Q2 2022 Parker-Hannifin Corp Earnings Call

Thank you for standing by and welcome to the Parker-Hennepin Corporation fiscal year 2022 second quarter conference call and webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. As a reminder, the program may be recorded. I would now like to introduce your host for today's program, Tom Lienbrunel, Chief Financial Officer. Please go ahead, sir.

Thank you for standing by and welcome to the Parker Hannifin Corporation fiscal year 2022 second quarter conference call and webcast. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone as a reminder, we may be recorded.

I would now like to introduce your host for today's program, Tom Liam Bruno Chief Financial Officer. Please go ahead Sir.

Thank you, Jonathan, and good morning, everyone. Welcome to Parker's fiscal year 2022 q2 earnings.

Thank you Jonathan and good morning, everyone welcome to Parker's fiscal year 2022, Q2 earnings release.

As Jonathan said, this is Todd William Bruno, Chief Financial Officer speaking. Tom Williams, our Chairman and Chief Executive Officer, and Lee Banks, our Vice Chairman and President, are both with me here today for the webcast.

As Jonathan said this is Todd <unk>, our Chief Financial Officer speaking.

Tom Williams, our chairman and Chief Executive Officer, and Lee Banks, our Vice Chairman and President are both with me here today for the webcast.

I'd like to direct you to slide number two, which details our disclosure statement addressing forward looking statements and non-GAAP financial measures.

I'd like to direct you to slide number two which details our disclosure statement addressing forward looking statements and non-GAAP financial measures reconciliations.

Reconciliations for all non-GAAP financial measures are included in today's materials.

Reconciliations for all non-GAAP financial measures are included in today's materials those materials those reconciliations along with this presentation are accessible under the Investor section at <unk> Dot com and will be available for one year as usual today, Tom is going to begin with highlights of the quarter and a few comments on the companys.

Those materials, those reconciliations, along with this presentation, are accessible under the investor section at park.com.

and will be available for one year. As usual, today Tom's going to begin with highlights of the quarter and a few comments on the company's transformation. I'll follow up with a brief financial summary and review the increase to our full year guidance that we announced this morning. Tom is going to handle closing comments and then we'll open up the lines for your questions.

I'll follow up with a brief financial summary, and review the increase to our full year guidance that we announced this morning.

Tom is going to handle closing comments and then we'll open up the lines for your questions. Two comments before we begin today first as a reminder, regarding the pending Mega acquisition. We are still bound by the requirements of the U K takeover code in respect to discussing certain transaction details and secondly, we are announcing a date and time change.

Two comments before we begin today. First, as a reminder regarding the pending MEGOT acquisition, we are still bound by the requirements of the UK takeover code in respect to discussing certain transactions.

And secondly, we are announcing a date and time change to our upcoming virtual investor day due to a scheduling conflict with another company.

<unk> to our upcoming virtual Investor day due to a scheduling conflict with another company's Investor day, our meeting will now be held on Tuesday March eight from nine am to 12 P. M. Eastern it will be a virtual event and among the topics that will cover will be the release of our new long term financial targets.

Our meeting will now be held on Tuesday, March 8th from 9 a.m. to 12 p.m.

It will be a virtual event. And among the topics that we'll cover will be the release of our new long-term financial updates coming in December .

So with that, I'll ask you to move to slide three, and I'll turn it over.

So with that I'll ask you to move to slide three and I'll turn it over to you Tom. Thank you Todd and welcome everybody. Thanks for your participation today.

I want to start with the title of the slide which is exceptional execution in a challenging environment.

exceptional execution in a challenging environment.

When you look at the performance of the company in aggregate safety sales growth margin expansion EPS.

When you look at the performance of the company in aggregate safety, sales growth, the margin expansion, EPS, it was an extremely strong call.

It was an extremely strong quarter.

This is against arguably one of the most difficult operating environments that we've all faced in our careers when you add up the cumulative effect of inflation, supply chain challenges and the omnicron virus.

This is against arguably one of the most difficult operating environments that we are all faced in our careers.

The cumulative effect of inflation and supply chain challenges in the underground virus.

My thanks to the global team for just a great job execution and this quarter political for many many quarters as we can.

My thanks to the global team for to create the execution in this quarter, really the execution for many, many quarters, as we go through this presentation. Let's start with the first bullet. Focus on safety continues. It is our number one goal. We're leveraging our high performance teams, the combination of the natural work teams that we have in our plants and warehouses, as well as the start point teams.

Go through this presentation, let's start with the first bullet.

Our focus on safety continues as is our number one goal we're leveraging our high performance teams. The combination of the natural work teams that we have in our plants and warehouses as well as the star point teams.

and Kaizen. It's really this combination, this team structure.

And it's really this combination this team structure.

plus Kaizen that is driving an ownership culture within a company. It's ownership of safety but also ownership of quality, cost, delivery and engagement.

Kaizen that is driving an ownership culture within the company so ownership of safety, but also ownership for quality cost delivery and engagement.

Sales growth was 12% year over year. Organic growth was 13%. It was nice across all the external reporting segments as well as every region.

Sales growth was 12% year over year organic growth was 13%. It was nice across all the external reporting segments as well as every region participating total.

Pating total sales was the second quarter record as well as total segment operating margin. Ebit-I margin was 18.2% as reported or 22.7% adjusted. It was 180 base points. It's a big move versus prior year.

Sales was a second quarter record as well as total segment operating margins EBITDA margin was 18, 2% as reported or 22, 7% adjusted.

180 basis points, that's a big move versus prior year.

Robust demand environment continues. We had over 90% of our end markets in the growth phase, which were very

Robust demand environment continues we had over 90% of our end markets and the growth phase, which we're very excited about.

And the fact that execution, what you're seeing is really the cumulative effect of one strategy 2.0 and 3.0 drive-ins kind of performance.

And this execution, what youre seeing is really the cumulative effect of <unk>.

Win strategy, two <unk> and three <unk> driving this kind of performance when you add the strategy changes.

And on top of the portfolio things we've done, adding those great acquisitions that we've done over the last number of years, and the powerful secular trends that we're going to talk about here more materially, we see a future that's much longer cycle and more resilience and faster.

Top of the portfolio of things we've done I think those great acquisitions that we've done over the last number of years and the powerful secular trends and I'm going to talk about it here momentarily, we see a futures as much longer cycle.

More resilient and faster growth. So if you go to the next slide slide four.

So if you go to the next slide slide four, I've touched on this before. It's kind of frames all of our thinking and our strategies for the company to round trying to achieve these three key drivers, living up to our purpose at higher calling than or star that we're driving for. To be great generators and employers of cash, to be a top quartile performer versus our proxy peers. You go to slide five.

I've touched on this before just kind of frames all of our thinking and our strategies for the company around trying to achieve these three key drivers living up to our purpose that higher calling them or star that were driving for to be great generators and employers of cash to be a top quartile performance versus our proxy peers.

Slide five.

Little expression that.

Picture's worth a thousand words.

a picture's worth a thousand words. This kind of sums up how the company's changed over the last number of years. We've updated this slide for FY22 numbers, and I'm gonna just reframe the slide for you. On the left-hand side is adjusted EPS, and on the right-hand side is adjusted EPPA margin. So if you look on the left, and you go to FY16.

Sums up how the company has changed over the last number of years.

We've updated this slide for FY 'twenty, two numbers and I'm going to just reframe the slide three on the left hand side as adjusted EBITDA adjusted EPS.

Right hand side of the adjusted EBITA margin.

So if you look on the left and you go to FY 16.

So we work real hard as a company for 100 years to get to $6.99 EPS.

We're 100 years to get to $6.99 a CPS.

And in the last six years, we've grown it by two and a half times to a little over $18 in our current guide. If you just look at the gain that we've had since the pandemic, FY20 to FY22 guide, it's almost another $6 just in those two years. Happens to be, and I don't think it's coincidental that we launched one strategy 3.0 at the beginning of FY20. You can see what's done to propel performance.

And then the last six years.

Two five times to a little over $18 in our current good if you just look at the gain that we've had since the pandemic.

Slide 22.

FY 'twenty two guide it's almost another $6 just in those two years happens to be and I don't think its coincidental that we launched.

<unk> three <unk>.

Beginning FY 'twenty you can see what's doesn't propel performance. If you look on the right hand side and we don't guide on EBITDA margin, but.

If you look on the right hand side, we don't guide on EBITDA margin, but we put in our EBITDA margin year to date to 22.4%

But we put in our EBITDA margin year to date to 22, 4%.

If you look at that, from FY16 to that, it's 770 base points.

You look at that from FY 2016 to that 770 basis points improvement just remarkable improvement.

Really the how behind these results, it's been our people, portfolio changes that we've done.

Really the Hal behind these results it's been our people.

Oleo changes that we've done.

It's been again a cumulative effect of 1.82.0 at 3.0.

It's Ben again, the cumulative effect of 132.

Three <unk>.

If you go to the next slide, give you a quick update on the Megatransack.

So if you go to the next slide give you a quick update on the Mega transaction.

We continue to make progress. There's really four main work streams that we're working.

Continue to make progress there's really four main work streams that we're working.

There's two economic and national security review that we're working on with the UK government. I would characterize those as constructive and positive and on track. And then the antitrust and FDI filings are proceeding as we had anticipated.

There is two economic the economic and National Security review that we're working on with the UK government I would characterize those as constructive and positive.

And on track and then the antitrust and FDI filings are proceeding as we had anticipated we're still.

We're still anticipating a Q3 calendar, 2022 close. And we're really excited about this. This is obviously a compelling combination. It doubles the size of aerospace business, highly complimentary technologies. And we're at the beginning of a commercial aerospace recovery with great synergies as we put these two companies together. Again, bringing this on with everything else we've been doing a much longer cycle, let's look faster growing.

Anticipating in Q3 calendar 2020 to close and we're really excited about this this is obviously a compelling combination it doubles the size of our aerospace business highly complementary technologies and we're at the beginning of a commercial aerospace recovery with great synergies as we put these two companies together.

<unk> coming bringing this on with everything else, we've been doing and much longer cycle less cyclical faster growing company.

And then on slide seven, in addition to the strategic acquisitions that we've been making, we are uniquely positioned with our eight motion control team.

And then on slide seven in addition to the strategic acquisitions that we've been making we are uniquely positioned with our eight motion control technologies to <unk>.

to benefit from the four secular trends that you see on this page. Now I touched on aerospace and the recovery and momentum of Megan plus Parker. But if you look at electrification, ESG, digitization, what you have here are long-term, multi-year growth enablers and content growth for us is going to grow both on board as well as embers.

Benefits from the four Sickler trends that you see on this page.

Touched on aerospace and the recovery.

Momentum of negative plus Parker.

But if you look at electrification ESG, Digitization, which are happier long term multiyear.

Growth enablers and content growth for us is going to grow both onboard as well as infrastructure.

We're excited, this is going to be a big part of what we'll talk about in Investor Day, and we look forward to sharing more about these secular trends on March 8th with you.

And we're excited this is going to be a big part of what we'll talk about in Investor day, and we look forward to sharing more about these secular trends on March eight with you and with that I'm going to turn it over to Todd for more details on the quarter.

Okay, thanks Tom. I'll ask everyone to move to slide nine and I'll start with our FY22 Q2 result. As Tom mentioned, this was just an outstanding quarter, just another reminder that our operations leaders are really driving the company to significantly higher levels of...

Okay. Thanks, Tom I'll ask everyone to move to slide nine and I'll start with our FY 'twenty to Q2 results as Tom mentioned this was just an outstanding quarter. Just another reminder, that our operations leaders are really driving the company to significantly higher levels of performance, our sales increased 12% versus the prior year.

Our sales increased 12% first of the prior year. We did hit a record level of $3.8 billion. Tom mentioned this, but organic sales were very healthy at 13%. Currency was about a one point drag on sales. That's how we got to the 12%. Reported sales increased. Demand just remains robust. Our backlogs are healthy. Growth remains very broad-based across all of our industrial businesses.

We did hit a record level of $3 8 billion.

Tom mentioned this but organic sales were very healthy at 13% currency was about a one point drag on sales thats, how we got to the 12%.

Reported sales increased demand just remains robust our backlogs are healthy growth remains very broad based across all of our industrial businesses.

If you look into the aerospace business, commercial demand continues to trend positive, and we talked about this before, but the acquisitions of Clarkor, Lord, and exotic continue to outperform right.

If you look into the aerospace business commercial demand continues to trend positive and we've talked about this before but the acquisitions of CLARCOR, Lord and exotic continue to outperform our expectations.

When you look at the segment operating margins, it's a Q2 RESTR record on an adjusted basis. We did 21.6% segment operating margin, that's 120 basis points, improvement from prior year. And our teams are really managing through the well documented supply chain issues, the inflationary environment. I really just want to commend them on our team's swift actions to manage these cost and inflationary actions. Still, while achieves

When you look at the segment operating margins, it's a Q2.

A record on an adjusted basis, we did 21, 6% segment operating margin Thats 120 basis points improvement from prior year and our teams are really managing through the well documented supply chain issues. The inflationary environment I really just want to condemn commend them on our team's swift actions to manage these.

Cost and inflationary actions still while achieving record sales in the quarter.

I mentioned this, but adjusted EBITDA margin was 22.7%. That's up 180 basis points from last year. Both are adjusted net income and are adjusted EPS is improved by 29%. Versus prior year net income is $582 million or 15.2% return on sales. And adjusted EPS was $446. That's a dollar and one increase versus the prior year of $3.45. Pay more sense and tiny? where your addition is.

Tom mentioned this but adjusted EBITDA margin was 22, 7% that's up 180 basis points from last year, both our adjusted net income and our adjusted EPS improved by 29% versus prior year net income is $582 million or 15, 2% return on sales.

And adjusted EPS was $4 46, that's a $1 one increase versus the prior year of $3 45, It's just a really solid quarter.

If we just apply 10, this is just a bridge on adjusted EPS, and I'll just detail some of the components that generated the $1.1 increase in EPS. And as you can see, really operating execution of the major driver in this any inspection of the

If we jump to slide 10. This is just a bridge on adjusted EPS and I'll just detail some of the components.

<unk> generated the $1, 1% $1 <unk> increase in EPS and as you can see really operating execution is the major driver in this increase.

Adjusted segment operating income did increase by $132 million. That's 19% greater than prior year and that really accounts for 80% of the increase in our EPS.

<unk> segment operating income did increase by $132 million, that's 19% greater than prior year and that really accounts for 80% of the increase in our EPS. This quarter. We did have some other favorable items that was 19 favorable there was some currency gains that were favorable we did.

We did have some other favorable items that was 19 cents favorable. There were some currency gains that were favorable. We did sell a few facilities that we restructured, those closed in the quarter, and we do have reduced pension expense versus prior year. All of that added up to 19 cents. And then you could see the other items on the slide that all met into 4 cents favorable. But really the story here is just a very strong offer.

Sell a few.

Facilities that we.

Restructured those closed in the quarter and we do have reduced pension expense versus prior year all of that added up to 19.

And then you can see the other items on slide that all netted to <unk> favorable but really the story here is just a very strong operating quarter.

If we go to slide 11, I'll make a few comments on our segment performance. Tom mentioned those secular trends. We are seeing growth from those trends across our segments. Every single one of the segments has a record of just did segment operating margin this quarter. We did maintain a cost price neutral position. We're very proud of that. Incrementals were 32% versus prior year. And I just want to remind everybody that is against the headwind of $65 million of discretionary savings that we had in the...

If we go to slide 11, I'll make a few comments on our segment performance.

Tom mentioned these those secular trends, we are seeing growth from those trends across our segments.

Every single one of the segments has a record adjusted segment operating margin this quarter we.

We did maintain a cost price neutral position, we're very proud of that incrementals were 32% versus prior year and I just want to remind everybody that is against the headwind of $65 million.

Discretionary savings that we had in the prior year.

If you exclude those discretionary savings, our incrementals were 40.

You exclude those discretionary savings our incrementals were 48% so really.

So really fantastic performance across.

Fantastic performance across the board from our teams it.

It really highlights the power of the wind strategy and really demonstrates our ability to perform through this current.

It really highlights the power of the win strategy and really demonstrates our ability to perform through this current climate.

If you look at orders, orders are plus 12 and really the demand continues to be robust across our...

If you look at orders orders are plus 12 and really.

Demand continues to be robust across our businesses just a little color on diversified industrial North America sales reached $1 8 billion organic growth in that segment was 15% versus prior year and listen we're really pleased with the performance in this region.

Just a little color on diversified industrial North America sales reached 1.8 billion. Organic growth in that segment was 15% versus prior year. And listen, we're really pleased with the performance in this region. We've talked a lot of, I've read, I know everyone is familiar with the well-documented supply chain issues. Tom mentioned the Omicron spike. We are not immune to that. But we did keep operating margins at a very high level of 21.3% in this segment.

We've talked a lot of.

I know everyone is familiar with the well documented supply chain issues.

Tom mentioned, the omicron Spike we are not immune to that but we did keep operating margins at a very high level of 21, 3% in this segment and we're proud of that order rates have continued to be very high at plus 17, our backlog is strong and.

and we're proud of that. Order rates are continued to be very high at plus 17. Our backlog is strong. And Tom mentioned this, 91% of our markets are in growth mode, so great things in the North America.

Tom mentioned that is 91% of our markets are in growth mode. So great things in the North American businesses.

Industrial International is a great story. Sales are 1.4 billion, organic growth is up 14% in this segment, and I want to note that across all the regions within our international segment, organic growth was mid-team positive.

Industrial International is a great story sales are $1 4 billion organic growth is up 14% in this segment and I want to note that across all the regions within our international segment.

Organic growth was mid teen positive in every region.

So really robust activity there. Maybe more impressive is the adjusted operating margins. 22.4% this is an increase of 210 basis points.

So really robust activity there maybe.

Maybe more impressive impressive as the adjusted operating margins of 22, 4%. This is an increase of 210 basis points.

versus the prior year. And certainly we have volume. We've talked a lot about our growth in distribution internationally. We are benefiting from some product mix. And really the team is doing a great job, controlling costs. And this has been a really long-term effort over a long period of time from that team. So I'm really happy that they're able to put up these continued high level of margin performance.

The prior year and certainly we have volume we've talked a lot about our growth in distribution internationally. We are benefiting from some product mix and really the team is doing a great job controlling costs and this has been a really long term effort over a long period of time from that team. So I'm really happy that they are able to put up.

These continued high level of margin performance order rates, there were plus 14% ample backlog and really solid international performance. If we look at aerospace systems really continued signs of a rebound there sales are $618 million organic sales are positive at almost 6%.

Order rates there were plus 14%, ample backlog, and really solid international.

If we look at aerospace systems really continues signs of a rebound there, sale of $618 million, organic sales are positive, almost 6%. And we didn't see very strong demand in our commercial OEM and MRO mark.

And we did see very strong demand in our commercial OEM and MRO markets.

Great margin performance here as well. Operating margins have increased 270. Basis points, they've finished the quarter at 20.7. And again, I just want to remind everyone that that is still at pre-COVID volume levels. So great margin performance for my.

Great margin performance here as well operating margins have increased 270 basis points that finished the quarter at 27, and again I just want to remind everyone that that is still at pre COVID-19 volume levels. So great margin performance from our aerospace team.

Aerospace orders on a 12-month rolling rate did decline 7%, but one item I want to make clear for everybody is we did have a few large multi-year military orders in the prior period that really created a tough comp.

Aerospace orders on a 12 month rolling rate did decline, 7%, but one item I want to make clear for everybody. As we did have a few large multiyear military orders in the prior period that really created a tough comp.

Just in aerospace if we exclude those orders aerospace orders would be plus mid teens positive.

just in aerospace, if we exclude those orders, aerospace orders would be plus mid-team.

So we're seeing continued signs of study improvement in aerospace, our ordered dollars in aerospace in the quarter with the highest level they've been in the last three quarters.

We are seeing continued signs of steady improvement in aerospace are order dollars in aerospace.

In the quarter were at the highest level they've been in the last three quarters.

So.

Great quarter out of aerospace, but if you really look at the segments. It's really outstanding operating performance, we've got positive growth strong order dollars.

But if you really look at the segments, it's really outstanding operating performance. We've got positive growth, strong order dollars, robust backlogs, record margins, and really just solid execution across the board.

Robust backlogs record margins and really just solid execution across the board so great segment performance.

If I take you to slide 12 and talk about the cash flow on a year to date basis, we did exceed $1 billion in cash flow from operations. That is 13.3% to sales. Pre-cash flow is $900 million or almost 12% of sales and conversion on a year to date basis is now $107 million.

If I take it.

Slide 12, and talk about cash flow on a year to date basis, we did exceed $1 billion in cash flow from operations that is 13, 3% to sales free cash flow is $900 million or almost 12% of sales and conversion on.

On a year to date basis is now 107%.

We still continue to diligently manage working capital across the company. We really are just responding to these increased demand levels that we have. The working capital change did improve in the quarter as we forecasted. Working in the quarter is a 1.9% use of cash versus last year it was a 4 point.

We still continue to diligently manage working capital across the company. We really are just responding to these increased demand levels that we have.

The working capital change did improve in the quarter as we forecasted in the quarter. It was a one 9% use of cash versus last year. It was up four 1% source of cash so for the full year I just want to reiterate we continue to forecast mid teens.

source of cash. So for the full year, I just want to reiterate, we continue to forecast mid-teens cash flow from operations and pre-cash flow for the full year will...

<unk> flow from operations and free cash flow for the full year will exceed 100%.

If we go to slide 13, I just want to make a few comments on our capital deployment activity I'm sure. Many people have seen this but last week, our board approved a dividend declaration of $1 <unk> per share that is fully supportive of our long standing 65 year record of increasing dividends paid.

If we go to slide 13 now, I just want to make a few comments on our capital deployment activity. I'm sure many people have seen this, but last week our board approved a dividend declaration of $1 and $3 cents per share. That is fully supportive of our longstanding 65 year record of increasing dividends paid.

And I want to give an update on the mega financing. We continue to make progress on our financing plan, our plan is flexible, it is efficient, it is risk mitigating. I did mention on the last call that we secured a deal contingent forward hedge contract in the amount of 6.4 billion pounds, accounting rules require us to mark those contracts, to market. That impact in the quarter was a non-cash charge of $149 million.

And I want to give an update on the <unk> financing, we continue to make progress on our financing plan, our plan is flexible and as efficient and as risk mitigating.

Did mentioned on the last call that we secured a deal contingent forward hedge contract in the amount of $6 4 billion pounds.

<unk> rules require us to mark those contracts to market that impact in the quarter was a noncash charge of $149 million.

We booked that in the other expense line and we are treating that as an adjustment.

We booked that in the other expense line and we are treating that as an adjusted item.

We now have $2.5 billion US dollars of cash deposited in escrow to fund the mega transaction. That is listed on our balance sheet as restricted cash. And that was funded from a combination of commercial paper and some cash on hand. A result of that our gross debt to EBITDA ended up being 2.7.

We now have $2 5 billion U S dollars of cash deposited in escrow to.

Funded the Mega transaction that is listed on our balance sheet as restricted cash.

And that was funded from a combination of commercial paper and some cash on hand.

A result of that our gross debt to EBITDA ended up being two 7%.

times in the quarter net debt was 2.5 times. If you account for the 2.5 billion of restricted cash net debt that you even thought was.

Times in the quarter net debt was two five times. If you account for the $2 5 billion of restricted cash net debt to EBITDA would be one eight.

Okay, so if we go to slide 14, I just want to give some details on the increase to guidance that we announced this morning and of course we're given this on an as reported and an adjusted basis. Full year adjusted EPS is raised by 75 cents.

Okay. So if we go to slide 14, I just want to give some details on the increase the guidance that we announced this morning and of course were given this on an as reported and an adjusted basis full year. Adjusted EPS is raised by 75.

We did guide to $17.30 at the midpoint last quarter. We have moved that to $18.5 and that is at the midpoint. We've also narrowed the range. Range is now 25 cents up or down.

We did guide to $17 30 at the midpoint last quarter, we have moved that to $18 five.

And that is at the midpoint. We've also narrowed the range range is now 25 cents.

Up or down.

And sales is also raised. We're raising the midpoint to a range of 10 percent. At the midpoint, we've got a range of 9 to 11. And the breakdown of that sales change at the midpoint is organic growth is 10 and a half percent. Currency will be about one point unfavorable. And of course, there's no impact from acquisitions. As Tom said, we don't expect to make it to close in our...

Sales is also raise we're raising the midpoint to a range of 10% at the midpoint, we've got a range of 9% to 11 and the breakdown of that sales change at the midpoint is organic growth is 10, 5% currency will be about one point unfavorable and of course, there is no impact from acquisitions.

As Tom said, we don't expect it to close in our fiscal year.

If we look at the full year adjusted segment operating margins, we're also raising that 20 basis points from the prior guide. A full year now we expect that to be 22.1% at the midpoint. There is a 20 basis point range on either side of that. And corporate GNA and other is expected to be 656 on an AS reported basis, but 435 on an adjust.

If we look at the full year adjusted segment operating margins were also raising that 20 basis points from the prior guide full year now we expect that to be 22, 1% at the midpoint. There is a 20 basis point range on either side of that.

Corporate G&A and other is expected to be $6 56.

On an as reported basis, but $4 35 on an adjusted basis. So of course, there is a couple of adjusted items in there.

So of course there's a couple of adjusted items in there. The acquisition related and tangible assets that is standard adjustment, the reliantment expenses, standard adjustment, the Lord Costs Achieve, standard adjustment. But we are adjusting these transaction related expenses for MEGAT. Year to date, we've got $71 million worth of transaction cost, and of course that $149 million, non-cash more.

Acquisition related intangible assets that is standard adjustment that realignment expenses standard adjustment lowered cost to achieve standard adjustment, but we are adjusting these transaction related expenses per megabit.

Year to date, we've got $71 million worth of transaction costs and of course that $149 million.

Noncash mark to market loss that I just mentioned.

We're going to continue to adjust for the transaction related expenses as they are.

We're going to continue to adjust for the transaction related expenses as they are incurred if you look at tax rate tax rate is now going to be slightly lower than what we had forecasted.

If you look at tax rate, tax rate is now going to be slightly lower than what we had forecasted just based on first half activity. We expect that to be 22 percent now. And finally, guidance for the full year assumes sales, adjusted operating income and EPS all split 48 percent first half, 52 percent.

Based on first half activity, we expect that to be 22% now and finally guidance for the full year assumes sales adjusted operating income and EPS all split 48% first half 52% in the second half and just a little bit more color Q3 FY 'twenty.

And just a little bit more color, Q3, FY22 Q3 Adjusted EPS Guide, we have at $4.

Q3, adjusted EPS guidance, we have at $4 54.

So with that, Tom will hand it back to you for closing comments and I'll ask everyone to go to the slide.

So with that Tom I'll hand, it back to you for closing comments and I'll ask everyone to go to slide 15.

Thank you, Todd. We've got a highly engaged team around the world living up to our purpose, which is enabling engineering breakthroughs that lead to a better tomorrow.

We've got a highly engaged team around the world living up to our purpose, which is enabling engineering breakthroughs that lead to a better tomorrow.

You've seen what 3.0 is done is I've referenced in that EPS, which are striving their current performance, which is going to drive our future performance. It's the early days of when 3.0 and our characterizes it's having long legs, lots of potential ahead.

You've seen what <unk> has done as I referenced in the EPS charge driving their current performance, what's going to drive our future performance. It's the early days when treated with <unk>.

We characterize it as having long legs lots of potential ahead.

We put out the portfolio transformation continues we acquired three great companies, who are in the process of.

The portfolio transformation continues. We've acquired three great companies who are in the process of a fourth that will make us longer cycle and more resilient. And if you put that on top of the secular trends that I highlighted, we feel very positive about this.

Fourth that will make us longer cycle more resilient and you put that on top of the secular trends that I highlighted and we feel very very positive about the future. So it's been our portfolio changes has been the strategy changes, but it really starts with our people 55000 team members that are <unk>.

So it's been our portfolio changes. It's been in this strategy changes. It really starts with our people. 55,000 team members that are thinking and acting like an owner. So 55,000 owners that are driving this transformation. So I thank all of them for what we did in the quarter, for really cool we've done in the last number of years. Then I'm going to hit effect at top for a quick comment just to set up the Q&A.

Thinking and acting like an owner so 55000 owners that are driving this transformation. So my thanks to all of them for.

So what we did in the quarter, but really what we've done the last number of years that im going to ineffective for quick comments as to set up the Q&A before we get started.

Yeah, John , so I just want to ask the participants of the call just as a reminder to ask one question, follow up if needed and then jump back in the queue just so we can try to get everyone on the call to have a shot at answer.

Yes, Jonathan I just wanted to.

Ask the participants of the call just as a reminder to ask one question.

A follow up if needed and then jump back into the queue. Just so we can try to get everyone on the call to to have a shot at answering your question. We do appreciate your cooperation so Jonathan I'll turn it over to you for Q&A.

We do appreciate your cooperation. So Jonathan, I'll turn it over to you for a Q&A.

Certainly. Once again, if you have a question, please press star, then one. Our first question comes in the line of Joe Ritchie from Goldman Sachs. Your question, please.

Certainly once again if you have a question. Please press Star then one our first question comes from the line of Joe Ritchie from Goldman Sachs. Your question. Please.

Hi, good morning, everybody nice quarter.

Hi, good morning, everybody. Nice quarter.

Thanks, Tom.

Tom You mentioned in your prepared comments that 90, 90% of your of your end markets are growing.

So Tommy mentioned in your prepared comments that 90% of your end markets are growing. I think that there's still some concerns just around like this hypergrowth that we're seeing this year and that we're kind of closer to peak. Can you maybe just tell us a little bit more about kind of like the sustainability of growth even beyond this year and maybe some commentary around inventory balance as well? Yes, you've got what I was...

There's still some concern just around Mike.

The type of growth that we're seeing this year.

Closer to peak can you, maybe just tell us a little bit more about kind of like the sustainability of growth even beyond this year and maybe some commentary around inventory balances as well.

So you've got what I would characterize as.

some rebound off the bottom, Joe. But you've got a lot of things that are positive, the secular trends that I've mentioned.

Some rebound off the bottom Joe.

<unk> got a lot of things that are positive secular trends that I mentioned.

during my prepared remarks, aerospace recovery, ESG, electrification, digitization.

During my prepared remarks aerospace recovery.

G electrification to decision.

or all but I would call it longer cycle. I mean the whole electrification trend is gonna be years. You could suggest taking it.

Are all what I would call long longer cycle, and a whole electrification trend is going to be years.

Just decades towards what's going to happen.

that ESG digitization, et cetera. The content that we've seen and the potential for the material.

USG Digitization et cetera.

<unk> that we've seen and the potential pool of material changes.

both on board and then adding the infrastructure.

Onboard and then adding the infrastructure that's going to be needed to support that is big and it's going to allow us to grow differently I think in the past you've got a couple of other things that are going to underpin I think a more constructive industrial business cycle going forward.

that is big, and it's going to allow us to grow differently, I think, than in the past. You've got a couple other things that are going to underpin, I think, a more constructive industrial business cycle going forward. You've got, I think, the CapEx needs.

<unk> got I think the capex needs.

where are two-fold. One, you need to reinvest in areas that you haven't invested in the last 10 years. I don't think we're any different than most of my.

Where are twofold, one you'll need to reinvest in areas that you have invested in the last 10 years I don't think we're any different than most of my industrial peers.

especially in the last eight years, where we've had two industrial recessions and a pandemic, you typically probably under-

Especially the last eight years.

Had two industrial recessions in the pandemic you.

You typically probably underinvested during that time purchases.

There's a need to catch back up to that. And then there's also the need around supply chain. Everybody's going to need to put in more.

We need to catch back up to that and then there's also the need around supply chain.

Everybody's going to need to put in more robust supply chain systems.

add multiple sources, etc., that's going to require infrastructure, extra equipment, etc. So you're going to have kind of two bites of the apple.

At multiple sources et cetera, that's going to require infrastructure extra equipment et cetera, so you're going to have.

Kind of two bites of the Apple on Capex needs.

That's going to happen and then youre going to need to get.

going to happen and then you're going to need to get back to normal inventory levels in the system. And today, you know, inventory is basically non-existent outside of the suppliers like us.

Back to normal inventory levels in the system today inventories.

Inventories basically nonexistent.

Outside of the suppliers like us, but when you when you go into our customers in particular distributors.

go into our customers and our distributors, you're going to need an inventory replenishment cycle. So there's a lot of things that are going to foreshadow a much more constructive future. Then if you look at what companies we've been buying, we've been buying companies.

Inventory replenishment cycle. So there's a lot of things theyre going to foreshadow a much more constructive future then.

And if you look at companies with combined with the buying companies.

that are longer cycle with accretive growth rates to what we've done historically. So you have the things we've done with the balance sheet, capital deployment to help ourselves as well. So I think this is a different cycle. I mean, it clearly feels different to me. There's always all those unknowns, the geopolitical unknowns and the virus, et cetera. But I think if we look at it, if we were to look forward, the next seven or eight years is going to, I think, be better.

They are longer cycle with accretive growth rates to what we've done historically.

You had the things we've done with the balance sheet capital deployment help ourselves as well. So I think this is a different cycle I mean, it clearly feels different to me.

Theres always all those unknowns geopolitical unknowns and the buyers et cetera.

But I think if you if we look at it we were able to look forward. The next seven or eight years is going to be.

Be better for industrials in the last seven or eight.

That's super helpful. Thank you Tom. Maybe my follow on there is Okay, they stand out from a margin standpoint this this quarter with arrow And it seems like you know, we're still we're still so far off the bottom in that business. I'm just I'm just curious Maybe just just kind of peel back the onion a little bit on on what's what's really kind of driving those strong margins and then Sustainability of those margins moving higher from here

Yes, that's super helpful. Thank you, Tom and maybe my follow on there as well.

Okay stand out from a margin standpoint, this quarter was zero.

And it seems like we're still we're still so far off the bottom in that business I'm. Just I'm. Just curious maybe you can just kind of peel back the onion a little bit on.

What's really kind of driving those strong margins and then sustainability of those margins moving higher from here.

The big help of aerospace is two-fold. One, we were very aggressive in establishing, again, Joe's Tom, establishing a...

<unk> is a big help with aerospace.

Twofold, one we were very aggressive in establishing again, Joe it's Tom.

<unk>.

six-cost structure that was going to be designed to withstand the current conditions, it's flexible enough to withstand the commercial recovery. So we've done that and we were...

Fixed cost structure that was going to be designed to withstand the current conditions and flexible enough to withstand the commercial recovery. So we've done that and we were.

Probably I say one of the more aggressive and quick to do that of our other peers are in aerospace industry. So we have a fixed cost structure that is in a great position to leverage this additional volume.

Probably I'd say one of the more aggressive and quick to do that.

Our other peers are in the aerospace industry with a fixed cost structure that is in a great position to leverage this additional volume.

And then in the near term, you're seeing significantly higher volume from commercial MRO. And that piece is obviously more higher margins, I mean commercial MRO in the last quarter, grew 47%. So those would be the two big things we had, you know, moderate R&D and at low 3% type of level. So you get...

And then in the near term you are seeing significantly higher volume.

From commercial MRO.

And that piece is obviously more.

Higher margins I mean commercial MRO in the last quarter grew 47%. So those would be the two big things we had.

Moderate R&D in that low 3% type of level. So you get additional.

additional volume over a great cost structure and additional volume being the higher margin piece of the portfolio as driving a margin. Just for people, I mentioned this the last quarter but it's even more pronounced now. We're guiding to 21.4.

Volume over a great cost structure and the additional volume being the higher margin piece of the portfolio.

And our margins just for people I mentioned this last quarter, but is even more pronounced now we're guiding to 21 four.

for the full year, and that's against an all-time peak, pre-COVID, a 20 and a half.

For the full year.

And that's against an all time peak pre COVID-19 .

25.

So thats fantastic, it's 90 bps higher than our previous high and were no near nowhere near previous high.

So that's fantastic. It's 90 bits higher than our previous high. And we're nowhere near, nowhere near, previous high.

On revenue for aerospace you've got it so what's going to help Joe going forward, you've got a S case, theyre going to recovery because of <unk>.

on revenue for aerospace. You've got it. So what's going to help Joe go in for it? You've got ASKs. They're going to recovery. You've got the partners that are going to recover. Omni-Kron is probably a silver lining to helping all of us get out of this pandemic. And the aerospace industry will be one of the...

Partners are going to recover.

Neutron.

Probably a silver lining helping all of us get out of this pandemic and the aerospace industry will be one.

The first to recover.

You can look at, there's a lot of different people forecast in the future. When we get back to pre-COVID, I think you can say anywhere from 23 to 25, calendar year, if you look at the middle of that, what a most...

You can look at there's a lot of different people forecast in the future when we get back to pre COVID-19 .

I think you can see anywhere from 23 to 25 calendar year. If you kind of look at the median middle of that and what are the most.

Forecast was saying that you put your kind of 24, but there's a

Forecast for saying that puts you kind of in 'twenty four but theirs.

You're going to have a lot of positives going forward. You've got recovery. We've got Megan.

Youre going to have a lot of positives going forward, you've got recovery, we've got it.

good things we're doing in aerospace as a whole. So we're very positive. If we weren't so positive, we obviously wouldn't have thought, this is put forward.

To continue the good things, we're doing in aerospace as a whole.

So we're very positive we weren't so positive we obviously want to thought.

We think this is a great space to invest.

Makes a lot of sense. Thanks, Tom.

Makes a lot of sense. Thanks, Tom. Yeah, I appreciate the questions, Joe.

Good question Joe.

Thank you. Our next question comes from the line. I have no night old Coke from Wolf Research. Your question, please.

Thank you. Our next question comes from the line of Nigel Coe from Wolfe Research. Your question. Please.

Thanks. Good morning. Hi guys. Just wanted to maybe just pick up on your investment comments. You talked about CAPEX, but I'm just wondering about OPEX investments. And so I'm just wondering if there's a need to catch up on engineering spending, R&D with an aerospace, any common therapy help.

Thanks, Good morning, Hi, guys just wanted to maybe just pick up on your investment comments Tom.

You talked about Capex, but I'm, just wondering about opex investments and so I'm just wondering if there's a need to catch up on engineered spending.

R&D with an aerospace any commentary would be helpful.

Nigel It's Tom I think on the Opex part of things I think we're in good shape.

in NIDILSTOM, I think on the OPEX part of things, I think we're in good shape. What we've learned over time...

We've learned over time is that.

is that innovation is not a function purely a dollar. Yes, you need to invest enough there. It's more a function of work structure, the talent and the processes that you put in place to drive that innovation. So we think we're at a very good level. We're focusing a lot of our R&D by just take the aerospace as an example, more on future component technologies and additive and trying to be ready for our customers when the RFPs come out. And if you wait for the request for proposals to come out,

Innovation is not a function purely of dollars, yes, you need to invest enough. There it's more a function of org structure, the talent and the processes that you've put in place to drive that innovation. So we think we're in a very good level, we're focusing a lot of our R&D. If I just take the aerospace as an example, more on future component technologies.

Additive and trying to be ready for our customers win.

Rfps come out if you wait for the request for proposal to come out and start to your R&D you're too late so you have to look at where the market's going and anticipate those type of things are simple by design process.

start to do your R&D, you're too late. So you have to look at where the market's going and anticipate those types of things.

Our simplified design process is allowing us to innovate much more efficiently. Every new part that we develop is going through the simplified design process.

Process is.

Allowing us to innovate much more efficiently every new product that we develop is going through to simplify design process, because thats going to help us as well I think you weren't asking about Capex I think we will have to add a little capex.

Well, I think you weren't asking about CAPEX. I think we'll have to add a little CAPEX, but it will be immaterial. It would be probably just getting us into the upper ones or close from the 2.0 on the CAPEX side. For productivity, for organic growth, and all those.

It will be immaterial it would be probably just getting us into the upper ones are closer to 2.0 on the Capex side.

For productivity for organic growth and all those kind of things.

And a good example of this and how this has been happening.

And a good example of this.

This has been happening.

And I don't disclose the total numbers, but if you look at the, we added a new metric with 1.33.0, called PBI, Product Vitality, and it's the percent of our sales that are coming from new products, new technology.

I don't disclose the total numbers, but if you look at.

The new metric when should I, just we pointed out called PVA product vitality index since the percent.

Of our sales that are coming from new products, New technologies that have been developed in the last five years and that percentage.

have been developed in the last five years. And that percentage in the last...ego week,

And the last.

Go five years has doubled so as a percentage of the portfolio that is more innovative as a total.

essentially portfolio that is more innovative as a double. One of the things that's going to help us with sustainable growth, and it's one of the things that is helping us with margins because the new products are designed with a more attractive value problem.

One of the things thats going to help us.

With sustainable growth and it's one of the things that is helping us with margins because the new products are designed.

A more attractive value proposition and higher margins.

So that's, I think that's a good indicator, Nigel, that as long as you invest efficiently, you can get nice rewards for that.

Yes.

I think thats, a good indicator Nigel that as long as you are the best efficiently you can get nice rewards for that.

Okay. So it sounds like no.

investment cycle on OPEX. And then just my follow on is, you know, industrial versus North American, international versus North American.

Investment cycle in Opex.

And then just my follow on is.

Industrial this is North America.

International versus North American industrial margins.

you know having covered the park and for a long time in the trouble with lagt north america and within the guide you know international fifty bits above uh... north america uh... so just wondering of going forward do we think that international and north america structural margins will be very simple

Haven't Kevin Pocahontas and for long time industrial deal with North America.

And within the guide.

International was 50 bps above North America.

So I just wanted to know going forward do we think that international and North American structural margins will be very similar going forward.

Yeah, Nigel's Tom again, yes. Yes, I mean, they're there now, and we think they basically should run the same. And...

Nigel It's Tom again, yes, yes.

They are now and we think that basically should run the same.

The great positive optimism for all my international colleagues that are listening. This has been years in the making a fantastic run rate.

If they're great, positive about this and for all my international colleagues that are listening.

This has been years in the making, a fantastic run rate.

really from all the regions outside of North America have contributed as we're seeing margin expansion across all three regions.

Really from all of the regions outside of North America contributed this we're seeing margin expansion across all three regions and the short answer Nigel is just North America and international should basically be about the same as we go forward.

And the short answer, Nigel, is yes, know what the American International should be about the same as we go for.

Great. Thanks.

Thank you. Our next question comes to the line of Joel Tiss from BMO. Your question, please. Joel, welcome Joel. Congratulations on your retirement. Glad you made it. Thanks.

Thank you. Our next question comes from the line of Joel <unk> from BMO. Your question. Please.

Welcome Joe Congratulations on your retirement.

Glad you made it thanks.

While you can see after I ask my question, you might not feel that way.

Well, you see after I ask my question, you might not be able to work.

Yeah.

Now just kidding. So I have one short term one about a net pricing for 2022. Do you think that's going to be positive or you think it's going to continue to be neutral?

No I'm just kidding. So I have one short term one about net pricing for 2022 do you think thats going to be positive or you think it's going to continue to be neutral.

Yeah, Joel, it's also, congratulations. You know, maybe just taking a step back for everybody on the call. I think the one thing that we've established inside this company is a great culture of value-based pricing. So always pricing products for kind of the how we make or save money for our customers.

Yes, Joel it's Lee also congratulations.

Maybe just taking a step back for everybody on the call I think the one thing that we've established inside this company has a great culture of value based pricing, so always pricing products.

For kind of how we make or save money for our customers when we have times of inflation.

When we have times of inflation, you know, we've got great processes internally to gauge pricing, but also what's happening with material costs. And as you know, and I said in the past, our goal is always to be margin neutral. And we've been able to accomplish that for a long period of time.

We've got great processes internally to gauge pricing, but also what's happening with material cost and as you know.

<unk> said in the past our goal is always to be margin neutral and we've been able to accomplish that for a long period of time.

I will tell you what's happening now is just looking at material costs is not enough. Inflation is incredibly broad-based and we've just had to take a very comprehensive look to maintain that margin neutrality. And we were very active in this last quarter. I mean, we saw things ramp up quickly. But to answer your question, I expect to maintain that margin neutrality going.

I will tell you whats happening now is just looking at material costs is not enough inflation is incredibly broad based.

And we've just had to take a very comprehensive look.

To maintain net debt margin neutrality.

And we're very active in this last quarter I mean, we saw things ramp up.

Quickly.

But to answer your question.

I expect.

To maintain that margin neutrality going forward.

And then a longer term question, probably maybe beyond Tom scope or whatever one we're on a win five point out.

And then a longer term question, you know, probably maybe beyond Tom's scope or whatever one we're on, win 5.0. Do you think by 2030 we could see 30 percent evita margin potential? And the reason I'm asking the question is maybe just a little bit of thought process about some of the big strides you have in front of you to get the margins higher than where they are now. Thank you.

Do you think by 2030, we could see.

30% EBITDA margin potential and the reason I'm asking the question is maybe just a little bit of thought process about some of the some of the big the big strides you have in front of you to to get the margins higher than than where they are now. Thank you.

Joel is Tom and I'll let my congratulations as well. And I'm going to maybe just expand for a second. We have always appreciated your honesty, your intelligence, and your sentient humor just like I started this, your questions. And that's refreshing. And it's not always a...

Joel is Tom and I'll add my congratulations as well.

And I'm going to maybe just expand for a second.

Always appreciate it.

Your honesty intelligence and your sense of humor, just like how you started this your questions.

It's refreshing and it's not always.

You don't always get that. And so on behalf of all of us, we thank you. You're a good graduate.

You don't always get and so on behalf of all of US. We thank you and congratulate you for a great career.

on the long side of the 23rd year right school that will be beyond my time. But, you know, we're not a company that views that there's any kind of mile market we can't go past.

On the long side, so 20 to 30 year rates, so that will be beyond my time.

But.

No.

We're not a company that views that there is any kind of middle market. We can't go past and so I won't say that that's a number we could never achieve we're going to give you. The first look at.

So I won't say that that's a number we could never achieve. We're going to give you the first look at our five year when we get together on March 8th. And I think that'll give you the disability where we think we can take the company. But you know, just as you see.

Our five year, when we get together on March eight.

And then I think that'll give you a disability, where we think we can take the company, but just as you have seen that chart at.

beginning of my remarks, what's happened with EBITDA margin? You know, it's at that, like a 45 degree line. And as long as we keep developing technologies and products, they create a distinguishing value that we referenced.

At the beginning of my remarks on what's happened with the EBITDA margin.

It's like a 45 degree line.

And as long as we keep developing technologies and products.

Create a distinguishing value that Lee referenced.

We can attract that kind of margin attainment. So that's not an overnight and you weren't suggesting it's an overnight at 2030. But I view this as we go down the highway of continuous improvement, there's no exit ramps. We're just going to continue to go and keep...

We can attract the kind of margin attainment. So that's not an overnight and you weren't suggesting it's an overnight 2030.

I view this as a as.

As we go down the highway of continuous improvement there is no exit ramps, we're just going to continue to go and keep trying to get better.

And I've mentioned to you, and it's to be the best industrial company that we can.

Spire is.

I mentioned at the beginning of aspire to be the best Industrial company that we can.

Well, thank you very much.

Joel, we greatly appreciate it. You have a wonderful retirement.

Joe.

Greatly appreciate it you have a wonderful retirement.

that you are next question comes in the line of Jamie Cook from Pertitsweez. Your question please.

Thank you. Our next question comes from the line of Jamie Cook from Credit Suisse. Your question. Please.

Hi, good morning and congrats on a nice quarter. You know, Tom, I guess my question again, it relates to the margin performance in the first half of the year and was implied in the back half of the year. I'm just sort of wondering while your-

Hi, good morning, and congrats on a nice quarter.

Tom I guess my question again, it relates to the margin performance in the first half of the year and what's implied in the back half of the year I am just sort of wondering while you are putting up better margins that everyone expects can you sort of talk through.

better margins than everyone expects. Can you sort us talk through?

you know the supply chain, the labor inefficiency, you know some of the headwinds that you're seeing in the margins because it just makes me think that obviously the underlying margins could be much stronger as some of these short-term issues go away. And I guess as I think about that, does that set up Parker, you know, to put up above average and commensals as we think about 2023, it's sort of the world goes back to normal. Thanks.

The supply chain labor inefficiency.

Some of the headwinds.

That youre seeing in the margins because that just makes me think obviously the underlying margins could be much stronger as some of these short term issues go away and I guess as I think about that does that set up Parker.

To put up above average incrementals as we think about 2023, assuming sort of the world goes back to normal.

Jamie, it's Tom. I'll start and we can tag on because Lee's living us as we speak. I mentioned this in the beginning that...

Yeah, Jamie it's Tom I'll start and they can tag on.

Lisa living as we speak I mentioned this in the beginning that.

Arguably the toughest environment in my career.

arguably the toughest environment in my career, and I've been around a long time. This is really a tough environment. If you're a general manager, you're an ops manager, supply chain leader.

I've been around a long time this is really a tough environment in Europe .

Our general manager and ops manager.

Supply chain leader.

Queen inflation.

COVID supply chain disruption really difficult to schedule the shop is difficult to schedule your suppliers

Covid supply chain disruptions really difficult to schedule. The sharpest typical schedule suppliers typical schedule your team members.

team members and apply them. Omni-kron has been, well I think it's gonna be a blessing overall, it's been a blessing we didn't have any of this. It's gonna get us out of it. It's really kind of peaking in January and we'll start to...

And apply them.

<unk> has been.

Well I think it's going to be a blessing overall philosophy, we don't have any of this.

Going to get us out of it it's really kind of peaking in.

In January and will start to decline hopefully here as we go through February but it is impacted absenteeism rates significantly we felt some of that.

February , but it has impacted absenteeism rates significantly.

We felt some of that in the second quarter were feeling much higher absentee.

Second quarter, we're feeling much higher absenteeism rates.

beginning Q3 and the reason why I go through that is just to your point, you know, it underlines how impressive these numbers are. If you're going to factor it and you're trying to hire a bunch of people, train them, and you've got absenteeism significant higher than you used to and you're having to redeploy people, retrain them, cross-training them. You can imagine how difficult it is and any given day you're not sure what the material you want is coming in.

In the beginning of Q3 the reason why it goes through that is it just to your point Jim It underlines how impressive these numbers or if you are going to factor it and youre trying to hire a bunch of people train them and you've got absenteeism significantly higher than you're used to having to redeploy people retrain them Cross train them you can imagine how difficult it is.

And then any given day youre not sure where the material you want it's coming in you can just guess how hard it is and so these numbers are impressive to your point as.

you can just guess how hard that is. And so these numbers aren't impressive to your point as we get through this and it becomes more normal times. That's helpful and we'll kind of indicate that.

As we get through this and it becomes more normal times.

Helpful will kind of indicate that when we get to them.

But the implied guidance in our second half.

IR day, but the implied guidance in our second half.

is quite a bit better than the first half. So 22.3 is what we're applying for a total of margins second half. We did 21.8.

Is quite a bit better than the first half so $22. Three is what we're implying for total op margin in the second half. We did 21 eight in the second half of 'twenty. One so its a 50 bps higher.

second half of 21, so it's a 50-pips higher than prior year. And ironically, it's the same 50-pips higher than what we did in the first half. So you see some that's the quanta growth. I would just help remind you guys to cover so many.

Prior year and Ironically, it's the <unk>.

<unk> 50 bps higher than what we did in the first half.

You see some of that sequential growth I would just.

Helped to remind you that you guys cover so many companies we came out with.

We came out of the, when we started the pandemic, we were very aggressive on taking out costs. So it kind of followed them with no good decodes and punish. We were one of the best companies putting up MRLS at the beginning of the pandemic. Well, we now have to compare against those years and we've been trying to give you apples for apples. You know, this last quarter.

When we started the pandemic, we were very aggressive on taking out cost.

It kind of pulls it does no. Good deed goes unpunished, we were one of the best companies, putting up MRO versus at the beginning of the pandemic, but we now have to compare against those years and we've been trying to give you apples for apples.

This last.

Quarter apples for apples was a 48% incremental the guidance for the second half is around 40% for Q3. This is making apples for apples taking out those discretionary costs in Q4 around 35 again, a full year not.

The guidance for the second half is around 40% for Q3. This is making apples for apples taken out of the...

34 on 35 again a four year Not counting those things turned out to be 30

Not counting those things turns out to be 30.

I think that's a great number. In these kind of environments that you can put up a 30 incremental, you're doing some spectacular work. And again, I want to emphasize Todd said this earlier. A big thank you to Lee and Jenny.

That's a great number and these kind of environment that you can put up a 30% incremental.

Youre doing some spectacular work and again I want to emphasize types of disorder.

Thank you Lee.

Jenny.

and all the good presents and all the people around the world at the such a great job on their facts.

Although group presence in all of the people around the world to such a great job running our factories.

But we'll get more Jamie into what we think we could do in a more normalized world when we show you the targets in IRD. OK.

But we'll get more Jamie into what we think we can do in a more normalized world show you the targets in IR day.

Okay. Thank you I appreciate it.

Thanks, Jamie.

that you are next question comes to the line of Mick DeBray from Baird. Your question, please.

Thank you. Our next question comes from the line of Mig <unk> from Baird. Your question. Please.

Thank you good morning, everyone.

Tom, I remember on the last earnings call, you were talking about supply chain disruption, maybe not so much impacting you, but impacting your customers and their ability to frankly produce and purchase or get deliveries of components from you.

I remember.

Last earnings call you are you.

You were talking about supply chain disruption, maybe not so much impacting you, but impacting your customers.

Their ability to frankly produce.

That purchase.

Get deliveries of components from you.

I'm wondering if you can maybe give us an update here in terms of how things have evolved and as you're looking at the back off the fiscal year, how you think your own customer or your product is going to progress.

I'm wondering if you can maybe give us an update here in terms of how things have evolved.

You're looking at the back half of your fiscal year.

How do you think your own customary thoughts.

Got.

He is going to progress.

Yes, it's Tom.

Yeah, man, it's time. Yes, that is still the case. You get that?

Yes that is still the case.

Look at the whole value chain.

Our customers, our suppliers, and our suppliers, everybody's feeling, everybody's feeling. I would say our, our,

Our customers our.

Our suppliers and our suppliers' suppliers everybody's feeling it everybody is feeling.

I would say are our customers are feeling the worst because they are the top of the food chain our customers are the Oems.

worse because they're the top of the food chain. Our customers are the OEMs. They have the more complicated material. They have more shift dependency and so they have more difficult time.

The more complicated build materials they have more ship dependency.

And so they have a more difficult time.

And so that is still, while everybody's feeling it, and we're clearly not immune, we're feeling it as well, and our suppliers are feeling it, the long pole in a tent.

And so that is still well everybody's feeling it and we're clearly not immune we're feeling it as well.

Players are feeling at the long pole in the tent is still our customers and their ability to demand a more complex bill material coming their way.

to our customers and their ability to manage a more complex film material coming their way. That's part of what makes forecasting sales difficult for us.

That's part of what makes forecasting sales typical for us as we look at our own inputs.

We look at our own inputs, our AI model on feedback from customers and divisions, et cetera. But we do.

AI model, one feedback from customers and divisions.

Et cetera.

We do have to factor in.

Our customers are careful that they're not able to take everything that we can provide them. Because, and I understand why they would do this, why would they want to take our material if they can't put it to use? We were doing the same with ours.

Our customers are careful that they're not able to take everything that we could provide them because and I understand why they would do this why would they want to take our material.

They can't put it to use.

We're doing the same with our suppliers.

That really hasn't changed much since our last conversation. I think in a lot of cases the chip issues, at least the chips that are industry, our customers.

That really hasnt changed much since our last conversation.

And a lot of cases to chip issues at least the chips.

Our industry.

Customers.

our products use are still feeling the pinch point. As a matter of fact, I've probably got a hair worse.

Our products use are still feeling the pinch points in a matter of fact, probably got it here at worse.

We're not forecasting any help on that. Of course, we have the benefit of being a different fiscal year of company.

We started Q3.

We're not forecasting any help on that of course, we had the benefit of being a different fiscal year company.

We've only got five months left to talk about, but we don't see any help within our fiscal year and if help is going to come on that it's going to be more towards the end of the year.

We've only got five months left to talk about.

But we don't see any help within our fiscal year.

If it helps going to come on that is going to be more.

Towards the end of this calendar year.

understood. You talked earlier about the robustness of this industrial cycle, but I guess one of the concerns out there is that the robust order is that you've seen thus far could potentially be a factor of

Understood.

You talked earlier about the robustness of this industrial cycle.

But I guess wanted to concerns out there is that.

Robust orders that you've seen thus far could potentially be a factor.

customers trying to make sure that they do have available components in an environment in which there are shortages out there. So what is your son's as to whether or not this resulted in some unnatural boost to demand or double ordering however you want to characterize.

Customers trying to make sure that they do have avail.

Available component and an environment in which there are shortages out there. So what is your sense as to whether or not.

This resulted in some unnatural boosted demand or double ordering. However, however, you want to characterize it.

Yeah, it's, again, it's time. I would say that, but what we can tell is still predominantly all...

Yes.

Again, Mig it's Tom I would say that from what we can tell it's still predominantly all.

underlined a man and not people trying to worry about getting in line or double order into your point.

Underlying demand and not people trying to worry about getting in line or double ordering to your to your point is that happening.

I would guarantee it probably is happening somewhere because theres no way, 100% predicted.

I would guarantee it probably is happening somewhere because there is no way we could be going 100% to predict that. But my comment is beginning of it.

But my comment at the beginning of this Q&A was more.

Longer term.

This industrial cycle feels like it has stronger legs.

This industrial cycle feels like it has stronger legs from just the recover dynamics capex and the underlying for us the underlying linkage to those secular trends.

just the recovered dynamics, cathbecks and the underlying for us, the underlying linkage of those six.

I think most of what our customers are doing now is just trying to be pragmatic. They're laying in orders that are over a little multiple time periods and they historically would have done, which I think NetNet is a good thing for the whole supply chain.

I think most of what our customers are doing now is just trying to be pragmatic theyre laying in orders that are over multiple time periods and they historically would have done.

Which I think net net is a good thing for the whole supply chain.

Thank you Nicole.

I appreciate it.

Thank you. Our next question comes from the line of David Razzo from Evercore. Your question, please. Hi. Thank you for the time. One question a little longer term and one more near term. With the meeting coming up, last meeting the margin expansion was really focused on simplification.

Thank you. Our next question comes from the line of David Raso from Evercore. Your question. Please.

Good time, one question, a little longer term and one more near term.

With the meeting coming up last meeting the margin expansion was really focus on simplification and then a better mix as distribution grows and within within simplification. Obviously, we had work structure operational complexity, particularly simple by design I was just curious can you give us a little insight on how to think about approaching this.

and then a better mix of distribution grows. And within the simplification office, we had org structure, operational complexity, particularly simple by design. I was just curious, can you give us a little insight on how to think about approaching this meeting? Is this the ability to drive those initiatives further, get a further update on those, or are there other things that we should consider? And then I'll follow up with my...

Meeting.

Is this the ability to drive those initiatives further get a further update on those or are there other things that we should consider and then I'll follow up with my my near term questions.

Yes, Dave as Tom it's going to be a combination of.

Yeah, David's Tom, it's gonna be a combination of...

what were the latest on 3.0 and really give updating on all the changes to 3.0. You know, it's very hard in an earnings call or just even a normal road show that we might be doing but take people through all the different elements of one shade to 3.0. So we're gonna try to do a more comprehensive job of taking you through that and how it can help both growth and our margin expansion. Talk about some kind of changes that we've made. They're gonna help change the behavior and trends.

What were the latest on <unk> and really give updating on all the changes that we put out.

Very hard on earnings call or just even a normal roadshow that we might be doing to take people take people through all the different elements.

<unk>, we're going to try to do more.

More comprehensive job of taking you through that and how it can help both growth and margin expansion talk about incentive changes that we've made they are going to help change the behavior.

Motivation for our team.

We're going to give you an update on the secular trends which are really unique. I mean, when Leonis started our respective jobs.

We're going to give you an update on the secular trends, which are really unique.

When Lee and I started.

Respective jobs.

This whole ESG phenomenon electrification digitization.

phenomena, the electrification, digitization. They were there, but not at the same kind of extent, with the same kind of momentum and cat-bex investment that's going to happen around there. And we really are, and we want to try to get people better understanding of how our portfolio is going to change. Now the content changes because of those trends. So it will be a lot of time like that. And then it'll all come out in a forecast of what we think the five-year goals are going to be. So that's it. And that's your kind of high-level timeline.

It was there but not at the same kind of extent with the same kind of momentum and Capex investment that's going to happen around there and we really want to try to give people a better understanding of how our portfolio is going to change and how the content changes because of those trends b a lot of time on that and then it will all come out in our forecast.

What we think the five year goals are going to be so that that's what I'm not sure what kind of a high level.

Online.

Our agenda for the meeting.

helpful. Thank you and just real quick I know the guide we can debate conservative enough.

That's helpful. Thank you.

And just real quick I know the guide, we can debate conservative or not on the revenue but.

In particular, the international revenues for the back half of the year implied only growing 1%. Despite the order just came in 14 and I suspect some of its currency weighing on it but.

The international revenues for the back half of the year implied only growing 1% despite the

and I suspect some of its currency weighing on it. But anything we should be thoughtful about on why if you look at where the guide in the back half seems a little, at least raises.

We should be thoughtful about on why if you look at where the guide in the back half seems a little at least.

Raises an eyebrow Westwood international slowed that much.

Great David, it's Tom and Tak and Tag on it, but I've missed something here. So I'll give you what I have. I don't know where you're getting the 1% but I'll give you what we're seeing for the second half. I'm gonna give you the organic numbers. So we are raising the guide, it was 6% for the second half for all end tool company, the 7%.

Okay, David it's Tom and talking to tag on if I've missed something here. So I'll give you what I have I don't know.

In the 1%, but I'll give you what we're seeing for the second half I am going to give you the organic numbers.

So we are raising the guide was 6% for the second half for all lend to accompany to 7%.

<unk>.

just to kind of provide context at 7%.

Just to kind of provide context at 7%.

is against the 10% that we did in the prior second half. So again, it's kind of the two-year stack. It's 7% on top of 10%. If I split out the segments for you to get to the 7% or the America second half.

As against the 10% that we did in the prior second half. So again, it's kind of a two year stack, it's 7% on top of 10%.

I split out the segments for you to get to the 7% North America second half.

is around 8.5% international is 5, so it's not 1, it's 5% organic. And the aerospace is approaching 7.

Is around 85% international is five so it's not one 5% organic.

Aerospace is approaching 7% and that's how you get to the total number of 7%.

Yeah, that was just at your right. You mentioned currency. You know, we're forecasting between three and a half and four points of negative impact in the international.

Yes, David I would just add you're right you mentioned currency.

We're forecasting between three five and four points of negative impact in the international segment, just from where the currency rates are today, we are not trying to forecast those going forward. It's just a year over year comparison.

just from where the currency rates are today. We're not trying to forecast those. Going forward is just a year over year compared.

Kind of put that in perspective, we had less than one in the first half so that's probably a little bit about that.

So that's the gap between the five and one. I appreciate it. Thank you so much.

That's the gap between the firing one central right. Okay. I appreciate it. Thank you so much.

Thanks, David.

Yes.

Thank you, Arnachian Compton line of Jeff Sprague, from Vertical Research, your question plate.

Thank you Orange comes from the line of Jeff Sprague from vertical research your question. Please.

Thank you. Good morning. Morning. Hey Todd, you laid out how your FX heads on financing for make it. Could you just update us on what if any interest rate risk you have just on the actual financing cost itself?

Thank you good morning, good morning, Jeff Good morning.

Todd you laid out how your FX hedge on financing for make it could you just update us on what if any.

Great risk you have just on the actual financing cost itself.

Yeah, you know, we've got a very flexible plan here. You know, we've talked a little bit about that. It's going to be a mix of commercial paper, a mix of cash. We did take out a deferred drop term loan. And then the remaining of that is yet to be determined. We've looked at it. We feel good with...

Yes.

Got a very flexible plan here.

We've talked a little bit about that it's going to be a mix of.

Commercial paper a mix of cash.

Did take out a deferred draw term loan and then the remaining of that is yet to be determined.

Looked at it we feel good with.

The rates that we're seeing so.

the rates that we're seeing. So, you know, I guess we could give you more info on that as we get a little bit closer to.

I guess, we could give you more info on that as we get a little bit closer to.

taking action on that but we've got the team looking at it and we feel really good with the total cost of

Taking action on that but we've got a team looking at it and we feel really good with the total cost of.

That for this transaction.

So you're not proactively locking anything else in front of the trend. No, we've looked at that because the closed timing is uncertain, you know, the break even on that just because...

We're not proactively locking anything else in.

In front of the right.

We've looked at that because the close timing is uncertain.

The breakeven on that just becomes a little bit challenging.

Understood.

understood. And then, you know, Lee mentioned, you know, we need to think more about raw maps and I totally agree. I just wonder if you could address labor a little bit more Tom mentioned how.

And then Lee.

Lee you mentioned, we need to think more about raw mats and I totally agree I just wonder if you could address labor a little bit more Tom mentioned Hal.

you know hard people are working in the factories and the like uh... can you just maybe give us a little bit of a context of how significant labor is in terms of

People are working in the factories and the like.

Can you just maybe give us a little bit of context of how significant labor is in terms of your direct cost in cogs or any other kind of way to frame up the labor component of the cost structure.

your direct cost in COGS or any other kind of way to frame up the labor component of the cost structure.

Yeah, I'm not sure I can be that specific for you, but I think the one thing I was thinking about on time was talking, the one reason we've able to come through is two years of pandemic is really the culture around our high performance teams, driving all these processes that are embedded inside the company around lean talent supply chain.

Yes, Im not sure I can be that specific for you, but I think the one thing I was thinking about it what Tom was talking the one reason we've been able to come through this too.

Two years of pandemic is really the culture around our high performance teams driving all these processes that are embedded inside the company around lean talent supply chain.

and the way there's just this culture of ownership. And what's been rewarding for me to see is, you know, we have had a spike in absenteeism rate.

And the way to assist this culture of ownership.

And what's been rewarding for me to see is we have had a spec spike in absenteeism rate.

But our teams figure it out. They prioritize what needs to get done, our local teams figure it out. There's certainly an increase in cost in different markets in flavor.

But our teams figure it out they prioritize what needs to get done our local teams figure it out.

There is certainly an increase in cost.

Different markets inflation.

to sum it all up in one number, I can't do that for you, but I can tell you costs are going up and all the support costs that go with it. But, bottom line is it's really our team that keeps working all the way through this to help us achieve these results.

In order to somewhat all but one number I can't do that for you, but I can tell your costs are going up and all the support costs that go with it but bottom line is it's really our team.

Keeps working all the way through this to help us achieve these results.

Thanks, a lot I'll leave it there.

I appreciate it Jeff.

Thank you, our next question comes in line of Joe O'Day from Wells Fargo. Your question, please.

Thank you. Our next question comes from the line of Joe O'dea from Wells Fargo. Your question. Please.

Hi, good morning everyone. I wanted to start on supply chain and experience over the past few months and your confidence in kind of stabilization of peak pain if you think we see that kind of this past quarter and the quarter we're in right now, anything you have in terms of visibility on things getting better. And then within that any characterization of differences you see on the North America side versus the international side on supply chain.

Hi, good morning, everyone.

Hi, I wanted to start on supply chain and experienced over the past few months and your confidence in kind of stabilization of peak pain. If you think we see that kind of this past quarter in the quarter. We're in right now anything you have in terms of visibility on things getting better and then within that any characterization.

<unk> of differences you see on the North America side versus the international side on the supply chain.

Joe It's Tom.

Hey, Joe, it's Tom. I would say that I don't seek any better than mentioned earlier within the fiscal year. If I had to say it's probably this crown quarter we're in.

I would say I don't see it getting better as I mentioned earlier.

Within the fiscal year, if I had to say, it's probably this current quarter. We're in is probably the toughest that we're going to experience some hoping it's the toughest.

probably the toughest that we're going to experience, at least I'm hoping.

with all things considered. I think we've weathered it pretty well and probably the best indicator.

With all things considered I think we've weathered it pretty well and probably the best indicator.

Our ability to weather has been that incremental margin conversion in our margin expansion. That's really the punchline. Are you able to digest inflation, supply chain disruptions, absenteeism, everything? It all ends up in how you do in a margin. Are you expanding margins? Are you converting incremental revenue to a direct kind of pace? And we've been able to do that part of our success.

Our ability to weather has been that.

Rental margin conversion in our margin expansion, that's really the punch line are you able to digest inflation supply chain disruptions.

Absent theism everything.

All ends up and how you're doing our margins are you expanding margins are you converting incremental revenue a direct kind of pace and we've been able to do that part of our success.

on supply chain is historical. We've taken the approach historically that we wanna make by and sell local for local. Yes, we have global supply chains and we look.

On <unk> is historical.

Taken the approach historically that we want to make buy and sell local for local yes, we have global supply chains and we look at.

Augmenting local sources, but we've always been from a service and a customer experience standpoint, and trying to be local to speed to market et cetera. So that localization has helped us a lot and a lot of it because a lot of the pain points are tied to logistics as we're all aware and then we've we've had a pretty good risks.

augmenting local sources, but we've always been from a service and a customer experience standpoint trying to be local to and speed to market et cetera. So that localization has helped us a lot and a lot of because a lot of the pain points are tied to logistics is where we're. And then we've we've had a pretty good risk mitigation strategy around dual sources, but we're spending a lot of time on that. So I would tell you going forward we're going to add more dual sources.

<unk> strategy around dual sources, but.

But we're spending a lot of time on that so I would tell you going forward, we're going to add more dual sources, which I am not the only CEO in the world. It's thinking that that's a good infrastructure thing for us equipment needs et cetera building needs.

I'm not the only CEO in the world that's thinking that, so that's a good infrastructure thing for us. Quit the need.

We're going to do that. We're also going to be deploying simplified design on our suppliers because as we help them with designs that are easy for them to make, obviously that makes it easy for them to produce and add a better...

We're going to do that we're also going to be.

Deploying simple by design on our suppliers because as we help them with designs that are easy for them to make obviously that makes it easy for them to produce at a better cost et cetera.

North America is more challenged in general because it has tougher logistic challenge.

North America is more challenged in general because it has tougher logistics challenges.

That would be first, and the second, it has tougher labor challenges. I think Europe , in particular, did a better job of retaining people during the pandemic, through various different number of programs that they had.

That would be first and the second is tougher labor challenges I think Europe .

In particular did a better job of retaining people.

During the pandemic.

Repairs to number of programs that they had.

The period by country, but.

Didn't lay people off and retain people and we did a lot of that as well and so I think they are labor availability in there.

did a lot of that as well. And so I think their labor availability and their logistics are running smoother than

The logistics are running smoother than North America, and that's how I would characterize the differences.

Got it and then a related one on the Incrementals when you talk about adjusted Incrementals in a stronger first half of the year than the back half of the year.

Got it. And then a related one on the incrementals when you talk about adjusted incrementals in a stronger first half of the year than a back half of the year. What within that change is operational versus how much of that is more a function of comps and mix and factors like that that we would consider, you know, more non-operational elements of a step down in the incremental in the back.

What within that change is operational versus how much of that is more a function of comps.

And mix and factors like that that we would consider.

Non operational elements of a step down in the incremental in the back half.

Well incrementals or Incrementals based on operating margins. So that they are all operating.

Well, incremental is based on operating market, so that they're all operating. The difference should be, what I mentioned.

The difference would be.

I had mentioned that one of the questions.

We put up some incredible incrementals in that first year.

We put up some incredible incrementals in that first year.

Okay.

You can go back and mention that we were clearly top 4 to 11, maybe not one of the best.

You could go back and benchmark, we were clearly top quartile, maybe not deep.

The best Incrementals of any industrial company. So we're comparing against that so that's that's a difficult comparison and then of course, we've tried to take you through making an apples to apples we had discretionary one offs that we have savings all of the people taking pay cuts beginning.

So we're comparing against that. So that's a difficult comparison. And of course, we try to take you through making an apples to apples. We had discretion in one off, that we'd savings. All the people.

Again, it depends on which does not repeating and so the apples for apples.

the pandemic is not repeating. So the apples for apples, I mean our first half this year is in the upper 40s.

First half this year.

As in the upper <unk> when you do apples for apples Incrementals, which is absolutely fantastic that's fantastic in normal times and everything is running smoothly and to do it in these kind of times. It's just.

That's fantastic. That's fantastic in normal times and everything's running smoothly. And they do it in these kind of times.

Incredible.

Yeah, Joe, I would just add, you know, it does get, because of those discretionary savings kind of ramped down as we went back to normal operations, the adjustment does get lower in the second half. So the comparable is 25 million in Q3 and goes down to 10 million in Q4. So, you know,

Yes, Joe I would just add it does get.

Because those discretionary savings kind of ramp down as we went back to normal operations.

The adjustment does get lower in the second half. So the comparable is $25 million in Q3, it goes down to $10 million in Q4. So.

Q1 was 125 million in Q2 was 65 million. So you can see that start to ramp down there.

but you're not saying that there's something about supply chain that's getting tougher or that labor is driving some meaningful change within those that.

But you are not saying that there is something about supply chain and its getting tougher or that labor is driving some meaningful change within the back half.

Alright, thank you.

Thank you. Our next question comes to the line of Scott Davis from Melios Research. Your question, please. Good, Doc.

Thank you. Our next question comes from the line of Scott Davis from Melius Research. Your question. Please.

Good morning, guys and congrats on a great. Another big result here.

Thanks, Scott, we appreciate that I've got.

The problem I got a couple of things.

I get a couple things. I first just just hearing all these questions. I mean it...

First just hearing all of these questions.

Kind of raises that.

Good question I mean, there's working capital needed almost be permanently higher.

I mean, is working capital need to almost be permanently higher the next two, three, even potentially four or five years because of all these disloving?

The next two three even potentially for five years because of all these dislocations and such.

Kind of throw a little bit of a monkey wrench into some of your traditional lean practices.

No, Scott, we don't believe it as we believe that this is a short term response to the

No Scott we don't believe it is we believe that this is a short term response to the.

If you look at us over the longer period of time, you can see that we have done a wonderful job managing working capital. It still is, early days on some of the recent acquisition. I do think we have some upside there as well. The other thing I would say is if you look at our second half, historically the second half, is really where we started to get a little bit more leverage from the working capital side of the fence. And that's exactly what we...

The spike in demand.

If you look at us over the longer period of time, you can see that we have done a wonderful job managing working capital.

It still is early.

Early days on some of the recent acquisition so.

I do think we have some upside there as well but.

The other thing I would say is if you look at our second half historically the second half is really where we've started to get a little bit more leverage from the working capital side of the fence and Thats exactly what we expect to see in the second half of 'twenty two.

You know, it's always a little bit tougher in a growth environment, but that's a good problem to have. And I'm really happy with the way the teams are managing this across the entire company.

It's always a little bit tougher in a growth growth environment, but thats.

That's a good problem to have and I'm really happy with the way. The teams are managing this across across the entire company.

As Tom if I would add on.

Our inventory levels.

Now we have lots of opportunity.

go for that will be a source of cash for us.

And as we go forward that will be a source of cash for us once we get through the more normal supply chain conditions.

Okay. That's helpful. And then this is kind of a little bit Big picture I mean, if you went back and you looked at your original deal models and CLARCOR, Lord and exotic.

And then this is kind of a little bit big picture. I mean, if you went back and you looked at your original deal models in Clarkor, Lord and exotic, I mean, where I hate to have you rank your children, but where have you been?

Hate to heavy ranked your children, but where have you been most pleased.

Pleased with the.

The upside I know theres, a little bit different duration on each of these a little unfair to compare but when you think about trying to normalize the trajectory.

But when you think about trying to normalize the trajectory, I mean, you know, what's standing out, anything in particular.

Sure.

What standing out.

Anything in particular that you would note on those three big deals.

So Scott, I'll try, I'm rugged and I'm up against the time for sure to try to be quick with this. We could not be happy with all three, so you're right, it's gonna like it well.

Scott.

Recognize them up against the time for sure try to be quick with this we could not be happier, but all three of its youre right its kind of like it.

picking for your three children, which would be like best, so you'd like them all. They've all achieved their margin targets that we wanted. They've all done what we would expect as far as growth resilience and being increased growth. I think...

Picking for your three children, which do you like best.

All they are all achieved their margin targets that we wanted.

If all Donald we would expected as far as growth resilience and being accretive to growth I think.

Board in particular brought some unique best practices around.

Florida in particular brought some unique best practices.

Around how we do.

commercial strategies which were applying across the company and they've all been accretive accretive on parole accretive on margins and accretive on EPS

Commercial strategies, which we're applying across the company and they've all been accretive accretive on growth accretive on margins and accretive on EPS.

And so that.

Design intent, when we started, they lived up to their billing a lot times, it's not the case.

The design intent, we started they lived up to their billing a lot of times, it's not the case. So we are happy but.

Yeah, hey Jonathan, just to be respectful of everyone's time, I don't think we have time for another question, so I apologize to those that didn't get on the call.

Yeah, Hey, Jonathan just to be respectful of everyone's time I don't think we have time for another question. So I apologize to those that didn't get on the call.

This really concludes our FY22 Q2 earnings webcast. As always, Robin and Jeff are gonna be available for the rest of the day. If you need any clarifications or questions, and I just ask everyone that try to stay warm, stay safe, stay safe, and have a great afternoon. Thanks for your interest in Parker, and thanks.

This really concludes our FY 'twenty to Q2 earnings webcast as always Robin and Jeff are going to be available for the rest of the day. If you need any clarifications are questions and I'll just ask everyone that.

Tried to stay warm stay state stay safe and have a great afternoon.

Thanks for your interest in Parker and thanks for joining us today.

that you ladies and gentlemen for participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

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