The paragraph discusses the commencement of Parker-Hannifin Corporation's Fiscal 2025 Third Quarter Earnings Conference Call and Webcast. Todd Leombruno, the Chief Financial Officer, introduces the event, expressing gratitude for participants' interest. Joining him is Chairman and CEO Jenny Parmentier. Todd mentions that Slide 2 of the presentation covers forward-looking disclosures and non-GAAP financial measures, with related documents available on the company's website. The agenda includes Jenny discussing third-quarter performance highlights and portfolio strengths, followed by Todd providing detailed financial results and an updated FY2025 outlook, including market verticals and financial guidance. The session will conclude with a Q&A segment.

Jennifer Parmentier highlights the strong performance of the company in the third quarter, showcasing record results in safety, operating margins, and EBITDA. The company achieved these results through its strategic "win strategy" business system, focusing on safety, engagement, and ownership. The decentralized and agile structure helps them manage economic uncertainties including tariffs. The company's portfolio has been strengthened by acquisitions, increasing its capabilities in filtration, engineered materials, and aerospace, enhancing exposure to long-cycle growth trends. Continuous improvement through simplification tools like Kaizen and the Parker Lean System aids in optimizing resources and expanding margins.

The paragraph discusses Parker's strategies that have led to reduced revenue complexity and improved operational efficiency. By utilizing 80/20 tools, rationalizing products, and optimizing distribution channels, they've enhanced customer service and expanded their margins. Their supply chain leadership, aided by improved demand and capacity tools, has increased visibility, reduced lead times, and enhanced customer experience. Despite challenges from tariffs, which have impacted 3% of the cost of goods sold, they have effectively mitigated these through analytics and robust processes. The financial results for the third quarter, presented by Todd Leombruno, highlight a strong performance with record margin expansion and EPS growth, despite a 2% sales decline due to previous divestitures and unfavorable currency impacts. Organic growth remained positive at 1%.

The paragraph discusses a financial performance report, highlighting a 2% decline in topline but a 7% increase in adjusted earnings per share to $6.94, showcasing Parker's strong performance. Record figures are reported, including adjusted segment operating margins of 26.3% and EBITDA margins of 27%. Net income reached $904 million, with an 18.2% return on sales. The growth was driven by disciplined operating performance, notably in aerospace and industrial segments, despite topline pressures. Interest and corporate G&A expenses were favorably reduced, though other expenses, including pension and currency impacts, slightly hindered results. The overall performance signals another record year is anticipated.

The company reported a $6.94 adjusted EPS for the quarter, attributed to excellent cost management and exceptional operating performance. Order trends continue to be positive, with a 9% increase from the previous year, driven by strong long-cycle segments. Record segment operating margins rose by 160 basis points across the company. In North America, sales reached $2 billion, although organic growth fell by 3%. Despite this, adjusted segment operating margins hit a record 25.2%, thanks to cost controls. Orders in North America increased by 3%, marking the second consecutive quarter of positive trends. Internationally, order rates saw double-digit growth of 11%, despite a 3% drop in sales. Asia Pacific grew by 2% organically, Latin America rose by 8%, while EMEA faced a 7% decline. The focus remains on agility, cost control, and efficiency improvements internationally.

The paragraph highlights strong financial performance in the Aerospace segment, with adjusted operating margins growing by 160 basis points to 25.1% and sales reaching a record $1.6 billion, a 12% increase from the previous year. This growth is attributed to strong aftermarket performance in both defense and commercial markets, marking the ninth consecutive quarter of double-digit organic growth in aerospace. Aerospace now represents a third of the company, with orders up by 14%. The company's cash flow performance is robust, with operations generating $2.3 billion year-to-date, an 8% increase, reaching a record high. Similar growth is seen in free cash flow, at $2 billion. The board approved a 10% increase in the quarterly dividend, maintaining a 69-year streak of annual dividend increases. Additionally, $650 million in shares were repurchased during the quarter, totaling $750 million year-to-date.

In the paragraph, Jennifer Parmentier updates the sales forecast for FY2025 by market verticals. The Aerospace and Defense sector's organic growth forecast is raised to 12% due to aftermarket strength and OEM recovery. However, forecasts for implant and industrial equipment, transportation, and energy are lowered due to delayed industrial recovery, lower automotive production, and lower oil prices, respectively. The HVAC/R forecast is increased, driven by residential air conditioning. Todd Leombruno then notes that the overall reported sales growth for the year is expected to be around -1%, while organic growth is projected to be about 1%.

The paragraph details the financial forecast and guidance for the year across various segments of the business. Aerospace is expected to grow by 12%, while the Industrial segment is predicted to decline, particularly in North America with a minus 4% growth rate. Currency and divestitures are anticipated to slightly impact growth negatively. The operating margin is projected to improve by 100 basis points to 25.9%. The adjusted EPS guidance remains at $26.70, with as-reported EPS at $26.02, both with a possible variance of $0.10. Tariff costs, estimated at $375 million annually, are expected to be fully mitigated. The company forecasts free cash flow to reach $3.1 billion, with conversion over 100%. Appendices include corporate G&A, interest, and tax rate expectations of 21.5%.

The paragraph is part of a financial report presentation discussing expectations for the fourth quarter. The company anticipates $5.1 billion in reported sales with an organic growth of 1.5%, an adjusted segment operating margin of 26.1%, a tax rate of 22%, and an adjusted EPS of $7.05, considering tariffs and mitigation actions. Jennifer Parmentier emphasizes the company's commitment to safety, engagement, ownership, and delivering shareholder value. During the Q&A, Mig Dobre from Baird asks about the surprising increase in international and North American orders, inquiring about their conversion to revenue and implications for future growth in the industrial sector. Parmentier begins to respond to these queries.

The paragraph discusses expectations for positive industrial growth in fiscal year 2026, with noted growth in orders for North America and international markets beyond fiscal year 2025. It highlights strong order activity in Aerospace, Defense, HVAC, and refrigeration, with international growth driven by long-cycle energy orders in Europe and solid electronics and semiconductor orders in Asia. The Aerospace backlog has increased, reaching $7.3 billion, due to strong commercial and defense orders. Mig Dobre inquires about managing cost risks related to the sizable Aerospace backlog, focusing on tariff impacts. Jennifer Parmentier responds by stating that they expect to fully mitigate the tariff impact.

The paragraph is from an earnings call or financial discussion, where the speakers are discussing the company's strategies and outlook. Todd Leombruno mentions three areas of focus for mitigating challenges: pricing actions, supply chain actions, and cost reduction strategies. Jamie Cook from Truist Securities asks about strong margins in the Aerospace and Defense sector, questioning the sustainability of these margins as they are currently driven by aftermarket activities. Jamie seeks clarification on whether the current margin strengths are structural or temporary, with concerns about the future impact when original equipment (OE) production picks up. Jennifer Parmentier responds by highlighting the strength of their aftermarket performance, noting it constitutes a significant portion of their revenue year-to-date and is forecasted to maintain similar levels through the year.

The paragraph discusses the positive impact of the Meggitt acquisition on the company's aftermarket position, which remains strong despite concerns about North American air traffic growth. The company is confident in expanding margins in aerospace and emphasizes the success of its industrial side despite a negative topline environment. They are optimistic about meeting financial targets, which include growth and cash flow objectives, and are focused on a holistic approach to these goals. Todd Leombruno and Jamie Cook express satisfaction with progress but acknowledge there's more work needed to achieve all set targets.

The paragraph comprises a discussion between Julian Mitchell and Jennifer Parmentier about the widening gap between industrial organic orders and sales trends. Jennifer explains that this gap is partly due to the transformation of their portfolio, which now includes more longer cycle businesses, such as aerospace, impacting the connection between orders and shipments. She also updates on the movement of the industrial backlog, noting it was $3.7 billion for industrial and $7.3 billion for aerospace, with increases of 2% from the prior year and 5% sequentially. Finally, Julian seeks clarification on aerospace growth trends in the fourth quarter and the dynamics between original equipment (OE) and aftermarket in both commercial and military sectors.

In the paragraph, Jennifer Parmentier discusses the company's raised full-year guidance for organic growth to 12%, with commercial OEM expected to see mid-single digit growth due to increases in narrow-body and some wide-body recoveries, and defense OEM expected to see low single-digit growth. Commercial MRO growth is anticipated in the high-teens, driven by an aging fleet and despite reports of slowed air traffic growth in North America. Defense MRO also expects high-teens growth, focusing on retrofits, upgrades, and public-private partnerships with the Department of Defense. Scott Davis asks about operational improvements contributing to margin gains, besides the product mix, and Jennifer responds by highlighting the effectiveness of their Win Strategy and decentralized operating structure which empowers general managers to maintain control of their businesses.

The paragraph discusses the company's use of enhanced demand and capacity tools that improve operational efficiency and cost control, even when volumes are low. As volumes recover, they plan to maintain cost-conscious practices. Additionally, the leadership, including Scott Davis, Jennifer Parmentier, and Todd Leombruno, talks about a robust mergers and acquisitions (M&A) pipeline comprising deals of various sizes. The primary focus remains on strategic acquisitions that align with their technologies and trends. Despite the active pipeline, the timing of potential deals is uncertain. The company is also focused on capital deployment, demonstrated by recent share repurchases.

The company is committed to maintaining a net debt to adjusted EBITDA ratio of around 2.0x, currently sitting at 1.7%. While they prefer acquisitions, they are also active in deployment. David Raso from Evercore ISI asks about tariffs impacting 3% of the cost of goods sold (COGS) and whether this will change in the next fiscal year. Todd Leombruno responds that this 3% is an annualized figure based on current tariffs and is not expected to increase unless tariff policies change. The rate is already fully impacting the current quarter, and actions to mitigate this impact have been implemented.

In the article's paragraph, Andrew Obin poses questions to Jennifer Parmentier and Todd Leombruno regarding the European market, focusing on potential recovery and exposure to defense budgets. Jennifer Parmentier responds by highlighting the company's strong positioning in the global defense market, citing exports of U.S. aircraft, like the F-35, to allied militaries. She notes persistent market softness in Europe but mentions optimism around proposed stimulus packages and increased defense spending by the European Commission and Germany, particularly in infrastructure, energy, transport, and defense sectors.

In the discussion, Andrew Obin inquires about the company's adjustments to its footprint and capital expenditures in light of new tariffs. Jennifer Parmentier responds that there are no significant changes to CapEx or supply chain realignment due to tariffs, as their dual sourcing strategy and local-for-local model provide global capacity. Nicole DeBlase asks about the possibility of prebuy activities influencing strong order numbers. Parmentier notes minimal prebuy activity, attributing order increases to long-term cycle strength. Nicole also inquires about maintaining impressive margins into 2026. Todd Leombruno affirms their commitment to achieving 30% to 35% incremental margins, considering it a best-in-class target.

The paragraph features a discussion between Joseph O'Dea from Wells Fargo and Jennifer Parmentier regarding expectations for industrial growth in 2026. O'Dea inquires about the confidence in forecasting growth despite macroeconomic uncertainties and delays in recovery seen this year. Parmentier responds by highlighting the visibility into long-cycle orders expected to materialize in 2026 and notes the few cancellations over recent quarters. She expresses optimism, citing that they are nearing or surpassing the typical negative cycle duration for industrial business, although they couldn't meet expectations in the fourth quarter. Parmentier remains hopeful and confident about future growth and readiness when it happens.

In the conversation, Joseph O'Dea asks whether the decision to adjust guidance is due to softening demand trends or unmet expectations for sequential improvements. Jennifer Parmentier responds that anticipated improvements did not materialize and adjustments had to be made for Q4. Jeffrey Sprague then questions about the company's strategic footprint in light of significant tariffs, suggesting dual sourcing as a temporary solution. Jennifer Parmentier explains that the company continuously evaluates its structure and footprint through practices like Kaizen and Parker Lean System to optimize resource use, indicating that such evaluations are a regular part of their operations.

The paragraph discusses a company's strategy to mitigate supply chain challenges by leveraging a dual sourcing strategy, negotiating with suppliers, and employing pricing actions. Jennifer Parmentier highlights the importance of various supply chain actions, including local manufacturing and working closely with suppliers, to expand their margin and address tariffs. Jeffrey Sprague questions whether pricing actions are smaller than sourcing and win strategies, to which Parmentier responds that it's a blend of actions varying by business. Todd Leombruno confirms that a specified $375 million cost is solely attributed to tariffs, with no other cost changes. The conversation then shifts to Joseph Ritchie inquiring about delays in implant projects.

In the paragraph, Jennifer Parmentier discusses the current economic conditions impacting their order rates and bidding activities, mentioning that delays in the industrial recovery have affected their financial guidance, resulting in a shift from previously anticipated growth to slight declines. Although there are ongoing project delays, quoting remains active, and there are minimal cancellations. In response to a question from Joseph Ritchie about the types of projects in their pipeline, Parmentier explains that they are bidding on both new construction projects and maintenance or renovation work in the U.S., including retrofitting and upgrading of plants. Andrew Kaplowitz from Citigroup is then introduced as the next participant to ask a question.

In the discussion, Jennifer Parmentier highlights that Parker's growth in the Asia Pacific region, especially in China, is driven mainly by electronics and semiconductor sectors, with China accounting for 5% of sales and showing low single-digit growth. In Latin America, Todd Leombruno emphasizes the continued robust performance, attributed to a strong focus on filtration and motion systems. When asked about corporate G&A cost containment, Todd notes that while some market-based benefits fluctuate, the company has been effective in managing costs, with no significant rollbacks expected.

In the paragraph, Stephen Volkmann from Jefferies asks if the company is seeing increased interest from manufacturers looking to localize supply chains, given the competitive advantage of being more local compared to international rivals. Jennifer Parmentier acknowledges potential share gain opportunities due to their global capacity to serve customers well. Todd Leombruno comments on the potential for both losing and gaining business due to tariffs, expressing cautious optimism about their chances. Stephen then asks Todd about their decision to increase share buybacks, suggesting it might indicate challenges in mergers and acquisitions (M&A) due to economic uncertainty. Todd responds that this is not necessarily the case.

In the paragraph, Jenny notes that their team is actively working on their pipeline, though predicting timing is challenging. They have ramped up their repurchase operations to maintain a 2x leverage, as they have been under that for most of FY2025. They plan to adjust their actions based on monthly conditions while remaining committed to being active in the market. Timothy Thein asks Jenny about customer sentiment in light of economic uncertainties, such as fears of recession and trade policy concerns, which may affect discretionary capital decisions. Jenny responds that there is a lot of uncertainty, leading customers to be cautious, but she remains optimistic that they will navigate through these challenges and operate effectively in the future.

In the paragraph, various individuals, including Timothy Thein and Jennifer Parmentier, discuss the impact of tariffs and pricing flexibility in the aerospace and industrial sectors. Jennifer explains that similar pricing strategies are used in both sectors, despite the longer-term agreements typical in aerospace. They have been addressing these agreements and issues like high inflation proactively. Timothy Thein and Todd Leombruno also touch on how the aftermarket side offers more pricing flexibility. Finally, Brett Linzey from Mizuho Securities asks about the company's M&A strategy, expressing surprise that no smaller acquisitions have been made given their proactive stance, and inquiring if they are specifically targeting larger assets or if certain priority assets are no longer being considered.

In the paragraph, Jennifer Parmentier discusses the company's strategy of evaluating various strategic assets in the pipeline, emphasizing that the focus is not limited to a specific size but rather on timing and strategic fit. Todd Leombruno highlights the company's strong financial capacity, with over $5 billion in EBITDA and more than $3 billion in cash flow expected this year, and stresses the importance of pursuing the right strategic deals that will generate returns. The conversation concludes with thanks and a mention of the Investor Relations team being available for follow-up questions after the FY2025 Q3 earnings release webcast.

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