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 Q4 financial results. And as Tom said, really proud of our team members for just delivering across-the-board record results against the backdrop of several continued global challenges. So as Tom mentioned, the sales was up 6%. We did hit a record sales number of $4.2 billion in the quarter. Organic growth was double-digit at 10%. I think everyone is following these currency rates, the strong dollar drove currency headwinds for us. It was minus 4% impact to sales. Our backlog remains healthy. It did increase 21% versus the prior year, and over 90% of our markets are in growth phase. So we're very happy with that. Two markets to note, commercial aerospace and North American industrial markets are two that really remain very robust. Adjusted segment operating margin was 22.9% for the quarter. That's a 70 basis point increase versus the prior year. And our adjusted EBITDA margin was 23.1%.
That's a 100 basis point increase from prior year in the quarter. Both these margin numbers, segment operating and EBITDA margins, exited the year at the highest levels of our fiscal year. So really happy with the strong finish that the team put forth in Q4. When you move down to net income, adjusted net income was $671 million. That's a 16% ROS, which just also happens to be a 16% improvement from prior year. And again, I'll just note due to the continued strengthening of the dollar, specifically versus the pound, we did record a pretax noncash charge in the quarter for $619 million. That is related to the Meggitt deal-contingent currency contracts. And I just want to remind everyone that these contracts we entered into these contracts really to eliminate currency exchange rate risk associated with the purchase price of the Meggitt acquisition.
And the total expected U.S. dollar outlay related to the transaction included in these contracts is neutral to the transaction consideration we announced last year. So moving on to EPS. EPS is great, $5.16 on an adjusted basis, that is a record, It is an increase of $0.78 or $0.18 or 18% versus prior year, really strong results there. And I really just commend our team for the strong finish for the fiscal year. If you move to Slide 11, this is just a bridge. This details some of those elements of the $0.78 improvement. We did generate 35% incremental margins. That was really aided by our margin expansion, but more significantly, just very solid execution across every one of our businesses. Adjusted segment operating income increased by $80 million or 9% versus the same quarter last year. That accounts for over 60% or $0.47 of the EPS improvement that we had in Q4. If you net corporate G&A, interest expense and other, all that amounts to just $0.01 favorable. And we did have a few discrete tax settlements in the quarter. That drove a lower income tax expense, that did calculate to a $0.24 positive impact to EPS, and that was specifically in our fourth quarter.
And then finally, just a slight reduction in the number of shares outstanding accounted for a favorable $0.06 to EPS. So all in, that's the 18% increase in adjusted EPS or our $5.16. If you move to Slide 12, I'll talk a little bit about the segments. Across the board, very strong performance here, 35% incremental margins. We increased segment operating income really across the board, and it's really just nice to see positive organic growth in every segment. That growth continues to be very broad-based. Orders for the total company ended up positive 3%. And that really is against a backdrop of increasingly more challenging comps. And the team really remains agile in this current supply chain and inflationary environment. We're happy with our actions. It is materializing in results, in the financial statements and just really proud of all the effort that's going on here. All of this gives us performance or confidence in our performance that we will achieve our FY '27 targets that Tom mentioned, we just announced just back in March. So if I jump into the businesses in North America, very strong organic growth, 15% versus prior year. Sales reached $2.1 billion, adjusted operating margins increased 40 basis points. Our North American team achieved 22.9% ROS.
And really, we've talked about this all year. They continue to manage well through a more difficult regional supply chain environment, so just kudos to them. Incrementals in this segment was about 25%. So we're happy with that, with all the headwinds. And really, orders continue to impress at plus 10%. In the North American segment, our backlog is up 50% this prior year, and it did grow 5% sequentially from Q3. Moving on to international. International sales, $1.4 billion, organic growth just above 5% for that segment. Organic growth in EMEA and Latin America was mid-teens positive with Asia Pacific, mid-single digits negative. Obviously, that was driven by the shutdowns in China based on the COVID outbreak. But margins, if you look at margins, margins were 22.4% and still increased 30 basis points from prior year despite all that -- all those challenges. And really just tremendous effort from our Asia Pacific team. We forecasted $100 million negative sales impact based on the shutdowns at the time we talked last quarter.
The team really outachieved and that ended up being only a $50 million impact for the quarter, and it was really a strong month in June. So much appreciation to our super dedicated Asia Pacific team. They really went above and beyond to serve our customers. International order rates did inflect to a minus 4%, which did reflect some short-term impact from those shutdowns in China, but great overall performance by the international team. Looking at Aerospace, another strong quarter from Aerospace. This is the best organic growth and margin performance that, that segment has had all year. Sales were $676 million. Organic growth is about 8%. Commercial businesses in both the OEM and MRO markets are very, very strong. And the operational margins increased 260 basis points and finished at an impressive 24.2%. Those Q4 margins did benefit from a favorable mix, aftermarket mix and lower-than-expected NRE expenses that were really just due to some program timing. So this is really a record margin performance for that segment, and I still note that we are still below pre-COVID sales levels. So we're very happy with the cost controls and the execution in our Aerospace business.
A note on orders. Aerospace orders are showing flat. But if you remember, we've talked about this. We did have some very significant military orders that we booked in Q2 of our FY '22 and that continues to make our 12-year comparisons difficult. If we exclude those items, Aerospace orders were positive 24% for the quarter. And our Aerospace dollars in respect to orders continue to remain really strong. So overall, segment performance, very, very strong, and I'm proud of our teams. It's really a testament to our strategy and our purpose. So if we jump to Slide 13, cash, we had an unbelievable cash flow generation quarter in Q4. It was really stellar. We did exceed the forecast that we gave at Investor Day for both cash flow from operations and free cash flow by about $100 million for the full fiscal year. Tom mentioned this, but we generated $2.4 billion in cash flow from ops. That was 15.4% of sales. Free cash flow was $2.2 billion or 13.9% of sales. And obviously, the conversion is 168%. We really have been managing working capital very diligently throughout the year. As our year progressed, that use of working capital began to normalize across the company. If you look at this year, the change in working capital was a 1.6% of sales use of cash. If you're comparing that to prior year last year, that was a 1.0% source of cash. So we are very disciplined.
Our teams are focused on generating top quartile cash flow performance and again, we're really confident that we can achieve that FY '27 target of 16%. Just a few comments on leverage at the end of the quarter. Gross debt to EBITDA was 4.7, net debt-to-EBITDA was 4.5. That increase from last quarter is really a result of our issuance of $3.6 billion of bonds that we will use to fund the Meggitt transaction. That cash is sitting in escrow. It is on our balance sheet listed as restricted cash. If we exclude that restricted cash, our net debt to EBITDA at the end of June was 2.0 times. So happy with the reduction there. The spike is just really preparing for the Meggitt transaction. And just one final note on our strong cash flow performance. We've already used $1.5 billion of cash that we've generated this year to fund the Meggitt transaction. So we are really happy with our position on that and we're looking forward to getting to close and welcoming all the Meggitt team members into Parker-Hannifin. Okay. If we go to Slide 14, guidance, this is just some detail on the guidance we released this morning. As usual, we're providing this on an as reported and an adjusted basis.
And I think everyone got this, but just to be very clear, while we expect that Meggitt transaction to close in this quarter, we have not included any sales or earnings in our guidance number. However, we have given you color on the interest expense that is already committed for Q1. And I'll give you some more color on that in a second. So no sales and earnings, just the Q1 interest that we have already committed to in our Q1. So if you look at sales, reported sales growth for the year is forecasted to be flat to 3% and or 1.5% positive at the midpoint. Organic growth is obviously better than that. It's expected to be 3.5% at the midpoint with a range of 2% to 5% on that. As usual, we're using currency rates as of June 30. We do forecast currency to be a headwind this year. It will be about a 2% headwind to sales versus the prior year. And as usual, if you look at the split, our sales are 48% first half, 52% in the second half. Moving on to segment operating margins. Our as reported segment operating margin guidance is 20.4%. On an adjusted basis, that's 22.5%. That's at the midpoint. We have a range of 20 basis points on either side of that. And the split of segment operating income is 47% first half, 53% second half. We are forecasting incremental margins to be 30% for the full year. And just to give a little bit more clarity on a few additional items.
Corporate G&A, we expect to be $204 million in FY '23. The interest related to the legacy company, so this is excluding Meggitt interest, is expected to be $228 million. And that Meggitt-related interest that will cover Q1 only is $42 million or roughly $0.25 of EPS. We will give you an updated interest expense number once we schedule that update call that we have post close on Meggitt. Other income and expense is expected to be $14 million and as usual, any acquisition-related expenses that are associated with the Meggitt transaction, we'll continue to book those as incurred. We're not going to guide for those, we will just adjust those out as they incurred. We do expect the tax rate from continuing ops to be 23% next year, that is essentially what our continuing ops rate was this year. That does not include any discrete items that may be favorable or unfavorable. And finally, we expect full year EPS on an as-reported basis to be $16.53 at the midpoint or $18.50 adjusted. And the range on both of those figures is plus or minus $0.40. EPS is split 46% first half, 54% second half. And just a little color on Q1. We foresee Q1 adjusted EPS to be $4.13, and that's right at the midpoint. And then just a little color on those adjustments. It's really just the acquired intangible asset amortization, which is now $300 million, and expected business realignment charges of $35 million. So we tried to give a lot of color there.
We hope that, that was helpful. Slide 15 might give a little bit more color. This is just the bridge and really, the highlights here. It's really just continued strength and demand across the board. Obviously, our productivity initiatives and our expectations across all of our operations, increase of segment operating income on a year-over-year basis. The total is $0.49 EPS of increase. And I just want to note that, that does include an estimated headwind of approximately $0.40 based on currency. So in a constant currency, obviously, that $0.49 would be $0.89, but we're incorporating that $0.40 currency headwind, so we get a $0.49 increase in segment operating margin. When you look at corporate G&A, that legacy interest and any other items, those are all forecasted to be favorable to prior, those actually help us by $0.09.
And then again, that forecasted tax rate of 23% creates a $0.55 headwind compared to that lower tax rate that our actual rate was in FY '22. And I just would note there on that, our FY '22, we always have discretes. We don't try to forecast them because they move around so much. But our FY '22 did have a higher-than-normal amount of discrete items. So that's just a little color on there. And as I mentioned earlier, we've included that interest expense. You can see the bridge there. It's $0.25, it's $42 million. That is the Q1 amount only, and that's how we walk from our FY '22 finish to legacy $18.75, or including that $0.25 of Meggitt, $18.50. So with that, that's my color on guidance. Tom, I'll hand it back to you and ask everyone to move to Slide 16.
