Todd M. Leombruno
Executive Vice President and Chief Financial Officer at Parker-Hannifin
Okay. Thanks, Tom. I'm going to start on slide 10. This is just a year-over-year comparison of our Q3 financial results. And Tom mentioned this, really all the credit goes to our team members, really demonstrating stellar execution to generate a number of record results in a quarter that, as Tom mentioned, had a lot of disruptions. Sales increased 9%. We did eclipse $4 billion for the first time in our history. Organic growth was 11%. Currency was a drag at two points. So that's how we get to the 9% growth. I just want to make a comment. Our backlog levels are unbelievably strong. They're up 25% from this time last year, and over 90% of our end markets are in growing state. We continue to see all regions perform extremely well. Commercial aerospace and really all of the North American markets are really the most robust, but it is broad-based across the company. Tom mentioned this, but we did expand segment operating margins, 130 basis points in the quarter. We finished at 22.7% on an adjusted basis. And I'll go through the segments in a couple of slides, but really, every segment, every region contributed to this performance. The inflationary and supply chain issues, they are persistent. They remain. Yet our team members are really showing their resiliency as we leverage the Win Strategy to really achieve our goal, which is top-quartile performance. When you look at EBITDA, our EBITDA margins expanded 70 basis points. We finished at 22.6 for the quarter. And net income -- adjusted net income grew by 16% in the quarter, and we finished at $630 million or 15.4% return on sales. Net income grew 16% versus prior year. Very, very impressive.
I think we've mentioned this multiple times before, but Tom was talking about Meggitt. The currency deal contingent hedge we have, pound to dollar, requires mark-to-market accounting treatment. Due to what's going on with currency rates and really the strengthening of the dollar versus the pound, we did record a pretax noncash charge in the quarter of $247 million, and that really accounts for the major difference between the as-reported and the adjusted numbers this quarter. When you look at EPS, we did $4.83. That is $0.71 greater than prior year. That's up 17% from the $4.12 we did last year. So just really solid performance across the board. And again, I can't thank our team enough. If you go to slide 11, what we did here is we just put a graph together that displays really the elements of that $0.71 or 17% increase in EPS. And again, once again, this quarter, we continue to outperform. It's really driven by volume. Of course, the margin expansion that Tom and I talked about. But really, what I like about this is it really displays our solid operating performance. The majority of the change, all of it is showing up in segment operating income. $0.75 of the $0.71 increase is all segment operating income. If you look at everything else, that's the $0.04 of a drag, but really proud that we were able to not only improve EPS but do it at the operating line. If we jump into slide 12, this is our segment performance. Growth continues to be broad-based across every segment and every region. Demand is -- continues to be robust. Our orders are up 14%. The team has taken prudent actions to manage the inflationary environment.
And that really has positioned us to continue to maintain margin-neutral on all of these price cost issues that are fairly well documented across the world. That and the operating execution that I talked about really allowed us to improve margins in every segment. If you look at our incrementals, 37%, we've talked about this a couple of times, but we still are going up against pandemic-level comps. We had $25 million of discretionary savings in Q3. If you account for that, incrementals would have been 44% for the quarter. So just really solid incremental performance. It really highlights the power of the Win Strategy, and it demonstrates the transformation that we spoke about at our Investor Day just at March 8. If you jump into the segments, North America surpassed sales of $2 billion, organic growth was almost 15% versus prior year, and adjusted operating margins expanded by 100 basis points and reached 22.9% for the quarter. That led the company this quarter, right, which is really impressive. North America has certainly had challenges across the supply chain. It's great to see them rebound and lead the company again. Their incrementals improved in the quarter, and they're the best incrementals they generated all fiscal year. And even more importantly, order rates accelerated to 23% and backlog, of course, grew even stronger. Just very great execution, broad-based demand in the North American segment. If we move to international, sales were about $1.4 billion.
Organic growth there is almost 9% from prior year. EMEA and Latin America combined was mid-teens positive, and Asia Pacific was low single digit, but all regions are positive in the international segment. Again, here, operating margins expanded 110 basis points in international and finished really at a high level of 22.7%. Really satisfied to see the consistent performance our international teams continue to post. And we've talked about this. It's been a long-term effort for a long time. And I'm really happy that we're seeing the results out of our international segment. Order rates in international are plus 9%. If we look at aerospace, aerospace continues to rebound. Sales were $632 million. Organic growth was almost 6%. Very strong demand in our commercial markets, both OEM and MRO. And operating margins, great expansion here, 250 basis points of improvement, came in at 21.9%. And I just want to remind everyone, with this great margin performance, we are still operating at below pre-COVID at baseline, when it comes to sales. Orders in aerospace are minus 4%. But if you remember, we talked about this last quarter. There were a few large military orders in the prior period that really just kind of make a tough comp in aerospace. If you exclude those items, aerospace orders were positive 20. And again, aerospace dollars in the quarter are the largest dollar level that we've had in the last four quarters. So it just really gives us confidence in the aerospace recovery.
Really proud to be able to share these results across all of our segments. And like Tom says, it really demonstrates the power of the performance and portfolio change that a lot of -- all of our team members have been working on for some time. So if we go to slide 13, cash flow generation, right? Tom talked about being great generators and great deployers of cash. Year-to-date, we've exceeded $1.5 billion in cash flow from operations. That's 13.3% of sales. Our free cash flow is about $1.4 billion. That's almost 12% of sales. And our year-to-date conversion is 117%. We continue to still manage this diligently in a growth environment, right, which is not the easiest thing to do. If you look at year-to-date, working capital is a use of cash of about 3%. Versus last year, it was a source of cash of about 1.2%. Q4 is our strongest quarter for cash. If you followed us for a long time, you know that. We still continue to forecast mid-teens CFOA. And obviously, greater than 100% conversion when it comes to cash flow conversion. Tom called out the 29% dividend increase that we announced. This really reflects the confidence we have and our ability to generate cash, not just in the short term but in the long term as we look out to achieving those FY '27 goals. Just a few notes on leverage. Our gross debt to EBITDA was 2.8 times. Our net debt was 2.6 times. But if you remember, we have about $2.5 billion of cash in escrow to pay for the Meggitt transaction.
We are classifying that as restricted cash. If you exclude that $2.5 billion, our net debt to EBITDA would be 1.8 times. Now let's look at the guidance. If I go to slide 14, on the guidance, we obviously announced an increase to our guidance this morning. I'm going to give it to you on an as-reported and adjusted basis. We're raising full year EPS by $0.10. Last quarter, we were projecting $18.05 per share. We are now at $18.15 per share at the midpoint. We've also narrowed the range to $0.15 on either side. Sales growth for the full year is forecasted to be about 10%. We did increase the organic guide 50 basis points from 10.5% to 11%, so 11% full year organic growth. And while currency remains a headwind in the quarter, for the full year, we think it will be about a 1% drag to the top line. Just a reminder on currency, for our guide, we are using March 31 rates to calculate our estimate. If you look at the segment operating margins, full year guidance is 22.1%. I just want to call out, if you look at that versus last year's actuals, that's a 100-basis-point increase in segment operating margins. So I'm glad to be able to speak to that. The corporate G&A interest and other is really expected to be $947 million on an as-reported basis and $459 million on an adjusted basis. And the adjusted -- we've kind of -- the adjustments, we've detailed out for everybody. The acquired intangible asset amortization is $315 million. Business, realignment charges are $20 million.
LORD cost to achieve is $5 million. And of course, we closed our Russian operations. That is a charge of $20 million. If you're curious, that was $13 million in the segment line and $7 million below the segment operating income line. Meggitt acquisition-related expenses that we've incurred to date is $84 million. And finally, that deal contingent hedge that I mentioned, on a full year basis, it's $396 million. We will continue to adjust transaction-related expenses as they are incurred, all the way up until we get to close. And a note on tax. Our full year tax rate is down a little bit. We expect that to be about 21.5% for the full year. And when you do all the math, for us, that equates to an EPS -- adjusted EPS guide for Q4 of $4.60. This quarter, we actually put another slide in here. It's a bridge on our guidance reconciliation. The Q3 performance that we had, we really outperformed our guide significantly. We beat our guide by $0.29. We've rolled that into our full year guide here. And based on really strong backlog and order rates, in North America specifically, we have increased our Q4 North American organic growth guide by 300 basis points versus what we thought last quarter. And that really is generating about $0.08 of segment operating income in Q4. Tom has mentioned this, but the COVID-related shutdowns in China are a near-term temporary headwind for us in Q4.
Obviously, Q4 is the end of our fiscal year here. We are estimating that to impact Q4 sales by $100 million. We're using a 40% decremental on this $100 million, which is greater than what we normally operate at, simply because a number of our facilities are fully shut down. So we are confident that the facilities that are operating in China and those others in the international segment are going to be able to perform, but we're using a 40% decremental on just that $100 million of near-term headwind. That equates to a $0.24 EPS headwind going into Q4. All the other items net to a slight EPS reduction of $0.03, and that really is the walk on how we get to our new guide of $18.15. So before I turn it back over to Tom, I just want to make sure everyone saw the press release that we issued on Tuesday, with Robin announcing her retirement plans after what will be almost two decades with Parker Hannifin. And Robin has really been a driving force within the company, really helping us to transform our M&A processes, our long-range planning and, of course, serving as our voice and our biggest fan with the investment community. She has put forth timeless effort to champion of Pure W, which is our first business resource group that is focusing on developing women leaders, and that will leave a lasting imprint on Parker.
So Robin, all of us here, we couldn't be happier for you, for your husband, Scott, as you transition into the best phase, the next phase of your life, and we thank you very much.
