Q1 2025 Parker-Hannifin Corp Earnings Call
[inaudible] I've seen it in a video that I've never seen before.
Speaker Change: Greetings and welcome to the Parker Hannifin's fiscal 2025 first quarter earnings conference call and webcasts. At this time, all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
should anyone require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Todd Leombruno, Chief Financial Officer. Thank you, you may begin.
Speaker Change: and the other one.
Thank you, Sachi. And welcome to Parker's fiscal year 2025, first quarter earnings release webcast.
Chief Financial Officer speaking. Thank you to everyone for joining us this morning. With me today is Jenny Parmentier, Chairman of Chief Executive Officer.
We do truly appreciate your interest in Parker.
On Flight 2, we address our disclosures on forward-looking projections and non-gap financial measures. I am listed here at CUTCAUSE, Actress Results to vary from our forecast.
Our press release, this presentation and those recommendations for all non-gap measures, we're released this morning and are available on the Investor section on our website at parkad.com.
The agenda for today is Jenny's going to start with highlights for our record. First quarter performance, she's also going to reinforce how our key market verticals are positioned for a longer term growth.
Speaker Change: I'm going to follow Jenny with a more detailed look at our strong first quarter results and then we're going to address the changes to the fiscal year 2025 guidance that we released in.
and Chris this morning. We'll then move to the Q&A session and we're going to try to address as many questions as possible. And with all that, Jenny, we'll begin with you on slide three. Thank you, Todd. And thank you to everyone for attending the call today.
Jenny: The close-up first quarter of fiscal year 25 with our Transform portfolio of driving record performance.
We produce top-portal safety performance, aligned with our goal to be the safest industrial company in the world. And once again, our balance in diverse aerospace systems segment delivered exceptional performance.
Good record 2.1 sales of 4.9 billion, organic growth of 1.4% and consistent execution of the wind strategy delivered 80 basis points of margin expansion, resulting in 25.7% adjusted segment operating margin.
The Justin Arnex-Preshare Group 4% and cash flow from operations increased 14% to 744 million.
Another Porter of impressive margin expansion, the team is off to a good start. Next slide, please.
I want to spend a few minutes reminding everyone why we win
First, the wind strategy is our business system.
Jenny: We have a decentralized operating structure, 85 divisions run by general managers with full PNL responsibility, all acting like owners, close to their customers, and executing the Winster strategy every day.
We have innovative products that solve customer problems, 85% covered by intellectual property.
Our application engineers provide the expertise that allows us to have a competitive advantage with our interconnected technologies that provide solutions for our customers.
and finally our distribution network, the M.E. of the competition and the best in the world.
Jenny: It's over 60 years to build it, and it is truly an extension of our engineering team, providing solutions to all of those small to mid-sized OEMs that are participating in the cyclo-trends and mega-cap-ax projects.
Jenny: These partners are experts at applying our interconnected technology.
Jenny: Next slide please.
Jenny: We have the number one position in the 145-layer dollar motion and control industry. A growing space where we continue to gain share. These six market variables represent greater than 90 percent of the company's revenue.
Jenny: Our Interconnected Technologies cut across these market verifals and give us a clear, competitive advantage.
Jenny: 2-3rds of our revenue comes from customers who buy four or more technology.
and our growth has focused on faster growing, longer cycle markets and secular trends.
Jenny: Next slide please.
Both a secular trend and our largest market vertical is aerospace.
Parker had the balanced and diverse portfolio, the significant content on leading aerospace programs.
We have a comprehensive product offering across our diversified customer base with proprietary design on Premiere programs.
On the upper left-hand side of this page is our sales mixed by application. You see a nice balance of commercial and military, as well as business jets, regional transport, and helicopters.
Jenny: This diverse aerospace and defense exposure allows us to have multiple products and technologies on every major aircraft program globally. Many of them seem on the bottom of this page.
We have a balanced, narrow body and wide body sales mix and the mega acquisition significantly expanded our aftermarket sales.
Today, after market represents approximately 50% of our total aerospace sales. All of this adds up to be a compelling value proposition for all of our aerospace customers.
Next slide please.
Jenny: Our second largest market vertical is in plant and industrial equipment.
We have a comprehensive suite of critical motion and control technologies that enable manufacturing all around the world. As depicted on the slide, Parker provides solutions for both factory equipment and factory infrastructure.
Although we are experiencing some near-term pressure right now, this slide highlights how we are positioned for growth in the end-plan in industrial market vertical.
The MegaCapX Project Industrial CapX Investment and demand associated with semiconductor fats and data centers will continue to drive long-term growth.
Jenny: The Churrent's a bottle left shows the $1 trillion of mega projects that have been announced in 2021
Our powerhouse of interconnected technologies and independent distribution network are differentiators that allow us to benefit throughout a project's life cycle as depicted in the sales mix chart on the bottom right.
We win with new construction, new equipment and retooling, and our aftermarket supports on going operation.
I will now turn it over to Todd to go through the summary of our Q1 results.
Okay, thanks, Jennifer. It's Jason, I'm on flight 10.
Speaker Change: Our team said several records of this court are getting called some of these out, but we set records for sales, adjusted, segment operating margin, adjusted to even by margin and adjusted earnings per share.
The sale of $4.9 billion was an increase of 1.2% versus prior. Virtually all that was organic or canocrophils positive at 1.4. There is some slight diversity there. Unfavorable, really just 0.2% and in the quarter compared to prior, your currency was flat.
We look at those second, just a second operating margins. We increase those 80 basis points. We're really proud of that. On the 1.2% sales growth, EBITDA margins was a record at 24.9%. And Netanyan come ROS to 16.5% with earnings per share at 620.
Jenny: Both records as well and both of those are an increase of 4% from prior. It was really a nice start to the fiscal year driven by consistent execution from our global team. Really focused continuing to take cost out and drive margin expansion.
If you look at the slide 11, this detail will be increased in the adjusted EPS.
Jenny: Again, if you see that bar outstanding operating performance along with some favorable interest expense, really are the main drivers.
to the growth in EPS, segment operating income dollars increased by $54 million in the quarter that was 33 cents of the EPS growth and that was really driven by strong aerospace performance, really being the main driver on second operating income.
Interest Expansions, favorable 13th Sense, and that really is driven through our continued execution on our debt reduction plan.
and Corporate GNA and it contains, we're also a slightly favorable in the quarter.
Jenny: If you look at other expense, we didn't have a headwind of 26 cents in the quarter. This was related primarily to currency losses.
Jenny: Resolting from the Re-Masurement of Intercomplete Loans and just some volatility.
on Currency Rains within the quarter. We do not expect that to continue for the end of the year.
Jenny: and also there is some slightly less favorable pension income compared to the prior year that shows up on the other line.
and finally, sure count was just two cents unfavorable. All in the adjusted EPS of 621A already sent it. It's a record, but it was really driven by strong march and expansion across the company.
If we go to like 12 looking at the segments, we're proud of that margin expansion. We can't speak to it more enough. It's really just continued.
The team continued to work on executing the win strategy and I really do believe that our performance reflects how different a company Parker is today. And on spite of the low organic growth we still generated 80 basis points of higher segment operating margin.
Jenny: and Creminals, unbelievably solid at 95% and orders remain positive at plus one, and that's really driven by continued aerospace.
Jenny: District. If we look at the diversified industrial North American businesses, sales were 2.1 billion. Organic growth was negative five. That was lower than what our expectations were going into the quarter. We are seeing delays and some near-term pressure in the energy and in plan and industrial equipment for a couple.
Jenny: and Jenny mentioned some of those. Transportation on our highway verticals continue to be soft, but on a positive note, HVAC did return to growth in the portals and we're happy about that. Even with that organic pressure, adjusted margins in North America increased 40 basis points.
to a record of 25.3% and it's really just a great teamwork, resilience and operating execution.
Jenny: North American orders did take a step back, there were negative three in the quarter and we made sure that our guide reflects that pressure.
Moving on to the International Businesses, sales were $1.4 billion. Organic growth was negative too, but that's kind of as we expected, so that's right in line with our guide.
Organic growth in Asia Pacific improved at 3.2 Latin America really positive at plus 14 but that was offset by negative 8 in EMA.
Really proud of the team operating margins match to record high of 24.1%. So even on that negative growth in the international businesses, we achieved our match to record high of 24.1%.
The International Team is really focused on productivity improvements, cost controls, and really performed well at a tough environment. On a good note, Order Rakes did move to plus one with Asia moving into positive territory driving that improvement.
Jenny: If we look at aerospace systems, the aerospace system segment continues to lead the way for the company again at delivered an exceptional quarter. Sales were 1.4 billion, that's 18% greater than prior year. All of that is organic roughly 17% of that growth was organic and that was driven by double energy growth.
and Commercial and Defense Markets.
and of course the adjusted signal operating margin of 27.9 is a record that's not a 190 basis points.
Jenny: Over the prior year.
All that performance was driven by record top line sales, strong aftermarket mix as Jenny mentioned and you know continued implementation and integration of the market business.
This is a great work there by our aerospace team.
Aerospace Order Race continue to be positive at plus 7 and I just want to remind everyone that we are lapping some very tough comparisons on those but we're happy that it's plus 7.
If I could draw your attention to slide 13 cash flow performance for the quarter, it's also a record. CFOA was a 744 million or 15.2%.
That is an increase of 14% per year. Freak cash flow increased 17% and finished at 649 million. That is 13.2% of sales. And conversion will strong start the year at 93%.
Jenny: We're in the quarter, we further reduced that by 370 million.
Jenny: and that drove our net debt to adjusted to EBITDA to now 1.9 times. So we're happy about that. And I'm really proud of the team the way we started the year on cash flows. Much better start than prior year and that's due to a lot of hard work by everyone around the world.
So that is a wrap on Q1 and we'll move to the Outlook now and Jennifer and I'll see you for some more comments. Thanks dad.
So as we've already alluded to, we've made some changes and updated our FY-25 organic sales growth forecast.
for each of these market verticals we want to share this with you today. So we are raising aerospace and defense on aftermarket strength. We're now forecasting 10 percent organic growth at the midpoint versus 8.5 percent in our initial guide.
Over the last 90 days, macro-conditions affecting our industrial market vertical to soften this, I previously mentioned. So we expect a delayed gradual recovery on easing campuses we move through the balance of our fiscal year.
for implant industrial. So we are a slight reduction to our low single digit growth outlook for the year. We're seeing some near-term delays in projects and capital spending. But I will tell you we are pleased that the channel sentiment does remain positive.
On transportation, we are maintaining our low single digit outlook. So while the automotive production forecast remains lower, heavy duty and work truck demand remains positive.
Jenny: We are now expecting high-fingled digit decline for off-highway. OEMD's packing is continuing and we are seeing customers continue to reduce production levels including instances of planned shutdown.
The energy market has also been impacted by uncertain-dandellates and we are updating our forecast to neutral.
Jenny: We are maintaining our HVAC refredration outlook of low single digit growth as regulatory changes are driving growth on the HVC side of the business and Todd already mentioned this.
So guidance now reflects divest directivity expected to close in the second quarter. They've asked the truth, represent a 1.5% reduction to fiscal year 25 reported sales versus prior year.
This now results in an overall organic growth of 1.5% to 4.5%.
With our Transform portfolio, we remake confident in growing EPS and continuing our track records of expanding margins.
Speaker Change: I'll get it back to Todd to review the guys in a little more detail.
Okay, thanks, Jenny. I'm on Flight 16. I'll try to not repeat what Jenny said, but the report itself growth for the year is now forecasted to be in the range of 1.5% to 3.5%.
That's 2% at the midpoint. The dollars work out to be $20.3 billion.
Currency, we now expect that to be slightly favorable of a half a percent.
Jenny: and as Jenny mentioned, the investigators that we expect to close in the second quarter will be one and a half percent headwind. 100 percent of those, the best of your sales will come out of the diversified industrial segment in the North American business.
Arganic growth in total is forecast to be 3% at the midpoint. This is really driven by strong performance in aerospace. We expect that to continue. And adjust the segment operating margins guidance is raised by 30 basis points for the full year to 25.7.
Jenny: That now will be a margin expansion of 80 basis points for his prior year.
and we're happy to see that. In criminal margins, we expect to be 70% that is really based on incorporating the Q1 performance into the full-year guide and also the anticipated divestiture activity.
Corporate GNA is expected to be slightly lower now at $211 million and other expense is expected to be $70 million on an as-reported basis or $80 million on an adjusted basis. It's really reflecting that activity from.
Jenny: 21.
Jenny: Interest expense, we are now forecasting that lower, expecting it to be $415 million. That really is driven by using the anticipated proceeds on the domestic activity to further reduce our debt.
Full Tax here, full of your tax rate, we expect to be 22.5% that really is also incorporating the results of Q1. We are modeling Q2 through Q4 at 23%.
And finally, full year as reported EPS is now 23, 13, and adjusted EPS is 26, 70, both of those that's in midpoint with the range of plus or minus, not 35 cents on either side.
A judge for DPS is split 46% first half, 54% second half second half and we do remain committed to our free cash flow forecast of the range of three.
Lee, 2.3 billion dollars for the year.
Looking specifically at the second quarter, Jenny mentioned some of those near-term pressures. Reported sales are expected to be 4.8 billion with organic growth of 1%. Adjusted second operating margins we are forecasting to be 25.2%.
and adjusted EPS is now expected to be $615.
Jenny: and what we have done is as usual we have provided more specifics in the appendix if anyone is interested in those.
If I can draw your attention to the slide 17, we provided a bridge on the major components to our increase in the F125 guidance.
Speaker Change: and Justin EPS moves to 2670 per share that was compared to our previous guidance of 2665. You can see we exceeded our guidance by 15 cents.
Speaker Change: In the first quarter, we have included that in the full-year guide. The domestic activity does net out to be 15 cents on favorable. I do note that that is margin of creative. It's just slightly on favorable 15 cents.
That is a component of 25 cents, less than an operating income, but 10 cents less interest expense.
and that's all the 15th set.
We are confident as Jenny Sedon or ability to continue to drive large and expansion and we are raising the remaining forecast a period by an additional five cents for the fiscal year and that's how we get back to the 26th summer.
So that is the walk and Jenny, we'll hand it back to you for closing comments. Thank you, Todd.
Mr. Reminder on what drives Parker, safety, engagement and ownership are the foundation of our culture. Sir, people, and living up to our purpose that drives tap-for-cap performance that allows us to be great generators and deployers of catch.
Okay, Sasha, we are ready to start the Q&A portion I will hand the call back to you.
Speaker Change: Thank you.
As mentioned, we will be conducting a question and answer session now. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
for participants using speaker equipment and maybe necessary to pick up your handset before pressing the star keys.
One moment please welcome Paul for questions.
Speaker Change: The first question is from Jamie Cook from Chulus Securities.
Jamie Cook: Please go ahead. All right.
Hi, good morning and congrats on a nice quarter. I guess first question, just on the implied incremental margins for the year, Todd 70% up from I think 40% before. How much is the divestiture? You know, just because the implied incremental margin in the back half of the year on the core business also seem to be pretty good, so just wondering.
is a structural surprise what's going on there. But then I guess my second question on the international orders you talked about, Asia, you know, turning positive and sales, turning positive. How big is that as a percentage of your business and just any color on which markets or the order growth that you're seeing in Asia? Thank you.
I'll start with the question on the incremental, and maybe I'll end it to Jenny for the marketing commentary. You know, really the Q1 performance, if you look at our Q1 performance, it was 95%.
That's really probably the main driver of the performance there. The investors is a little bit of it, but if you look at the outpours, we're expecting to be well above our state at 30% target.
Jamie Cook: A lot of that is driven by the aerospace activity, you know they've got great growth and nice large and expansion And I would tell you the industrial businesses are doing a great job controlling costs is doing what's necessary in a low growth environment And that's really how the math is working out on the fundamentals
Okay, so Jamie, Asia Pacific represents approximately 11% of our total sales, and it's approximately 40% of our total international sales.
So, as Todd mentioned, Asian Pacific Q1 growth came in a little higher than we thought came in a 3% order do continue to trend positive across the region after we saw Q1. But the comp was easier.
I was saying some pickup and transportation in Semicon Market. It was seeing some nice roadblocks, roads momentum and idea and southeast Asia. China's growth was negative, low single digits.
Speaker Change: Thank you. You're welcome.
Speaker Change: The next question is from David Rosso from Evercore, ISI. Please go ahead.
David Rosso: Hi, thank you. North America raised the margins 50 bits, but lower their organic.
Organic Sales. And the buckets are the the vestitory you're saying is helpful to margins. The weakness is more OE business. It's sounds like if I'm reading that correctly, you need to kind of factory floor cap X.
and some of the big OE's taking their production down.
The Distribution Peace, I assume, right? That's, you didn't comment on it. Can you help us understand where that channel is? I'm just going to make sure at over 40% of earnings the distribution business of that cracks. That's a different level of concern around the margins.
Speaker Change: So if can you help us on that channel and again any thing you can help us with on the margin resilient to see the rest of the year for North America.
Yeah, today, as you are correct that the D-stocking commensurate about what's happening at the OEM level.
Speaker Change: We're just seeing lower production rates and some additional shutdown, longer shutdowns around the holidays. So when we're talking about the channel, you know, the deep-docking in the channel as you know started over a year ago.
Speaker Change: and I mentioned last quarter and I would say the same thing that we're not saying restocking.
Just yet. You know, the sentiment I will tell you is very positive. Just within the last month.
I've spent some time with two of our largest distributors and they are commenting on a lot of quote activity.
They're just saying that they're experiencing delays, they're just project delays out there. So I would say if they're still managing their inventory tightly and not doing any stocking orders yet.
and I would say to a certain extent some improved week time to allow them to operate with a little less product than they have in the past. But again, very positive sentiment still coming from them.
That's helpful. I just follow up with M&A. Can you give us an update on what the label and is the pipeline?
Thank you.
So first of all, I would say, you know, we are very committed to actively deploying our capital. And as I mentioned before, the acquisition pipeline is active with targets of all sizes.
We don't feel obligated to make it deal just because leverage is less than two times. As Todd just talked about.
It has to be the right deal.
Speaker Change: We're looking to acquire companies where we are the clear best owner with interconnected technologies, building on those secular trends and mega-campus projects.
and we're looking for deals that are creative to growth, a resilience, they're creative to margins, cash flow and EPS.
So, you know, I made the comment the past two week. We like all of our technologies and the pipeline is active.
I'm sorry to follow up with him. Yeah, I'm curious about the multiples out there versus the target. I'm just going to get a sense of, I know the strategy, but just any pulse of the candidates are out there now, it's more a matter of price or people sort of holding on waiting for.
Elections, fetting cycles to agree on a price, just to hear us more than kind of conversations out there.
Speaker Change: Yeah, a lot of good I would have to seize timing.
Time and use a big factor.
Speaker Change: I'm sorry, Todd, please.
Speaker Change: But that was Jenny David, she just said it's really timing. It's not really an issue of anything other than just the normal activity of the transaction process.
The one thing I didn't want to follow up on today but was your question on the margin, your math is usual, it's correct.
the Total Company.
The Impact, Favorable Impact of the Investors, about 20 basis points.
I mentioned earlier that that's 100% coming out of the diversified industrial North American businesses. It's about 40 basis points of favorable impact to those to that piece of business.
That's helpful, okay, so basically North America margin
Speaker Change: The Improvement is principally all from the divestiture, but you were so able to keep the core margin, maybe even add 10 dips despite lowering organic sales. That's probably a little bit correct. Okay. Thank you so much. I appreciate it. Thank you.
The next question is from Julie and Mitchell from Barclays. Please go ahead.
Hi, good morning. This is Matt Slash on for Julian Mitchell. My question today is sort of around that 15-sense type estimate headwind.
Speaker Change: wondering if you could maybe break down how that affects each quarter throughout the rest of the year should we kind of assume maybe five cents spread out across each quarter just how should we be thinking about that.
Yeah, I can answer that, Matt, for you. We're expecting that to happen sometime in the second quarter. So there's a slight impact in the second quarter, but it bleeds out into the second half of the year. If you look at the 15 cents, it's about 1 cent and Q2.
Speaker Change: I close to five cents in Q3 and it's about eight cents in Q4.
Matt: Got it. Thank you, Todd. That's helpful. Just a quick follow up.
If you could maybe dive a little bit deeper into the maybe Q2 segment and below the line assumptions for that 615 EPS guide for the second quarter.
I would say there's nothing unusual there. We did have that one currency issue in Q1. We do not expect that to repeat. So I would tell you both for corporate DNA and other we are forecasting a pretty normal Q2 trip.
Matt: 2-4.
Speaker Change: Great, thank you.
The next question is from Nathan Jones from Stiefle. Please go ahead.
Nathan Jones: Good morning everyone.
Speaker Change: Morning in the event.
Wonder if I can just go a little bit deeper into...
Thomas DeGot: Thomas DeGot.
Nathan Jones: The headwinds that you're saying North America, I mean, in plant and industrial is a pretty broad category. So maybe any additional color you can give us on that kind of thing. And then in our highway, is this all related to OEM and not related to, you know, equipment utilization that we generate after market? Just any more color you can do this on those kinds of things.
So let me talk about implants and so like I said, we're just seeing some near-term delays and projects and cat-mex spending and just kind of overall uncertainty. An example of that would be tool builders.
Matt: [inaudible]
The Channel's sentiment remains positive and it feels like interest rate cuts should help.
Helpless in the future here, but, you know, we are.
Seeing some positives too.
Around some of the mega-capacs out there, but they're delayed. We have some winds coming in, but they are delayed. Nice wind and Asia Pacific on an EV battery line. So really more than anything.
Matt: It's...
about the way to implant industrial feels like a little bit of a pause right now.
We feel positive about what we might see in the second half. I mean, all high way.
We did move that to high-fingled digit negative for the year and we had a mid-fingled digit negative.
and again, primarily based on OEMD stocking.
Speaker Change: Lower Crap Crisis, Higher Interest Rate, are continuing to really pressure agriculture.
Speaker Change: and as I mentioned, a big indicator to us is production rates and additional shutdowns. And we're seeing that from some of those customers. Construction is better, but it remains soft.
and I would say that it's even softer in Asia Pacific and in Mia than it is in North America.
Matt: So that's some detail behind those two market verticals and what we're seeing.
Thanks to that, Jenny. I guess my follow-up probably around the diverse teachers. I mean, Parker has diverse businesses over the years pretty regularly. But this does seem to be a little bit bigger. Can you talk about kind of what area it's in, why you don't consider yourself to be the best owner of this business anymore?
Matt: It's just more of a one-off on the larger side, or there are other things that we could see coming out of the portfolio that are a little bigger in the size of revenue than you historically digested.
This is a really great example of the best donor playbook process that we use every year.
Speaker Change: We go through and look at our businesses and make sure that we are clearly still the best donor that these businesses fit inside of the gross and margin profile that we expect from our businesses. When we look at this business and you're right, it's a little bit bigger than some of the ones that we've done.
Speaker Change: and the past few years. But when we looked at this business, we didn't see that we were the best owner. It's a good business. We think they're going to be successful under the new owner, but didn't see it as a core technology.
Speaker Change: and I'm a part of the work that I'm doing for Parker, even though it was aerospace, right? And you know how much we like aerospace, but just not a poor technology for us. So that's the reason that we made the decision, and it's a great team, and I'm sure they're going to do well.
I think very much to take my question.
The next question is from Joe Ode from Wells Fargo. Please go ahead.
Hi, good morning. Thanks for taking my question.
Joe Ode: I wanted to ask about labor flexibility and just agility of the model to understand an environment when you've got kind of Boeing strikes to contend with and slowing kind of end-mark expectations over the course of the quarter.
Just that the levers that you can pull and how quickly you can pull them when we see kind of the margin outcome, you're just sort of looking for a little bit more color on sort of agility advantages at Parker.
Well, I would say that we have the ability to select our workforce across the whole company.
Joe Ode: But we definitely have the ability to flex the aerospace workforce and production, you know, from OEM to aftermarket and vice versa. So we do have that flexibility, that's not a concern for us.
Joe, Jenny mentioned it in the earlier comments. It's really a testament to the decentralizing nature of the way the company runs.
85-some businesses with general managers that have full PNL responsibility. We've never had better data across the enterprise and what we've learned over this journey is that...
You're never too soon to act right, and we don't wait for...
Science from above, those businesses take those decisions.
and I immediately won the necessary depending on what markets they're supposed to.
That's the beauty of all of the tools in the wind strategy. Some of the best tools for the shop floor are not only driving out the waste, but making sure that we can be flexible, that we can be agile to be our customers' needs.
Got it, and then also wanted to touch on Mega Projects. Two things really, one in terms of timing. So when you think about these multi-year projects at what stage you would start to see orders for those, and then two.
Speaker Change: Based on what we track, it seems like chemicals and power gen have the biggest growth potential next year. And so just anything in terms of your exposure to those markets, as well as what you hear from the customers and those delays, confidence that those projects break ground in 25.
Yeah, you know, when you look at, you know, like I'm on the slide I had earlier, you know, one, we're up to one trillion, and that's just the, you know, that's the number that we cited from a source, the projects that have been announced. There's no doubt bin.
Some delays and some pushouts but at the same time there's been more announced, right? And when you look at all the years that they're going to start and projected finishes, you know, I think it's just shifted out a bit.
We believe based on what we see today will start in calendar year 2025.
Joe Ode: and we'll participate in those as we've talked about the past our distribution network will pay for that participation. In some cases we will participate directly. As I mentioned before, we went with new construction, new equipment, re-tooling of factories.
and then, you know, our distributor partners come in right behind that and support the ongoing operation. So it's really, um...
Joe Ode: just a very promising.
Future for us when it comes to that. I would say I just mentioned that we had a nice win supporting the EV battery line, and we're I think going to continue to see projects like that, smaller and larger projects really benefit us.
Joe Ode: This is what you're...
Speaker Change: Great, thank you.
Thanks Joe.
The next question is from Joe Richie from Goldman Sachs. Please go ahead.
Hi, this is Rachel Rastelon for Joe. Thank you for the question. Maybe just starting with order trends, can you talk about how these trends were exiting September and as we like Exit 3Q, did you see any and markets getting better or worse? Any color would be very helpful.
Joe Ode: Yes.
So this is Jenny, so you know when we look at the orders.
You know, on average what we've seen in the past, we've talked about this a lot over the last year, but on average we've seen...
5 to 7 quarters negative before it turns. So if you look at where we're at today,
Joe Ode: We had five negatives, we had one at zero at the end of Q4, and I'm speaking about North American now. And now we have Q1.
Joe Ode: at negative three. So that makes this first quarter at FY25, the seventh quarter where we haven't seen orders turn positive yet. So again.
That's what history has shown us so we feel like this should turn soon.
Joe Ode: and I, in as I mentioned, you know, what we can't, during the Porter and North America, was transportation off highway and energy, but you know, we did see aerospace orders very strong.
and we saw international orders term positives on Asian improvement and most of that was a semi-con and transportation.
A very helpful color. One thing I also wanted to get a sense of your backlog. Last we checked your backlog coverage and the industrial business that has become high 20 compared to like 15 percent back in 2015.
Speaker Change: So, is this same, is this still the case in first quarter and how much of this current backlog coverage levels do you think is more structural versus areas where you think backlog still needs to come down and part of the industrial business.
So the Industrial backlogs from a dollar standpoint helps steady at $4.2 billion. So no dollar degradation there. You know, it is still in the mid to high 20s as a percent.
and I think that, you know, it's a mix, I think it's structural from the standpoint that customers have changed the way that they order. I don't think anybody wants to go through what we went through a couple of years to go and have to, you know, really have a lot of weight for their product.
But I also think, you know, it speaks mostly to the transformation of our portfolio. You know, with the acquisitions that we've done,
We have a longer cycle and higher after market.
Business out there and that longer cycle gives us more visibility and orders further out on the demand horizon. So I think that's really the biggest driver of why this is almost double of what it used to be under under the old Parker.
Speaker Change: That's great to know. Thank you.
Speaker Change: The next question is from Andrew Oben from Bank of America. Please go ahead.
Yes, good morning. Good morning.
Good question. We've been hearing a lot from corporate tonight, got on a little bit late, so I apologize if this was answered. But we hear a lot of sort of...
Speaker Change: Narrative about uncertainty, about the election, and I was just wondering, obviously very close to you, distributors, very close to your customers.
What are you hearing from your customers?
Speaker Change: and how much will change really change on November 6 right? Because we also sort of have soft landing, we have high interest rates, we still have inflation. From your perspective, how much will be change will the results of the election make into the year and that into 25? Thank you.
Speaker Change: and Jennifer Parmentier.
Speaker Change: So you don't anger out of your, I've been out.
You know, in the field of this quarter and you have talked to, you know, the distributors, some of our largest distributors in.
Speaker Change: Andy Roth has also. We don't have any of them telling us election, right? I mean, they're focused on...
Making sure that they meet with they can serve to be still a very high demand of quoting that they're ready.
They talk about their customers just delay. Some of it may be interest rates, but I can't tell you that I have.
Customers that are telling me, I'm going to wait until, after November 6th to see what happens. Obviously, you read that a lot. You hear that a lot of people think, another rate cut and getting past the election is maybe something that's going to change things.
I think we'll have to see what happens. I mean, what we have in the guy for Q2 is based off of the orders that we saw in Q1, based off of what we see rolling up from our divisions.
and um
Speaker Change: I guess that will just have to wait for it happen
and now really appreciate it. And just a pile of an aerospace and defense, you're aftermarket and particularly this public private partnerships.
on the defense after market, that has been very successful, but I assume eventually Comps will matter. Can you just talk about what's driving the market out performance there and how sustainable it is? Thank you.
Yeah, you said it exactly correct. I mean, if you just look at Q1 growth in defense MRO, it was 47%.
and your absolute right comes to get harder.
are previous guidance on that segment of aerospace with high-synchled digits and now we're saying low double digits, but it is really...
Speaker Change: Based off of just tremendous success with those public private partnerships. Our team has done a really great job.
Lebrging the Maggaportfolio and growing net business even more than we had in the past. So I do think it's going to continue to be a great growth area for us, but the cost will get harder.
Really appreciate it, congratulations, Banks. Thanks, Andrew.
The next question is from Nigel Co from Wolf Research. Please go ahead.
Speaker Change: and Dr. Saffron.
Thanks for the good morning everyone. Thanks for the question.
Nigel Co: I guess, maybe, Todd, can you just, I mean, if you are a discurpanist, I'm going to please cutting off, but let's help on the 20% impact from the investments. Is that for the entire second quarter, and maybe just be a bit more kind of specific on the revenue and the ERA impact.
and then just hopefully in the Facebook website where we'll be discussing your findings.
Hey, Sachi, are you still there? Sachi Nigel is cutting out a little bit.
I'm still here. Yeah, Nigel, I think I've cut out a little bit there. Okay, what I'll try to do Nigel is I'll try to answer your question on the investors. That's 25 cents of segment-affering income and that 10 cents of...
Lower Interest Expans. We are forecasting that for the remainder of our FY-25. So that, I will start in Q2 and remain.
Speaker Change: with a business 423 and Q4. It's about 300 million of sales.
Speaker Change: All of that is coming out of the North American businesses and we talked earlier, it is going to have a favorable margin impact for the company and will be 20 basis points for the full company and it's roughly 40 basis points for the North American.
and this is the detailed message. If you need more follow-up, okay.
and I'm just a little bit more involved.
Okay, and it's like a mid-15's, he would be watching right?
Speaker Change: and the other.
Okay, I think I cut off, but just to the other expense of 20 seconds, it just seems very discrete in nature. I mean, any thoughts on why that was excluded from the line?
Well, we talked about that. It is based on just our normal activity. It was larger than it has been in the past. So we chose not to adjust it out. It really was based on just volatility around currency rates from all the central.
Thanks, cuts throughout the quarter. We do not expect that to continue so we didn't forecast it to continue and...
Thank you, we made last night, Joseph. So, it's not that you may be, maybe if we go to the next year's first deadline.
Speaker Change: Sounds good. The next question is from Jeff Spragt from Vertical Research Partners. Please go back.
Thank you for the morning thank you. Just a couple things. First, getting back to the comment on the Fed and Semaro.
and Jeffery Yan, have it or Todd. Can you just give us the other three pieces of arrow if you haven't already, I'm sorry if I missed it early on the call. Commercial OE versus aftermarket in the sense OE.
Speaker Change: Good job Jeff. You didn't miss it. I did it with the only one I talked about so far. So, commercial OEM.
Q1 came in at 3% growth, so our previous guidance there was high single digits, and now our revised guidance is low single digits.
We expect that based on this.
The Slower Pays of Production and Rate Increases.
Armph, who's looking for it?
Speaker Change: Defense OEM. It came in slightly, slightly negative, but we think that was really just a matter of time and we remain with the guys we had out on a single digit growth.
Commercial MRO came in at 32%. And again, much like my defense MRO comments, you know, the cops are going to get harder. It was strong, but the cops are going to get harder. You know, we think that air traffic growth is going to continue.
to grow as forecasted and you know, we're going to see an increase in spare parts purchases with everything that's going on with OEM production.
and then the Fent Semero High Single Digital with the initial guidance now is low double digits and again really a lot of growth with those public-private partnerships.
and just on the commercial MRO obviously over the broader stroke of time, less so he's good for aftermarket, you know, directionally we all get that. But do you see any sort of kind of risk in the handoff between the two, you know, the strike?
Persists, you know, maybe not everything just kind of automatically shifts over the aftermarket. Maybe how you managing that in the factories or absorption issues are trying to work through any other color there to be interesting.
Speaker Change: Hey, I would say that obviously we all look forward to returning to what it was, but we have such a diverse customer base.
that we're able to, instead of, we're agile and flexible and we're able to.
really overcome that. So we don't see any near-term issues with that.
and maybe just a really quick one put Todd. Todd obviously at North American Industrial starting off a little slower than expected. It sort of looks like your guide for the year would kind of imply normal sequential.
from here off this little bit slower starting point. Would you agree with that or any other color you would share and just terms of kind of get the complexion of the year, right?
Speaker Change: Yeah, Jeff, I do agree with what your comment is. There, the only thing would be that that the best track activity does is it's expected to come out.
and what's the device that you're noted? Okay, thank you.
Okay, so actually I think we have time for one more question here.
Sounds good. The next question is from Jo Jarjano from TD Cowan. Please go ahead.
Hey guys, thanks for the fit me in here. Just question, because when we think about the order, sometimes it's tough like on the comps and what that's doing to the rates that we're seeing in the current quarter. Can you comment it all on North America International orders in dollars relative to last quarter?
I'm just about to say industrial.
Speaker Change: 4.2 billion.
Order them this quarter. Yeah, okay, so order them this quarter pretty similar to last quarter and in dollars, okay
Speaker Change: Yes.
Speaker Change: Okay, and then you tear point on...
Speaker Change: Delays, I guess it's kind of a tough question but like I guess every cancellation in history starts as a delay at some point. So like if you look back and think about like tire cycles when things ultimately work canceled, like what are the things that you're on the lookout to see like, alright, these delays are going to like extend indefinitely and get like become something else. Like what do you tend to look for to see if that's happening?
We cast in it.
Analyze the backlogs. The orders coming in, the changes that happened week to week. Our divisions are becoming, you know, even sharper at that. I would tell you in the past, I would expect with as many quarters as this is going, has been going on that we would have, in the past we would have seen cancellation.
Speaker Change: Right now we just see...
Speaker Change: Delay. And we weren't seeing delays before, you know, major delays before this last quarter. So it feels like I mentioned before, it feels like more of a pause here. The other thing I would say is, you know, when we're just talking about is, you know, that's overall the backlock just keeps...
Speaker Change: Dang, where it is.
But he answered a question of what other things we looked for. We look for those additional plant shutdowns, changes in production schedules, because you can...
You can kind of keep a close eye on that and determine whether or not those types of reductions are going to be enough. And so we're not surprised by those additional shutdowns now and reduced.
Order Rate, and that's what we have baked into the guide, and we'll have a lot of an even better look at the first of the year.
Speaker Change: Thank you.
Speaker Change: Thanks Joe. Okay, I worked out perfectly. We have no more questions in the queue, so this concludes our FY25 Q1 earnings release webcast.
We do appreciate your time attention and confidence in Parker and I thank you for joining us today. Jeff Miller, our VP of Investor Relations and Yenhua, our Director of Investor Relations, will be available if anyone has any follow-ups throughout the rest of the day. I hope everyone has a great day. Thank you.
This concludes the today's conference call. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: [inaudible] .
Speaker Change: [inaudible]