Sign in
PH

PARKER HANNIFIN CORP (PH)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY25 delivered record adjusted segment operating margin (25.6%), adjusted EPS ($6.53), and YTD CFOA ($1.7B), with sales of $4.74B (+0.7% organic; reported down 1.6% due to divestitures and FX) .
  • Aerospace outperformed with 14% organic sales growth and adjusted margin of 28.2%; industrial segments achieved record adjusted margins despite continued short-cycle softness and Europe headwinds .
  • FY25 guidance was refined: adjusted segment margin raised to ~25.8%, adjusted EPS maintained at $26.40–$27.00, organic growth ~2% with stronger Aerospace offsetting delayed industrial recovery and unfavorable currency; Q3 adjusted EPS guided to ~$6.65 .
  • Orders turned positive across all businesses (+5% company; Aerospace +9%), and PH reduced debt by $1.1B in the quarter, supported by ~$620M divestiture proceeds and strong CFOA .
  • Near-term stock catalysts: continued margin expansion and aerospace aftermarket strength vs. cautious industrial recovery cadence; watch tariff headlines (management flagged preparedness and local-for-local footprint) and FX volatility .

What Went Well and What Went Wrong

What Went Well

  • Record adjusted margins across all businesses and Q2 record 25.6% adjusted segment margin; “consistent execution of the Win Strategy delivered 110 bps of margin expansion” (CEO) .
  • Aerospace strength: 14% organic sales growth, adjusted margin 28.2%, 20%+ aftermarket and mid-single-digit OEM growth .
  • Cash generation and deleveraging: record YTD CFOA margin 17.4%, FCF margin 15.2%, and $1.1B debt reduction in the quarter; divestiture proceeds fully used to reduce debt (CFO) .

What Went Wrong

  • Reported sales declined 1.6% YoY, impacted by divestitures (–1.4%) and currency (–0.9%) despite +0.7% organic growth (CFO) .
  • Industrial end-markets remained soft: DI North America –5% organic, DI International –3% organic; Europe broad-based softness persisted .
  • Delayed industrial recovery: management pushed recovery out by a quarter; distribution sentiment positive but restocking not evident yet .

Financial Results

Consolidated performance vs. prior year and prior quarter

MetricQ2 FY24 (oldest)Q1 FY25Q2 FY25 (newest)
Net Sales ($USD Billions)$4.821 $4.904 $4.743
Diluted EPS ($)$5.23 $5.34 $7.25
Adjusted EPS ($)$6.15 $6.20 $6.53
Segment Operating Margin (Reported, %)21.1% 22.6% 22.1%
Segment Operating Margin (Adjusted, %)24.5% 25.7% 25.6%
Organic Sales Growth (%)—+1.4% +0.7%

Segment breakdown – Q2 FY25

SegmentSales ($USD Billions)Organic Growth (%)Segment Operating Margin (Reported, %)Segment Operating Margin (Adjusted, %)Order Rates
Diversified Industrial – North America$1.928 –5.0% 22.1% 24.6% +3%
Diversified Industrial – International$1.325 –3.0% 21.4% 24.1% +4%
Aerospace Systems$1.490 +14.0% 22.7% 28.2% +9%
Company Total$4.743 +0.7% 22.1% 25.6% +5%

KPIs

KPIQ2 FY25 Value
YTD Cash Flow from Operations ($USD Billions)$1.7
CFOA Margin (%)17.4%
YTD Free Cash Flow ($USD Billions)$1.5
FCF Margin (%)15.2%
Debt Reduction in Quarter ($USD Billions)$1.1
Quarterly Dividend per Share ($)$1.63 (declared Jan 23, 2025)

Guidance Changes

MetricPeriodPrevious Guidance (Q1 FY25)Current Guidance (Q2 FY25)Change
Total Sales Growth (%)FY25+0.5% to +3.5% (FX +0.5%, divestitures –1.5%) (2%) to +1% (FX ~–1.0%, divestitures ~–1.5%) Lowered; FX flipped to unfavorable
Organic Sales Growth (%)FY251.5% to 4.5% ~2% Lowered midpoint
Adjusted Segment Operating Margin (%)FY25~25.7% ~25.8% Raised by ~10 bps
Adjusted EPS ($)FY25$26.35–$27.05 $26.40–$27.00 Maintained midpoint; range refined
Tax Rate (%)FY25~23% ~22% adjusted Lowered adjusted tax assumption
CFOA ($USD Billions)FY25$3.0–$3.3 $3.0–$3.3 Maintained
Q3 Adjusted EPS ($)Q3 FY25—~$6.65 New disclosure
Aerospace Organic Growth (%)FY25High single digit (~8.5%) context ~11% midpoint raised Raised
Industrial NA Organic Growth (%)FY25+2% midpoint ~–2.5% midpoint (full-year) Lowered
Industrial International Organic Growth (%)FY25+1.5% midpoint ~0% midpoint (full-year) Lowered

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY24 and Q1 FY25)Current Period (Q2 FY25)Trend
Operational Excellence (Win Strategy, Lean)Emphasized as margin driver; record margins; FY29 targets “Consistent execution… 110 bps expansion” and record adjusted margins across businesses Improving
Aerospace Aftermarket StrengthRecord year; aftermarket robust; high margins 20%+ aftermarket growth; adjusted margin 28.2%; orders +9% Strong/Improving
Industrial Recovery & DistributionOrders inflected positive; destock largely played out; cautious channel Recovery delayed by ~one quarter; distribution sentiment positive but restocking not yet Still delayed
Regional Trends (EMEA vs APAC/LatAm)EMEA soft; APAC improving; LatAm strong EMEA softness continued; APAC gradual recovery; LatAm +10% orders Mixed
Tariffs/Macro & FXPreparedness; local-for-local footprint; FX headwind noted Management confident in agility; FX turned unfavorable; FY25 guide includes mitigation Watch risk
M&A Pipeline & Portfolio OptimizationRobust pipeline; trim non-core assets; deleveraging Robust pipeline; capital optionality as leverage at ~1.7x gross debt/Adj. EBITDA Building

Management Commentary

  • CEO: “Our performance this quarter reflects our focus on operational excellence and the strength of our balanced portfolio… We delivered record segment operating margin across all businesses, record earnings per share and year-to-date cash flow from operations… We are encouraged to see industrial orders turn positive mainly in our longer-cycle businesses.” .
  • CFO: “Sales were down 1.6% versus prior… divestitures –1.4%… currency –0.9%… organic growth positive at almost 1%… adjusted EPS up 6% to a Q2 record… orders moved to +5%, mainly off longer-cycle end-market strength.” .
  • Strategy: “Embedded in the Win Strategy is the Parker Lean System… reduces variation and eliminates waste… we are never done improving our business.” (CEO) .

Q&A Highlights

  • Industrial long-cycle orders and recovery timing: Longer-cycle aero, HVAC, semicon driving positive orders; recovery pushed by a quarter; distribution sentiment positive but restocking not yet .
  • Margins despite weak industrial: Management reiterated confidence in margin expansion across segments via Win Strategy; currency and mix temper near-term sequential margin step-up .
  • Tariffs preparedness: Local-for-local model and supply chain tools in place; no anticipated need for major realignment .
  • Regional detail: LatAm broad-based strength; EMEA down ~8% orders with broad-based demand challenges; APAC improving .
  • Aerospace mix and outlook: Commercial OEM mid-single-digit growth, commercial aftermarket ~21%, defense aftermarket ~25% in Q2; FY25 aero raised to ~11% organic with strongest shipments in Q4 despite tough comps .

Estimates Context

  • S&P Global consensus EPS and revenue for Q2 FY25 were unavailable due to access limitations, so a beat/miss assessment vs. Street cannot be determined this quarter [GetEstimates error].
  • Given guidance changes (FX headwinds, lowered industrial, raised Aerospace, adjusted margin +10 bps), consensus may need to rebalance mix assumptions toward aerospace aftermarket strength while trimming industrial top-line expectations and adopting lower adjusted tax rate and maintained adjusted EPS midpoint .

Key Takeaways for Investors

  • Margin story intact: record adjusted segment margin and broad-based expansion even with soft industrial volumes—suggests continued earnings resilience through cycles .
  • Aerospace is the growth engine: aftermarket strength and raised FY25 aero growth to ~11% provide visibility; watch Q3/Q4 comps and mix for margin trajectory .
  • Industrial recovery delayed but orders improving: distribution sentiment positive; longer-cycle orders rising; restocking likely a FY26 driver per management cadence .
  • Cash generation and balance sheet optionality: record CFOA/FCF, $1.1B debt paydown, divestiture proceeds redeployed; supports M&A and buybacks alongside dividend continuity .
  • Near-term setup: Q3 adjusted EPS guided to ~$6.65; FX and mix may cap sequential margin expansion; monitor tariff headlines and EMEA demand .
  • Medium-term thesis: Portfolio transformation and Win Strategy support sustained high-20s aerospace margins and mid-20s industrial adjusted margins; FY29 targets reiterated in prior quarter .
  • Risk dashboard: FX volatility, tariffs, off-highway destock duration, Europe softness; offsets include aerospace backlog and aftermarket, local-for-local footprint, and cost discipline .