Q2 2024 Parker-Hannifin Corp Earnings Call - Q&A

Greetings and welcome to the Parker Hannifin fiscal 2024 second quarter earnings conference call and webcast.

At this time all participants are in a listen only mode.

Brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

Speaker Change: It is now my pleasure to introduce your host Todd Liam Bruno Chief Financial Officer. Thank you you may begin.

Speaker Change: Well, Thank you Diego and good morning, everyone. Welcome to Parker Hannifin fiscal year 2024 second quarter earnings release webcast as Diego said this is sadly and Bruno Chief Financial Officer speaking.

Speaker Change: I'm here today, with our chairman and Chief Executive Officer, Jenny Parmentier.

Speaker Change: We know that this is an extremely busy day for everyone and we appreciate you joining us and we appreciate your interest in Parker.

Speaker Change: On slide two you'll see our disclosures addressing forward looking projections and non-GAAP financial measures actual results could vary from our forecast based on the items listed here. Our press release this presentation and reconciliations for all non-GAAP financial measures were released this morning and are available under the investors section at Parker Dot com.

Speaker Change: The agenda for today is journey, starting with the highlights of our record second quarter.

Speaker Change: He is also going to.

Speaker Change: Reinforce how our portfolio our team members and the win strategy our business system are driving margin expansion and position Parker for a very bright future.

Speaker Change: To add some color on the financial results in a few details on the increase to our guidance that we released this morning and after that we're going to open up the lines and Jenny and I will take any questions from those in the queue.

Speaker Change: I'd now ask you to move to slide three and Jenny I'll turn it over to you. Thank you Chad good morning to everyone and thank you for joining our call today Q2 was a quarter of exceptional.

Jenny Parmentier: Excellent operating performance driven by all of our team members executing the win strategy.

Jenny Parmentier: Starting with safety, a 16% reduction in recordable incidents of our prior Q2.

Speaker Change: He has been and will remain our top priority.

Jenny Parmentier: Record sales of $4 8 billion in the quarter, a 3% increase over prior year with organic growth of 3% Rec.

Jenny Parmentier: Record adjusted segment operating margin of 24, 5%, a 300 basis point increase over prior year with all segments expanding margin and adjusted EPS growth of 29% along with 11, 9% year to date free cash flow margin.

Jenny Parmentier: Aerospace strength with the significant driver of our performance in the quarter.

Jenny Parmentier: We now expect to achieve $200 million in cumulative synergies in fiscal year 'twenty for a.

Jenny Parmentier: $50 million increase to our original guide for this fiscal year.

Jenny Parmentier: We remain committed to achieving $300 million in synergies by fiscal year 'twenty.

Jenny Parmentier: And our backlog remains resilient at $10 $8 billion.

Jenny Parmentier: We had a strong finish to the first half and as a result are increasing fiscal year 'twenty four guidance. Tom will go over this later in the slide deck next slide please.

Tom: I'd like to spend a few minutes highlighting the power of the entire Parker portfolio.

Tom: We have a technology powerhouse and interconnected solution that delivers value for customers in both aerospace and industrial markets. Today, two thirds of our revenue comes from customers, who buy four or more of the technologies you see across the top of this page and two thirds of our portfolio product.

<unk> that we have today enables clean technologies.

Operator: Greetings and welcome to the Parker Hannafin Fiscal 2024 Second Quarter Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode; a brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Tom: Next slide please.

Tom: Parker has significant content on leading aerospace programs.

Tom: And our comprehensive product offering with proprietary design on premier programs.

Tom: On the upper left hand side of this page is our first half sales mix by application.

Tom: You see a nice balance of commercial and military as well as business Jets regional transport and helicopters.

Operator: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Todd Liam Bruno, Chief Financial Officer. Thank you. Well, Diego.

Tom: This diverse aerospace and defense exposure allows us to have multiple products and technologies on every major aircraft program globally. Many of them seen along the bottom of this page.

Todd Liam Bruno: And good morning, everyone. Welcome to Parker Hannafin's fiscal year 2024 second quarter earnings release webcast. As Diego said, this is Todd Liam Bruno, our Chief Financial Officer, speaking. And I'm here today with our Chairman and Chief Executive Officer, Jenny Parmatoon. We know that this is an extremely busy day for everyone, and we appreciate you joining us, and we appreciate your interest in the park. On slide two, you'll see our disclosures addressing forward-looking projections and non-GAAP financial measures. Actual results could vary from our forecast based on the items listed here. Our press release, this presentation, and reconciliations for all non-GAAP financial measures were released this morning and are available under the investor section at Parker.com. The agenda for today has Jenny starting with the highlights of our record second quarter.

Tom: All of this adds up to be a compelling value proposition for all of our aerospace customers.

Tom: Next slide please.

Tom: And equally compelling is our global distribution network.

Tom: Imperative differentiator for Parker.

Tom: 50% of our diversified industrial revenue is through distribution are high margin channel, serving aftermarket and small to medium sized Oems our.

Our distribution partners integrate Parker technologies that solve customer problems they.

Tom: They are truly an extension of Parker sales and engineering team.

Tom: Building on this success at the North American distribution channel, we continue to drive an increasing revenue mix of 100 basis points per year in international markets.

Todd Liam Bruno: She's also going to reinforce how our portfolio, our team members, and the wind strategy, our business system, are driving margin expansion and positioning Parker for a very bright future. I'm going to add some color on the financial results and a few details on the increase to our guidance that we released this morning. And after that, we're going to open up the lines, and Jenny and I will take any questions from those in the queue. I now ask you to move to slide three, and Jenny, I'll turn it over to you. Thank you, Ted.

Tom: This past December we held our North America National sales meeting for the first time since the pandemic.

Tom: Nearly 100 distribution partners attended the meeting along with Parker divisions and sales teams.

Tom: It was great to have everyone together again and despite the Destocking, we've been talking about for several quarters. The overall sentiment in town was very positive for the future.

Next slide please.

We continue to be very proud of our margin expansion progress our people our business system the win strategy and our portfolio have truly transformed parkers performance. The progress can be seen in every segment on this page.

Jenny Parmatoon: Good morning to everyone, and thank you for joining our call today. Q2 was a quarter of exceptional results. Excellent operating performance driven by all of our team members executing the win strategy. Starting with safety, a 16% reduction in recordable incidents over the previous two days. Safety has been, and will remain, our top priority.

Tom: In addition to our core strategies on lean pricing and procurement win 3.0 initiatives like simple by design.

Tom: Our focus on demand forecasting zero defects and productivity and automation will take us to 25% adjusted operating margin and beyond.

Jenny Parmatoon: Record sales of $4.8 billion in the quarter, a 3% increase over the prior year, with organic growth of 3%. Record Adjusted Segment Operating Margin of 24.5%, a 300 basis point increase over the prior year, with all segments expanding margins. And Adjusted EPS growth of 29%, along with 11.9% year-to-date free cash flow margin. Aerospace strength was a significant driver of our performance in the quarter. We now expect to achieve $200 million in cumulative synergies in fiscal year 24, a $50 million increase over our original guidance for this fiscal year.

Tom: Every strategy and tool in the win strategy expands margins.

Tom: I'll now turn it back to Todd.

Todd: Thanks Jenny.

Todd: Turning to slide nine and I'm, just going to really quickly go through the FY 2000 for Q2 financial summary.

Todd: As Jenny mentioned in the second quarter was an extremely strong.

Todd: For us it was a great finish to the first half of our fiscal year and once again the team set an unbelievable amount of records for the quarter. If you look at this slide every number in that gold column is a second quarter record.

Todd: Set new highs for sales segment operating margin EBITDA margin net income and earnings per share.

Jenny Parmatoon: We remain committed to achieving $300 million in synergies by fiscal year 2016, and our backlog remains resilient at $10.8 billion. We had a strong finish to the first half, and as a result, we are increasing fiscal year 24 guidance. Tal will go over this later in the slide.

Todd: Total sales growth was plus three in the quarter all of that 3% was organic just a reminder, this is the first full quarter that we have mega in both the current and prior year periods. The net impact of divestitures and currency basically offset each other divestitures was slightly unfavorable at 0.3.

Jenny Parmatoon: I'd like to spend a few minutes highlighting the power of the entire Parker Portfolio. We have a technology powerhouse of interconnected solutions that delivers value for customers in both aerospace and industrial markets. Today, two-thirds of our revenue comes from customers who buy four or more of the technologies you see across the top of this page. And two-thirds of our portfolio, the product solutions that we have today, enable clean technology. Next slide.

Todd: Currency was slightly favorable at 0.5, when you look at the margins Jennie already mentioned this but 'twenty 'twenty four five was an increase of 300 basis points versus prior year.

And adjusted EBITDA margin reached $25 seven that was an increase of 330 basis points versus prior year.

Todd: You take a look at net income we did $802 million on an adjusted basis that is a 66% return on sales that was a 30% increase versus prior year and lastly, adjusted earnings per share a record for the quarter of $6 15.

Jenny Parmatoon: Parker has significant content on leading aerospace programs. We have a comprehensive product offering with proprietary design on the Premier Program. On the upper left-hand side of this page, you can see our first half sales mix by application. You can see a nice balance of commercial and military, as well as business jets, regional transport, and helicopters.

Todd: That was up 29% from prior just an exceptional second quarter and again unbelievable margin expansion and what I really like about it it was very consistent across all of our businesses as Jenny just shared on that last slide.

Todd: If you go to slide 10. This is the earnings per share bridge and this chart really shows.

Jenny Parmatoon: This diverse aerospace and defense exposure allows us to have multiple products and technologies on every major aircraft program globally, many of them seen along the bottom of this page. All of this adds up to be a compelling value proposition for all of our aerospace customers. Next slide

Todd: <unk>, what a high quality quarter. It was for the company the 29% and adjusted.

Todd: Adjusted earnings per share that amounted to an additional $1 39.

Todd: Earnings per share in the quarter main driver of this continues to be excellent operating performance. If you look at segment operating income dollars that increased by $173 million in the quarter that accounted for just a little over a dollar of that EPS growth.

Jenny Parmatoon: And equally compelling is our global distribution network, a competitive differentiator for Parker. 50% of our diversified industrial revenue is through distribution, a high-margin channel serving aftermarket and small to medium-sized OEMs. Our distribution partners integrate Parker Technologies that solve customer problems.

Todd: And that equated to 74% of the increased earnings per share in the quarter clearly aerospace systems was a major driver of improvement, but what is really impressive as both industrial businesses also contributed to the increase in segment operating income dollars. If you look at tax that was <unk> 18 favorable versus prior year.

Jenny Parmatoon: They are truly an extension of Parker's sales and engineering team. Building on the success of the North American Distribution Channel, we continue to drive an increasing revenue mix of 100 basis points per year in international markets. This past December, we held our North American National Sales Meeting for the first time since the pandemic.

Todd: Again, just driven by some discrete items other expense was favorable <unk> versus prior year that was mainly the result of currency changes and some favorable pension expense.

Todd: Interest expense was 10 cents favorable versus prior that really as a result of our successful efforts to reduce outstanding debt over the last 12 months I'll talk about that in a little bit.

Jenny Parmatoon: Nearly 100 distribution partners attended the meeting, along with Parker Divisions and Salesforce. It was great to have everyone together again, and despite the destocking we've been talking about for several quarters, the overall sentiment and tone was very positive for the future. Next slide.

Todd: Later in the deck corporate G&A and share count, we're just both slightly higher than prior year.

Todd: Just a net <unk>.

Todd: And those are the components of the increase in adjusted earnings per share relates to strong margin performance across the company.

Jenny Parmatoon: We continue to be very proud of our margin expansion progress. Our people, our business system, the win strategy, and our portfolio have truly transformed Parker's performance. The progress can be seen in every segment on this page.

Todd: Continue with some great outstanding performance from the Mega business.

Todd: If you go to the next slide.

So excuse me if you go to slide 11.

Todd Liam Bruno: In addition to our core strategies on lean pricing and procurement, Win 3.0 initiatives like Simple by Design, our focus on demand forecasting, zero defects, and productivity and automation will take us to 25% adjusted operating margin and beyond. Every strategy and tool in the WIN strategy expands margins. I'll turn it back to Todd. Okay.

We will talk about the segment performance as detailed on slide 11.

Todd: Couldnt be prouder of the broad based margin expansion really driven by the win strategy. Jenny mentioned this but our synergies are ahead of schedule. We did increase that synergy number aerospace demand really remains very very high so just a nice consistent execution across our businesses across all of our.

Todd Liam Bruno: Thanks, Jenny. I'm going to start on slide 9, and I'm just going to really quickly go through the FY24-Q2 financial summary. As Jenny mentioned, the second quarter was an extremely strong quarter for us. It was a great finish to the first half of our fiscal year, and once again, the team set an unbelievable number of records for the quarter. If you look at this slide, every number in that gold column is a second quarter record.

Todd: Team members you can see that segment operating margin of $24 five at the bottom of the page up 300 basis points Incrementals were stellar at over 100% and orders remained positive at plus two.

Todd: Versus prior year and backlog really remains resilient totaled back locked dollars did increase slightly sequentially as well and Jay mentioned this but total backlog remains at near record levels and aerospace activity remains especially robust. If you look at the North American businesses sales volume reached $2 1 billion in the quarter Ori.

Todd Liam Bruno: We set new highs for sales, segment operating margin, EBITDA margin, net income, and earnings per share. Total sales growth was plus 3% in the quarter, and all of that 3% was organic.

Todd: Unit growth was down one 5% versus prior year.

Todd Liam Bruno: Just a reminder, this is the first full quarter that we have MEGIT in both the current and prior year periods. The net impact of divestitures and currency basically offset each other. Divestitures were slightly unfavorable at 0.3, and currency was slightly favorable at 0.5. When you look at the margins, Jenny already mentioned this, but 24.5 was an increase of 300 basis points for the prior year, and the adjusted EBITDA margin reached 25.7. That was an increase of 330 basis points for the prior year. If you take a look at net income, we did $802 million on an adjusted basis. That is a 16.6% return on sales.

Todd: That was driven by continued Destocking, some channel rebalancing and really some softness in the off highway markets. However, what is impressive out of the North American team is that adjusted operating margins did increase 240 basis points to a second quarter record of 24, 2% that was just really driven by excellent execution.

Todd: <unk>, some great efficiency improvements and really some tight cost controls.

Todd: Orders in North America also remain consistent to prior quarter. They remained at down by minus four.

Todd: If you look at the international businesses sales were $1 4 billion slightly positive versus prior year organic growth was essentially flat, which was better than we were forecasting organic growth in EMEA was positive at <unk>, 7% Latin America was positive at nine two.

Todd Liam Bruno: That was a 30% increase versus the prior year. And lastly, adjusted earnings per share, a record for the quarter, $6.15. That was up 29% from the prior. Just an exceptional second quarter, and again, unbelievable margin expansion. What I really like about it is that it was very consistent across all of our businesses, as Jenny just shared on that last slide. If you go to slide 10, this is the earnings per share bridge, and this chart really shows what a high-quality quarter it was for the company. The 29% in adjusted earnings per share, that amounted to an additional $1.39 of earnings per share in the quarter.

Todd: In Asia Pac did improve it did come in at negative two five really just being pulled down by the slower than expected recovery in China.

Todd: But also what's impressive there is adjusted operating margins did expand 110 basis points in these businesses, but also finished at a second quarter record of 23%.

Todd: That international team continues to be focused on productivity improvements.

Todd: Expanding margins and being very resilient across the segment, even in a low growth environment very impressive results orders in the international segment did improve as you remember last quarter. They were minus eight they didn't improve to minus five and finally on aerospace systems delivered another standout quarter sales reached one.

Todd Liam Bruno: The main driver of this continues to be excellent operating performance. If you look at segment operating income dollars, that increased by $173 million in the quarter. That accounted for just a little over a dollar of that EPS growth, and that equated to 74% of the increased earnings per share in the quarter. Clearly, aerospace systems was a major driver of improvement, but what is really impressive is that both industrial businesses also contributed to the increase in segment operating income dollars. If you look at tax, that was $0.18 favorable versus prior year, again, just driven by some discreet items. Another expense was favorable $0.12 versus prior year. That was mainly the result of currency changes and some favorable pension expense. Interest expense was $0.10 favorable versus prior. That really is a result of our successful efforts to reduce outstanding debt over the last 12 months. I'll talk about that a little bit later in the deck.

Todd: One 3, billion% to 15% increase from prior year all of that 15% is organic growth and volume just continues to be driven by commercial aftermarket growth that was in the quarter up 25% operating margins reached a new record increasing by 590 basis points to reach 26 five.

Todd: Really the healthy volumes the favorable aftermarket mix outstanding performance from the Mega business.

Todd: Really all contributed to drive these record margins.

Todd: We are increasing the synergies journey went over that just briefly.

Todd: Cumulative synergies were increasing from $150 million to $200 million in order rates in aerospace continue.

Todd: To remain.

Todd Liam Bruno: Corporate G&A and share count were both slightly higher than the prior year, just a net $0.03. And those are the components of the increase in adjusted earnings per share. Really, it's just strong margin performance across the company, continued with some great outstanding performance from the Megan business. If you go to the next slide.

Todd: Plus 21, which is very robust.

Todd: The next slide we will talk about cash flow, let's take a look at what we've done there our year to date cash flow from operations.

Todd: Is one $4 billion, that's 14% of sales that is an increase of 26% versus prior year.

Todd: Just fantastic cash flow performance. If you look at free cash flow that was $1 1 billion Thats up 11, 9% also increasing significantly 29% increase from prior our cash flow conversion is year to date, 86%. We really have the team remains focused on being great generators and great players of cash.

Todd Liam Bruno: So, excuse me, if you go to slide 11, we'll talk about the segment performance. That's detailed on slide 11. Can't be prouder of the broad-based margin expansion, really driven by the wind strategy. Jenny mentioned this, but our synergies are ahead of schedule. We did increase that synergy number.

Todd: <unk> heard us say that many times.

Todd Liam Bruno: Aerospace demand really remains very, very high. So, just a nice, consistent execution across our businesses, across all of our global team members. You can see that segment operating margin, 24.5 at the bottom of the page, up 300 basis points. Incrementals were stellar at over 100%.

Todd: Last week, our board approved a quarterly dividend of $1 48 per share that is our 295th consecutive quarterly dividend just a nice solid.

Todd: Testament to our belief that we can be great generators and create deploys of cash when you look at the full year, we are increasing our expectations for free cash flow.

Todd Liam Bruno: And orders remain positive at plus 2, first prior year, and backlog really remains resilient. Total backlog dollars did increase slightly sequentially as well, and Jenny mentioned this, but total backlog remains a near record, and Aerospace Activity Remains Especially Robust. If you look at the North American businesses, sales volume reached $2.1 billion in the quarter, but organic growth was down 1.5% versus the prior year.

Todd: We've increased that range to $2 8 billion to $3 1 billion, that's moving the midpoint up $150 million to approximately $3 billion and of course free cash flow conversion will be over 100% for the full year.

Todd: On the next slide let's take a look at our progress on deleveraging, we did reduce debt another $400 million in the quarter and just a reminder, since we closed mega just five quarters ago, we have reduced debt by over $2 2 billion now and we've improved our leverage by one four turns both have both of those figures are ahead of us.

Todd Liam Bruno: That was driven by continued destocking, some channel rebalancing, and really some softness in off-highway markets. However, what is impressive about the North American team is that adjusted operating margins did increase 240 basis points to a second quarter record of 24.2%. That was just really driven by excellent execution, some great efficiency improvements, and really some tight cost control. Orders in North America also remained consistent with the prior quarter. They remain at down minus one.

Todd: We originally committed to.

Todd: If you look at the metrics gross debt to adjusted EBITDA is now two four net debt to adjusted EBITDA is two three and we continue to forecast just approximately $2 billion of debt Paydown.

In the fiscal year.

Todd: And now based on the performance we've got a year to date, we expect to achieve net leverage of two <unk> times by June of 2024, just great performance across the board.

Todd Liam Bruno: If you look at the international businesses, sales were $1.4 billion, slightly positive versus the prior year. Organic growth was essentially flat, which was better than we were forecasting. Organic growth in EMEA was positive at $0.7, Latin America was positive at $9.2, and Asia Pac did improve. It did come in at a negative $2.5, really just being pulled down by the slower-than-expected recovery in China.

Speaker Change: Okay on guidance just a few details on guidance you saw the increase to guidance, we are reaffirming our full year organic growth midpoint, and increasing our margin and earnings per share expectations for the year. Our reported sales growth for the year is forecasted to be in the range of three to five or roughly 4% at the midpoint and they are.

Speaker Change: Our model of 49% first half, 51% second half in respect to organic growth, we are raising the aerospace organic growth midpoint by 200 basis points to 12% for the full year. We are also raising the international organic growth midpoint by 100 basis points to minus two at slightly better than what we gave you.

Todd Liam Bruno: But also, what's impressive there is adjusted operating margins did expand 110 basis points in these businesses and also finished at a second quarter record of 23%. That international team continues to be focused on productivity improvements, expanding margins, and being very resilient across the segment, even in a low-growth environment. Very impressive. Quarters in the international segment did improve. If you remember last quarter, they were minus 8.

Speaker Change: Last quarter.

Speaker Change: Those increases are offset by a decrease in the north American organic growth midpoint by 200 basis points to minus one five.

Speaker Change: Full year organic growth for the entire company remains the same as last quarter at plus one five.

Todd Liam Bruno: They did improve to minus 5. And finally, on aerospace systems, they delivered another standout quarter. Sales reached 1.3 billion, a 15% increase from the prior year.

Speaker Change: Moving on to margins adjusted segment operating margin guidance is being raised to 24 three at the midpoint, that's up 70 basis points from prior guidance and if you look at it on a year over year basis that would be 140 basis points of margin expansion versus prior year.

Todd Liam Bruno: All of that 15% is organic growth, and volume just continues to be driven by commercial aftermarket growth that was up 25% in the quarter. Operating margins reached a new record, increasing by 590 basis points to reach 26.5.

Speaker Change: Mega synergies, we've talked a lot about that we're moving that to $200 million.

Speaker Change: Corporate G&A interest and other are relatively unchanged from our prior guide.

Speaker Change: Raise tweak just a little bit we expect the full year to be 22, five that's really based on the performance in the first half we expect the second half to be $23 seven from a tax rate perspective.

Todd Liam Bruno: Really, the healthy volumes, the favorable aftermarket mix, and outstanding performance from the MEGIT business really all contributed to drive these record margins. We are increasing the synergies. Jenny went over that just briefly.

Speaker Change: Full year as reported earnings per share increased to $20 30.

Speaker Change: And full year adjusted earnings per share has increased to 24 2000 and both of those are at the midpoint.

And finally for our FY 2000 for Q3 adjusted earnings per share, we expect that to be $6, even at the midpoint.

Todd Liam Bruno: Cumulative synergies are increasing from $150 million to $200 million. And order rates in aerospace continue to remain plus 21, which is very good. On the next slide, we'll talk about cash flow. Let's take a look at what we've done there. Our year-to-date cash flow from operations is $1.4 billion, that's 14% of sales.

Speaker Change: And as usual we've included some more specifics in the appendix. So thats. It on the increase the guide Jenny I will hand, it back to you and ask everyone to move to slide 15. Thank you a few key messages to close this out.

Jenny Parmentier: Q2, as we stated many times is an exceptional quarter and closed a strong first half we will continue to drive positive results and accelerate our performance using the win strategy.

Jenny Parmentier: Our portfolio and strengthened customer value proposition along with growth from secular trends will deliver organic growth of 46% over the cycle.

Todd Liam Bruno: That is an increase of 26% versus the prior year. It is just fantastic cash flow performance. If you look at free cash flow, that was $1.1 billion, that's up 11.9%, also increasing significantly, a 29% increase from prior. Our cash flow conversion is year-to-date 86%. We really have the team remaining focused on being great generators and great deployers of cash. You've heard us say that many times. Last week, our board approved a quarterly dividend of $1.48 per share.

Jenny Parmentier: We remain committed to our FY 'twenty seven targets of approximately $30 earnings per share and greater than $3 $5 billion of free cash flow.

Jenny Parmentier: Another year of record performance and we have a very promising future ahead of us.

Jenny Parmentier: We look forward to talking to you about our promising future and our investor meeting on May 16th of this year.

Speaker Change: And can you touch Okay Diego, we're ready to open the lines for Q&A and we will take whoever is first in the queue.

Speaker Change: Thank you.

Speaker Change: And to remind everyone to ask a question press star one on your telephone keypad.

Todd Liam Bruno: That is our 295th consecutive quarterly dividend. Just a nice, solid testament to our belief that we can be great generators and great deployers of cash. When you look at the full year, we are increasing our expectations for free cash flow. We've increased that range from $2.8 billion to $3.1 billion. That's moving the midpoint up $150 million to approximately $3 billion. And, of course, free cash flow conversion will be over 100%. On the next slide, let's take a look at our progress on deleveraging. We did reduce debt by another $400 million in the quarter.

Speaker Change: Formation tone will indicate your question queue. You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Speaker Change: Our first question comes from Joe Ritchie with Goldman Sachs. Please state your question.

Joseph Alfred Ritchie: Hi, good morning, everyone and great quarter.

Joseph Alfred Ritchie: Joe Thanks, Jeff.

Joseph Alfred Ritchie: Hey, the first place I'd like to start is just around North America. So clearly good color, yes, Todd and what the guidance implies but it looks like your order rate or at least stabilizing there even though you took down the growth guidance for the year. So maybe let me just talk a little bit about what youre seeing across the us and mark.

Joseph Alfred Ritchie: And whether youre seeing any stabilization or green shoots on your North America industrial.

Todd Liam Bruno: And just a reminder, since we closed MEGA just five quarters ago, we have reduced debt by over $2.2 billion now. And we've improved our leverage by 1.4 turns. Both of those figures are ahead of what we originally committed. If you look at the metrics, gross debt to adjusted EBITDA is now 2.4, and net debt to adjusted EBITDA is 2.3.

Joseph Alfred Ritchie: Sure. Joe This is Jenny so yes, we did we did see as Todd said, a negative one 5% organic.

Jenny Parmentier: Decline in Q2.

Jenny Parmentier: We've had four consecutive quarters with negative orders now, but as as Todd stated.

Jenny Parmentier: The orders did remain the same as last quarter at minus four.

Todd Liam Bruno: And we continue to forecast just approximately $2 billion of debt paid out in the fiscal year. And now, based on the performance we've had year-to-date, we expect to achieve net leverage of 2.0 times by June of 2020. Just great performance across the board. Okay, on guidance. Just a few details on guidance. You saw the increase in guidance. We are reaffirming our full-year organic growth midpoint and increasing our margin and earnings per share expectations for the year. Our reported sales growth for the year is forecasted to be in the range of 3 to 5, or roughly 4% at the midpoint, and they are modeled 49% first half, 51% second half. In respect to organic growth, we are raising the aerospace organic growth midpoint by 200 basis points, to 12% for the full year. We are also raising the International Organic Growth Midpoint by 100 basis points to minus two. That's slightly better than what we gave you last quarter. Those increases are offset by a decrease in the North American organic growth midpoint by 200 basis points to minus 1.5.

Speaker Change: What I would say is that.

Speaker Change: Destocking in the channel continued.

Speaker Change: Saw weakness in off highway primarily construction in Q2.

Some weakness in transportation and automotive and heavy duty.

Speaker Change: Did.

Speaker Change: Talk last quarter about this inventory rebalancing and destocking not only through distribution, but also at the OEM level with customers dealerships dealers and then we did anticipate this to go into calendar year 'twenty four.

Speaker Change: I would say overall.

Speaker Change: Destocking is in line with our expectation expectation for Q2, North America, which it's a little worse.

Speaker Change: It's been a year since it started and it's going to continue into the second half here and that's what we that's what we have in the guide.

Speaker Change: Backlog remains strong.

Speaker Change: We had this longer horizon at backlog strength, and I would say that as I mentioned earlier.

Speaker Change: Distribution sentiment is very positive and we haven't seen any major cancellations or.

Speaker Change: Our push outs out there right now so.

Speaker Change: We lowered the guide the two 5% on this continued destocking and the software off highway we think we're going to continue.

Speaker Change: See it will be construction again and AG two this quarter.

Todd Liam Bruno: Full year organic growth for the entire company remains the same as last quarter at plus 1.5. Moving on to margins, Adjusted Segment Operating Margin guidance is being raised to 24.3 at the midpoint. That's up 70 basis points from prior guidance, and if you look at it on a year-over-year basis, that would be 140 basis points of margin expansion versus the prior year. Megatsynergy, as we've talked a lot about that, we're moving that to $200 million. Corporate G&A, interest, and other are relatively unchanged from our prior guide, although the tax rate is tweaked just a little bit. We expect the full year to be $22.5.

Speaker Change: But.

Speaker Change: Rod.

We're feeling good about this guide right now.

Speaker Change: Hey, Joe This is Tom I would just add if you look at the total industrial business right and totaled it kind of came in exactly as we were expecting youre exactly right. There was a little bit of a shift from North America into.

The international markets, but when you look at the total reported sales of at least what we're guiding to.

Tom: These are really very very close to all time highs when it comes to volume. So we feel really good about that we think we can continue to expand margins. Despite what's going on with the choppiness in the order market. So we feel really good about that.

Todd Liam Bruno: That's really based on the performance in the first half. We expect the second half to be $23.7 from a tax rate perspective. Full year, as reported, earnings per share increased to $20.30.

Speaker Change: Yes, that's great color from both of you I guess my quick follow on there at the margin performance.

Speaker Change: Right.

Speaker Change: Kind of weaker growth expectation in North America, and really across our industrial businesses have been incredible last couple of quarter Youre above 24%. So I guess the question is like is 24% kind of a new baseline for the industrial businesses going forward.

Todd Liam Bruno: And full year adjusted earnings per share has increased to $24. Both of those are... And finally, for FY24-Q3 Adjusted Earnings Per Share, we expect that to be $6, even at the midpoint. And as usual, we've included some more specifics in the appendix. So that's it on the Increase the Guide. Jenny, I will hand it back to you and ask everyone to move to slide 15.

Speaker Change: Joe It's a great question like I said in the comments couldnt be prouder of the team.

Speaker Change: We talk about this all the time the win strategy every single item on that one strategy as a margin enhancing a set of tools and it really is.

Joseph Alfred Ritchie: Rewarding to see the team put up numbers like that.

We have a target set out there we want the company to be at 25% segment operating margin, we have not achieved that yet we will achieve that there is no doubt.

Jenny Parmatoon: Thank you, Todd. A few key messages to close us out. Q2, as we've stated many times, was an exceptional quarter that closed a strong first half. We'll continue to drive positive results and accelerate our performance using the win strategy. Our portfolio and strengthened customer value proposition, along with growth from secular trends, will deliver organic growth of 4-6% over the cycle. We remain committed to our FY27 targets of approximately $30 earnings per share and greater than $3.5 billion in free cash flow.

Joseph Alfred Ritchie: But we're just keeping an eye on what's happening with the top line and obviously, we're doing everything we can.

Joseph Alfred Ritchie: Within the four walls of our facilities to make sure that we keep pushing that number higher.

Speaker Change: And just to add I mean.

Speaker Change: Our culture is one of continuous improvement and we're just we're never never waiting for a downturn.

Speaker Change: Using all the tools in the win strategy to expand margins and <unk>.

Again, I have to Echo Tom's comments, we couldn't be prouder of the team.

Speaker Change: They're just really doing a really nice job in a slower growth environment.

Speaker Change: Fact that to continue.

Operator: We expect another year of record performance, and we have a very promising future ahead of us. We look forward to talking to you about our bright future at our investor meeting on May 16th this year. Okay, Diego. We are ready to open the lines for Q&A, and we'll take whoever is first in the queue. Thank you. And to remind everyone, to ask a question, press star 1 on your telephone keypad. A confirmation tone will indicate you're in the question queue. You may press star 2 if you would like to remove your question from the queue.

Speaker Change: Great. Thank you both.

Speaker Change: Thanks, Jeff.

Speaker Change: Our next question comes from Julian Mitchell with Barclays. Please state your question.

Julian Mitchell: Hi, good morning.

Julian Mitchell: Maybe just wanted to understand on the international business.

Julian Mitchell: In industrial orders have been down I think for five quarters now.

Julian Mitchell: You slightly took up the sales guide.

Julian Mitchell: What's your impression of sort of where we are in that or does downturn.

Maybe help us understand sort of what on the revenue side changed a little bit.

Joseph Alfred Ritchie: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from Joe Ritchie with Goldman Sachs. Please state your question. Hi, good morning everyone and a great quarter. Morning, Joe. Thanks, Joe. Hey, the first place I'd like to start is just around North America.

Julian Mitchell: And we're thinking it's sort of a very gradual maybe we find a flaw in the next couple of quarters and then a very gradual recovery thereafter across those main regions in international.

Julian Mitchell: Thanks, Joanne this is Jenny.

Speaker Change: Listen we've been saying, it's been choppy and international now for several quarters, but.

Speaker Change: Call it flat organic growth in Q2.

Speaker Change: As Todd said orders did improved from minus eight in Q1 to minus five in Q2.

Jenny Parmatoon: So clearly, good color, you know, Todd, and what the guidance now implies, but it looks like your order rates are at least stabilizing there, even though you took down the growth guidance for the year. So maybe just talk a little bit about what you're seeing across those end markets and whether you're seeing any stabilization or green shoots in your North American industrial business. Sure, Joe, this is Jenny.

Jenny Parmentier: Europe EMEA had positive organic growth of 7% and was better than our forecast as you said.

Jenny Parmentier: Due to some resilience in our filtration business and favorable project business timing, we did see Destocking continue.

Jenny Parmentier: We see some softness in off highway and industrial markets.

Jenny Parmentier: In Asia Pacific.

Jenny Parmentier: I mentioned, the two 5% organic decline.

Jenny Parmatoon: So yeah, we did, as Todd said, you know, a negative one and a half percent organic decline in Q2. We've had four consecutive quarters with negative orders now, but as Todd stated, the orders did remain the same as last quarter at minus four. You know, what I would say is that de-stocking in the channel continued. We saw weakness in off-highway, primarily construction, in Q2, some weakness in transportation and automotive, and in heavy duty.

China recovery is still slow and we did see some low single digit positive growth for China in Q2, but again.

Jenny Parmentier: Against a much easier comp from the Covid shutdown last year. So.

Jenny Parmentier: Off highway construction remains soft.

Jenny Parmentier: Asia Pacific Transportation.

Jenny Parmentier: Truck I would say that India does remain a bright spot in Asia Pacific when we look forward.

Jenny Parmentier: That.

Jenny Parmentier: Full year organic growth improved 100 basis points really due to the strength, we saw in Q2 and an improvement in orders in Asia Pacific.

Jenny Parmatoon: You know, we did talk last quarter about this inventory rebalancing and de-stocking, not only through distribution but also at the OAM level with customers and dealerships, and that we did anticipate this to go into calendar year 24. So I would say overall, destocking is in line with our expectation for Q2, but North America was just a little worse. It's been a year since it started, and it's going to continue into the second half here, and that's what we have in the guide.

Jenny Parmentier: We do expect that Europe, Destocking will continue and that softness that I mentioned in Q2 off highway and industrial markets will continue.

Jenny Parmentier: Again, China recovery still slow.

Jenny Parmentier: But the team is doing a great job controlling the cost and giving margin performance in the region.

Jenny Parmentier: And I would say that when you look at the rest of Asia.

Jenny Parmentier: Japan, and Korea, it's still pretty soft in semicon.

Jenny Parmentier: But again southeast Asia and India.

Jenny Parmentier: Look good right now.

Speaker Change: That's helpful. Thank you and then just my follow up on aerospace.

Jenny Parmentier: Systems.

Jenny Parmentier: Maybe help us understand sort of.

Jenny Parmatoon: But the backlog remains strong. We had this longer horizon of backlog strength, and I would say that, as I mentioned earlier, distribution sentiment is very positive. We haven't seen any major cancellations or pushouts out there right now.

Jenny Parmentier: Is it more volume or price, perhaps seen in commercial that drove the revenue guide uplifts of arrow.

Jenny Parmentier: On the synergies point.

Jenny Parmentier: It came in with a much stronger margin than I think people were expecting for the second quarter.

Todd Liam Bruno: So we lowered the guide to 2.5% on this continued destocking and the softer off highway we think was going to continue. We see it'll be construction again and agriculture too this quarter. But, you know, we're from. We're feeling good about this guy right now. Hey, Joe, this is Todd.

Jenny Parmentier: Aerospace.

Jenny Parmentier: Help us understand kind of any bucket of those synergies that's coming in.

Jenny Parmentier: Ahead of plan.

Jenny Parmentier: Yes, Julien this is Todd I'll start on the increase to the to the top line. Obviously, you could see demand across all verticals in the aerospace business is extremely strong if you look at what we did in the quarter, 15% organic growth in the quarter that gave us the confidence to raise the second half.

Todd Liam Bruno: I would just add, you know, if you look at the total industrial business, right, in total, it kind of came in exactly as we were expecting. You're exactly right; there was a little bit of a shift from North America into international markets. But when you look at total reported sales, at least what we're guiding to, these are really very, very close to all-time highs when it comes to volume. So we feel really good about that. We think we can continue to expand margins despite what's going on with the shopping mall and the order markets. So we feel really good. Yeah, that's a great color from both of you.

Jenny Parmentier: That has been a big plus if you look at within the business the mix is.

Jenny Parmentier: 47% aftermarket.

Jenny Parmentier: And that was higher than we were forecasting so that was a part of driving that margin expansion and we've talked about this now for a year on an.

Jenny Parmentier: On Mega and our base aerospace business. It really is the volume is certainly a help to that but it's really the team working through the efficiency of the supply chain is still a little noisy on the aerospace side of the business, but it's really the team start to.

Todd Liam Bruno: I guess my quick follow-on there is like the margin performance, despite the, you know, kind of weaker growth expectations, you know, in North America and really across your industrial businesses has been incredible. Last couple of quarters, you're above 24%. So I guess the question is, like, is 24% kind of a new baseline for industrial businesses going forward? Joe, it's a great question. Like I said in the comments, I couldn't be prouder of the team.

Jenny Parmentier: Perform in a normalized environment when it comes to that so that's what gave us comfort aerospace yes.

Jenny Parmentier: Obviously with pulling the synergies ahead, we've had some great performance by the team.

Jenny Parmentier: We've done a really nice job delayering, the organization and getting it into the Parker Division structure and now we're really we're really starting to see the benefits of implementing the win strategy.

Todd Liam Bruno: You know, we talk about this all the time, the win strategy. Every single item on that win strategy is a margin-enhancing set of tools. And it really is rewarding to see the team put up numbers like that. You know, we have a target set out there. We want the company to be at 25% operating margin. We have not achieved that yet.

The team is really doing a nice job.

Jenny Parmentier: As Ted said, we expect this to continue volume volume always helps.

Speaker Change: Great. Thank you.

Speaker Change: Thank you. Our next question comes from Scott Davis with Melius Research. Please state your question.

Scott Reed Davis: Hey, good morning, everybody good morning, Todd Good morning.

Scott Reed Davis: Just kind of a nuanced question excuse if you think it's weird but.

Jenny Parmatoon: We will achieve that. There is no doubt. But, you know, we're just keeping an eye on what's happening with the top line, and obviously, we're doing everything we can within the four walls of our facilities to make sure that we keep pushing that number higher. And Joe, I would just add, I mean, you know, our culture is one of continuous improvement. And we're just, we're never waiting for a downturn. We're using all of the tools in the win strategy to expand margins. And again, I have to echo Todd's comments. We couldn't be prouder of the team.

Scott Reed Davis: Your gross margin is just it has gone up a ton right.

Scott Reed Davis: Covid kind of 25% today 35 plus percent.

Scott Reed Davis: Op margins have gone up.

Scott Reed Davis: Call It 500 basis points or so in that same timeframe, but.

Scott Reed Davis: It's a future margin improvement that you guys see do you think it will come more from gross margin and kind of SG&A leverage or would we expect a balanced there I guess, it's it's a nuanced question, but I'm kind of fascinated with it feels like there could be some upsell.

Joseph Alfred Ritchie: They're just really doing a really nice job in a slower growth environment, and we expect that to continue. Great, thank you both.

Scott Reed Davis: Upside.

Scott Reed Davis: Operating margins, perhaps beyond even what you've shown today.

Julian Mitchell: Thanks, Jeff. Our next question comes from Julian Mitchell with Barclays. Please state your question. Hi, good morning.

Speaker Change: Yes, Scott it's a great question, it's something we.

Speaker Change: Look at intensely.

Speaker Change: The organization I think there is upside on both areas to be totally honest with you.

Jenny Parmatoon: Maybe just wanted to understand the international business in industrial, you know, orders have been down, I think, for five quarters now. You know, you slightly took up the sales guide. What's your impression of sort of where we are in that orders downturn? You know, maybe help us understand sort of what on the revenue side changed a little bit. And are we thinking it's sort of a very gradual, you know, maybe we'll find a flaw in the next couple of quarters and then a very gradual recovery thereafter across those main regions in international trade? Thanks, Julian. This is Jenny.

Speaker Change: But you are right. If you look at what we've done and it depends on if youre looking at the as reported gross margin number there is a lot of noise in there from the.

Speaker Change: Purchase accounting transactions over the last year, but this quarter was was fairly clean so I expect it to stay.

Speaker Change: At the high levels that it was at this quarter and obviously improve from there.

Speaker Change: We are constantly looking at SG&A and reinventing ourselves everywhere that we do business.

Speaker Change: So I really do think that there is potential in both areas.

Speaker Change: Just pile on a little bit there.

Speaker Change: The win strategy tools apply to the entire business right. So I agree with <unk> would be in both places and I mentioned earlier some of the.

Jenny Parmatoon: So, you know, listen, we've been saying it's just been choppy in international for several quarters. But, you know, flat, call it flat organic growth in Q2. As Todd said, orders did improve from minus 8 in Q1 to minus 5 in Q2. In Europe, EMEA, had positive organic growth of 0.7 percent.

Speaker Change: Win strategy initiatives that came with three point out and you look at simple by design just yielding benefits.

Speaker Change: Everywhere up and down and then some of the initiatives that we have around <unk>.

Jenny Parmatoon: It was better than our forecast, as you said, really due to resilience in our filtration business and favorable project business timing. We did see de-stacking continue. We saw some softness in off-highway and industrial markets. When in Asia Pacific, Todd mentioned a two-and-a-half percent organic decline.

Speaker Change: Demand forecasting, allowing us to better analyze demand better staff are.

Speaker Change: Our factories really be able to serve the customer better really reduce our overall cost of service to the customers. So that that's really a plus and then our zero.

Speaker Change: <unk> initiatives.

Jenny Parmatoon: The Chinese recovery is still slow. I mean, we did see some low single-digit positive growth for China in Q2, but again, it was against a much easier comp from the COVID shutdown last year. So, you know, off-highway construction remains soft in Asia Pacific.

Speaker Change: Lot of.

Speaker Change: A lot of activity.

Speaker Change: Around producing a product 100% quality, the first time and Thats a lot of cost reduction there. So just a lot of tools in our toolbox to continue to expand margins.

Jenny Parmatoon: Transportation, truck, I would say that, you know, India does remain a bright spot in Asia Pacific. When we look forward, you know, that full-year organic growth improved 100 basis points really due to the strength we saw in Q2 and an improvement in orders in Asia Pacific. We do expect that Europe's destocking will continue and that softness that I mentioned in Q2, off-highway and industrial markets will continue. Again, China's recovery is still slow, but, you know, the team is doing a great job controlling the cost and giving margin performance in the region. And, you know, I would say that when you look at the rest of Asia. Japan and Korea are still pretty soft in Semicon, but again, Southeast Asia and India look good right now.

Speaker Change: <unk>.

Speaker Change: A lot of nice work done across the board by all the teams the high performance team structure really lends itself to.

Speaker Change: Improvements throughout the whole organization so.

Speaker Change: It's not going to be in just one area be across the board.

Speaker Change: Okay.

Speaker Change: That's super helpful I'm going to leave it at that you guys are doing a great job.

Speaker Change: Best of luck in 2024, thank you.

Speaker Change: I appreciate it thank you.

Speaker Change: Our next question comes from Nicole <unk> with Deutsche Bank. Please state your question.

Nicole: Yeah. Thanks, Good morning, gentlemen, good morning, Todd.

Nicole: Good morning, Paul.

Nicole: Just maybe starting with the cadence of EPS, Yes, I think just looking back at normal seasonality you typically see like a step up in the second half from the first half for QQ. However, you want to look at it I guess what are the key puts and takes that you're embedding more of like a step down at the midpoint this year.

Todd Liam Bruno: That's helpful, thank you. And then just my follow-up on aerospace systems, you know, maybe help us understand sort of, you know, is it more volume or price, perhaps, in commercial that drove the revenue guide uplift for Aero? And, you know, on the synergies point, it came in with a much stronger margin than I think people were expecting for the second quarter in aerospace. Maybe help us understand kind of any bucket of those synergies that's coming in ahead of plan. Yeah, Julian, this is Todd.

That's a great question, we looked at that a lot as we put this guidance together.

Nicole: What I like about the guide is the EPS is evenly split now first half second half. It's 50 50, so theres no big.

Nicole: Big ramp in the second half that that should be concerning.

Nicole: I would call out for Q1 and Q2, obviously those were both record numbers when it comes to EPS. So.

Nicole: I think that's a little bit of the driver there.

Nicole: Aerospace business remains strong we have no concerns about that business whatsoever, but we did see some softness in the north American businesses, and obviously international got a little bit better, but it's still.

Todd Liam Bruno: I'll start. On the increase in the top line, obviously, you can see demand across all verticals in the aerospace business is extremely strong. If you look at what we did in the quarter, 15% organic growth in the quarter, that gave us the confidence to raise the second half. That has been a big plus.

Nicole: A little Choppiness out there so that's really the.

Nicole: Elements that went into our guide if you look at both of those.

Nicole: Orders in really the second half of the year I mean, we really are still guiding at the record levels of earnings per share.

Todd Liam Bruno: If you look at within the business, the mix, it's 47% aftermarket. That was higher than we were forecasting, so that was a part of driving that margin expansion. And we've talked about this now for a year on MEG-IT and our base aerospace business. It really is, the volume has certainly helped that. But it's really the team working through efficiency.

Speaker Change: Totally understood. Thanks, Todd and then just going back to some of the order trends you guys give really good color around the international revenues that you saw but what actually improved sequentially in the orders going from the dominate to the downside in <unk>. Thank you.

Speaker Change: Asia Pacific orders improved in the quarter.

Todd Liam Bruno: The supply chain is still a little noisy on the aerospace side of the business, but it's really, the team is starting to perform in a normalized environment when it comes to that, so that's the game to come. Yeah, you know, we've obviously, with Pulling the Synergies Ahead, we've had some great performances by the team. We've done a really nice job, you know, de-layering the organization and getting it into the Parker Division structure. And now, you know, we're really starting to see the benefits of implementing the win strategy. So the team's really doing a nice job, and as Todd said, we expect this to continue. Volume, volume always helps.

Speaker Change: Got it.

Speaker Change: Danny I'll pass it on.

Danny: Thanks Neil.

Danny: Our next question comes from Nathan Jones with Stifel. Please state your question.

Nathan Hardie Jones: Good morning, everyone.

Nathan Hardie Jones: Morning.

Nathan Hardie Jones: I'm going to start up on capital allocation now that the balance sheet is.

Nathan Hardie Jones: Much better order post paying down a lot of the debt of Mega.

Nathan Hardie Jones: Going back to maybe around two times and net leverage at the end of 2020 fall can you talk about.

Nathan Hardie Jones: About your willingness to get back into the M&A market.

Jenny Parmatoon: Great, thank you. Thank you. Our next question comes from Scott Davis with Mellius Research. Please stand by.

Nathan Hardie Jones: We're in a bit of a different interest rate environment than we were when you bought <unk> you were.

Nathan Hardie Jones: Little over three five turns of leverage.

Scott Reed Davis: Hey, good morning, everybody. Morning, Jenny and Tom. Jeff. It's just kind of a nuanced question, if they think it's weird, but...

Nathan Hardie Jones: By that what your appetite is for.

Nathan Hardie Jones: Levering up given the different interest rate environment and priorities for that versus M&A.

Scott Reed Davis: Your gross margin is just, it's gone up a ton, right? Pre COVID, kind of 25% today, 35 plus percent. Outmarches have gone up. I'd call it 500 basis points or so over the same time frame. But is a future margin improvement that you guys see, do you think it'll come more from gross margin than any kind of SG&A leverage, or would we expect a balance there? I guess it's a nuanced question, but I'm kind of fascinated with it. It feels like there could be some upside to operating margins, perhaps beyond what you've seen. Yes, Scott, it's a great question. It's something we look at intensely across the organization. I think there's upside to both areas, to be totally honest with you, but you're right.

Nathan Hardie Jones: Thank you Nathan this is this is jenny well.

Jenny Parmentier: First of all as we've said that debt.

Jenny Parmentier: Pay down is our number one priority, but as Todd mentioned, we are ahead of schedule for achieving around that to point out a number by the end of this fiscal year.

Speaker Change: One thing I would say is that.

Jenny Parmentier: We never let the pipeline go dry we're always working the pipeline, we've built a lot of relationships over the years.

Jenny Parmentier: And that's how we wound up with these great companies in our portfolio.

Jenny Parmentier: And we continue to do that.

Jenny Parmentier: We have to have the right deal and has to be the right the right property out there.

Jenny Parmentier: We still want to be the consolidator of choice, we like all of our <unk> technology, we do see an opportunity to build on the entire portfolio, we want that to be driven by secular trends and longer cycle faster growing more resilient businesses.

Todd Liam Bruno: If you look at what we've done, and it depends on, you know, if you're looking at the as-recorded gross margin number, there is a lot of noise in there from the purchase accounting transactions over the last year, but this quarter was fairly clean, so I expect it to stay at the high levels that it was at this quarter and obviously improve from there. We are constantly looking at SG&A and reinventing ourselves everywhere that we do business. So I really do think that there is potential. Yeah, I just pile on a little bit there, you know, the wind strategy tools apply to the entire business, right, so I agree with Todd, it would be in both places, and I mentioned earlier some of the wind strategy initiatives, you know, that came with 3.0, and, you know, you look at Simple by Design, just yielding benefits, you know, everywhere, up and down, and then some of the initiatives that we have around demand forecasting, you know, allowing us to better analyze demand, better staff our factories, really be able to serve the customer better, really reduce our overall cost of service to the customer, so that's really a plus, and then, you know, our Zero Defect initiative, you know, a lot of activity around, you know, producing a product 100% quality the first time, and that's, you know, a lot of cost reduction there, so just a lot of tools in our toolbox to continue to expand margins, and, you know, a lot of nice work done across the board by all the teams, the high performance team structure really lends itself to improvements throughout the whole organization, so it's not going to be in just one area, it's going to be across the board. That's. That's super helpful.

Jenny Parmentier: And we want it to.

Jenny Parmentier: Be accretive to margins EPS and cash flow cell.

Jenny Parmentier: We will keep this pipeline going and.

Jenny Parmentier: We'll be we'll be looking for that right deal.

Speaker Change: And I mean would you be willing to do something like three five turns of leverage and then de lever off the bat again, given the change of the interest rate environment.

Speaker Change: Lower number kind of your ceiling.

Speaker Change: Given the interest rate environment.

Speaker Change: Hey, Nick this is Tom I'll take a stab at that so listen we're not we're not trying to do anything bigger than what we've done.

Tom: Jenny said it I think very well, we're trying to make sure we do the right deal.

Speaker Change: Bill for the company for the shareholders.

Speaker Change: What we have proven is as we have proven that we can delever quickly.

Speaker Change: We.

Speaker Change: Generate cash like we've never done before and.

Speaker Change: I think what we've been as we've been creative with the way we structure those deals that allows us some flexibility on that so.

Speaker Change: <unk>.

Speaker Change: I don't think we would we wouldn't be afraid to do something like what we did before but we don't necessarily have to do that.

Speaker Change: Doesn't present itself.

Speaker Change: Fair enough thanks for taking the questions.

Speaker Change: Thanks, Dave Thank you Nathan.

Speaker Change: Yes.

Speaker Change: Our next question comes from Mig <unk> with Baird. Please state your question.

Mig: Alright. Good morning. Thank you for the question just to follow up on that discussion with Nathan.

Mig: When you're when you're approaching M&A at this point.

Mig: First.

Jenny Parmatoon: You know, I'm going to leave it at that. You guys are doing a great job, and best of luck in 2024. Thank you. We appreciate it. Thank you, Brett. Our next question comes from Nicole DeBlaise with Deutsche Bank. Please state your question. Yeah, thanks. Good morning, Jenny.

Mig: Are you sort of just looking at the eight technologies.

Mig: So do you currently have in your portfolio or are you willing to look more broadly beyond that.

Mig: And also how do you sort of think about your specific a specific vertical or end market exposure you have done some sizable things obviously in aerospace.

Nicole DeBlaise: Good morning, Todd. Just maybe starting with the cadence of EPS through the year, I think just looking back at normal seasonality, you do typically see a step up in the second half from either the first half or 2Q, however you want to look at it. I guess what are the key puts and takes that you're embedding more of a step down at the midpoint this year? That's a great question.

Mig: Is that still an area that youre looking at or are you frankly willing to look further diversify your portfolio beyond the end markets that you currently have exposure to.

Mig: Yes.

Mig: We like the eight core technology.

Mig: We think that that is where we where we do really well.

Mig: We don't have a specific aerospace mix number that we target.

Todd Liam Bruno: We looked at that a lot as we put this guidance together. What I like about the guide is the EPS is evenly split now, first half, second half. It's 50-50, so there's no big ramp in the second half that should be concerning. I would call out that Q1 and Q2, obviously, those were both record numbers when it comes to EPS. So I think that's a little bit of the driver there. The aerospace business remains strong. We have no concerns about that business whatsoever.

Mig: Right now we have a nice balance between the segments, but we're going to continue to keep growing the industrial business as.

Mig: As well so.

Mig: No.

We're going to we're going to be looking at the markets that we know customers that we know and technologies that we're familiar with it. So that's our current focus.

Mig: Okay.

Speaker Change: I would just add you know youre right, we have expanded the aerospace exposure pretty significantly but.

Todd Liam Bruno: But we did see some softness in North American businesses, and obviously, international got a little bit better, but it's still a little choppiness out there. So that's really the element that went into our guide. Nicholas Conversely, Thank you.

Speaker Change: Those are the same technologies that we have throughout the entire company. So they just happen to be in aerospace end markets. The applications are.

Jenny Parmatoon: Thanks, Todd. And then just going back to some of the order trends, you guys gave really good color around the international revenues that you saw, but what actually improved sequentially in the orders going from the down 8 to the down 5 in 2Q? Thank you.

Part of those eight technologies so that's why.

Speaker Change: We'd like to see.

Speaker Change: Understood.

Speaker Change: And then I know a lot of people asked about margins I guess.

Speaker Change: One as well.

Speaker Change: The performance in industrial really kind of stood out to me given everything thats going on in those end markets.

Speaker Change: I'm sort of curious as to what are you effectively doing there is this margin expansion that we're seeing more of a cost mitigation in an environment in which the volumes are frankly not that great.

Nathan Hardie Jones: Thanks, Jenny. I'll pass it on. Thanks, you all. Our next question comes from Nathan Jones with Stiefel. Please state your question. Good morning, everyone. Good morning, Nathan.

Speaker Change: Or is there something more structural in nature.

Speaker Change: We see Reacceleration for instance in fiscal 'twenty five should we assume normal incremental margins at that point on this space.

Jenny Parmatoon: I'm going to start off on capital allocation now that the balance sheet is in much better order post paying down a lot of the debt off Meggitt. Being back to maybe around two tons in that leverage at the end of 2024, can you talk about your willingness to get back into the M&A market? We're in a bit of a different interest rate environment than we were when you bought Meggitt. You went up to a little over three and a half tons of leverage to buy that.

Speaker Change: Or will some of these costs that you've taken out eventually come back with volume.

Speaker Change: I think you can we.

Speaker Change: We can say that you would see normal incremental margins with an acceleration.

Speaker Change: A lot of what we've talked about this morning.

Speaker Change: <unk> strategy is very effective across all the businesses and our teams are doing an excellent job with some of our legacy tools around lean and supply chain as well as some of those newer initiatives that are driving cost out and we'll continue to see that in the industrial business. We've said a couple of times.

Jenny Parmatoon: What is your appetite is for potentially levering up, given the different interest rate environment and priorities for debt versus M&A? Thank you, Nathan. This is Jenny.

Jenny Parmatoon: Well, you know, first of all, as we've said, debt paydown is our number one priority. But, as Tom mentioned, we are ahead of schedule for achieving around that 2.0 number by the end of this fiscal year. One thing I would say is that we never let the pipeline go dry. We're always working the pipeline. We've built a lot of relationships over the years.

Speaker Change: Win strategy three point out still has.

Speaker Change: Still has room in it and we will continue to expand margin.

Speaker Change: I appreciate it thank you.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Andrew <unk> with Bank of America. Please state your question.

Jenny Parmatoon: That's how we wind up with these great companies in our portfolio, and we continue to do that. You know, we have to have the right deal. It has to be the right property out there.

Speaker Change: Hi, Andrew opened your line is open. Please go ahead.

Jenny Parmatoon: We still want to be the consolidator of choice. We like all of our eight technologies. We do see an opportunity to build on the entire portfolio, but we want that to be driven by secular trends and longer cycles, faster growing, more resilient businesses. And, you know, we want it to be accretive to margins, to EPS, to cash flow. So, you know, we'll keep this pipeline going, and we'll be looking for that right deal. And he's, I mean, would you be willing to do something like three and a half tons of leverage and then de-lever after that, again, given the change in the interest rate environment, a lower number kind of your ceiling these days, given the interest rate environment? Hey Nathan, this is Tom.

Speaker Change: Okay, we'll move on to the next question. Please press star one to re queue.

Speaker Change: Our next question comes from Jeff Sprague with vertical research partners. Please state your question.

Yes.

Jeff Sprague: Busy day out there I know people might be stacked up on multiple calls.

Jeff Sprague: Thank you.

Speaker Change: We'll move to the next question we have.

Speaker Change: Joe O'dea with Wells Fargo. Please state your question.

Joseph Alfred Ritchie: Hi, good morning, Thanks for taking my questions.

Joseph Alfred Ritchie: Jenny I wanted to circle back you talked about sort of recent meetings with distributors and broadly sort of positive tone can you just expand on that a little bit in terms of how maybe that tone has changed over the last several months.

Todd Liam Bruno: I'll take a stab at that. So listen, we're not trying to do anything bigger than what we've done. Jenny said it very well; we're trying to make sure we do the right deal for the company and for the shareholders. What we have proven is that we can deliver quickly. We generate cash like we've never done before. And, you know, I think what we've been doing is we've been creative with the way we structure those deals, which allows us some flexibility on that. So, you know, I don't think we would be afraid to do something like what we did before, but we don't necessarily have to do that if it doesn't present itself.

What they're pointing to trying to understand bigger picture thematic elements versus a little bit more near term kind of on the ground and what folks are talking about seeing out there.

I would have to tell you that visiting distributors and talking with distributors over the last several quarters I've never felt.

Joseph Alfred Ritchie: Negative tone.

Joseph Alfred Ritchie: They've all felt.

Joseph Alfred Ritchie: Rather positive and bullish on the future.

Joseph Alfred Ritchie: A slowdown in orders.

Nathan Hardie Jones: Fair enough. Thanks for taking the time to answer the question. Thanks David. Our next question comes from Meg Dobre with Bayard. Please state your question. All right, good morning, thank you for the question. Just to follow up on that discussion with Nathan, when you're approaching M&A at this point, first, are you sort of just looking at the eight technologies that you currently have in your portfolio, or are you willing to look more broadly beyond that? And also, how do you sort of think about your specific vertical or in-market exposure? You've done some sizable things, obviously, in aerospace.

Joseph Alfred Ritchie: But never.

Joseph Alfred Ritchie: And overall what was in front of us.

Joseph Alfred Ritchie: I would say about the meeting and.

Joseph Alfred Ritchie: In December is that.

Joseph Alfred Ritchie: There was just a lot of talk about.

Joseph Alfred Ritchie: A return to acceleration not seeing it yet, but I'm very positive that it would come and commentary on its been almost four quarters now now it has been four quarters and we usually see that turn coming in front of us. So just a very overall positive sentiment some of them.

Joseph Alfred Ritchie: Are participating in some of these what we would call Mega Capex projects that they've commented on how they are working with some local and national contractors on.

Meg Dobre: Is that still an area that you're looking at, or are you, frankly, willing to look to further diversify your portfolio beyond the end markets that you have? We like the eight core technologies. We think that that is where we do really well. We don't have a specific aerospace mix number that we target.

New plants that are being built site prep and some of the walls going up sell some feel really positive about that so.

Joseph Alfred Ritchie: Again really good send to make good tone about the future.

Jenny Parmatoon: Right now, we have a nice balance between the segments, but we're going to continue to keep growing the industrial business as well. So we're going to be looking at the markets that we know, customers that we know, and technologies that we're familiar with. So that's our current focus. I would just add, you're right, we have expanded the aerospace exposure pretty significantly, but, you know, those are the same technologies that we have throughout the entire company, so they just happen to be in aerospace, and markets, and applications are part of those eight technologies, so that's why we like those.

Speaker Change: I appreciate the color and then also wanted to ask on on International margins. I think you commented about ongoing progress in terms of the distribution side of the margin profile improving on the international segment.

Speaker Change: But those international margins are pretty close to North America margins too.

Speaker Change: So just if we think specifically about the distribution side.

Speaker Change: What is the margin gap look like sort of international versus North America, how much more upside should we think about.

Speaker Change: In terms of navigating higher on international distribution margins.

Tod: Sure this is tod.

Tod: We've been very public.

Todd Liam Bruno: Understandable. And then I know a lot of people asked about margins. I guess I'll ask one as well.

Tod: The sales that go through the distribution network are anywhere from 10 to 15 margin points better than our direct shipments and that's just.

Meg Dobre: You know, the performance in industrial really kind of stood out to me, given everything that's going on in those end markets. And I'm sort of curious as to what you are effectively doing there. Is this margin expansion that we're seeing more of a cost mitigation in an environment in which the volumes are frankly not that great, or is there something more structural in nature?

Tod: It's part of the structure of the channels sort of the value they add a slide that kind of flowing through.

Tod: Why that is.

Tod: Supportive of that margin mix, what we've been trying to do for many years now is to increase that mix in the international businesses. So that was on the slide as well, we think we're not done with that.

Jenny Parmatoon: If we see reacceleration, for instance, in fiscal 25, should we assume normal incremental margins at that point on this basis? Or will some of these costs that you've taken out eventually come back with volume? I think you can, we can say that you would see normal incremental margins with, you know, an acceleration. It's a lot of what we've talked about this morning. You know, the win strategy is very effective across all businesses.

Tod: More room to grow on that so.

Tod: We feel like that.

Tod: Still has room to grow and that that will also be a.

Tod: Our margin driver out into the future.

Speaker Change: Got it thank you.

Speaker Change: Our next question comes from Jeff Hammond with Keybanc capital markets. Please state your question.

Jeff Hammond: Hey, good morning, everyone.

Jeff Hammond: Good morning, John Jeff.

Jeff Hammond: Hey, just on second half Aero margins, I think youre guiding maybe flat to a little bit down it seems like synergies are building just wondering.

Jeff Hammond: I think historically your margins are kind of build through the year just how are you thinking about.

Jeff Hammond: Maybe any headwinds within second half versus first half Aero margins.

Jenny Parmatoon: And our teams are doing an excellent job with, you know, some of our legacy tools around lean and supply chain, as well as some of those newer initiatives that are driving cost out. And we'll continue to see that in the industrial business. As we've said a couple of times, win strategy 3.0 still has, still has room in it, and we'll continue to expand margin. Thank you.

Speaker Change: Yes, I would just start with and I can let tad Tad out we had a we had a really nice aftermarket mix.

Speaker Change: In Q2 and in the first half are really driven by <unk>.

Speaker Change: Favorable spares so.

We didn't we didn't feel comfortable forecasting that into the second half of that that is some of it.

Andrew Burris Obin: Thank you. Our next question comes from Andrew Obin with Bank of America. Please state your question.

Speaker Change: Yes, we did call out some one timers in Q in Q1 that were margin positive Q2, obviously was.

Operator: Thank you. Thank you. Thank you. Hi Andrew Obin, your line is open, please go ahead. We'll move on to the next question. Please press star 1 to requeue.

Speaker Change: A great margin quarter journey is absolutely right that mix at 47%.

Jeff Sprague: The next question comes from Jeff Sprague with Vertical Research Partners. Please state your question. Yeah, Diego, it's a busy day out there. I know people might be stacked up on multiple calls.

Speaker Change: Hope it remains there, but we didn't feel prudent.

Speaker Change: Guide that way.

Speaker Change: Again I'll just go back to if you look at the second half there those are record.

Jeff Sprague: Thank you. We'll move to the next question. We have Joe O'Day with Wells Fargo. Please state your question. Hi, good morning.

Speaker Change: Numbers when you look at what we're guiding to so.

Speaker Change: We feel like we can achieve them.

Speaker Change: <unk>.

Jeff Sprague: Thanks for taking my question. Jenny, I wanted to circle back. You talked about sort of recent meetings with distributors and a broadly sort of positive tone. Can you just expand on that a little bit in terms of how maybe that tone has changed over the last several months, you know, what they're pointing to, you know, trying to understand, you know, bigger picture thematic elements versus a little bit more near-term kind of on the ground and what folks are talking about seeing out there? I would have to tell you that, when visiting distributors and talking with distributors over the last several quarters, I've never felt a negative tone.

Speaker Change: There's just.

But you'll see a few more quarters at that level before we get overly confident.

Speaker Change: Okay, that's great and then.

Speaker Change: Just the backlog I think you've said it's stable at a high level I think you'd given some stats around 30% and 50 for industrial and <unk> 55 for overall and that was kind of to exit or those kind of running at those same levels are we seeing any backlog drawdown.

Speaker Change: There are just exactly what you said there are holding steady at those levels.

Speaker Change: And it is about twice of what we've seen in the past so.

We feel we feel really good about the quality of the backlog I would tell you that.

Jenny Parmatoon: They've all felt rather positive and bullish about the future, a slowdown in orders, but never an overall concern about what was in front of us. What I would say about the meeting in December is that there was just a lot of talk about a return to acceleration, not seeing it yet, but very positive that it would come. Commentary: It's been almost four quarters now, and now it has been four quarters, and we usually see that turn coming in front of us, so just a very overall positive sentiment. Some of them are participating in some of these, what we would call mega CapEx projects.

Speaker Change: We constantly analyze it and we do a lot of checks with our customers, but again not seeing any major cancellations or push outs at times that we think it's a good quality.

Speaker Change: Okay, great to hear thanks extra.

Speaker Change: Thanks, Jeff.

Our next question comes from Andrew <unk> with Bank of America. Please state your question.

Andrew: Yes, I guess still good morning, Joe Good morning.

Andrew: Yes, I apologize for the confusion earlier.

Jenny Parmatoon: They've commented on how they're working with some local and national contractors on new plants that are being built, site preparation, and some of the walls going up, so some feel really positive about that. Again, really good sentiment, a good tone about the future. I appreciate the color.

Andrew: Brian.

Andrew: Just a question on pricing and inflation I guess, our channel work suggests that.

Andrew: Just generally fluid power pricing is running higher I think than we would've expected.

Jeff Sprague: And then also wanted to ask about international margins. I think you commented about ongoing progress in terms of the distribution side of the margin profile improving in the international segment. But those international margins are pretty close to North America margins too. So just if we think specifically about the distribution side, what does the margin gap look like in terms of international versus North America? How much more upside should we think about in terms of navigating higher on international distribution margins? Yeah, sure. This is Tom.

Andrew: In the new calendar year, what are your expectations.

Andrew: Are your expectations about pricing are evolving any change to your framework and what does it say about sort of just general inflationary environment for the industrials.

Andrew: So Andrew this is Jenny.

Jenny Parmentier: Just kind of a reminder, with pricing we went out early and often.

Jenny Parmentier: Some of these really historical inflationary times over the last couple of years. We are now back at our regular pricing cadence of January and July.

Todd Liam Bruno: We, you know, we've been very public. The sales that go through the distribution network are anywhere from 10 to 15 margin points better than our direct shipments, and that's just... It's part of the structure of the channel, it's sort of the value they add.

Jenny Parmentier: And I would just say that the increase that we just did was.

Jenny Parmentier: With very modest I wouldn't consider it a higher increase or fluid power, so and thats, what we barring any major changes that's what we expect.

Todd Liam Bruno: Thank you. Thank you. Thank you, supportive of that margin. What we've been trying to do for many years now is increase that mix in the international market. That was on the slide as well.

Jenny Parmentier: To see going into the future so.

Jenny Parmentier: Still are in inflationary times.

Jenny Parmentier: There is some of those inflationary cost drivers that arent going to reverse.

Todd Liam Bruno: We think we're not done with that yet. Yeah, we're not done. There is more room to grow on that.

Jenny Parmentier: So looking looking forward. This is what we see right now but.

Jenny Parmentier: We'll continue to use the pricing tools that we've always used in the past.

Got you and then just a follow up I think on Mega synergies.

Jeff Sprague: So we feel like that still has room to grow and that that'll also be a margin driver out into the future. Got it. Thank you. Our next question comes from Jeff Hammond with KeyBank Capital Markets. Please state your question. Hey, good morning, everyone. Good morning, Jeff.

Speaker Change: I guess just to clarify.

Speaker Change: You've raised the synergies from 150 to 200 million cumulative.

Should we think about it as a pull forward or is the $300 million target going higher because clearly the market has been a big success for you, but just to understand what's the what the formal framework is.

Jeff Hammond: Hey, just on second half aero margins, I think you're guiding maybe flat to a little bit down, it seems like synergies are building, just wondering, you know, I think historically, your margins are kind of built through the year. Just how are you thinking about, you know, maybe any headwinds within the second half versus first half aero margin? Yeah, I would just start with, and I can let Todd add on, we had a really nice aftermarket mix in Q2 and in the first half, but really driven by favorable spares, so we didn't feel comfortable forecasting that into the second half, so that is some of it. Yeah, you know, we did call out some one-timers in Q1 that were, you know, margin positive. Q2, obviously, was another great margin quarter. Jenny's absolutely right.

Consider the pull forward, we originally said $75 million for this fiscal year.

Speaker Change: Now, it's going to be at $50 million higher.

Speaker Change: We're in a good position here, we remain committed to the $300 million.

Speaker Change: By FY 'twenty six we're just realizing some of that sooner.

Speaker Change: Well it sounds like good news. Thanks, so much great. Thank you Andrew Thanks, Andrew.

Speaker Change: Diego I'm being told that that was the last question in the queue. So unless you see anything different.

Speaker Change: We'll wrap up just a little bit early.

Speaker Change: I know, it's a busy day out there for everyone.

Speaker Change: You do need any follow ups, Jeff Miller, our VP of Investor Relations and Gen. One our director of Investor Relations certainly we will be available if you need any follow ups.

Speaker Change: As always we appreciate your attention. Thank you for your support of Parker and I Hope everyone has a great day.

Yes.

Speaker Change: Thank you and that concludes today's conference all parties may now disconnect have a great day.

Jenny Parmatoon: That mix at 47%, we hope it remains there, but we didn't feel prudent to guide that way. And again, I just go back to, if you look at the second half there, you know, those are record numbers when you look at what we're guiding to, so I feel like we can achieve them. There's just, I'd like to see a few more quarters at that level before we get to over-the-counter

Todd Liam Bruno: Okay, that's great. And just the backlog, I think you've said it's stable at a high level. I think you've given some stats around, you know, 30% for industrial and 55% for overall. And, you know, that was kind of 2x. Are those kind of running at those same levels?

Jeff Hammond: Are we seeing any backlog drawdown? Now, I mean, they're just exactly what you said. They're holding steady at those levels, and it is about twice what we've seen in the past. So, we feel really good about the quality of the backlog. I would tell you that we constantly analyze it, and we do a lot of checks with our customers.

Jeff Hammond: But, again, not seeing any major cancellations or pushouts at this time. So, we think it's of good quality. Okay, great to hear. Thanks. Thanks Jeff. Thanks Jeff. Our next question comes from Andrew Obin with Bank of America. Please state your question.

Andrew Burris Obin: I guess, I guess it's still good morning. Still good morning. And yeah, and I apologize for the confusion earlier. Just a question on pricing and inflation. I guess our channel work suggests that, you know, just generally, fluid power pricing is running higher, I think, than we would have expected. For the new calendar year, what are your expectations? How are your expectations about pricing evolving any change to your framework? And what does it say about the sort of general inflationary environment for the industrials?

Jenny Parmatoon: So, Andrew, this is Jenny, just kind of a reminder about pricing. We went out early and often, you know, some really historical inflationary times over the last couple of years. We are now back at our regular pricing cadence of January and July. And I would just say that the increase that we just did was, you know, was very modest. I wouldn't consider it a higher increase for fluid power.

Jenny Parmatoon: So, and that's what we, you know, barring any major changes, that's what we expect to see going into the future. So, you know, we still are in inflationary times, you know, and there's some of those inflationary cost drivers that aren't going to reverse. So, you know, looking forward, this is what we see right now. We'll continue to use the pricing tools that we've always used in the past.

Andrew Burris Obin: Gotcha. And just to follow up, I think, on Megit's synergies, you know, I guess, just to clarify, you've raised the synergies from 150 to 200 million cumulative. So should we think about it as a pull forward? Or is the 300 million target going higher? Because clearly, Megit has been a big success for you. But just to understand what the formal framework is.

Jenny Parmatoon: Consider it a pull forward, you know; we originally said $75 million for this fiscal year, but now it's going to be that $50 million higher, so we're in a good position here. We remain committed to the $300 million by FY26; we're just realizing some of that sooner. Well, that sounds like good news. Thanks so much. Great. Thank you, Andrew. Diego, I'm being told that that was the last question in the queue, so unless you see anything different, we will wrap up just a little bit early. I know it's a busy day out there for everyone. If you do need any follow-ups, Jeff Miller, our VP of Investor Relations, and Hien Hoa, our Director of Investor Relations, will certainly be available if you need any follow-ups. As always, we appreciate your attention. Thank you for your support of Parker, and I hope everyone has a great day. Thank you. And that concludes today's conference. All parties may now disconnect. Have a great day!