thinking about how do you guide in July 0 or And just trying to think about distribution starts to be a little more of a lead horse on the earnings recovery into relatively speaking, that should be a positive margin mix. So that was the spirit of it. Thank you so much.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

We were really happy to see the orders turn positive. I think another quarter would be another great data point to make us feel good about 'twenty six.

[David Raso, Analyst at Evercore]

Thank you.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Thanks, David.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Jamie Cook with Truett Securities. Please proceed with your question.

[Jamie Cook, Managing Director - Equity Research at Truist Securities]

Hi, good morning and congrats on a nice quarter. I guess just 2 questions. 1, can you give more color on the LatAm orders up 10% and then EIM, I guess down 8%, what you're seeing there? And then I guess, Jenny or Todd, in the spirit of the margin question again and your outperformance given organic growth is disappointed this year, to what degree can we expect when the markets turn, is there a reason to believe that incremental margins coming out of this downturn should be better than average because of structural improvements in the wind strategy that you would point to above average incremental margins this cycle? Thank you.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Yes, Jimmy, maybe let me touch on that margin question first. The incremental margins are a little bit difficult with the muted top line, right? The calculations get a little strange, but the team has unbelievably performed on that. We have clear margin expansion targets out to our longer term targets. We don't expect FY 'twenty six to be any different.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

That will be another leg in moving those margins to what we have committed to. But I think if you're looking at in general, we really still believe 30% incremental margins are best in class. And if you're doing that, you're doing all the right things like investing in the business and obviously generating higher organic growth. So that's what we're kind of pushing the teams to. In respect to Latin America, yes, they have been fantastic.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

It is a small piece of the company, but the team down there has been really stellar in growth and margin performance and really just doing a fantastic job. We tell them all the time when we're in our meetings that we're so impressed with what they've been able to do. It's pretty much been broad based performance across the Latin America businesses. There's a lot of filtration business in Latin America, a lot of motion systems business in Latin America, but they do touch really all of the verticals that we play in. So I'd say broad based.

[Jamie Cook, Managing Director - Equity Research at Truist Securities]

Sorry, not EMEA, down 8?

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

I'm sorry, what was that, Jamie?

[Jamie Cook, Managing Director - Equity Research at Truist Securities]

Sorry, the EMEA order is down 8, EMEA?

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

EMEA, it's just been a really challenging environment. It's across the board there. It's been in a negative environment for a while. I think it's a plus that international orders have turned positive. We have yet to see that in our EMEA region.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

But I will tell you the team again is doing everything they can to be ready for recovery and to do that in the most cost efficient manager manage possible. They continue to be able to eke out margin improvement despite the top line pressure.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

Yes. Jamie, I would just add on to that, that I would consider it broad based in plant transportation off highway, just really a challenging demand environment there.

[Jamie Cook, Managing Director - Equity Research at Truist Securities]

Thank you.

[Operator]

Thanks, Jamie. Thank you. Our next question comes from the line of Andrew Obin with Bank of America. Please proceed with your question.

[Andrew Obin, Managing Director - Equity Research at Bank of America Merrill Lynch]

Yes. Good morning.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Good morning, Andrew.

[Andrew Obin, Managing Director - Equity Research at Bank of America Merrill Lynch]

Just a sort of follow-up on Dave's question, I think a little bit. Industrial businesses are getting more long cycle within your portfolio. So if you look at history, does it take longer versus history now for positive orders to translate to positive sales growth? Should we just thinking different growth algorithm?

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

Well, it's been seven quarters and the average was 6. So it's one quarter longer than the past. So

[Andrew Obin, Managing Director - Equity Research at Bank of America Merrill Lynch]

No, no, no, no. I'm asking historically, you are a longer cycle business, right? So if you get an order, right, should we dial in growth later than we would like looking at Parker five, ten years ago?

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Yes. Yes. I think on the longer cycle businesses, Andrew, that's for sure. I think the real challenges is some of those shorter cycle businesses are the ones that are under the most pressure right now. So when we see that come back, I wouldn't expect any change in that cadence.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

But if you look at the mix of the whole company, leaning more longer cycle for us, that means a little bit longer translation into organic growth.

[Andrew Obin, Managing Director - Equity Research at Bank of America Merrill Lynch]

And I guess I'll ask 2 questions as a follow-up because I think 1 of you simply can't answer. Any sense when this off highway OEM destock will end? And then second question, just granularity maybe on aftermarket for aero military versus commercial because that has been a very nice story. Thank you.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

Yes. I think off highway is going to be challenged for the rest of the calendar year, especially ag. So that would be my best estimate right now. And you want some color on aero mix? Is that what you asked, Andrew?

[Andrew Obin, Managing Director - Equity Research at Bank of America Merrill Lynch]

Yes. I just asked to market military versus commercial.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

So

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

after market, let me just let me go through the sales with you and then just remind you of our guidance. So total Aerospace was 14% growth. Commercial OEM was 5%. Defense OEM was 8%. Commercial aftermarket, 21%.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

Defense aftermarket, 25%. So we're continuing to see that strength there as we're waiting for those rate increases to go up. And then also, we just have a really strong defense depot partnerships, which is just helping the defense aftermarket. And then if you look at the outlook, we are raising commercial OEM to mid single digit growth. It was previously low single digit.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

We're raising commercial MRO to high teens growth. It was previously mid teens. And we're raising defense MRO to high teens growth, previously low double digit. So really just overall great strength here in Aerospace continues.

[Operator]

Thank you. Our next question comes from the line of Julian Mitchell with Barclays. Please proceed with your question.

[Julian Mitchell, Equity Research Analyst at Barclays Investment Bank]

Hi, good morning. Maybe just my first question around trying to understand in the industrial businesses, the sort of difference between North America and international. So if we look at the guidance, you've got worse trends in North America organic sales for the year than international. I think the sort of comps are pretty similar in terms of the 2024 performance. And I think in general, people would say there's been a better tone or customer sentiment or what have you among U.

[Julian Mitchell, Equity Research Analyst at Barclays Investment Bank]

S. Based distributors, at least in the last month or 2. So just trying to understand why there is that worse outlook in North America? Is it because you talk about the HVAC and A and D strength on Slide 8, which I think would help North America at least as much as international. So is it just perhaps the greater weighting of North America to off highway and transport that's really hurting it and that's offsetting whatever better domestic distributor sentiment there is?

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

I think you nailed it. Yes, I think that's exactly it. It's the greater weighting of the industrial business in North America.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Yes, the other thing, Julian, you got to go back a couple quarters here, but international decline started before the North America decline. So a little bit of this is year over year comparisons. It feels like international started a quarter or 2 before North America got negative. So I think a little bit of that is just comps.

[Julian Mitchell, Equity Research Analyst at Barclays Investment Bank]

Understood. Thanks. And then just a quick follow-up on the Aerospace outlook. I think you mentioned that because of that very difficult comp, the Aerospace organic sales are up around mid single digits. Just when we're thinking about the modeling of that, is it really that military side of things where you may be flattish exiting the year and then you have another sort of quarter of very tough comps and then you kind of pull out of that at the end of the calendar year on the military side?

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

I don't think it's just military. It's just an overall tough comp because of how strong was last year. I wouldn't call out anything specific in military.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Yes. I think we are expecting just a gradual recovery on commercial OEM. That might be some of it, if you're modeling, Julien.

[Operator]

Great. Thanks very much. Thank you. Our next question comes from the line of Nigel Coe with Wolfe Research. Please proceed with your question.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

Thanks. Good morning. I'm going to betray my security here a little bit. Just curious, why would HVAC and semi be considered long cycle orders? Because I think most of us would consider those to be pretty short cycle book and ship types of end markets.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

So just curious why they're long cycle? And then maybe, Jenny, you talked about the recovery pushing to the right, and I think we've all seen that. Obviously, now we've got IFM getting to 50, orders are turned positive. So it seems like the recovery is forming. But just curious what you're hearing from your customers to be richer customers, distribution partners, etcetera.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

How is the tone in the field right

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

now? The tone of distribution is very positive. They're ready for the recovery and they're expecting

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

the recovery.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

So they've been bullish for several quarters now. So no change there. If anything, I think as more time goes by, they know it's coming in and they're making sure that they're ready for it. And the first part of your question again? Yes.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

And why are we considering those? Julien, first of all, we get the visibility from an order standpoint from in those areas. We get that long demand horizon. But these both follow the secular trends that you hear us talk about, and we consider that longer cycle.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

Got it. Okay. And then just a quick 1 on SG and A. I mean, outstanding SG and A management, I think on an online basis SG and A fell from six seventy eight down to six fifty one, so call it 4%, five % decline there. I know the aero mix is helping there to a degree, but as we recover, just the confidence levels on you said say Synchrony margins, so that's very clear.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

Just how much of that SG and A reduction is structural versus some temporary cost management and that comes back in on the recovery?

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Yes. Nigel, we've always been very focused and frugal when it comes to SG and A. If I had to make a guess, I'd say almost all of it is structural. There will be a increase in aerospace R and D, but that's going to be a ways off and that's going to depend on new programs coming. So we don't see that in the near term.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

That's not in our guide for the rest of the fiscal year. I don't think you'll see us have a step up in SG and A call.

[Operator]

Okay, great. Thank you. Thank you. Our next question comes from the line of Joe O'Dea with Wells Fargo. Please proceed with your question.

[Joseph O'Dea, Managing Director at Wells Fargo]

Hi, good morning. Joe, good morning. Along similar lines to some of the other questions, just trying to think through kind of typical cycle relationships and looking at the order chart on Slide 7. And I think over the past couple of quarters, you've expressed confidence that the destock headwinds are really done and that's played out. And so now we start thinking about restock.

[Joseph O'Dea, Managing Director at Wells Fargo]

But when you start to see orders get a little bit better and you think about the distributor tone that's been better, what is that typical lag time between some signs of end market demand are getting better and then that starts to translate to a channel inventory reaction?

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

I don't know that I have a specific our distributors that have gotten really good at controlling their cash and keeping a close eye on their inventory levels. So they're waiting for the orders to hit them. They've all commented that there's been a lot of orders to hit them. They've all commented that there's been a lot of quoting activity, right? So they're that's why I think they're very bullish on the future and expecting the recovery.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

But we'll just have to wait and see what happens here. As we've already talked about, we're nearing that point where we're going to cross over the average of when this should recover. So we're all going to be ready.

[Joseph O'Dea, Managing Director at Wells Fargo]

And then last quarter in the deck, you put some details on mega projects in our tracking of that data. We did see some delays from '24 into '25. Right now, it would have a pipeline with some pretty strong activity in 2025 across a number of the verticals that you called out last quarter. But just curious in terms of what you see in conversations you're having, I think, general concerns that maybe there's enough nervousness, this stuff continues to push to the right. Anything that you're seeing that's starting to sort of pulse with now things are going to start hitting construction and demand tied to that?

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

No major changes. I mean, this is still a growth driver for implant and industrial market, especially. And as you know, there's just been a massive amount out there that's been announced. We're going to benefit at every stage. In some cases, some examples I've given in the past about where our distributors are quoting business with local and national contractors.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

There's still some of that going on, but I would say that some of those projects are being delayed. But whenever we might hear about a delay or a cancellation, the number goes up again. So it's still coming. It just hasn't hit yet.

[Operator]

Yes. Got it. Thank you.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

Thanks, Joe. Thank you, Joe.

[Operator]

Thank you. Our next question comes from the line of Nicole Buble with Deutsche Bank. Please proceed with your question.

[Nicole Deblase, Analyst at Deutsche Bank]

Yes. Thanks. Good morning.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

Hi, Nicole. Good

[Nicole Deblase, Analyst at Deutsche Bank]

morning. Hello. So maybe just 1 on the outlook and again like have to commend you guys for continued really strong margin performance, but you are modeling segment margins kind of flattish from to and typically we do see like a bit of a sequential step up. So just curious if maybe that's some conservatism baked in, maybe there's something going on from a mix perspective with aerospace, anything on that?

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

You're right, your math is right, Nicole. I would tell you in for aerospace was an all time record. Obviously, the aftermarket mix was very, very favorable. We do not have that sort of mix in the guide, so that's a little bit of the flattishness as the aerospace is not expected to be as high. And then the currency impact really is impacting the international side of the business.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

So we've got slightly lower than margins forecasted for the international businesses, but that is really volume and currency related. If you look at North America, we're actually expanding margins from

[Nicole Deblase, Analyst at Deutsche Bank]

Got it. That's really helpful. Thanks, Todd. And then just understand the commentary around the long cycle end markets picking up within orders. Did you guys actually see short cycle kind of stabilize?

[Nicole Deblase, Analyst at Deutsche Bank]

Did it get worse? Just curious about the short cycle order trend during the quarter.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

I would say it's the same as it has been. So no real change there, Nicole.

[Nicole Deblase, Analyst at Deutsche Bank]

Thank you. I'll pass it on.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Great. Thank you. Okay. I can't believe this, but we've gotten through the entire Q. I think that might be the first time ever.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

So this is the conclusion of our earnings release webcast. Jeff Miller, our VP of Investor Relations and Yap Hua, our Director of Investor Relations, will be available for any follow ups needed today and tomorrow. And just 1 last note for everyone on the call, this will be the last time that Yen will be available for follow ups. We need to congratulate Yen on taking a new role within the company as Group Vice President and Controller for our Motion Systems Group. So, Yen, we thank you for all your great work you've done for the company.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

We will miss you in the Investor Relations space, but we know you're going to be a wonderful addition to the Motion Systems team. So congrats, Yen.

[Jennifer Parmentier, Chairman of The Board & CEO at Parker-Hannifin]

Great.

[Todd Leombruno, Executive VP & CFO at Parker-Hannifin]

Okay. For everyone else on the call, we appreciate your time and your attention. Thank you for joining us today. I hope everyone has a wonderful afternoon. Thank you.

[Operator]

You. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Participants

Executives

• Todd Leombruno, Executive VP & CFO
• Jennifer Parmentier, Chairman of The Board & CEO

Analysts

• Jeffrey Sprague, Founder and Managing Partner at Vertical Research Partners
• Joseph Ritchie, Analyst at Goldman Sachs
• Scott Davis, CEO & Chairman at Melius Research LLC
• Mircea Dobre, Associate Director of Research & Senior Research Analyst at Robert W. Baird & Co
• David Raso, Analyst at Evercore
• Jamie Cook, Managing Director - Equity Research at Truist Securities
• Andrew Obin, Managing Director - Equity Research at Bank of America Merrill Lynch
• Julian Mitchell, Equity Research Analyst at Barclays Investment Bank
• Nigel Coe, Managing Director at Wolfe Research, LLC
• Joseph O'Dea, Managing Director at Wells Fargo
• Nicole Deblase, Analyst at Deutsche Bank