Parker-Hannifin Corp (PH)·Q3 2025 Earnings Summary

Executive Summary

• Record profitability and cash generation despite modest top-line pressure: adjusted segment operating margin expanded 160 bps to 26.3% and adjusted EPS rose 7% to $6.94, while reported EPS was $7.37 helped by a discrete tax benefit; organic sales grew ~1% as aerospace strength offset industrial softness .
• Mixed to positive vs. Street: EPS beat by ~$0.22 ($6.94 vs. ~$6.72*), while revenue was slightly below ($4.96B vs. ~$4.99B*) as divestitures and FX pressured reported growth; order rates accelerated to +9% driven by long-cycle strength .
• Guidance refined: FY25 as-reported EPS raised to $25.92–$26.12, adjusted EPS maintained at $26.60–$26.80 midpoint ($26.70); adjusted segment margin nudged up to ~25.9%; FY25 organic growth trimmed to ~1% as industrial recovery is delayed; tariff headwinds (~3% of COGS, ~$375M annualized) are expected to be fully mitigated .
• Capital deployment remained active: $650M of buybacks in Q3 and a 10% dividend increase to $1.80 per share signal confidence and cash flow durability (YTD CFOA $2.31B, 15.8% of sales) .

What Went Well and What Went Wrong

• What Went Well

  • Record profitability: adjusted segment operating margin reached 26.3% (+160 bps YoY); adjusted EBITDA margin hit 27.0% (+150 bps) on disciplined execution of The Win Strategy and simplification initiatives .
  • Aerospace outperformance: sales +11.6% with record adjusted margin of 28.7%; backlog increased to a record $7.3B on strong aftermarket in both commercial and defense .
  • Strong cash and returns: YTD CFOA rose 8% to $2.31B (15.8% of sales); $650M repurchases and a 10% dividend hike announced April 24 .
  • Management quote: “All reported businesses showed substantial margin expansion… We also produced record earnings per share, generated record cash flow from operations, and repurchased $650 million of shares.” — CEO Jenny Parmentier .

• What Went Wrong

  • Industrial softness persisted: Diversified Industrial sales declined YoY in NA (-9% reported; -3.5% organic) and International (-5.3% reported; -2.8% organic), with weakness in transportation, off-highway and energy .
  • Top-line under pressure from divestitures/FX: reported sales down 2.2% YoY despite +0.9% organic growth; Street revenue slightly missed .
  • FY25 organic growth trimmed to ~1% (from ~2%) as industrial recovery pushed out; management cited project delays despite active quoting .

Financial Results

Headline Results vs Prior Year, Prior Quarter, and Estimates

Notes: Consensus from S&P Global. Values marked with * retrieved from S&P Global.

• Adjusted EPS beat: $6.94 vs. ~$6.72*; revenue slight miss: $4.960B vs. ~$4.988B* . Values marked with * retrieved from S&P Global.

Segment Performance (Sales and Margins)

Additional KPIs and Cash

Non-GAAP adjustments: Q3 included $1.04 EPS for amortization, $0.08 realignment, $0.04 integration, $0.06 Saegertown incident, and a $(1.37) discrete tax benefit; adjusted EPS was $6.94 vs. GAAP $7.37 .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• Strategic message: “The resiliency of our portfolio coupled with the power of our business system, The Win Strategy™, has enabled us to consistently deliver strong results through business cycles… We are fully committed to achieving our fiscal year 2029 financial targets.” — CEO Jenny Parmentier .
• Margin drivers: “Unbelievably disciplined operating performance… Each [business] contributed to the margin expansion and cash flow performance.” — CFO Todd Leombruno .
• Tariff playbook: “Mitigation actions… in 3 buckets: pricing actions, supply chain actions, and Win Strategy cost reduction… fully mitigate the tariff impact.” — CEO .
• Aerospace durability: “Aftermarket is ~50% YTD… confident in ability to continue to expand margins in aerospace” — CEO .

Q&A Highlights

• Orders and FY26 setup: Management expects positive industrial organic growth in FY26 as long-cycle orders convert; industrial backlog up 5% sequentially and 2% YoY; aero backlog reached $7.3B .
• Tariff mechanics: ~$375M annualized (~3% of COGS) reflected without ramp; mitigations already in place; number excludes other inflation .
• Aerospace margins sustainability: Mix benefits from aftermarket persist; confidence margins can expand even as OEM recovers; watching NA traffic but global trends supportive .
• Industrial projects: In-plant activity delayed (not canceled); active quoting; lower auto production forecast in NA/EMEA; off-highway still weak; HVAC/R stronger (residential) .
• Capital allocation/M&A: Robust pipeline of all sizes; stepped up buybacks to manage leverage around ~2x; capacity >$5B EBITDA and >$3B FCF in FY25 .

Estimates Context

• Q3 FY25 vs S&P Global consensus: Adjusted EPS $6.94 vs ~$6.72* (beat); Revenue $4.960B vs ~$4.988B* (slight miss) . Values marked with * retrieved from S&P Global.
• Estimate participation: ~17 EPS estimates and ~16 revenue estimates for Q3*; FY25 consensus EPS ~26.73* vs company adjusted midpoint $26.70 (maintained) . Values marked with * retrieved from S&P Global.

Guidance Changes — Detail and Implications

• FY25 adjusted EPS maintained at $26.60–$26.80 (midpoint $26.70) with tariffs fully offset; implies Q4 adjusted EPS of ~$7.05, consistent with continued high-20s adjusted segment margins .
• Organic growth trimmed to ~1% given industrial delays; however, order acceleration (+9%) and backlog build suggest better setup into FY26 as long-cycle converts .
• Slight uptick in adjusted segment margin guidance (~25.9%) underscores sustained execution on price/cost, simplification, and mix (aerospace aftermarket) .

Key Takeaways for Investors

• Quality beat: EPS outperformance driven by record margins and lower interest expense; revenue softness largely tied to divestitures and FX; organic growth positive and accelerating orders support visibility .
• Aerospace remains the engine: Ninth consecutive quarter of double-digit organic growth, record margins, and record backlog; durable aftermarket contribution with rising OEM rates offers multi-year runway .
• Industrial bottoming but later than hoped: Recovery pushed right; delays rather than cancellations; orders improving, backlog building—supports FY26 industrial growth re-acceleration .
• Tariffs ≈ neutral to EPS: ~$375M annualized cost fully mitigated via pricing, supply chain, and cost actions; no major footprint shift required near term .
• Capital returns signal confidence: 10% dividend hike and $650M buybacks in Q3, with leverage managed near ~2x; optionality to pivot between M&A and repurchases given >$3B FCF guide .
• 2H setup: Q4 guide for ~$7.05 adjusted EPS with ~26.1% adjusted segment margin maintains high bar into year-end; watch aerospace aftermarket sustainability and the timing of industrial inflection .
• Estimate revisions: Expect upward EPS revisions (beat and margin momentum) against modestly lower sales expectations; focus likely shifts to FY26 organic trajectory and aero mix normalization. Values marked with * retrieved from S&P Global.

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Appendix: Segment/Regional Color (from press release and call)

• DI North America: Sales $2.031B (-3.5% organic), adjusted margin 25.2% (+110 bps); orders +3% .
• DI International: Sales $1.358B (-2.8% organic), adjusted margin 25.1% (+160 bps); APAC +2%, EMEA -7%, LATAM +8%; orders +11% .
• Aerospace: Sales $1.572B (+11.7% organic), adjusted margin 28.7% (+200 bps); orders +14%; backlog $7.3B .

All document data points are cited to company filings and materials. Consensus/estimates values marked with * are retrieved from S&P Global.