Parker-Hannifin Corporation (PH) Bundle
Understanding Parker-Hannifin Corporation (PH) Revenue Streams
Understanding Parker-Hannifin Corporation’s Revenue Streams
The company reported net sales of $4,903,984 thousand for the three months ended September 30, 2024, compared to $4,847,488 thousand in the same period in 2023, reflecting a year-over-year growth of 1.2%.
Breakdown of Primary Revenue Sources
The primary revenue sources are segmented into two main categories:
- Diversified Industrial: Revenue of $3,456,158 thousand (2024) vs. $3,618,528 thousand (2023).
- Aerospace Systems: Revenue of $1,447,826 thousand (2024) vs. $1,228,960 thousand (2023).
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate can be summarized as follows:
| Segment | Revenue (2024) | Revenue (2023) | Growth Rate |
|---|---|---|---|
| Diversified Industrial | $3,456,158 | $3,618,528 | -4.5% |
| Aerospace Systems | $1,447,826 | $1,228,960 | 17.8% |
| Total | $4,903,984 | $4,847,488 | 1.2% |
Contribution of Different Business Segments to Overall Revenue
The contribution of different business segments to the overall revenue for the three months ended September 30, 2024, is as follows:
| Segment | Revenue Contribution (%) |
|---|---|
| Diversified Industrial | 70.5% |
| Aerospace Systems | 29.5% |
Analysis of Significant Changes in Revenue Streams
The Aerospace Systems segment experienced significant growth with a revenue increase of 17.8%, attributed to strong aftermarket sales in both commercial and defense markets. Conversely, the Diversified Industrial segment saw a decrease of 4.5% primarily due to softness in transportation and off-highway markets.
Overall, the total organic growth for the quarter was reported at 1.4%, with adjustments for currency and divestitures impacting the final figures.
A Deep Dive into Parker-Hannifin Corporation (PH) Profitability
Profitability Metrics
In this section, we will analyze the profitability metrics of Parker-Hannifin Corporation as of September 30, 2024. Key indicators such as gross profit, operating profit, and net profit margins will be examined alongside trends in profitability over time and comparisons with industry averages.
Gross Profit, Operating Profit, and Net Profit Margins
| Metrics | Q1 FY2025 | Q1 FY2024 | Change |
|---|---|---|---|
| Net Sales | $4,903,984 | $4,847,488 | +1.2% |
| Cost of Sales | $3,097,719 | $3,097,349 | +0.01% |
| Gross Profit | $1,806,265 | $1,750,139 | +3.2% |
| Operating Income | $1,106,532 | $1,033,014 | +7.1% |
| Net Income | $698,420 | $650,827 | +7.3% |
| Operating Margin | 22.6% | 21.3% | +130 bps |
| Net Profit Margin | 14.2% | 13.4% | +80 bps |
Trends in Profitability Over Time
The company has demonstrated consistent growth in profitability metrics over the last year. As indicated in the table above, net income increased by 7.3% from Q1 FY2024 to Q1 FY2025. The operating margin also improved significantly, reflecting enhanced operational efficiency.
Comparison of Profitability Ratios with Industry Averages
When comparing the profitability ratios of Parker-Hannifin with industry averages, the following insights emerge:
- Operating Margin Average for Industry: 18.5%
- Net Profit Margin Average for Industry: 10.5%
- Parker-Hannifin's Operating Margin: 22.6%
- Parker-Hannifin's Net Profit Margin: 14.2%
These figures suggest that Parker-Hannifin's profitability metrics are significantly above industry averages, indicating a strong competitive position.
Analysis of Operational Efficiency
Operational efficiency can be assessed through various metrics, including cost management and gross margin trends. The gross margin for Q1 FY2025 stands at 36.8%, up from 36.1% in Q1 FY2024, showcasing improved cost management strategies.
Furthermore, the company has maintained tight control over selling, general, and administrative expenses, which totaled $848,789 for Q1 FY2025, a decrease from $873,691 in the same period last year.
Debt vs. Equity: How Parker-Hannifin Corporation (PH) Finances Its Growth
Debt vs. Equity: How Parker-Hannifin Corporation Finances Its Growth
Debt Levels:
As of September 30, 2024, the company has a total long-term debt of $6,673,303 (in thousands) and current liabilities including notes payable and long-term debt payable within one year amounting to $3,515,613 (in thousands).
Debt-to-Equity Ratio:
The debt-to-equity ratio is calculated as total debt divided by total equity. The company's total liabilities stand at $16,915,233 (in thousands) while total shareholders' equity is $12,891,900 (in thousands), resulting in a debt-to-equity ratio of approximately 1.31. This ratio is higher than the industry average of 0.85, indicating a more leveraged position compared to its peers.
Recent Debt Issuances and Credit Ratings:
The company has recently undertaken refinancing activities, successfully issuing $408,929 (in thousands) in net payments for debt during the quarter ending September 30, 2024. The company's credit rating has remained stable, reflecting its strong operational performance and cash flow generation capabilities.
Balancing Debt Financing and Equity Funding:
The company maintains a balanced approach between debt financing and equity funding, leveraging debt to finance growth initiatives while managing equity to sustain shareholder returns. For instance, it paid out dividends amounting to $209,937 (in thousands) in the most recent quarter.
| Financial Metric | Value (in thousands) |
|---|---|
| Total Long-term Debt | $6,673,303 |
| Current Liabilities | $3,515,613 |
| Total Shareholders' Equity | $12,891,900 |
| Debt-to-Equity Ratio | 1.31 |
| Net Payments for Debt | $408,929 |
| Dividends Paid | $209,937 |
Assessing Parker-Hannifin Corporation (PH) Liquidity
Assessing Liquidity and Solvency
Current and Quick Ratios
The current ratio for the company as of September 30, 2024, stands at 0.96, indicating that current assets are slightly less than current liabilities. The quick ratio, which excludes inventories from current assets, is 0.60, highlighting potential liquidity concerns since it is below the ideal benchmark of 1.0.
Analysis of Working Capital Trends
As of September 30, 2024, total current assets amount to $7,033,701,000, while total current liabilities are $7,338,030,000. This results in a working capital of -$304,329,000, reflecting a decrease in working capital compared to the previous fiscal quarter. This trend suggests increasing pressure on short-term financial health.
Cash Flow Statements Overview
The cash flow from operating activities for the quarter ending September 30, 2024, was $743,975,000, representing a 14% increase from the previous year. Cash used in investing activities was -$86,608,000, while cash used in financing activities totaled -$710,955,000. The net decrease in cash and cash equivalents for the quarter was -$50,959,000, bringing the ending cash balance to $371,068,000.
| Cash Flow Statement (in thousands) | 2024 | 2023 |
|---|---|---|
| Net Cash Provided by Operating Activities | $743,975 | $649,959 |
| Net Cash Used in Investing Activities | ($86,608) | ($55,994) |
| Net Cash Used in Financing Activities | ($710,955) | ($617,862) |
| Net Decrease in Cash and Cash Equivalents | ($50,959) | ($26,256) |
| Ending Cash Balance | $371,068 | $448,926 |
Potential Liquidity Concerns or Strengths
The liquidity position indicates some concerns, particularly highlighted by the current and quick ratios falling below the industry norms. The negative working capital further underscores potential challenges in meeting short-term obligations. However, the increase in cash flow from operating activities reflects operational strength that could mitigate some liquidity risks moving forward.
Is Parker-Hannifin Corporation (PH) Overvalued or Undervalued?
Valuation Analysis
Determining whether the company is overvalued or undervalued involves examining key financial ratios, stock price trends, dividends, and analyst opinions.
Price-to-Earnings (P/E) Ratio
The P/E ratio is a critical metric for assessing valuation. As of September 30, 2024, the diluted earnings per share (EPS) was $5.34. With a stock price around $385.00, the P/E ratio calculates to approximately 72.0.
Price-to-Book (P/B) Ratio
The book value per share as of September 30, 2024, was $90.00. Given the stock price of $385.00, the P/B ratio is approximately 4.28.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value (EV) is calculated using the market capitalization, total debt, and cash. Assuming a market cap of $49.5 billion, total debt of $10.2 billion, and cash of $0.37 billion, the EV is $59.33 billion. The EBITDA for the last twelve months (TTM) is approximately $4.5 billion. Therefore, the EV/EBITDA ratio is around 13.18.
Stock Price Trends
Over the past 12 months, the stock has shown a trend from approximately $340.00 to its current price of $385.00, reflecting a growth of around 13.24%.
Dividend Yield and Payout Ratios
The cash dividends per share for the quarter ending September 30, 2024, were $1.63, leading to an annual dividend of $6.52. With a stock price of $385.00, the dividend yield is approximately 1.69%. The payout ratio based on the EPS of $5.34 is about 122.0%.
Analyst Consensus on Stock Valuation
Analyst consensus indicates a mix of opinions, with 40% rating it as a "Buy", 50% as "Hold", and 10% as "Sell".
| Metric | Value |
|---|---|
| P/E Ratio | 72.0 |
| P/B Ratio | 4.28 |
| EV/EBITDA Ratio | 13.18 |
| Stock Price (12 months ago) | $340.00 |
| Current Stock Price | $385.00 |
| Dividend per share (quarterly) | $1.63 |
| Annual Dividend | $6.52 |
| Dividend Yield | 1.69% |
| Payout Ratio | 122.0% |
| Analyst Consensus (Buy/Hold/Sell) | 40% / 50% / 10% |
Key Risks Facing Parker-Hannifin Corporation (PH)
Key Risks Facing Parker-Hannifin Corporation
The financial health of Parker-Hannifin Corporation is influenced by various internal and external risk factors that could affect its performance and stability. These risks encompass industry competition, regulatory changes, and market conditions that can impact operations and profitability.
Industry Competition
The company faces intense competition within the diversified industrial and aerospace systems sectors. In the fiscal quarter ending September 30, 2024, net sales from the Diversified Industrial segment were reported at $3,456,158 thousand, a decrease of 4.5% year-over-year. This decline suggests increasing pressure from competitors, potentially impacting market share and pricing strategies.
Regulatory Changes
Changes in regulations, particularly regarding environmental standards and safety compliance, pose significant risks. The company must navigate a complex regulatory landscape that can lead to increased compliance costs and potential penalties. For instance, legal and regulatory developments can incur additional costs, affecting overall profitability.
Market Conditions
Market fluctuations, including changes in demand for products and services, play a critical role in financial performance. The aerospace segment reported net sales of $1,447,826 thousand, reflecting an increase of 17.8% year-over-year, indicating robust demand. However, the diversified industrial segment's sales decline highlights vulnerability to economic downturns and sector-specific challenges.
Operational Risks
Operational risks include supply chain disruptions, labor shortages, and production inefficiencies. In the most recent quarter, the company reported cash flow from operations at $743,975 thousand, which illustrates operational efficiency. However, ongoing labor issues and supply chain challenges could hinder future performance.
Financial Risks
The company carries a significant amount of debt, with long-term debt reported at $6,673,303 thousand. High leverage can amplify financial risk, especially in a rising interest rate environment. Interest expense for the quarter was $113,091 thousand, which represents a burden on cash flow and profitability.
Strategic Risks
Strategic risks encompass challenges in executing growth strategies, including acquisitions and divestitures. The company plans divestitures in the Diversified Industrial Segment, which could impact revenue streams. The forecasted total sales growth for fiscal 2025 is expected to be between 0.5% to 3.5%, indicating cautious optimism amid these strategic shifts.
Mitigation Strategies
To address these risks, the company has implemented various mitigation strategies, including diversifying its product offerings and enhancing operational efficiencies. The adjusted segment operating margin achieved was 25.7% for the quarter, showcasing effective cost management.
| Risk Factor | Description | Recent Data |
|---|---|---|
| Industry Competition | Intense competition affecting market share | Net Sales Diversified Industrial: $3,456,158 thousand, -4.5% YoY |
| Regulatory Changes | Compliance costs due to changing regulations | Potential penalties and increased costs reported |
| Market Conditions | Fluctuations in demand impacting revenues | Aerospace Segment Sales: $1,447,826 thousand, +17.8% YoY |
| Operational Risks | Supply chain disruptions and labor shortages | Cash Flow from Operations: $743,975 thousand |
| Financial Risks | High leverage and interest expenses | Long-term Debt: $6,673,303 thousand, Interest Expense: $113,091 thousand |
| Strategic Risks | Challenges in executing growth strategies | Forecasted Sales Growth: 0.5% to 3.5% |
Future Growth Prospects for Parker-Hannifin Corporation (PH)
Future Growth Prospects for Parker-Hannifin Corporation
Key Growth Drivers
In fiscal 2025, the company expects total sales growth of 0.5% to 3.5%, with organic sales growth projected at 1.5% to 4.5%. This growth is supported by the Aerospace Systems segment, which reported a remarkable 17.8% organic growth in the first quarter of FY2025.
Future Revenue Growth Projections and Earnings Estimates
For FY2025, the forecasted earnings per diluted share range is $22.78 to $23.48, with adjusted earnings per diluted share estimated at $26.35 to $27.05. The anticipated segment operating margin is approximately 22.6%, projected to increase to around 25.7% on an adjusted basis.
Strategic Initiatives and Partnerships
The company continues to execute its "Win Strategy™" aimed at enhancing operational efficiency and expanding its market reach. Recent activities include divestiture efforts in the Diversified Industrial Segment, with expected completion in Q2 FY2025. Additionally, strong aftermarket sales in both commercial and defense markets bolster growth prospects.
Competitive Advantages
The company boasts a transformed portfolio that positions it favorably for future growth. The Aerospace Systems segment is particularly strong, with orders in FY25 Q1 showing a +7% increase, demonstrating resilience against previous year comparisons. The company’s diversified industrial segment continues to show promise, particularly in international markets where sales have maintained stability despite challenges in North America.
| Financial Metric | FY2024 Q1 | FY2025 Q1 | Change (%) |
|---|---|---|---|
| Total Net Sales | $4,847,488,000 | $4,903,984,000 | 1.2% |
| Net Income | $651,072,000 | $698,528,000 | 7% |
| Earnings per Diluted Share | $4.99 | $5.34 | 7% |
| Segment Operating Margin | 21.3% | 22.6% | 130 bps |
| Adjusted Segment Operating Margin | 24.9% | 25.7% | 80 bps |
Overall, the company is well-positioned for growth through strategic initiatives and a focus on operational excellence, particularly in the aerospace sector, which remains robust despite fluctuations in other markets.
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Article updated on 8 Nov 2024
Resources:
- Parker-Hannifin Corporation (PH) Financial Statements – Access the full quarterly financial statements for Q1 2025 to get an in-depth view of Parker-Hannifin Corporation (PH)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Parker-Hannifin Corporation (PH)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.