Parker Posts Third-Quarter Sales and Income for Fiscal Year 1999
16 April 1999
Parker Posts Third-Quarter Sales and Income for Fiscal Year 1999, Notes Recent Strengthening
CLEVELAND--April 16, 1999--Parker Hannifin Corporation today reported a five-percent increase in sales and an eight-percent decline in net income off of a record third quarter last year. Sales for the period ended March 31, 1999 were $1.26 billion, compared with $1.20 billion a year ago. Third-quarter net income was $76.5 million, or 70 cents per diluted share, compared with $83.2 million, or 75 cents per diluted share, last year.Sales benefited from industrial acquisitions and core growth in the aerospace segment, while the decrease in net income primarily reflects lower overhead absorption and costs associated with the company's actions to reduce inventories and align employment levels with market conditions. Operating income also was affected by acquisition integration and softening in the European markets. The company's operations in Latin America reflected weaker demand, while Asia-Pacific operations showed modest income improvement, specifically in Australia-New Zealand and last year's acquisitions in Korea.
Parker President and CEO Duane Collins noted that management acted promptly to tighten spending and pare down inventories in response to slowing orders in the first half of the year. "During the quarter, we took inventories down by $73 million, split evenly between our North American and international industrial operations. It is a concerted effort that signals our resolve to manage through any down cycle, anywhere in the world."
"Cash from operations is running at record pace," Collins added, "And as we have demonstrated, we are in an excellent position to invest that cash in product development, value-added services for our customers and accretive acquisitions."
Leading the segment results in the third quarter, Parker Aerospace continued to post strong operating income, sustaining profit margin in the mid-teens.
Recent Strengthening
As the beginning of this calendar year showed softness in some of Parker's key industrial markets, the month of March marked a fairly broad-based improvement. The company saw the greatest strengthening in its North American industrial segment, with moderately improved indicators in international industrial, and a very strong order rate in the aerospace group.
Nine-Month Results
Year-to-date sales for fiscal 1999 increased eight percent to $3.67 billion. Net income for the nine-month period was $218.2 million, or $1.99 per diluted share, compared with $232.8 million, or $2.08 per diluted share, in 1998.
The aerospace segment posted a 10-percent increase in operating income in the first nine months. In the industrial segments, operating income was 13 percent lower in the industrial North America segment, while industrial international was relatively flat in the nine-month, year-over-year comparison.
The company pointed out that its European industrial cycle typically lags the U.S. trend by six to nine months. "With a recent slowdown in volume, we are acutely focused on improving the profit picture in Europe," said Collins. "We are acting with speed to mitigate current economic concerns, including shifting more production to lower-cost locations in Eastern Europe. We also are proceeding with the integration of systems across the continent, as we did earlier in North America. These initiatives position us to benefit from the market share gains we continue to make in Europe."
Outlook
As current economic indicators in Latin America, Asia-Pacific and Europe remain uncertain, coupled with an anticipated slowing in the aerospace sector, the company maintains a tempered view of near-term sales expansion. Long-term fundamentals for internal and external growth are positive. "We have expressed caution about our performance in light of economic conditions, and it's too early to call the upturn a trend. Therefore, we will continue to manage prudently through the remainder of the fiscal and calendar year. If the environment does improve, we'll be that much stronger on the upside of this cycle," Collins said.
Parker Hannifin is the leading, diversified global manufacturer of motion, control, instrumentation and fluid flow components and systems for thousands of industrial and aerospace markets. For more information, visit the company's web site at www.parker.com. -------------------------------------------------------------------
SIDEBAR: With the Right Businesses in Place, Parker Moves to S&P's Diversified Industrials Sector
In other news, Parker Hannifin was this month reclassified in the S&P 500 as a member of the diversified manufacturing sector. The new listing more accurately reflects Parker's growth strategy as the global leader in a wide spectrum of motion and control applications, serving more than 1,000 aerospace and industrial markets.
"We are not simply a machinery company, or an aerospace company," said Parker President and CEO Duane Collins. "We design and manufacture engineered systems integral to almost everything that powers movement - and a multitude of other applications beyond that. Parker's technologies are at work everywhere in the world, in every kind of environment, from space stations to your local supermarket."
Parker has built a business model in which its industrial groups make a powerful combination capable of delivering high-performance, fully integrated motion and control applications to a host of commercial and industrial customers. Where the groups intersect, they offer a leverage opportunity for Parker customers and incremental sales growth for Parker shareholders. Beyond their core applications, each group has its own vast playing field on which to expand, both extending into new market categories and in global growth.
Parker is not only the leading global company in its industry; it is the only such company that is a pure play in motion control, with all of the critical hydraulic, pneumatic and electrical technologies as part of the company's broad and in-depth intellectual capital.
Among the Parker technologies prevalent in everyday applications:
- Air cleaners
- Airplanes
- Amusement park rides
- Automobile air conditioning
- Beverage fountain dispensers
- Boats
- Cell phones
- Lawnmowers and garden tractors
- Motion picture special effects
- Packaged goods
- Personal computers
- Semi-trucks
- Supermarket freezers
- Trains
- Water purification
Parker Hannifin is the leading, diversified global manufacturer of motion, control, instrumentation and fluid flow components and systems for thousands of industrial and aerospace markets. For more information, visit the company's web site at www.parker.com.
PARKER HANNIFIN CORPORATION - MARCH 31, 1999
CONSOLIDATED STATEMENT OF INCOME
Unaudited
(Dollars in thousands Three Months Ended March 31,
except per share amounts) 1999 1998
Net sales $ 1,255,789 $ 1,196,548
Cost of sales 989,137 912,322
----------- -----------
Gross profit 266,652 284,226
Selling, general and
administrative expenses 136,278 138,458
----------- -----------
Income from operations 130,374 145,768
Other income (deductions):
Interest expense (15,634) (13,512)
Interest and other income, net 2,970 (363)
----------- -----------
(12,664) (13,875)
----------- -----------
Income before income taxes 117,710 131,893
Income taxes 41,199 48,668
----------- -----------
Net income $ 76,511 $ 83,225
----------- -----------
----------- -----------
Earnings per share:
Basic earnings per share $ .71 $ .76
Diluted earnings per share $ .70 $ .75
Average shares outstanding
during period - Basic 108,503,957 110,480,290
Average shares outstanding
during period - Diluted 109,336,467 111,806,690
Cash dividends per common share $ .17 $ .15
PARKER HANNIFIN CORPORATION - MARCH 31, 1999
CONSOLIDATED STATEMENT OF INCOME
Unaudited
(Dollars in thousands Nine Months Ended March 31,
except per share amounts) 1999 1998
Net sales $ 3,673,534 $ 3,394,665
Cost of sales 2,879,611 2,601,670
----------- -----------
Gross profit 793,923 792,995
Selling, general and
administrative expenses 411,806 396,694
----------- -----------
Income from operations 382,117 396,301
Other income (deductions):
Interest expense (49,050) (37,031)
Interest and other income, net 2,564 4,522
----------- -----------
(46,486) (32,509)
----------- -----------
Income before income taxes 335,631 363,792
Income taxes 117,471 130,992
----------- -----------
Net income $ 218,160 $ 232,800
----------- -----------
----------- -----------
Earnings per share:
Basic earnings per share $ 2.01 $ 2.10
Diluted earnings per share $ 1.99 $ 2.08
Average shares outstanding
during period - Basic 108,803,871 111,070,700
Average shares outstanding
during period - Diluted 109,628,898 112,147,654
Cash dividends per common share $ .47 $ .45
Cost of sales in 1998 includes a non-cash, non-recurring charge of
$5.2 million ($.05 per share) for in-process research & development
purchased as part of an acquisition within the Industrial-North
American operations.
BUSINESS SEGMENT INFORMATION BY INDUSTRY
Unaudited Three Months Ended March 31,
(Dollars in thousands) 1999 1998
Net sales, including intersegment sales
Industrial:
North America $ 664,260 $ 645,739
International 308,753 295,692
Aerospace 283,291 255,534
Intersegment sales (515) (417)
----------- -----------
Total $ 1,255,789 $ 1,196,548
----------- -----------
----------- -----------
Income from operations before corporate
general and administrative expenses
Industrial:
North America $ 88,058 $ 93,934
International 14,320 23,828
Aerospace 43,116 45,079
----------- -----------
Total 145,494 162,841
Corporate general and
administrative expenses 15,120 17,073
----------- -----------
Income from operations $ 130,374 $ 145,768
----------- -----------
----------- -----------
BUSINESS SEGMENT INFORMATION BY INDUSTRY
Unaudited Nine Months Ended March 31,
(Dollars in thousands) 1999 1998
Net sales, including intersegment sales
Industrial:
North America $ 1,900,223 $ 1,826,680
International 931,267 841,016
Aerospace 843,501 728,159
Intersegment sales (1,457) (1,190)
----------- -----------
Total $ 3,673,534 $ 3,394,665
----------- -----------
----------- -----------
Income from operations before corporate
general and administrative expenses
Industrial:
North America $ 232,956 $ 266,397
International 62,255 62,670
Aerospace 129,301 117,400
----------- -----------
Total 424,512 446,467
Corporate general and
administrative expenses 42,395 50,166
----------- -----------
Income from operations $ 382,117 $ 396,301
----------- -----------
----------- -----------
CONSOLIDATED BALANCE SHEET
Unaudited
(Dollars in thousands)
March 31, 1999 1998
Assets
Current assets:
Cash and cash equivalents $ 41,077 $ 42,445
Accounts receivable, net 718,711 677,610
Inventories 939,041 873,290
Prepaid expenses 19,554 17,787
Deferred income taxes 80,828 91,142
----------- -----------
Total current assets 1,799,211 1,702,274
Plant and equipment, net 1,186,772 1,081,489
Other assets 705,344 604,793
----------- -----------
Total assets $ 3,691,327 $ 3,388,556
----------- -----------
----------- -----------
Liabilities and shareholders' equity
Current liabilities:
Notes payable $ 172,752 $ 255,161
Accounts payable 268,193 283,938
Accrued liabilities 312,903 328,290
Accrued domestic and foreign taxes 46,142 68,225
----------- -----------
Total current liabilities 799,990 935,614
Long-term debt 733,504 487,485
Pensions and other postretirement
benefits 280,840 260,730
Deferred income taxes 37,004 26,963
Other liabilities 56,359 41,905
Shareholders' equity 1,783,630 1,635,859
----------- -----------
Total liabilities and
shareholders' equity $ 3,691,327 $ 3,388,556
----------- -----------
----------- -----------
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Nine Months Ended March 31,
(Dollars in thousands) 1999 1998
Cash flows from operating activities:
Net income $ 218,160 $ 232,800
Depreciation and amortization 154,018 138,096
Write-off of purchased in-process R&D - 5,200
Net change in receivables,
inventories, and trade payables (72,802) (183,710)
Net change in other assets
and liabilities (21,349) 22,105
Other, net 1,406 (16,414)
----------- -----------
Net cash provided by
operating activities 279,433 198,077
Cash flows from investing activities:
Acquisitions (less cash acquired of
$2,609 and $2,320 in 1999 and 1998) (89,865) (172,859)
Capital expenditures (166,835) (162,940)
Other, net 2,656 7,313
----------- -----------
Net cash used in investing activities (254,044) (328,486)
Cash flows from financing activities:
Net proceeds from (payments for)
common shares activity 64,599 (70,969)
Net (payments) proceeds of debt (28,872) 226,548
Dividends (51,144) (49,943)
----------- -----------
Net cash (used in) provided by
financing activities (15,417) 105,636
Effect of exchange rate
changes on cash 617 (1,779)
----------- -----------
Net increase (decrease) in cash
and cash equivalents 10,589 (26,552)
Cash and cash equivalents at
beginning of period 30,488 68,997
----------- -----------
Cash and cash equivalents at end
of period $ 41,077 $ 42,445
----------- -----------
----------- -----------
Noncash Investing activities: In 1999 assumption of ESOP debt
guarantee for $112,000 and capital lease obligations of $7,346. In
1998 Treasury stock of $9,750 was issued for an acquisition.