The operator welcomes participants to Parker-Hannifin Corporation's Fiscal 2024 Third Quarter Earnings Conference Call and Webcast. The call will include a presentation by Chief Financial Officer Todd Leombruno and Chief Executive Officer Jenny Parmentier, followed by a Q&A session. The presentation will cover the company's strong third quarter performance and the role of their high-performance culture in achieving consistent margin expansion. Non-GAAP financial measures and forward-looking projections are also discussed. The call will end with a Q&A session, where participants are asked to limit questions to one and a follow-up if needed.

In the second paragraph, Jennifer Parmentier discusses the outstanding results achieved by the team in executing the Win Strategy in Q3. These results include a 17% reduction in recordable incidents, record sales of $5.1 billion, and a 150 basis point improvement in adjusted segment operating margin. She also emphasizes the importance of the Win Strategy in driving these results and mentions the four goals of the strategy: engage people, customer experience, profitable growth, and financial performance. Safety is highlighted as the top priority and is included in the first pillar of the strategy, which focuses on engaging people. Parmentier also shares her personal experience using the Win Strategy and how it has been a key factor in her success at Parker.

The paragraph discusses the Win Strategy and its impact on Parker's culture and performance. It highlights the company's upcoming Investor Day and the focus on high-performance teams and customer-centric mindset. The paragraph also presents the company's financial results, which saw record numbers in every category for the third quarter. The General Manager expresses pride in the team's hard work and confidence in the company's future.

The company saw a slight increase in total sales, reaching $5.1 billion. Organic growth was positive, but there was a slight negative impact from divestitures. Adjusted segment operating margins and EBITDA margins both improved, resulting in a 10% increase in adjusted net income and earnings per share. The main driver of this growth was an increase in segment operating income, with Aerospace Systems being a strong contributor. Interest expense was also favorable due to deleveraging efforts, and there were some unexpected tax benefits. Overall, the company had a strong quarter with record sales and earnings.

The corporate G&A expenses were higher compared to the previous year, but this was due to certain favorable items not repeating this year. The team has been able to generate strong operating performance and reduce interest costs through debt paydown efforts. The segment performance shows positive growth and margin expansion across all businesses, with order dollars improving sequentially from last quarter. In the North American businesses, sales volume reached $2.2 billion and margins increased to a third quarter record of 24.1%. In the international businesses, sales volume reached $1.4 billion and organic growth was in line with expectations.

The company's performance in the EMEA and Asia Pac regions was negative, with contraction in transportation and industrial markets. However, Latin America showed positive growth. The team was able to expand margins and generate a record in the third quarter. Aerospace had a stellar quarter with record sales and double-digit organic growth. Aftermarket strength and operating margins were also strong. The company's order rates in aerospace were also positive. The Board approved a 10% increase in quarterly dividend payout, extending the company's record of paying higher dividends for 68 years.

The company has reported a record cash flow of $2.1 billion from operations, representing a 20% increase over the previous year. Free cash flow also saw a significant increase of 22%, with the company reaffirming its full year target of over $3 billion in free cash flow. The company has also made progress in reducing its debt, with over $420 million paid off in the quarter and a total reduction of over $2.6 billion since the Mega transaction six quarters ago. The company remains confident in achieving its goal of $2 billion in debt reduction for the fiscal year and expects to reach a net leverage of 2 times by June. The company has reaffirmed its full year organic growth midpoint and has increased its margin and earnings per share expectations. Aerospace growth has been increased by 300 basis points to 15%, while the overall organic growth for the company remains at 1.5%.

The company's aerospace division is driving growth and improving margins, leading to increased earnings per share for the year. The company's high-performance culture and focus on operational excellence through the Win Strategy has made Parker more resilient. The company will be discussing their transformation, growth potential, operational excellence, and financial performance at an upcoming investor meeting.

Scott Davis asks about Parker Hannifin's M&A plans and the company's commitment to paying down debt. Jennifer Parmentier explains that the company is always working on its pipeline and looking for targets that are accretive to growth and fit with Parker's technologies. She also mentions that the commercial aftermarket in Aero is up 26% and discusses potential reasons for this increase.

During a conference call, Jennifer Parmentier, Todd Leombruno, and Scott Davis discussed the state of the aerospace industry and how it is being impacted by the COVID-19 pandemic. Parmentier stated that there have been no concerns about double ordering in the industry, but there are still supply chain constraints. Leombruno added that Meggitt's aftermarket business is 47% of their total aerospace business, and that the mix of aftermarket sales has contributed to their improved margins in the third quarter. Andrew Obin asked about the increase in margins from the first quarter to the third quarter, and Parmentier and Leombruno attributed it to the higher aftermarket mix.

The company has seen a significant increase in growth due to the addition of Meggitt to their portfolio. They are especially pleased with the growth in their braking business and military aftermarket partnerships. In North America, they have seen softness in the highway and transportation markets, particularly in the mobile and stationary sectors, with a decline in Ag and Class A trucks. Energy, oil and gas, and industrial equipment markets remain positive, while automotive and HVAC refrigeration are seeing declines.

The paragraph discusses the current state of Parker's commercial and distribution sectors, with a focus on the decline in orders in Industrial North America. The company is still guiding for organic growth, but orders have been negative for five quarters and may continue to decline. However, the backlog remains strong and April orders are showing signs of improvement. The fourth quarter for international is expected to weaken due to continued destocking and softness in certain industries, with Europe still experiencing economic contraction.

The sales for the quarter were as expected, but the orders have caused a slight decrease in Q4 and for the year. There has been a negative trend in international sales, while North America has shown some improvement in April. It typically takes six quarters for North America to turn around, but it is uncertain when international sales will follow. The company has implemented price increases twice a year and has been able to maintain margin neutrality.

During a recent conference call, Joe Ritchie asked Jennifer Parmentier about the potential inflection in North America and how it would affect the company's distributors. Parmentier stated that the distributors have been positive for a couple of quarters and have been able to participate in reinvestment and CapEx projects. She also mentioned that the international business has been able to expand margins despite negative volumes, thanks to the team's implementation of the Win Strategy and their ability to control costs. She expressed confidence in the team's ability to navigate any potential slowdown in the international market.

In this paragraph, Jenny and Jamie discuss Parker-Hannifin's margins and growth strategy. Jenny mentions that they are constantly looking to expand margins and are proud of the progress they have made so far. Jamie asks about the balance between improving margins and driving organic growth, and Jenny says they have more opportunities for margin expansion. They also discuss the impact of the Meggitt acquisition and the need for more long-cycle aerospace businesses in their portfolio. Jenny mentions that they will provide more updates at the upcoming investor meeting.

Parker is not limiting itself to a specific strategy for growth, but is focused on expanding margins and organically growing the top line. When it comes to acquisitions, they are looking for longer cycle, accretive, and complementary businesses. There is no set percentage for aerospace, as they value all of their technologies and see power in having them together. The current downturn in industrial businesses has been relatively shallow, and the shape of the recovery is uncertain. The portfolio has changed with longer lead times and higher aftermarket, which may impact the recovery.

The speaker discusses the aerospace business within the industrial segment and how the portfolio is not as deep as it has been in the past. They mention that the start of the quarter looks better and there may be an end to the lingering destocking. The questioner asks about margins and the speaker mentions that the normal incrementals are 30%, but they have outperformed in the past. The questioner then asks for clarification on the DI North America top line and the speaker briefly revisits the topic.

The speaker is responding to a question about the company's fourth quarter organic sales assumption for North America. They clarify that they are not expecting a prolonged period of negative growth in the region and that things are looking better in April compared to the end of the third quarter. The speaker also addresses the decline in revenue for different technology platforms, stating that Filtration and Engineered Materials may hold up better than the other two platforms.

The company believes that its businesses in motion systems and flow and process platforms should grow differently from its other businesses, such as filtration and engineered materials. These businesses are more leveraged to the distribution network and have been affected by destocking in the market. However, the company believes that this trend is coming to an end. The company's strategy of shaping its portfolio has allowed it to perform well even in a challenging global industrial market. The company's strong team and use of tools have also helped it to expand margins despite only modest organic growth. The analyst asks about the balance between OE and distributor demand in the destocking trend.

The speaker discusses the current down cycle and how it has affected distributor demand and OEM production cuts. They believe that destocking started earlier for distributors, but there are no signs that the down cycle will last longer. They also mention that the mix of their Industrial segment remains the same. The speaker then addresses the topic of capital deployment and mentions that they are not currently looking to expand outside of their current technologies.

Jeffrey Sprague from Vertical Research Partners asks a question about the correlation between sales and orders in North America, which have been out of sync for seven quarters until now. Jennifer Parmentier and Todd Leombruno explain that the company's backlog is strong and the portfolio has changed, leading them to believe that once the market turns, they will grow differently. They also mention that the company had two years of double-digit organic growth and have been reducing inventory levels. The backlog is at near all-time levels and is being pressure tested to ensure its legitimacy.

The speaker is discussing the company's recent financial performance and guidance for the coming quarter. They note that the company's commercial aftermarket and military segments have shown strong growth, but there has been a decline in commercial OEM and MRO. The speaker also mentions that the guidance is based on Q3 order rates, which were stable but still negative. However, the sales dollars for Q4 are in line with Q3.

A question was asked about pricing and customer experience in the aerospace industry. The speaker explained that customers are typically looking for Parker products when they walk into a distributor and are more focused on availability and getting the right part rather than price shopping. The partnership with distributors is highlighted as providing value and service to customers. The questioner then asks about the impact of current events on the commercial OEM aerospace market.

The speaker, Jennifer Parmentier, states that the company is in close contact with airframe manufacturers and is committed to supplying products to help them reach their goals. The mix of aftermarket and OEM in the aerospace business is nearly 50-50, which is helpful. When asked about inflation and the company's pricing strategy, Parmentier says their pricing muscle is strong and they consider the total cost of inflation when setting prices. If needed, they are willing to have difficult conversations about price increases.

The speaker states that the company's pricing strategy is based on facts and data and they will adjust it as needed. They mention that they are back to a more normal pricing environment, but believe it will remain stable due to ongoing inflation. The company's business realignment charges for 2024 have been adjusted slightly due to timing and cost savings. The speaker also mentions that pricing has remained positive in both industrial segments and they have not lowered prices despite competitive pressure in certain regions. The company has maintained their margins by implementing price increases early and regularly. They do not plan on rolling back prices and will adjust as needed based on market conditions.

During a conference call, Brett Linzey congratulates Todd Leombruno and Jennifer Parmentier on a recent performance. The operator then announces that there is time for one more question and Nigel Coe from Wolfe Research asks about the improving trends in North America and Europe, as well as the impressive margin and SG&A productivity. Jennifer Parmentier responds that they are mainly seeing improvement in North America and that they are constantly working to maintain a good SG&A range.

Todd Leombruno, CEO of a company, thanks Nigel for recognizing their frugal approach to SG&A expenses. He believes they can do even better and are constantly assessing their investments. Jeff Miller and Yan Huo will be available for follow-ups. The webcast has ended.

This summary was generated with AI and may contain some inaccuracies.