Parker Hannifin Corporation
Investor Meeting 2020
Robin Davenport
Vice President Corporate Finance
March 12, 2020
Forward-Looking Statements and
Non-GAAP Financial Measures
Forward-looking statements contained in this and other written and oral reports are made based on known events and circumstances at the time of release, and as such, are subject in the future to unforeseen uncertainties and risks. These statements may be identified from the use of forward-looking terminology such as "anticipates," "believes," "may," "should," "could," "potential," "continues," "plans," "forecasts," "estimates," "projects," "predicts," "would," "intends," "anticipates," "expects," "targets," "is likely," "will," or the negative of these terms and similar expressions, and include all statements regarding future performance, earnings projections, events or developments. Parker cautions readers not to place undue reliance on these statements. It is possible that the future performance and earnings projections of the company, including its individual segments, may differ materially from current expectations, depending on economic conditions within its mobile, industrial and aerospace markets, and the company's ability to maintain and achieve anticipated benefits associated with announced realignment activities, strategic initiatives to improve operating margins, actions taken to combat the effects of the current economic environment, and growth, innovation and global diversification initiatives. Additionally, the actual impact of changes in tax laws in the United States and foreign jurisdictions and any judicial or regulatory interpretation thereof on future performance and earnings projections may impact the company's tax calculations. A change in the economic conditions in individual markets may have a particularly volatile effect on segment performance.
Among other factors which may affect future performance are: changes in business relationships with and purchases by or from major customers, suppliers or distributors, including delays or cancellations in shipments; disputes regarding contract terms or significant changes in financial condition, changes in contract cost and revenue estimates for new development programs and changes in product mix; ability to identify
acceptable strategic acquisition targets; uncertainties surrounding timing, successful completion or integration of acquisitions and similar transactions, including the integration of CLARCOR, LORD Corporation or Exotic Metals; the ability to successfully divest businesses planned for divestiture and realize the anticipated benefits of such divestitures; the determination to undertake business realignment activities and the expected costs thereof and, if undertaken, the ability to complete such activities and realize the anticipated cost savings from such activities; ability to implement successfully capital allocation initiatives, including timing, price and execution of share repurchases; availability, limitations or cost increases of raw materials, component products and/or commodities that cannot be recovered in product pricing; ability to manage costs related to insurance and employee retirement and health care benefits; compliance costs associated with environmental laws and regulations; potential labor disruptions; threats associated with and efforts to combat terrorism and cyber-security risks; uncertainties surrounding the ultimate resolution of outstanding legal proceedings, including the outcome of any appeals; global competitive market conditions, including global reactions to U.S. trade policies, and resulting effects on sales and pricing; and global economic factors, including manufacturing activity, air travel trends, currency exchange rates, difficulties entering new markets and general economic conditions such as inflation, deflation, interest rates and credit availability, as well as uncertainties associated with the timing and conditions surrounding the return to service of the Boeing 737 MAX and the recent outbreak of coronavirus. The company makes these statements as of the date of this disclosure and undertakes no obligation to update them unless otherwise required by law.
This presentation contains references to non-GAAP financial information including adjusted operating margin, adjusted EBITDA margin, adjusted cash flow from operating activities, free cash flow, and adjusted earnings per share. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before business realignment, voluntary retirement, gain or loss on sale and write-down of assets, Integration costs to achieve, and acquisition related expenses. Free cash flow is defined as cash flow from operations less capital expenditures plus discretionary pension contribution. Although adjusted operating margin, adjusted EBITDA margin, adjusted cash flow from operating activities, free cash flow, and adjusted earnings per share are not measures of performance calculated in accordance with GAAP, we believe that they are useful to an investor in evaluating the company performance for the periods presented. Detailed reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures have been included in the appendix to this presentation.
Please visit www.PHstock.com for more information
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Today's Presenters
Tom Williams | Lee Banks | Cathy Suever | Robin Davenport |
Chairman and | President and | EVP - Finance & | Vice President |
Chief Executive Officer | Chief Operating Officer | Administration and | Corporate Finance |
Chief Financial Officer | |||
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Today's Program
Welcome & Introductions
Robin Davenport, Vice President Corporate Finance
Parker's Transformation, The Win Strategy™ 3.0 & Parker's Purpose Statement
Tom Williams, Chairman & Chief Executive Officer
Lee Banks, President & Chief Operating Officer
Performance Review, Forecast & FY23 Targets
Cathy Suever, EVP Finance & Administration and Chief Financial Officer
Q&A
Tom Williams, Lee Banks, Cathy Suever
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Parker Hannifin Corporation
Investor Meeting 2020
Tom Williams | Lee Banks | Cathy Suever |
Chairman & CEO | President & COO | EVP Finance & Admin. & CFO |
March 12, 2020
Agenda
- Parker's Transformation
- The Win Strategy™ 3.0 & Purpose Statement
- Strategies to grow organically & expand margins
- Portfolio & capital deployment strategy
- Performance review, forecast & FY23 Targets
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Key Messages
- The Win Strategy™ 2.0 drove substantial performance improvements
- Strategic portfolio transformation - CLARCOR, LORD & Exotic
- Strength & interconnectivity of Parker's portfolio
- Improving financial performance over the cycle
- The Win Strategy™ 3.0 & Purpose Statement will accelerate performance
Confident in achieving FY23 Targets
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Parker's Transformation - What's Different
- Strategic restructuring FY14-FY16 has reduced cost structure
- Simplification has streamlined organization structure:
- 126 to 84 divisions with acquisitions
- Two major enhancements to the Parker Business System:
- 2015 - The Win Strategy™ 2.0
- 2019 - The Win Strategy™ 3.0
- Great cash generation with a more strategic capital deployment
- Enhanced performance resilience over business cycle
Purpose Statement provides alignment & inspiration
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Raising the Floor on Operating Margins
Last five manufacturing recessions
Adjusted Operating Margin¹ | 16.2% |
14.8%
13.9%
Up 830 bps
10.2%
7.9%
Original Win
Strategy Launched
FY02 | FY09 | FY13 | FY16 | FY20G |
1) Adjusted numbers include certain non-GAAP financial measures. See Appendix for additional details and reconciliations.
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Financial Performance
Expanding profitability
Adjusted EBITDA Margin¹
Recession
18.6%
18.2%
17.5%
Recession16.7%
14.7%
FY16FY17FY18FY19FY20
Up 390 bps
Guide
1) Adjusted numbers include certain non-GAAP financial measures. See Appendix for additional details and reconciliations.
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Financial Performance
*
CFOA | CFOA Margin | |
*Cash Flow Provided by Operating Activities adjusted for discretionary pension contributions;
Free Cash Flow = Cash Provided by Operating Activities - Capital Expenditures + Discretionary Pension Contribution
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Safety
Recordable Incident Rate (RIR) 1.43
70% reduction
Top Quartile | |
0.50 | 0.44 |
FY15FY20E
Focus areas:
- Training
- Machine guarding
- Energy control
- Ergonomics
- Non-routinework
High Performance Teams driving ownership and improvement
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Engagement Trend
% Engagement - Team Member Survey Results
Top Quartile
75%
67%
64%
61%
2017 | 2018 | 2019 | 2020 |
Highly engaged team members driving our performance
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Sustainability Summary
Initiative | Result | |
§ | Safety incidents | § Top Quartile* Recordable Incident Rate |
§ | Greenhouse gas reduction | § Top Quartile* Carbon Disclosure Ranking |
§ Water usage & conservation | § Top Quartile* Carbon Disclosure Water Score | |
§ | Waste recycling | § 85% of waste recycled |
§ | Parker Foundation initiatives | § $20M donated over last three years |
Robust ESG process in place
* Top Quartile for our Proxy Peer Group
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M&A Last Three Years…
- $3 billion in acquired sales1
- More resilient
- Accretive to growth & margins
1) As announced at time of acquisition
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Strategy Summary
Why We Win | + | Where We Are Going | ||
§ | The Win Strategy™ | § | The Win Strategy™ | |
§ | Decentralized business model | § | Purpose Statement | |
§ Technology breadth & interconnectivity | § | Strategies to grow organically and | ||
§ Engineered products with IP | ||||
expand margins |
- Long product life cycles
- Global distribution
- Low capital investment needs
- Great generators and deployers of cash over the cycle
Positioned for top quartile performance
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Strategies are time-bound and target specific results. Your purpose, in contrast, is what makes you durably relevant to the world.
- Harvard Business Review, 2017
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The Value of Purpose
81% of millennials say a successful business needs to have a genuine purpose.
- Redefining the C-Suite: Business the Millennial Way, American Express
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To see this and other videos and read more about Parker's Purpose please visit:
parker.com/purpose
Bringing our Purpose to Life
Structural adhesives
Enabling Technology | Engineering Breakthrough | A Better Tomorrow |
Adhesive technology | Enables lightweighting & | Fuel efficiency & | |
electrification | lower emissions | ||
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Bringing our Purpose to Life
Enabling Technology | Engineering Breakthrough | A Better Tomorrow |
Threaded connection (60 seconds)
Quick coupling solutions designed for | Firefighter safety and more time | |
Quick connection solution | performance under pressure | to rescue survivors |
(2 seconds) |
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Strategies to Grow Organically & Expand Margins
Portfolio
Acquire companies with higher growth trajectory and resiliency:
- CLARCOR
- LORD
- Exotic
Performance
- The Win Strategy™ 3.0
- Simplification - Simple by Design
- Innovation - Winovation 2.0
- Annual Cash Incentive Program (ACIP)
- Expand and grow distribution
- Kaizen, HPT and Lean
Requires both portfolio and performance actions
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Simplification
- Organization structure
- Operational complexity 80/20
- Simple by Design
Enables speed & growth at reduced costs
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The road to complexity is paved with good intentions…
Simple by Design
Product Cost & Complexity Continuum
70% - Design | 30% - Labor & OH | |||
Decisions made here: | Decisions made here: | |||
§ | Relatively few | § | Hundreds | |
§ | Significant/lasting impact | § | Limited impact | |
§ | Difficult to change | § | Easier to change | |
Enables speed, margin expansion and growth
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Simple by Design
Guiding principles & tools
Design with | Design to | Design to | Design to |
Forward | |||
Reduce | Reuse | Flow | |
Thinking |
Made possible by big data and artificial intelligence (AI)
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Simple by Design
Process changes
(CAL) 5 | (CAL) 4 | (CAL) 3 | (CAL) 1 |
(CAL) = Complexity Assessment Level
Complexity scoring integrated into every stage-gate
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Access to Data
45% of a typical design engineer's time is spent looking for information
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Game Changer
Artificial intelligence software
The ability to search large databases in a relevant format:
- Part geometry
- % similar
- Materials used
- Manufacturing methods
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Product Example - High Pressure Coupler
Simple by Design
Existing | The "New" |
FET Series | 59 Series |
Design with | Design to | Design to | Design to |
Forward | |||
Reduce | Reuse | Flow | |
Thinking |
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The Result…
Simple
Existing | The "New" |
FET Series | 59 Series |
- The New 59 Series was redesigned, requalified and launched
- 123 parts were eliminated - Reduce
- 100% function achieved, 90% components shared - Reuse
- No additional capital equipment - Reuse
Cost Inventory Delivery
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Resulting in…
- Higher value - "must have products"
- Improved margin
- Improved customer experience
- Sustainable advantage
- Speed
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Innovation Strategy
- Simplify for focus
- Simple by Design
- Winovation 2.0
- Parker Technology Centers
Product Vitality Index metric launched
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Time for an Upgrade
Winovation 2.0
Issues | Actions | ||
§ | Inside-out vs. outside-in | § Launched New Product Blueprinting | |
§ | Weak customer engagement | § | Training complete |
§ | Integrated into Winovation 2.0 |
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Parker Technology Centers
- Advanced Process Development - IoT, Additive & Robotics
- Filtration Technology Center - +
§ Motion Technology Center - | Systems | |
Aerospace | Motion | |
- Advanced Materials Center:
Engineered Materials & Fluid Connectors - +
Small, focused & accountable…Complements our division engineering
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Current Annual Incentive Plan
RONA
- 30+ years in existence
- Serving Parker well since inception
- High rate of global participation
- Firmly rooted within Parker
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Summary of Review
RONA Challenges
- Behaves like a long-term plan
- Limited elasticity
- Growth multiplier generated modest impact
Requires New Annual Incentive Design
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New Plan Design Principles
- Better linkage to annual performance
- Aligned to TSR drivers
- Simple, easy to communicate
- Influences growth mindset
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Annual Cash Incentive Program
50% | + | 30% | + | 20% | = | Incentive |
Weight | Weight | Weight | Target | |||
Division | Cash | ACIP | ||||
Net | Revenue | Opportunity | ||||
Earnings | Growth | Flow | % of Salary | |||
(DNE) |
- Aligned with key drivers of total shareholder return
- More elastic and tied to annual performance
Stronger annual incentive...
Multi-year implementation
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Profitable Growth
Key initiatives
- Strategic Positioning
- Market-DrivenInnovation
- System Solutions
- Strong Distribution
- Grow Share
- Acquisitions
Keys to growing faster than the market
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Distribution Strategy
Multiple channels based on needs
Single
Technology
Focus
Multiple | |
MRO Focused/ | Technologies, |
Systems Focused | |
Catalog House | |
Distributor | |
Market
Focused
Product Line
Focus
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Global Distribution Network
15,500 Distributors
97 Countries
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Distribution Success Factors
Focus and alignment
- Dedicated sales force
- Channel management integrity
- Broad technology portfolio
- Executive engagement
- Distribution mind share
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Distribution Growth History
- Channel is decades in the making
- Most valuable off-balance sheet asset
- Growing global distribution and services
- North America channel consolidation
Focus on expanding international distribution and digital leadership
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Expanding International Distribution
FY15 | FY19 |
Distribution | Distribution |
35% | 40% |
Direct | Direct |
65% | 60% |
- Added dedicated global and regional leadership
- 480 new distributors … 165 former Parker team members
Shifted mix by > 100 bps per year
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Expanding International Distribution
- Continue dedicated global and regional leadership
- Expand capabilities of existing channel
- Continue to expand in developing markets
- Support Parker team members
Continue to increase mix by > 100 bps per year
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Digital Leadership
Content syndication
- Enabling consistent high-quality content
- Driving demand through lead generation
MyParker.com
- Personalized one-stop shop
- Consistent experience
Enhanced experience for customers and distributors
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Strategies Going Forward
- Focus on international distribution
- Extend digital leadership through distribution
- Encourage Parker team member participation
- Take advantage of NA channel consolidation
Supporting continued margin expansion
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CHANGE
IDEAL STATE
Win Strategy Alignment
- Parker Lean System
- HPT Culture
- Kaizen
- Engaged People
- Financial Performance
Congruent with Parker culture and values
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A Culture of Continuous Improvement
Parker Lean System (PLS) | § Ownership |
+ | |
§ Speed | |
High Performance Teams | |
+ | § Productivity |
Culture of Kaizen | § Customer experience |
Sustainable financial performance
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Parker Lean System (PLS)
Established in 2001
- Comprehensive tool set
- Robust systems approach
- Manufacturing and non-manufacturing
- Understanding throughout Parker
PLS | ||
Just in | Problem | Jidoka |
Time | Solving | |
Engaged People
Build from a strong PLS foundation
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High Performance Teams
Drive continuous improvement
- Team members think and act like owners
- Organized into natural work teams and star point teams
§ | Empowered | Safety | |
§ | Responsible & accountable | Quality | Delivery |
- Assisted by engaged leaders
Engagement Cost
Creating a high performance culture
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Kaizen
"A way of life"
- Kaizen = Action
- Operator is the focus
- Speed of execution
- Step change mentality
- Team approach
- Better customer experience
317 Kaizen weeks, 8,000 participants in CY2019
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Financial Performance
Parker Lean System, Kaizen & High Performance Teams Impact
- Top quartile safety performance
- Quickly integrate acquisitions
- Strong decremental margin performance
- Improved operating margin performance
A strong culture of continuous improvement
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A Culture of Continuous Improvement
Parker Lean System (PLS) | § Ownership |
+ | |
§ Speed | |
High Performance Teams | |
+ | § Productivity |
Culture of Kaizen | § Customer experience |
Sustainable financial performance
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#1 Position in Motion & Control Industry
Significant opportunities for growth in a >$130 billion global market
All Other | Top |
Competitors |
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Unmatched Breadth of Technologies
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Interconnected Parker Technologies
Integrated systems and components across the platform
Electromechanical
Engineered Materials
Filtration
Fluid & Gas Handling
Hydraulics
Pneumatics
NOISE & VIBRATION | ENGINE |
CONTROL | PNEUMATIC |
FLIGHT CONTROL | DUCTING |
ACTUATION | |
COCKPIT | |
CONTROLS |
THERMAL | DYNAMIC & |
MANAGEMENT | |
STATIC SEALS | |
WHEELS &
BRAKESFILTERS
ENGINE EXHAUST
ENGINE ACTUATION & CONTROL
HYDRAULIC
POWER GENERATION
FUEL
MANAGEMENT
AIRFRAME FLUID
CONVEYANCE
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Interconnected Parker Technologies
Utility lift vehicle
CABIN AIR FILTER | HVAC SEALS | NON-CONDUCTIVE | CYLINDER ROD & PISTON |
HYDRAULIC HOSES | |||
SEALS | |||
IQAN | |||
HYDRAULIC HOSE | HYDRAULIC ROTORARY | ||
ACTUATOR | |||
ASSEMBLIES | |||
Electromechanical
Engineered Materials
Filtration
Fluid & Gas Handling
Hydraulics
Pneumatics
FAN MOTORS | JOYSTICK | ||
CONTROL | |||
ENGINE SEALS | PILOT LINE | PISTON PUMP | |
HYDRAULIC | HOSES | ||
ENGINE FILTER | |||
FILTER | |||
TRANSMISSION | |||
HOSES |
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Capital Deployment Strategy
- Dividends - Payout 30-35% Net Income, maintain track record
- Fund organic growth and productivity
- Offset equity plan share dilution through 10b5-1
- Pay down debt
- Acquisitions & discretionary share repurchase once Debt/EBITDA ~2.0x leverage
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Acquisition Strategy
Continue as consolidator of choice in Motion & Control
Focus on Aerospace, Engineered Materials,
Filtration and Instrumentation
Targeted investments in
key electrification technologies
and natural adjacencies
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FY23 Corporate Targets
FY23 Target Metrics
Growth | 150 bps > GIPI |
Seg Op Margin | 19% |
EBITDA Margin | 20% |
FCF Conversion | > 100% |
EPS CAGR | 10%+ |
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Segment Operating Margin Growth
As Reported and Adjusted
Growth Comparison
+180 bps
20.0% | Recession Comparison | 19.0% | ||||
+140 bps | ||||||
18.0% | 17.2% | |||||
16.0% | 15.8% | 16.2% | 16.2% | |||
14.8% | ||||||
14.0% | 17.0% | |||||
15.7% | ||||||
14.9% | 15.3% | |||||
12.0% | 13.9% | |||||
10.0% | FY16 | FY17 | FY18 | FY19 | FY20 | FY23 |
Guide | Target1 |
Reported Adjusted 1
1) Adjusted numbers include certain non-GAAP financial measures. See Appendix for additional details and reconciliations.
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Adjusted EBITDA Margin Growth
Growth Comparison
+140 bps
22.0% | Recession Comparison | ||||
+390 bps | |||||
20.0% | 20.0% | ||||
18.6% | |||||
18.2% | |||||
18.0% | 17.5% | ||||
16.7% | |||||
16.0% | |||||
14.7% | |||||
14.0% | |||||
12.0% | |||||
10.0% | FY17 | FY18 | FY19 | FY20 | FY23 |
FY16 | |||||
Guide | Target |
Adjusted numbers include certain non-GAAP financial measures. See Appendix for additional details and reconciliations.
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Driving Free Cash Flow | |
Free Cash Flow / Net Income | >18 consecutive years |
with 100%+ | |
FCF conversion |
$2,000 $1,800
$1,600 $1,400 $1,200 $1,000 $800
$600 $400 $200 $0
FY16 | FY17 | FY18 | FY19 | FY20 | ||
Guide | ||||||
FCF $1 | Net Income $ | FCF Conversion % | ||||
1) Free Cash Flow = Cash Provided by Operating Activities - Capital Expenditures + Discretionary Pension Contribution
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
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EPS Growth
As Reported and Adjusted
$16.00 | 13% CAGR | $15.10 | ||||||||||||
$12.00 | $11.85 | |||||||||||||
$10.42 | $10.55 | |||||||||||||
$8.00 | $8.11 | |||||||||||||
$6.46 | ||||||||||||||
$11.48 | ||||||||||||||
$4.00 | $7.25 | $7.83 | $9.08 | |||||||||||
$5.89 | ||||||||||||||
$0.00 | ||||||||||||||
FY16 | FY17 | FY18 | FY19 | FY20 | FY23 | 1 | ||||||||
Guide | Target | |||||||||||||
Reported | Adjusted 1 | |||||||||||||
1) Adjusted numbers include certain non-GAAP financial measures. See Appendix for additional details and reconciliations.
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Capital Deployment
Fiscal Years 2019 - 2023E
Cash flow from operations
Approx.
$11.1
Billion
Debt funding
$5.4
Billion
$16.5 Billion
Deployment
- $2.5B - Dividends
- $1.5B - Capital expenditures
- $3.9B - Debt reduction
- $1.0B - 10b5-1 Share repurchases
- $5.4B - LORD & Exotic acquisitions
- $2.2B - Strategic M&A and discretionary share repurchases
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Efficient Deleveraging Strategy
Gross Debt to EBITDA: Fiscal Years 2016 - 2023E
4.0x | ||||||||
3.6x | ||||||||
3.5x | ||||||||
3.2x | ||||||||
3.0x | ||||||||
2.8x | ||||||||
2.5x | ||||||||
1.9x | 2.1x | 2.0x | ||||||
2.0x | ||||||||
LORD | ||||||||
1.5x | $3.7B | |||||||
CLARCOR | Exotic | |||||||
$4.3B | ||||||||
1.0x | $1.7B | |||||||
FY16 | FY17 | FY18 | FY19 | FY20E | FY23E | |||
Strategic Utilization of the Balance Sheet
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Progress on Strategic Acquisitions
- Achieved targeted debt reduction in 18 months
- By end of FY20:
- Cost synergies: $160M
- Revenue synergies: $100M
- Integration ahead of schedule
- High-margin,resilient business
- By end of FY23:
- Expected cost synergies: $125M
- Integration on track
- Long-cycle,high margin business
- By end of FY23:
- Expected cost synergies: $13M
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Dividend History
64 Fiscal Years of consecutive increases
Target Payout Ratio
5-Year Average
30% - 35%
$4.00
$3.52
$3.50
$3.16
$3.00
$2.74
$2.52$2.58
$2.50
$2.00
$1.50
$1.00
FY16 | FY17 | FY18 | FY19 | FY20 Guide |
Current 5-Year Average = 35%
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Improved Earnings Disclosures
Segment Operating Earnings and Earnings per Share
Effective Fiscal Year 2021, Parker will include acquisition-related intangible asset amortization expense in disclosed adjustments
Rationale:
- Improved representation of core operating earnings
- Amortization expense has become much more material as a result of recent acquisitions
- Better aligns disclosures with acquisitive peer companies' reporting methodologies
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Revised Target Metrics by FY23
Revenue Growth | Target Metrics | ||
210 bps > Industrial Production | Original | Updated | |
FY23 | FY232 |
¹ | |||
.6% | CAGR | ||
3 | GIPI | $16.4 | |
LORD + |
Exotic
$14.3
FY20FY23E
Global Industrial Production Index
(GIPI) = 1.5% CAGR
Revenue Growth | 150 bps | 150 bps |
> GIPI | > GIPI | |
As Reported Seg Op Margin | 19% | 21% |
Adjusted Seg Op Margin | ||
As Reported EBITDA | 20% | 21% |
Adjusted EBITDA | ||
Free Cash Flow | $2.2B | $2.3B |
As Reported EPS | $15.50 | $16.90 |
Adjusted EPS |
¹ FY20E Revenues for LORD and Exotic Metals have been calendarized for CAGR calculation.
² Updated FY23 Adjusted Segment Operating Margins, Adjusted EBITDA, and Adjusted EPS exclude Acquisition-Related Intangible Amortization Expense and Business Realignment Charges.
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FY23 Corporate Targets
Updated FY23 Target Metrics
Growth | 150 bps > GIPI |
Adj. Seg Op Margin | 21% |
Adj. EBITDA Margin | 21% |
FCF Conversion | > 100% |
Adj. EPS CAGR | 10%+ |
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Key Takeaways
- Margin transformation continues
- Strong cash flows support deleveraging capability
- Improved Earnings disclosures to commence FY21
- On track to achieve updated FY23 targets
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Key Messages
- The Win Strategy™ 2.0 drove substantial performance improvements
- Strategic portfolio transformation - CLARCOR, LORD & Exotic
- Strength & interconnectivity of Parker's portfolio
- Improving financial performance over the cycle
- The Win Strategy™ 3.0 & Purpose Statement will accelerate performance
Confident in achieving updated FY23 Targets
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"It is the Parker Culture & Values, more than any Strategy or Measure, that will determine our Success in the Future"
Tom Williams
Annual Report 2015
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To see this and other videos and read more about Parker's Purpose please visit:
parker.com/purpose
Tom Williams | Lee Banks | Cathy Suever | ||
Chairman & CEO | President & COO | EVP Finance & Admin. & CFO | ||
Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin
(Unaudited) (Dollars in millions)
Guide: | ||||||||||||||||
12 Months | 12 Months | 12 Months | 12 Months | 12 Months | 12 Months | 12 Months | 12 Months | |||||||||
ended | ended | ended | ended | ended | ended | ended | ended | |||||||||
6/30/02 | 6/30/09 | 6/30/13 | 6/30/16 | 6/30/17 | 6/30/18 | 6/30/19 | 6/30/20 | |||||||||
Net Sales | $ | 6,149 | $ | 10,309 | $ | 13,016 | $ | 11,361 | $ | 12,029 | $ | 14,302 | $ | 14,320 | $ | 14,324 |
Total segment operating income | $ | 446 | $ | 1,004 | $ | 1,791 | $ | 1,576 | $ | 1,790 | $ | 2,239 | $ | 2,431 | $ | 2,188 |
Adjustments: | ||||||||||||||||
Voluntary retirement expense | ||||||||||||||||
Business realignment charges | 37 | 45 | 12 | 107 | 56 | 46 | 16 | 40 | ||||||||
Acquisition-related expenses & Costs to Achieve | 58 | 37 | 13 | 94 | ||||||||||||
Adjusted total segment operating income* | $ | 483 | $ | 1,049 | $ | 1,804 | $ | 1,682 | $ | 1,904 | $ | 2,322 | $ | 2,460 | $ | 2,321 |
Total segment operating margin | 7.3% | 9.7% | 13.8% | 13.9% | 14.9% | 15.7% | 17.0% | 15.3% | ||||||||
Adjusted total segment operating margin | 7.9% | 10.2% | 13.9% | 14.8% | 15.8% | 16.2% | 17.2% | 16.2% |
*Totals may not foot due to rounding
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Reconciliation of EBITDA margin to Adjusted EBITDA margin
(Unaudited) (Dollars in millions)
Guide: | ||||||||||
12 Months | 12 Months | 12 Months | 12 Months | 12 Months | ||||||
ended | ended | ended | ended | ended | ||||||
6/30/16 | 6/30/17 | 6/30/18 | 6/30/19 | 6/30/20 | ||||||
Net sales | 11,361 | 12,029 | 14,302 | 14,320 | 14,324 | |||||
Net income | 807 | 984 | 1,061 | 1,513 | 1,185 | |||||
Income taxes | 308 | 345 | 641 | 420 | 339 | |||||
Depreciation and Amortization | 307 | 355 | 466 | 436 | 564 | |||||
Interest Expense | 137 | 162 | 214 | 190 | 319 | |||||
EBITDA* | $ | 1,558 | $ | 1,846 | $ | 2,382 | $ | 2,560 | $ | 2,407 |
Adjustments: | ||||||||||
Voluntary retirement expense | 12 | |||||||||
Business realignment charges | 97 | 56 | 46 | 16 | 40 | |||||
Acquisition-related expenses & Costs to Achieve | 103 | 37 | 30 | 212 | ||||||
(Gain) / Loss on Sale and Writedown of Assets | 32 | |||||||||
Adjusted EBITDA* | $ | 1,667 | $ | 2,006 | $ | 2,497 | $ | 2,605 | $ | 2,658 |
EBITDA margin | 13.7% | 15.3% | 16.7% | 17.9% | 16.8% | |||||
Adjusted EBITDA margin | 14.7% | 16.7% | 17.5% | 18.2% | 18.6% |
*Totals may not foot due to rounding
113
Reconciliation of Cash Flow from Operations to Adjusted Cash Flow from Operations and Free Cash Flow
Cash Provided by Operating Activities Reconciliation to GAAP
($MM) YTD
FY02 | FY03 | FY04 | FY05 | FY06 | FY07 | FY08 | FY09 | FY10 | FY11 | FY12 | FY13 | FY14 | FY15 | FY16 | FY17 | FY18 | FY19 | |
Cash Provided by Operating Activities - As Reported | 631 | 558 | 662 | 854 | 951 | 957 | 1,317 | 1,129 | 1,219 | 1,167 | 1,530 | 1,191 | 1,388 | 1,363 | 1,211 | 1,302 | 1,597 | 1,730 |
Discretionary Pension Contribution | - | 106 | 75 | 83 | 101 | 161 | 12 | - | 100 | 400 | - | 226 | 75 | - | 200 | 220 | - | 200 |
Cash Provided by Operating Activities - Adjusted | 631 | 663 | 737 | 936 | 1,051 | 1,118 | 1,329 | 1,129 | 1,319 | 1,567 | 1,530 | 1,417 | 1,463 | 1,363 | 1,411 | 1,522 | 1,597 | 1,930 |
Free Cash Flow Reconciliation to GAAP ($MM) YTD
FY02 | FY03 | FY04 | FY05 | FY06 | FY07 | FY08 | FY09 | FY10 | FY11 | FY12 | FY13 | FY14 | FY15 | FY16 | FY17 | FY18 | FY19 | |
Cash Provided by Operating Activities - As Reported | 631 | 558 | 662 | 854 | 951 | 957 | 1,317 | 1,129 | 1,219 | 1,167 | 1,530 | 1,191 | 1,388 | 1,363 | 1,211 | 1,302 | 1,597 | 1,730 |
Capital Expenditures | 207 | 156 | 138 | 155 | 198 | 238 | 280 | 271 | 129 | 207 | 219 | 266 | 216 | 216 | 149 | 204 | 248 | 195 |
Free Cash Flow | 424 | 401 | 524 | 699 | 753 | 719 | 1,036 | 858 | 1,090 | 960 | 1,312 | 925 | 1,172 | 1,148 | 1,061 | 1,099 | 1,349 | 1,535 |
Discretionary Pension Contribution | - | 106 | 75 | 83 | 101 | 161 | 12 | - | 100 | 400 | - | 226 | 75 | - | 200 | 220 | - | 200 |
Free Cash Flow - Adjusted for Discretionary Pension | 424 | 507 | 599 | 782 | 853 | 880 | 1,049 | 858 | 1,190 | 1,360 | 1,312 | 1,151 | 1,247 | 1,148 | 1,261 | 1,319 | 1,349 | 1,735 |
114
Reconciliation of EPS to Adjusted EPS
(Unaudited) (Amounts in Dollars)
Guide: | Guide: | |||||||||||
12 Months | 12 Months | 12 Months | 12 Months | 12 Months | 3 Months | |||||||
ended | ended | ended | ended | ended | ended | |||||||
6/30/16 | 6/30/17 | 6/30/18 | 6/30/19 | 6/30/20 | 3/31/20 | |||||||
Earnings per diluted share | $ | 5.89 | $ | 7.25 | $ | 7.83 | $ | 11.48 | $ | 9.08 | $ | 2.10 |
Adjustments: | ||||||||||||
Business realignment charges | 0.80 | 0.42 | 0.34 | 0.12 | 0.30 | 0.14 | ||||||
Acquisition-related expenses & Costs to Achieve | 0.76 | 0.27 | 0.23 | 1.63 | 0.20 | |||||||
(Gain) / Loss on Sale and Writedown of Assets | 0.24 | |||||||||||
Tax effect of adjustments | (0.23) | (0.32) | 0.02 | (0.09) | (0.46) | (0.08) | ||||||
U.S. Tax Reform one-time impact, net | 1.72 | 0.11 | ||||||||||
Adjusted earnings per diluted share | $ | 6.46 | $ | 8.11 | $ | 10.42 | $ | 11.85 | $ | 10.55 | $ | 2.36 |
115
Thomas Williams
Chairman & Chief Executive Officer
Thomas Williams is Chairman & Chief Executive Officer of Parker Hannifin Corporation in Cleveland, Ohio.
Previous to his most recent position, he was Executive Vice President and Operating Officer with responsibility for Parker's Aerospace, Engineered Materials, Filtration, Instrumentation and Asia Pacific groups, along with the Strategic Pricing department.
Mr. Williams has demonstrated successful leadership in two of Parker's operating groups, as Vice President of Operations for the Hydraulics Group and then President of the Instrumentation Group. Mr. Williams joined Parker in 2003. Prior to that, he held a number of key management positions at General Electric.
He is an emeritus member of the Board of Directors for the Make-a-Wish Foundation, a non-profit organization making wishes come true for terminally ill children and a member of the Board of Directors for Goodyear Tire & Rubber Company. He is also a member of the Business Council, comprised of leading global CEO's, which provides a forum for continual learning and networking.
Mr. Williams earned a Mechanical Engineering degree from Bucknell University and his MBA from Xavier University.
116
Lee C. Banks
President & Chief Operating Officer
Lee Banks is President and Chief Operating Officer of Parker Hannifin Corporation in Cleveland, Ohio, a position he has held since 2015.
Mr. Banks joined Parker in 1991 and held increasingly responsible positions within sales and operations management, including several division general manager positions. He served as President of Parker's Hydraulics and Instrumentation Groups, and was Vice President of Operations for the Climate and Industrial Controls Group.
Prior to his current position, Mr. Banks was an Operating Officer of the company with leadership responsibility for the Filtration, Engineered Materials, Instrumentation, Climate and Industrial Controls, Hydraulics, Fluid Connectors and Automation product groups and the Europe, Middle East and Africa, and Latin America regional groups.
Mr. Banks serves on the Board of Directors of Nordson Corporation, a leader in precision dispensing equipment for industrial coatings. He earned a Bachelor of Arts degree in Economics from DePauw University and a Master of Business Administration from The Keller Graduate School of Management in Chicago.
117
Catherine A. Suever
Executive Vice President - Finance & Administration and Chief Financial Officer
Catherine Suever is Executive Vice President Finance & Administration and Chief Financial Officer of Parker Hannifin Corporation in Cleveland, Ohio, a position she has held since 2017.
Ms. Suever joined Parker in 1987 in External Reporting. She moved into operations as Division Controller of the Gas Turbine Fuel Systems Division, then was promoted to Business Unit Manager. In 2006, Ms. Suever was promoted to the corporate role of Director, Finance and Investor Relations Support, followed by a promotion to Assistant Treasurer in 2007. She assumed the role of Vice President and Controller of the Climate & Industrial Controls Group in 2008,
Prior to her current position, Ms. Suever was Vice President, Corporate Controller and Chief Accounting Officer and was elected as an Officer in 2010.
Ms. Suever serves on the Board of Directors of Hexcel Corporation, a global leader in advanced composites technology, and is on the Board of Trustees for the National Multiple Sclerosis Society Ohio Buckeye Chapter. She is also a member of the CFO Council of the Manufacturers Alliance for Productivity
- Innovation (MAPI), the American Institute of Certified Public Accountants (AICPA), and Financial Executives International (FEI). Ms. Suever is a Certified Public Accountant. She earned a Bachelor of Science degree in Accounting from the University of Dayton.
118
Parker's Investor Relations Team
Robin Davenport | Jeff Miller |
Vice President Corporate Finance | Director - Investor Relations |
rjdavenport@parker.com | jeffrey.miller@parker.com |
216 896 2265 | 216 896 2708 |
119
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Parker Hannifin Corporation published this content on 12 March 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 12 March 2020 20:05:23 UTC