Q3 2025 Parker-Hannifin Corp Earnings Call
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Speaker Change: I will now turn the conference over to your host Todd Liam Bruno Chief Financial Officer. Thank you you may begin.
Diego: Thank you Diego.
Speaker Change: Welcome everyone to Parker's fiscal year 2025 third quarter earnings release webcast.
Bruno: Diego said this is totally and Bruno Chief Financial Officer speaking and as usual with me today is Jenny <unk>, our chairman and Chief Executive Officer.
Bruno: We really do appreciate your interest in Parker and thank you for joining us today.
Bruno: If we could move to slide two this slide addresses.
Bruno: All of our disclosures on forward looking projections and non-GAAP financial measures.
Greetings and welcome to Parker Hannifin Corporation fiscal 2025.
Bruno: Obviously the items listed here could cause actual results to vary from our forecast.
The press release this presentation all.
Third quarter earnings conference call and webcast.
Bruno: All reconciliations for all non-GAAP measures.
At this time all participants are in a listen only mode.
Bruno: Were released this morning and are available under the investors section on our website at <unk> Dot com.
A 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.
Speaker Change: Agenda for today has journey, starting with the highlights to our record third quarter performance. She is also going to reiterate the strength of our transformed portfolio and how the tools of our win strategy allow us to drive performance in all economic climates.
Please note this conference.
Speaker Change: Going to follow a journey with some more details on our third quarter financial results.
Speaker Change: We're going to provide an update to our FY 'twenty outlook, including market verticals and of course updated financial guidance.
Speaker Change: We're going to conclude the session with a normal question and answer answer portion of our call and we are going to do our best to address as many questions as possible. We know it is a busy day out there so with that I would ask everyone to move to slide three and journey of the Florida as yours. Thank.
Thank you Todd and thank you to everyone for attending our call today.
Speaker Change: Our third quarter performance demonstrates the strength of our business and our global teams ability to continue to deliver record results.
Speaker Change: We produced top quartile safety performance again, this quarter aligned with our goal to be the safest industrial company in the world.
Speaker Change: Record adjusted segment operating margin of 26, 3%.
This is our first quarter, surpassing 26%.
Speaker Change: Record adjusted EBITDA margin of 27%.
Speaker Change: And year to date cash flow from operations of $2 3 billion.
Speaker Change: Parker order rates increased to 9%, reflecting our transformed portfolio and long cycle strength. This.
Speaker Change: This team is continuing to expand margins and EPS and at most dynamic environment.
Speaker Change: Next slide please.
Speaker Change: And this is how we do it our business system. The win strategy has enabled us to consistently deliver strong results through business cycles safety engagement and ownership are the foundation of our culture.
Speaker Change: Our decentralized structure and the agility of our global team we have.
We're confident in our ability to manage through macroeconomic uncertainty including terrorists.
Speaker Change: Every tool in this business system expands margins.
Speaker Change: Next slide please.
Speaker Change: And our portfolio is more resilient than ever we.
Speaker Change: We have the number one position in the motion and control industry with interconnected technologies and solutions across our key market verticals.
Speaker Change: The acquisitions of CLARCOR, Lord and exotic and Meg It had doubled the size of our filtration engineered materials and aerospace businesses, giving us greater exposure to longer cycle and secular growth trends.
Speaker Change: Next slide please.
Speaker Change: Dedicated use of our simplification tools drive margin expansion across cycles.
Speaker Change: Hey, we have a more agile operating structure than we have ever had before.
Speaker Change: Their use of kaizen and the Parker lean system, we evaluate and adjust our structure and footprint to ensure continuous improvement and optimization of our resources.
Speaker Change: Disciplined use of our 80 20 tools has made us successful in reducing revenue complexity.
Speaker Change: Leveraging our distribution channel and rationalizing product allows us to serve our customers better.
Speaker Change: And our simple by design tools further reduced product and related manufacturing complexity and enables growth and efficiency in our operations. We are using all of these tools to expand margins no matter what phase of the business cycle. We are in.
Speaker Change: Next slide please.
Speaker Change: Supply chain leadership is a competitive differentiator for Parker.
Speaker Change: Addition of enhanced demand and capacity tools as well as dual sourcing strategies has increased visibility and resilience reduce lead times and improve the customer experience.
Speaker Change: We've always had a local for local model driven by our desire to be close to our customers.
Speaker Change: This has also allowed us to leverage global capacity to better serve all of our customers.
Speaker Change: We have dealt with tariffs before.
Speaker Change: And are extremely grateful for our excellent pricing and supply chain teams.
Speaker Change: Tariffs are a lot of noise and work that our teams are leveraging analytics and robust processes to navigate and act quickly to these dynamic and challenging times.
Speaker Change: Announced tariffs are approximately 3% of cost of goods sold were $375 million on an annualized basis.
Speaker Change: We offset by mitigation actions and designed to protect earnings per share.
Todd: I'll now turn it back over to Todd to review third quarter highlights.
Todd: Thank you Jenny I am on slide nine and I'm going to just run through the financial results very quickly as Jay said this was a strong quarter a record setting quarter. In fact, it was another quarter of continued margin expansion and EPS growth.
Sales were down 2% versus prior organic growth was positive at 1%.
Todd: Currency remained unfavorable at negative one.
Todd: The main driver really of the overall decline is the result of those previously announced divestitures that we've made this year that accounted for 2% of the decline which is essentially the entire decline.
We have dealt with tariffs before.
And are extremely grateful for excellent pricing and supply chain teams.
Todd: As Jenny mentioned adjusted segment operating margins were up 160 basis points to $26 three that is a record and our adjusted EBITDA margins were up 150 basis points to 27.
Tariffs are a lot of noise and work.
But our teams are leveraging analytics and robust processes to navigate and act quickly through these dynamic and challenging times.
Jenny: Obviously, the first time, we've ever done that that is a record net income is 904 at 18, 2% return on sales both of those numbers of records and adjusted earnings per share is up 7% to 694.
Announced tariffs are approximately 3% of cost of goods sold were $375 million on an annualized basis.
Well, we offset by mitigation actions and designed to protect earnings per share.
Jenny: You know being able to grow earnings per share, 7% with the top line down to.
I'll now turn it back over to Todd to review the third quarter highlights.
Jenny: It's just another indicator of just how different Parker is today. This was another quarter of strong performance that was consistent across all of the businesses each contributed to the margin expansion.
Thank you Jimmy I am on slide nine and I'm going to just run through the financial results very quickly as Jay said this was a strong quarter a record setting quarter. In fact, it was another quarter of continued margin expansion and EPS growth.
And cash flow performance that Jenny mentioned.
Sales were down 2% versus prior organic growth was positive at 1%.
Jenny: This performance that we had in Q3 continues to support the expectations, we have for another record year.
Currency remained unfavorable at negative one the main driver really of the overall decline is the result of those previously announced divestitures that we've made this year that accounted for 2% of the dike.
Jenny: If we could go to the next slide Slide 10. This just shows the walk of the 43% increase in adjusted earnings per share our Q.
Jenny: Q3, really the same story that we had in the first half of the year unbelievably disciplined operating performance segment operating income dollars are up $53 million Thats 32 cents of.
Client, which is essentially the entire decline is.
Tony mentioned adjusted segment operating margins were up 160 basis points to $26. Three that is a record and adjusted EBITDA margins were up 150 basis points to 27.
Jenny: The increase in earnings per share.
Jenny: Aerospace continues to be the primary driver of our of our segment operating margin dollar growth.
Obviously, the first time, we've ever done that that is a record net income is 904 at 18, 2% return on sales both of those numbers of records and adjusted earnings per share is up 7% to 694.
Jenny: But the industrial businesses also delivered record segment operating margin percentages. Despite the pressures on the top line in those businesses.
Being able to grow earnings per share, 7% with top line down to.
Jenny: Expense continues to be down that is the 17th favorable.
Jenny: Result, this year that is really the result of our commitment to reducing debt corporate G&A as favorable <unk> that really is related to lower.
It's just another indicator of just how different Parker is today. This was another quarter of strong performance that was consistent across all of the businesses each contributed to the margin expansion.
Jenny: Market based benefits and just great discretionary cost controls across.
And cash flow performance that Jenny mentioned and this performance that we had in Q3 continues to support the expectations, we have for another record year.
Jenny: The businesses.
Jenny: Other expense was a drag of 13th.
Jenny: That really is a combination of just less favorable pension expense.
Jenny: Versus prior year, and obviously some currency translation just based on the FX rates and volatility and.
If we go to the next slide Slide 10. This just shows the walk of the 43% increase in adjusted earnings per share Q.
Jenny: And then lastly share count and income tax basically offset each other and that's how we got to the 694 adjusted EPS for the quarter really just wanted to commend our teams around the world for just great cost diligence and unbelievable operating performance that drove strong results.
Q3, really the same story that we had in the first half of the year unbelievably disciplined operating performance segment operating income dollars are up $53 million Thats 32 cents of.
The increase in earnings per share.
Aerospace continues to be the primary driver of our segment operating margin dollar growth.
Jenny: Okay, well go to 11, we'll just dive into the segments a little bit order trend continues to be positive for the company orders or plus nine <unk>.
But the industrial businesses also delivered record segment operating margin percentages. Despite the pressures on the top line in those businesses interest expense continues to be down that is the 17th favorable.
Jenny: Versus prior year are really this is driven by longer cycle strength.
Jenny: That continues to drive order rates and backlog are higher.
Result, this year that is really the result of our commitment to reducing debt corporate G&A as favorable <unk> that really is related to lower.
Jenny: Once again every business delivered record segment operating margins. The total company is up 160 basis points, specifically in the diversified North American businesses sales were 2 billion organic growth was down 3% versus prior that did improve sequentially from Q2.
Market based benefits and just great discretionary cost controls across.
The businesses.
Other expense was a drag of 13th.
That really is a combination of just less favorable pension expense.
Jenny: But the result was lower than we expected going into the quarter.
Jenny: We continue to see softness in the transportation off highway and energy markets.
Versus prior year, and obviously some currency translation just based on the FX rates.
And volatility and.
Jenny: Distribution sentiment remains positive.
And then lastly share count and income tax basically offset each other and that's how we got to the 694 adjusted EPS for the quarter.
Jenny: What's really nice here is adjusted segment operating margins are up 110 basis points to a record $25 two.
Just wanted to commend our teams around the world.
Jenny: Really just driven by great operating performance and like I said before our cost controls.
Just great cost diligence and unbelievable operating performance.
Jenny: Gradual improvement in distribution kept porters North America positive at plus three versus prior we were happy to see that and this is the second quarter in a row of positive order entry results for North America.
<unk> strong.
<unk>.
Okay, well go to 11, we'll just dive into the segments a little bit order trend continues to be positive for the company orders or plus nine <unk>.
Prior year are really this is driven by longer cycle strength.
Jenny: If we look at the international businesses order rates improved really to a double digit positive 11 here that is really driven by a nice recovery and the long cycle exposure. There sales were $1 4 billion organically that was also down 3% Asia.
That continues to drive order rates and backlog are higher.
Once again every business delivered record segment operating margins. The total company is up 160 basis points, specifically in the diversified North American businesses sales were 2 billion organic growth was down 3% versus prior that did improve sequentially from Q2.
Jenny: <unk>, specifically was up 2%.
Jenny: Organically Latin America continues to be a very robust at plus eight.
But the result was lower than we expected going into the quarter.
Jenny: While the EMEA region remains challenged at negative seven.
We continue to see softness in the transportation.
Highway and energy markets.
Jenny: Our international teams really are remaining agile and focused on cost controls and reductions and really efficiency improvements.
Distribution sentiment remains positive.
But what's really nice here is adjusted segment operating margins are up 110 basis points to a record $25 two.
Jenny: The evidence is clear in their margin performance adjusted.
Jenny: Adjusted segment operating margins here, or 25, 1% and expanded by 160 basis points versus prior year.
Really just driven by great operating performance and like I said before our cost controls.
Gradual improvement in distribution kept orders in North America positive at plus three versus prior we were happy to see that and this is the second quarter in a row of positive order entry results for North America.
Jenny: Aerospace continues to be the standout.
Jenny: Unbelievable and styling inspiring results here sales were a record $1 $6 billion in aerospace that's up 12% versus prior year. Once again this quarter they exceeded our expectations on the top line.
If we look at the international businesses order rates improved really to a double digit positive 11 here that is really driven by a nice recovery and the long cycle exposure. There sales were $1 4 billion organically that was also down 3%.
Jenny: All of that growth was organic organic growth was 12% really continued to be driven by the aftermarket strength in both defense and commercial end markets. This is the ninth consecutive quarter.
Jenny: Double digit organic growth for aerospace just unbelievably stellar performance.
Asia Pacific specifically was up 2% organically.
Organically Latin America continues to be a very robust at plus eight.
Jenny: Margins were up 200 basis points and reached a record $28 728 points of it.
The EMEA region remains challenged at negative seven.
Jenny: We are certainly pleased that aerospace is now a third of the company and aerospace orders continue to be positive at plus 14.
Our international teams really are remaining agile and focused on cost controls and reductions and really efficiency improvements.
Jenny: If we go to the next slide Slide 12 is just some comments on cash flow.
The evidence is clear in their margin performance.
Jenny: Strong cash flow performance from the corporation cash flow from operations on a year to date basis was 15, 8%.
Adjusted segment operating margins here, or 25, 1% and expanded by 160 basis points versus prior year.
Aerospace continues to be the standout.
Jenny: That equates to $2 $3 billion.
Believable and styling inspiring results here sales were a record $1 $6 billion in aerospace that's up 12% versus prior year. Once again this quarter they exceeded our expectations on the top line.
Jenny: That is up 8% versus prior year, and the $2 3 billion as a year to date record.
Jenny: Year to date free cash flow is also up 8% versus prior thats about $2 billion.
Jenny: Or 13, 7% of sales.
All of that growth was organic organic growth was 12% really continued to be driven by the aftermarket strength in both defense and commercial end markets. This is the ninth consecutive quarter of double digit organic growth for aerospace just unbelievably stellar performance.
Jenny: Great.
Jenny: Cash flow performance across the company.
Jenny: I have noticed last Wednesday, our board approved a 10% increase to our quarterly dividend as a result of their confidence in the company's ability to continue to generate strong cash flows.
Jenny: No matter, what the business cycle brings us.
Margins were up 200 basis points.
Jenny: And our dividend per share on a quarterly basis is now $1 80.
<unk> a record $28 728 points out.
We are certainly pleased that aerospace is now a third of the company and aerospace orders continue to be positive at plus 14.
Jenny: The action will extend our record of increasing annual dividends paid per share to an amazing 69 years.
Jenny: Lastly, during the quarter, we purchased $600 million of shares. In addition to the usual 50 million that we purchase as part of our <unk> One program totaled.
If we go to the next slide Slide 12 is just some comments on cash flow.
Strong cash flow performance from the corporation cash flow from operations on a year to date basis was 15, 8%.
Jenny: Total repurchases in the quarter.
Jenny: The $650 million and on a year to date basis, our repurchases now total $750 million.
That equates to $2 $3 billion that.
That is up 8% versus prior year, and the $2 3 billion as a year to date record.
gentium: So moving on to guidance, let's move to slide 14, gentium and hand, it back to you to start with the update on market verticals.
Year to date free cash flow is also up 8% versus prior that's about $2 billion.
Thank you Todd so taking a look at our FY 'twenty five sales forecast by market vertical for aerospace and defense had just went over some strong results. We are raising full year organic growth to 12% on continued aftermarket strength and gradual OEM recovery previous guidance was 11%.
Yeah.
And our sales so.
So just great.
Cash flow performance across the company.
May have noticed last Wednesday, our board approved a 10% increase to our quarterly dividend.
As a result of their confidence in the company's ability to continue to generate strong cash flows.
We are lowering implant and industrial equipment growth to be negative low single digits and this was previously slightly positive low single digit.
No matter, what the business cycle brings us.
And our dividend per share on a quarterly basis is now $1 <unk>.
gentium: This.
The action will extend our record of increasing annual dividends paid per share to an amazing 69 years.
gentium: Lowering is due to a prolonged delay in industrial recovery.
gentium: But it is worth noting that quoting activity remains strong despite the project delays that are being seen.
Lastly, during the quarter, we purchased $600 million of shares. In addition to the usual 50 million that we purchased as part of our <unk> One program totaled.
gentium: We are lowering transportation growth to be negative low single digit. This was previously neutral and this is primarily due to lower automotive production forecast in North America and EMEA.
Total repurchases in the quarter.
$650 million and on a year to date basis, our repurchases now total $750 million.
gentium: Work truck demand does remain stronger than on highway same as last quarter.
So moving on to guidance, let's move to slide 14, gentium and hand, it back to you to start with the update on market verticals.
gentium: Off highway improves slightly to negative low teens. This was previously negative mid teens.
gentium: Destocking and end market weakness does persist, but it is partially offset by stronger aftermarket AG weakness continues no real sign of recovery here yet.
Thank you Todd so taking a look at our FY 'twenty five sales forecast by market vertical for aerospace and defense had just went over some strong results. We are raising full year organic growth to 12% on continued aftermarket strength and gradual OEM recovery previous guidance was 11%.
gentium: Lowered energy to negative low single digits. This was previously neutral and this is due to lower oil prices and a disciplined approach to capital spending.
We are lowering implant and industrial putting the growth to be negative low single digits and this was previously slightly positive low single digit.
gentium: And we have increased HVA CNR to high single digits. This was previously mid single digits and driven primarily by strength in residential air conditioning.
<unk>.
Lowering is due to a prolonged delay in industrial recovery.
Speaker Change: I'll hand, it back to you tapped to go over the guidance update okay. Thank you Jenny moving to slide 15, I'm just going to go through some of the details.
But it is worth noting that quoting activity remained strong despite the project delays that are being seen.
Speaker Change: For the guide our reported sales growth for the year is now forecasted to be approximately minus one.
We are lowering transportation growth to be negative low single digit. This was previously neutral and this is primarily due to lower automotive production forecast in North America and EMEA.
Speaker Change: In respect to organic growth for the full year, we expect organic growth to be about positive one.
Work truck demand does remain stronger in on highway statement last quarter.
Speaker Change: We have raised aerospace organic growth.
To 12% for the year.
Off highway improves slightly to negative low teens. This was previously negative mid teen.
Speaker Change: But we've lowered industrial segment, the industrial segment to minus three.
M Destocking and end market weakness does persist, but it is partially offset by stronger aftermarket and weakness continues no real sign of recovery here yet.
Speaker Change: Industrial North America organic growth is now forecasted to be approximately minus four and.
Speaker Change: And industrial international organic growth is now forecasted to be approximately.
Lowered energy to negative low single digits. This was previously neutral and this is due to lower oil prices and a disciplined approach to capital spending and.
Speaker Change: Totally negative two and a half.
Speaker Change: The previously announced divestitures on a full year basis will be negative one 5%, 100% of those divestitures were reported within the industrial North American businesses.
We had increased HVA CNR to high single digits.
As was previously mid single digits, and driven primarily by strength in residential air conditioning.
Speaker Change: And currency is now expected to be just a slight.
Speaker Change: Negative, 0.5% headwind and those are based on <unk>.
I'll hand, it back to you Ted to go over the guidance update okay. Thank you Jenny moving to slide 15, I'm just going to go through some of the details.
Speaker Change: <unk> 31 exchange rates.
Speaker Change: In respect to segment operating margins, we are raising guidance by 10 basis points.
For the guide our reported sales growth for the year is now forecasted to be approximately minus one.
Speaker Change: For the full year that will now be 25, 9% segment operating margin.
Speaker Change: That forecast will be.
In respect to organic growth for the full year, we expect organic growth to be about positive one.
Speaker Change: Full year margin expansion of 100 basis points.
Speaker Change: Prior year.
We have raised aerospace organic growth to.
Speaker Change: Here.
Speaker Change: And of course that improvement is.
To 12% for the year.
Speaker Change: Being contributed by all businesses assumption.
But we've lowered industrial segment, the industrial segment to minus three.
Speaker Change: Assumptions for corporate G&A interest and other as usual we've provided those in the appendix we expect full year.
In industrial North America organic growth is now forecasted to be approximately minus four.
Speaker Change: Our tax rate to be 21 five.
And industrial international organic growth is now forecasted to be.
Speaker Change: When you look at adjusted EPS, We now see the full year excuse me as reported EPS for full year is now $26 <unk> at.
Approximately negative two and a half.
The previously announced divestitures on a full year basis will be negative one 5%, 100% of those divestitures were reported within the industrial North American businesses.
Speaker Change: At the midpoint and we are maintaining our adjusted EPS guide of $26 70.
And currency is now expected to be just a slight.
Speaker Change: At the midpoint on both of those numbers Theres, a range of plus or minus <unk> 10.
Negative, 0.5% headwind and those are based on <unk>.
Speaker Change: On both the as reported and the adjusted figures.
March 31 exchange rates.
Speaker Change: In respect to tariffs Jenny mentioned this earlier, but we expect to fully mitigate any additional costs associated with all of the announced tariffs.
In respect to segment operating margins, we are raising guidance by 10 basis points.
For the full year that will now be 25, 9% segment operating margin.
Speaker Change: Our EPS guidance does include cost.
Speaker Change: And mitigation actions with all announced tariffs and those will be fully offset within the quarter.
That forecast will be.
Full year margin expansion of 100 basis points.
Speaker Change: For Parker on an annualized basis.
Prior year.
Year.
Speaker Change: We have targeted the.
And of course that improvement is.
Speaker Change: Now its tariff cost to be about 375.
Being contributed by all businesses.
Speaker Change: And that equates to roughly 3% of our cost of goods sold.
Our assumptions for corporate G&A interest and other as usual we've provided those in the appendix, we expect full year <unk>.
Speaker Change: We foresee full year free cash flow to be $3 $1 billion and of course free cash flow conversion is expected to be greater than 100%.
<unk> rate to be 21 five.
When you look at adjusted EPS, We now see the full year excuse me as reported EPS for full year is now $26 <unk>.
Speaker Change: For Q4 of last quarter of our fiscal year.
Speaker Change: More specifically, we expect reported sales to be $5 $1 billion.
At the midpoint and we are maintaining our adjusted EPS guide of $26 70.
Speaker Change: Organic growth of positive one 5%.
Speaker Change: <unk> segment operating margin is expected to be approximately $26 one.
At the mid point on both of those numbers Theres, a range of plus or minus <unk> 10.
On both the as reported and the adjusted figures.
Speaker Change: Percent, we've modeled a tax rate of 22% for the quarter and adjusted EPS is expected to be $7 five.
Speaker Change: In respect to tariffs Jenny mentioned this earlier, but we expect to fully mitigate any additional costs associated with all the announced tariffs.
Speaker Change: That also includes all announced tariffs and our mitigating.
Speaker Change: Our EPS guidance does include cost.
<unk> actions.
Speaker Change: So that's it for the details on the guide Jenny I'll hand, it back to you and ask everyone to move to slide 16.
Speaker Change: And mitigation actions with all announced tariffs and those will be fully offset within the quarter.
Speaker Change: For Parker on an annualized basis.
Jenny: Thanks Todd.
Jenny: And just a final reminder, on what drives Parker.
Speaker Change: We have targeted the.
Speaker Change: Now its tariff cost to be about 375.
Speaker Change: At the beginning of the presentation safety engagement and ownership are the foundation of our culture.
Speaker Change: And that equates to roughly 3% of our cost of goods sold.
Speaker Change: There are people and living up to our purpose that drive top quartile performance.
Speaker Change: We foresee full year free cash flow to be $3 $1 billion.
Speaker Change: And we remain committed to being great generators and to players of cash we are actively focused and extending our track record of deploying capital to deliver the best shareholder value possible.
Speaker Change: And of course free cash flow conversion is expected to be greater than 100%.
Speaker Change: For Q4 of last quarter of our fiscal year.
Speaker Change: Excellent.
Diego: Okay Diego, we are ready to start the Q&A portion of the call. So.
Speaker Change: More specifically, we expect reported sales to be $5 $1 billion.
Speaker Change: Organic growth of positive one 5%.
Diego: It will take whoever you have in queue. Thank you Yep reminder, to the audience to ask a question press star one on your telephone keypad.
Speaker Change: <unk> segment operating margin is expected to be approximately $26 one.
Diego: <unk> tongue indicate that your line is in the question queue. You May press star two if he 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: Percent, we have modeled a tax rate of 22% for the quarter and adjusted EPS is expected to be $7.05.
Speaker Change: That also includes all announced tariffs and.
Speaker Change: Our mitigating actions.
Diego: Our first question comes from Mig <unk> with Baird. Please state your question.
Speaker Change: So that's the that's it for the details on the guide Jenny I'll hand, it back to you and ask everyone to move to slide 16.
Thank you for taking the question good morning, everyone.
Speaker Change: Todd.
Diego: I guess.
Speaker Change: And just a final reminder, on what drives Parker instead.
Diego: The orders.
Diego: At least to me were quite surprising in the quarter.
Speaker Change: I said at the beginning of the presentation safety engagement and ownership are the foundation of our culture. It's.
Diego: It's been more than three years since we've seen international orders up 14%.
Speaker Change: It's our people and living up to our purpose that drive top quartile performance.
Diego: Positive in North America as well so I guess my question is this when you talk about longer cycle.
Speaker Change: And we remain committed to being great generators and to players of cash.
Speaker Change: Actively focus and extending our track record deploying capital to deliver the best shareholder value.
Diego: Can you can you maybe talk.
Diego: A little bit more about that how do these orders actually get to convert to revenues.
Speaker Change: Yeah.
Chad: Thank you Chad.
Chad: Okay Diego, we are ready to start the Q&A portion of the call so well.
Diego: The time cycle here and related to this.
Diego: Recognize that you don't provide fiscal 'twenty six guidance now, but given this inflection that we've seen in orders is it fair for us to expect positive organic growth in fiscal 2016, your industrial business.
Speaker Change: It will take wherever you have in Q.
Speaker Change: Thank you and a reminder to the audience to ask a question press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May press star two if he 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.
Mike: Sure Mike.
So to answer your last question first I think it is it fair to say.
Mike: And we should get some positive industrial growth in FY 'twenty six.
Mike: These orders that we're talking about long cycle or are definitely beyond this last quarter here in fiscal year 'twenty five.
Speaker Change: Our first question comes from Mig <unk> with Baird. Please state your question.
Speaker Change: And as Todd went through and you said the rates had increased to 9% for total Parker. So when you look at North America.
Mig <unk>: Thank you for taking the question good morning, everyone.
Speaker Change: I guess.
Speaker Change: The order is.
Mike: This was the second consecutive quarter.
Speaker Change: At least to me were quite surprising in the quarter.
Mike: Positive orders and that stayed the same at 3%. So remember we have aerospace and defense business in our industrial.
Speaker Change: It's been more than three years since we've seen international orders up 14%.
Speaker Change: Positive in North America as well so I guess my question is this when you talk about longer cycle.
Mike: Segment. So we saw some strong orders there and we also saw.
Mike: H D AC and refrigeration orders remained strong there was some gradual improvement from the distribution channel not anything that I would call restocking.
Speaker Change: Can you can you maybe talk about them a little bit more about that how do these orders actually get to convert to revenues, what's what's kind of done.
Speaker Change: The time cycle here and related to this.
But their sentiment is.
Mike: It's positive and they are awaiting the recovery.
Speaker Change: And is that you don't provide fiscal 'twenty six guidance now, but given this inflection that we've seen in orders is it fair for us to expect positive organic growth in fiscal 'twenty six in your industrial business.
Mike: When you look at international order growth it definitely accelerated on long cycle strength. So.
Mike: Europe, mainly driven by long cycle energy orders power Gen and oil and gas.
Speaker Change: Sure.
Speaker Change: So to answer your last question first I think it is it is it fair to.
Mike: Todd mentioned Asia orders remain solidly positive and that is primarily driven by electronics and semicon and this is the third quarter in a row of positive orders for international and Aerospace, obviously I think well.
Speaker Change: To say that we should get some positive industrial growth in FY 'twenty six and these orders that we're talking about long cycle are definitely beyond this last quarter here in fiscal year 'twenty five.
Mike: Well aware of that but the backlog did increase again last quarter was a record 7 billion and this quarter. It went up to $7 3 billion and this is on.
Speaker Change: And as Todd went through and you said the rates increased to 9% for total Parker. So when you look at North America.
Speaker Change: This was the second consecutive quarter of positive orders and that stayed the same at 3%. So remember we have aerospace and defense.
Mike: Both strong commercial and defense orders.
Mike: So that's.
Mike: Just some color on the orders.
Mike: Great. Thank you and my follow up speaking of backlog very sizable in aerospace more than a year's worth of business in there.
Speaker Change: Our industrial.
Speaker Change: So we saw some strong orders there and we also saw.
Speaker Change: H E B and refrigeration orders remain strong there was some gradual improvement from the distribution channel.
Speaker Change: And you sized the tariff impact here, but I do wonder how you think about the risks.
Speaker Change: The thing that I would call restocking.
Mike: You might have on the cost side, whether it's Eric or any other costs related to this backlog.
Speaker Change: But their sentiment is.
Speaker Change: It's positive and they are awaiting recovery.
Mike: And your ability to kind of manage that through.
Speaker Change: When you look at international order growth.
Mike: Or any other mechanism that you have.
Speaker Change: Currently accelerated on long cycle strength so.
Mike: No.
Mike: We as we said we expect we will fully mitigate.
Speaker Change: Europe, mainly driven by long cycle energy orders power Gen and oil and gas.
Mike: The tariff impact we as I was going through my slides, we have several different.
Speaker Change: Todd mentioned Asia orders remained solidly positive and that is primarily driven by electronics and semicon.
Mike: Actions in place and then.
Mike: When you look at the mitigation actions I would put them in three different buckets pricing actions supply chain actions and what we do all the time with the win strategy reducing costs on an ongoing basis.
Speaker Change: This is the third quarter in a row of positive orders for international and Aerospace, obviously, I think I'm well aware of that but the backlog is increased again last quarter was a record at $7 billion and this quarter. It went up to seven 3 billion and this is.
Mike: So those those three areas.
Mike: Or how we're confident that we're going to fully mitigate this.
Speaker Change: On both strong commercial and defense orders.
Mike: And.
Speaker Change: So that's.
Mike: We're ready.
Speaker Change: Just some color on the orders.
Mike: Yes.
Mike: Alright, good luck.
Speaker Change: Great. Thank you and my follow up speaking of backlog very sizable in aerospace more than a year's worth of business in there.
Mike: Thanks, Nick.
Speaker Change: Thank you and our next question comes from Jamie Cook with <unk> Securities. Please state your question.
Speaker Change: And you you sized the tariff impact here, but I do wonder how you think about the risks.
Jamie Cook: Hi, good morning, and congratulations on another nice quarter.
Speaker Change: You might have on the cost side, whether it's tariff or any other costs related to this backlog.
My first question Jenny.
Speaker Change: The strength in margins.
Speaker Change: And your ability to kind of manage that through.
Jamie Cook: In aerospace and defense so.
Speaker Change: Or any other mechanism that you have.
Speaker Change: To what degree are you worried that the aftermarket story and the strength in aftermarket is driving the margins that in 2026, I guess that becomes a headwind as well.
Speaker Change: So we and we as we said we expect we will fully mitigate.
Speaker Change: You know the tariff impact we as I was going through my slides, we have several different.
Jamie Cook: We started to pick up and if you could just.
Speaker Change: Break apart.
Speaker Change: Actions in place and then when you look at the mitigation actions I would put them in three different buckets pricing actions supply chain actions.
Speaker Change: If theres anything more structural they are margin, Steve Besides just aftermarket right improving more associated with Megan I guess, that's my first question.
Speaker Change: And what we do all the time with the win strategy, reducing costs on an ongoing basis.
Speaker Change: And my second question.
Speaker Change: Understanding you just put out these targets last June but if we look at your implied adjusted EBITDA margin for the full year, you're targeting 25.
Speaker Change: So those those three areas.
Speaker Change: Our how we're confident that we're going to fully mitigate this.
Speaker Change: And.
Speaker Change: 9% I think versus the target you laid out last year of 27% in your industrial businesses are still fairly depressed.
Speaker Change: We're ready.
Speaker Change: <unk>.
Speaker Change: Alright, good luck.
Speaker Change: Thanks, Nick.
Speaker Change: So again, just trying to understand why that is conservative or again is the concern that aftermarket sorry aerospace margins are sort of over.
Speaker Change: Thank you and our next question comes from Jamie Cook with <unk> Securities. Please state your question.
Jamie Cook: Hi, good morning, and congratulations on another nice quarter.
Speaker Change: Over earning you mean as that normalizes industrial takes up 27% is really the right target. Thank you.
Speaker Change: I guess my first question Jenny just the strength in margins.
Jamie Cook: Okay, Jamie so starting out with just a little bit of color.
Speaker Change: You know in aerospace and defense so.
Jamie Cook: On an aero aftermarket so it's been very strong for us. It was strong in Q3, I mean year to date are on aftermarket it's 50%.
Speaker Change: To what degree are you worried that the aftermarket story must drink in aftermarket is driving the margins that in 2026, I guess that becomes a headwind as well.
Jamie Cook: Through Q3, so now going into Q4, we're forecasting around 49% for the full year it'll be 50% and just a reminder, too we did really gain a lot of aftermarket with the mega acquisitions that were in a higher aftermarket position to begin with.
Speaker Change: Just to pick up and if you could just.
Speaker Change: You know break apart.
Speaker Change: If theres anything more structural they are margin, Steve Besides just aftermarket rate improving more associated with Meg and I guess, that's my first question.
Speaker Change: And my second question understanding you just put out these targets last June but if we look at your implied adjusted EBITDA margin.
Jamie Cook: We do see that a gradual recovery on the rates the OEM right.
Speaker Change: For the full year, you're targeting 25 nine.
Jamie Cook: Are having an impact on that mix, but we do feel very confident about our ability to continue to expand margins in aerospace so.
Speaker Change: 9% I think versus the target you laid out last year of 27% in your industrial businesses are still fairly depressed.
Jamie Cook: We have not seen any degradation.
Speaker Change: So again, just trying to understand why that is conservative or again is the concern that aftermarket sorry aerospace margins are sort of over earning you know what I mean is that normalizes industrial takes up 27% is really the right target. Thank you.
Jamie Cook: As a result.
Jamie Cook: Some of the reports out there about North America air traffic growth slowing we're keeping a close eye on that.
Jamie Cook: But.
Jamie Cook: We still have a very strong aftermarket business here and we see that into the foreseeable future.
Speaker Change: Okay. So starting out with just a little bit a color on an aero aftermarket. So it's been very strong for us. It was strong in Q3, I mean year to date, our aftermarket it's 50%.
Jamie Cook: As far as the targets go I mean, obviously.
Jamie Cook: Todd mentioned that we couldn't be any prouder of these teams and how they've delivered in.
Jamie Cook: Especially the industrial side of the business in a negative top line environment.
Speaker Change: Through Q3, so now going into Q4, we're forecasting around 49% for the full year it'll be 50% and just a reminder, too. We did you know really gain a lot of aftermarket with the Mega acquisition. So we're in a higher aftermarket position to begin with we do see.
Jamie Cook: We really do believe and we will continue to expand margins with all the tools in the win strategy.
Jamie Cook: Obviously, we'd like to see this industrial side of the business.
Jamie Cook: Turnaround I think will also enjoy that and benefit from it but right now we have a lot of confidence with everything going on.
Speaker Change: Are there a gradual recovery on the rates the OEM right.
Jamie Cook: And the environment that we're going to hit those targets and that's what we're sticking with.
Are having an impact on that next but we do feel very confident about our ability to continue to expand margins in aerospace so we.
Jamie I would just add to what Charlie said, it couldnt be happier with the progress, we're making on margins, but when we set those targets.
Jamie Cook: We also set a 4% to 6% growth target. We also set an EPS growth target.
Speaker Change: We have not seen any degradation.
Jamie Cook: We also set a cash flow target and while we are making progress on those.
Speaker Change: As a result.
Speaker Change: Some of the reports out there about North America air traffic growth, allowing we're keeping a close eye on that but we.
Jamie Cook: We are far away from achieving those as well. So we look at these kind of holistically together.
Jamie Cook: Not just one of the margins, it's really all of the targets. So.
Speaker Change: We still have a very strong aftermarket business here and we see that into the foreseeable future.
I'd tell you that's what the global team is focused on right now.
Speaker Change: As far as the targets go I mean, obviously.
Jamie Cook: Okay. That's helpful. Thank you.
Speaker Change: Todd mentioned that we couldn't be any prouder of these teams and how they've delivered and not just the industrial side of the business in a negative top line environment.
Speaker Change: And your next question comes from Julian Mitchell with Barclays. Please state your question.
Speaker Change: We really do believe and we will continue to expand margins with all the tools in the win strategy.
Hi, good morning.
Speaker Change: Maybe first off just wanted to circle back to the sort of the <unk>.
Speaker Change: You know obviously, we'd like to see this industrial side of the business.
Speaker Change: Yours widening between industrial organic orders and sales trends that's been apparent for a couple of quarters.
Speaker Change: Turnaround I think will also enjoy that and benefit from it but right now we have a lot of confidence with everything going on.
Speaker Change: I understand on some level, it's not truly if orders are meant to lead sales that'd be a delta on lot of the time when you mentioned the longer cycle elements boosting the orders growth versus sales.
Speaker Change: And the environment that we're going to hit those targets and that's what we're sticking with.
Speaker Change: Jamie I would just add to what Charlie said, it couldnt be happier with the progress we're making on margins, but when we set those targets. We also set a 4% to 6% growth target. We also set an EPS growth target. We also set a cash flow target and while we are making progress on those.
Speaker Change: Just wondered if there was any other.
Speaker Change: Dynamic to be aware of perhaps sort of the comps that we don't see from the outside is there anything notable there in orders versus sales and maybe sort of allied to that is there any color you could give us on how the industrial.
Speaker Change: We are far away from achieving those as well. So we look at these kind of Holistically together, it's not just one of the margins. It's really all of the targets. So I'd tell you that's what the global team is focused on right now.
Backlog is moving I think it was three and a half billion or so at the end of December.
Speaker Change: Okay. That's helpful. Thank you.
Speaker Change: Yeah. So.
Speaker Change: Yes.
Speaker Change: First of all I would say.
Speaker Change: And your next question comes from Julian Mitchell with Barclays. Please state your question.
Speaker Change: The way the portfolio has transformed over the last several years the connection between.
Julian Mitchell: Hi, good morning.
Speaker Change: Orders and shipments has has extended right I mean, we do see more longer cycle businesses.
Julian Mitchell: Maybe first off just wanted to circle back to the sort of the.
Speaker Change: Mentioned earlier aerospace being a third of the business.
Julian Mitchell: Jaws widening between industrial organic orders and sales trends that's been apparent for a couple of quarters.
Speaker Change: And the aerospace that is sitting inside of our industrial businesses as well.
Speaker Change: Some other industrial business that we consider longer cycle. It is different than it was in the past so that.
Julian Mitchell: I understand on some level, it's not truly if orders are meant to lead sales that that'd be a delta a lot of the time when you mentioned the longer cycle elements boosting the oldest gross versus sales just wondered if there was any other dine.
Speaker Change: <unk> isn't as tight as we made payments to even on the industrial side of the business.
Speaker Change: Second part of your question Julien.
Speaker Change: It was really just around any color you could give us on say the backlog movement in industrial and I think that was three and a half billion at the end of December. So it was it was $3 7 billion for industrial and $7 3 billion for aerospace it was 2% higher than prior year.
Julian Mitchell: Dynamic to be aware of perhaps sort of the comps that we didn't see from the outside is there anything notable there in orders with the sales and then maybe sort of allied to that is there any color you could give us on how that industrial.
Julian Mitchell: Backlog is moving I think it was three and a half billion or so at the end of December.
Speaker Change: And 5% up sequentially.
Speaker Change: That's very helpful. Thank you and then just.
Julian Mitchell: Yeah. So.
Julian Mitchell: First of all I would say that.
Speaker Change: If you could put a finer point on some of the aerospace.
Julian Mitchell: With the way the portfolio has transformed.
Last several years the connection between them.
Speaker Change: Growth trends sort of in the fourth quarter as you see it just so we have the jumping off point into 2026.
Julian Mitchell: Orders and shipments had has extended right I mean, we do see more longer cycle business that he mentioned earlier aerospace being a third of the business.
Speaker Change: On the sort of OE versus off the market dynamics in commercial and the military.
Julian Mitchell: And the aerospace that is sitting inside of our industrial businesses as well as.
Speaker Change: You bet.
Julian Mitchell: Some other industrial business that we consider longer cycle. It is different than it was in the past so that connection isn't as tight as we made payments to even on the industrial side of the business.
Speaker Change: As we said we've raised the full year guidance organic growth to 12%.
Speaker Change: We expect commercial OEM to be mid single digit and this obviously as you know as a result of the narrow body increases and some of the wide body recovering we're seeing as well, we expect defense OEM to be low single digit growth.
Julian Mitchell:
Speaker Change: Second part of your question Julien.
It was really just around any color you could give us on say the backlog movement in industrial and I think that was three and a half billion at the end of December it.
Speaker Change: We expect commercial MRO of high teens growth so again.
Speaker Change: Even though there's been some.
Speaker Change: It was it was $3 7 billion for industrial and $7 3 billion for aerospace it was 2% higher than prior year.
Speaker Change: Reports of North America Air traffic growth flowing.
Speaker Change: Global growth is still increasing and we still see that we have an aging fleet out there.
Speaker Change: <unk>.
Speaker Change: And 5% up sequentially.
Speaker Change: We expect defense MRO of high teens growth and this is really a focus on retrofits and upgrades.
Speaker Change: That's very helpful. Thank you and then just.
Speaker Change: If you could put a finer point on some of the aerospace growth trends sort of in in the fourth quarter as you see it just so we have the jumping off point into 2026 I'm on this sort of OE versus off the market dynamics in commercial and military.
Really some some nice increases in the public private partnerships that we have with the department of defense.
Speaker Change: That's great. Thank you.
Speaker Change: Okay.
Speaker Change: Your next question comes from Scott Davis with Melius Research. Please state your question.
Scott Davis: Hey, good morning.
Speaker Change: Sure you bet.
Speaker Change: <unk>.
Speaker Change: Yes.
Speaker Change: As we said we've raised our full year guidance organic growth to 12%.
Speaker Change: Okay.
Speaker Change: Congrats on the margins and getting through.
Speaker Change: Been kind of a slower time in that in the core industrial stuff.
Speaker Change: We expect commercial OEM to be mid single digit and then obviously as you know as a result of the narrow body increases and some of the wide body recovering we're seeing as well, we expect defense OEM to be low single digit growth.
Speaker Change: This is this may be an impossible.
Speaker Change: Question two.
Speaker Change: The answer journey, but have you guys.
Speaker Change: When you think about the margin gains you've made.
Obviously mix is got to have a huge part of it.
Speaker Change: We expect commercial MRO of high teens growth so again.
Speaker Change: But is there any way to kind of tease out what kind of.
Speaker Change: How much operational improvements have really helped you guys, even if you'd even if you can't quantify it just color around underlying operational improvements that could.
Speaker Change: Even though there's been some.
Speaker Change:
Speaker Change: Reports of North America Air traffic growth slowing.
Speaker Change: Global growth is still increasing and we still see that we have an aging fleet out there.
Speaker Change: Really help things snap back outside of aerospace I should assume aerospace isn't as much of a tailwind incrementally.
Speaker Change: We expect defense MRO of high teens growth and this is really a focus on retrofits and upgrades.
Speaker Change: <unk> 'twenty six 'twenty seven but.
Speaker Change: I don't know it may just be an impossible question, but I'm curious to hear your response.
Speaker Change: Really some nice increases in the public private partnerships that we have with the department of defense.
Speaker Change: Well I would say that.
Speaker Change: You know as I was mentioning in the presentation as you heard us talk a lot about all of the tools that we have in the win strategy and.
Speaker Change: That's great. Thank you.
Speaker Change: Your next question comes from Scott Davis with Melius Research. Please state your question.
Speaker Change: The nature of our decentralized operating structure.
Speaker Change: Yeah.
Speaker Change: Allowing those general managers to be you know.
Scott Davis: Good morning.
Speaker Change: Again.
Speaker Change:
Speaker Change: Yes.
Speaker Change: No.
Speaker Change: Congrats on the margins and getting through.
Speaker Change: Completely in control of their business right. So with our enhanced demand and capacity are tools that we have they have better visibility than they've ever had so they're planning ability around their operations, how they run their operations how they control the cost of their operations is greater than it's ever been.
Speaker Change: Been kind of a slower time in our in the core industrial stuff.
Speaker Change: This is this may be an impossible.
Speaker Change: Question to answer journey, but have you guys.
Speaker Change: When you think about the margin gains you've made.
Speaker Change: Obviously mix is going to have a huge part of it.
So the operational improvement.
Speaker Change: But is there any way to kind of tease out what kind of.
Speaker Change: Are going to continue to happen.
Speaker Change: How much operational improvements have really helped you guys. Even if you even if you can't quantify it just color around underlying operational improvements that could.
Speaker Change: They have the right tools in our toolbox and they had the ability to make these improvements even when the volume is down.
Speaker Change: So we.
Speaker Change: We expect that as the volume comes back.
Speaker Change: No really help things snapped back outside of aerospace I should assume aerospace isn't as much of a tailwind incrementally.
Speaker Change: We're going to use those same tools and we're going to be very mindful of how cost comes back into the business and we're going to continue to do what we've been doing.
Speaker Change: <unk> 'twenty six 'twenty seven but.
Speaker Change: I don't know May just be an impossible question, but I'm curious to hear your response.
Kent: Thanks, Kent.
Speaker Change: Just as a totally different follow on but M&A.
Speaker Change: I would say that you.
Speaker Change: M&A just.
Speaker Change: As I was mentioning in the presentation and you've heard US talk a lot about all of the tools that we have in the win strategy and.
Again, I know, you're still talking about having a pretty strong.
Speaker Change: Pipeline, but any.
Any additional color on what.
Speaker Change: The nature of our decentralized operating structure.
Speaker Change: What might what we might expect to see where there are larger deals mid size smaller more bolt ons I mean and if.
Speaker Change: Mowing those general managers to be you know.
Speaker Change:
Speaker Change: [laughter] completely in control of their business right, so with our enhanced demand and capacity.
Speaker Change: We can talk through that pipeline.
Speaker Change: Just a little bit of Canada. Please yes, I mean listen the pipeline has deals of all sizes.
Speaker Change: That we have they have better visibility than they've ever had so they're planning ability around their operations, how they run their operations how they control the cost of their operations is greater than it's ever been.
It really does that.
Speaker Change: Timing is hard to predict right now.
Speaker Change: The big thing for US you've heard me say this before has to be strategic.
Speaker Change: So the operational improvement.
Speaker Change: You know the relationships and the analysis continued to be very active and we're still looking to acquire companies, where we're the clear best owner.
Speaker Change: Are going to continue to happen.
Speaker Change: Because they have the right tools.
Speaker Change: Our toolbox.
Speaker Change: And they had the ability to make these improvements even when the volume is down.
Speaker Change: That's a compliment our interconnected technologies solid the secular trends.
Speaker Change: So.
Speaker Change: We expect that as the volume comes back.
Speaker Change: All the same criteria that you've heard me talk about before but it's active it's.
Speaker Change: We're going to use those same tools and we're gonna be very mindful of how cost comes back into the business and we're going to continue to do what we've been doing.
Speaker Change: The timing right now that is hard to predict.
Speaker Change: Okay. Thanks, Scott Thank you Jamie.
Speaker Change: Yes, I would just add Scott.
Speaker Change: I agree with everything Jenny said.
Speaker Change: Makes sense.
Speaker Change: Pipeline remains unbelievably.
Speaker Change: It is a totally different follow on but.
Speaker Change: Active it's just really kind of hard to predict timing on that we have said we'd be active on capital deployment.
Speaker Change: M&A just.
Speaker Change: Again, I know, you're still talking about having a pretty strong.
Speaker Change: Pipeline, but any.
Speaker Change: Sauce do some share repurchases in the quarter, we have committed to operate the company around a two 2.0 times net debt to adjusted EBITDA.
Speaker Change: Any additional color on.
Speaker Change: What might what we might expect to see where there are larger deals mid sized small more bolt ons I mean.
Speaker Change: We're still one seven today, so our commitment our preference certainly is to do acquisitions, but we are committed to be active in it.
Speaker Change: He can talk through that pipeline them back just a little bit of Canada. Please yeah, I mean listen there the pipeline has deals of all sizes.
Speaker Change: <unk> space.
Speaker Change: It really does.
Speaker Change: Got you. Thank you I'll pass it on.
Speaker Change: Timing is hard to predict right now the.
The big thing for US you've heard me say this before has to be strategic.
Speaker Change: And your next question comes from David Raso with Evercore ISI. Please state your question.
Speaker Change: You know the relationships and the analysis continue to be very active and we're still looking to acquire companies, where we're the clear best owner.
David Raso: Alright, Thank you for the time.
Speaker Change: The tariffs 3% of Cogs.
Speaker Change: Is that a number that is expected to go up.
Speaker Change: That's a compliment our interconnected technologies all of the <unk>.
Speaker Change: For the new fiscal year, meaning you would think the first quarter or theres some inventory on the ground there's some mitigating.
Speaker Change: Our trend.
Speaker Change: All the same criteria that you've heard me talk about before but it's active it's.
Speaker Change: <unk> costs that are already landed before tariffs or should we think of 3% of Cogs is the run rate for fiscal 'twenty six.
Speaker Change: The timing right now that is hard to predict.
Speaker Change: Okay. Thanks, Scott.
Speaker Change: Yeah, I would just add Scott.
Speaker Change: Based off the tariffs as they are today.
Speaker Change: I agree with everything Jenny said.
Speaker Change: Yeah, David Hey, this is Todd that is an annualized number so the way we calculated that is basically looking at every tariff that has been announced and.
Speaker Change: Pipeline remains unbelievably.
Speaker Change: Active it's just really kind of hard to predict timing on that we have said we'd be active on capital deployment.
Speaker Change: Sauce do some share repurchases in the quarter, we have committed to operate the company around a two 2.0 times net debt to adjusted EBITDA. We are still one seven today. So our commitment our preference certainly is to do acquisitions, but we are committed to be acted upon.
Speaker Change: Our current run rate is in those areas. So I don't expect that to go up unless there's some kind of other change in the.
Speaker Change: And the tariff space and like Jenny said, our team is working feverishly around the globe to do everything we can to not just.
Speaker Change: Deployment space.
Speaker Change: Got you. Thank you I'll pass it on.
Speaker Change: Make sure that we protect earnings per share, but to make sure that we make the best decisions to mitigate that $3 75.
Speaker Change: Yes.
Speaker Change: And your next question comes from David Raso with Evercore ISI. Please state your question.
David Raso: Hi, Thank you for the time.
Speaker Change: And how much of the run rate is actually hitting calendar <unk> fiscal for Q I'm just trying to understand how are we at full speed, 3% hit for these three months of this quarter or is it more of a it's helpful to say at the peak during this quarter. It's two 3% of Cogs I'm, just trying to get a sense of the ramp and if other actions are needed to be.
David Raso: The tariffs 3% of Cogs.
Speaker Change: Is that a number that is expected to go up.
Speaker Change: For the new fiscal year, meaning you would think the first quarter or theres some inventory on the ground there are some mitigating.
Speaker Change: Costs had already landed before tariffs or should we think of 3% of Cogs is the run rate for fiscal 'twenty six.
Speaker Change: Taking for you know say July one price increases or whatever wherever it may be.
Speaker Change: Based off the tariffs as they are today.
Speaker Change: No that is pretty much the run rate as it sits today there is no ramp on that and I would tell you the actions have already been in place.
Yeah, David Hey, this is Todd that is an annualized number.
Speaker Change: The way we calculated that is basically looking at every tariff that has been announced and.
Speaker Change: Alright terrific. Thank you.
Speaker Change: What our current run rate is in those areas. So I don't expect that to go up unless there's some kind of other change in the.
Speaker Change: Your next question comes from Andrew <unk> with Bank of America. Please state your question.
Andrew: Oh, yes good.
Speaker Change: Good morning, I guess good morning, good morning, good morning.
Speaker Change: And the tariff space and I'm like Jenny said, our team is working feverishly around the globe.
Speaker Change: Yes. So a question I guess about a month ago people were excited about.
Speaker Change: To do everything we can to not just.
Speaker Change: Potential for European recovery.
Speaker Change: International orders are improving can you just tell us what it is you are seeing in Europe.
Speaker Change: Make sure that we protect earnings per share, but to make sure that we make the best decisions to mitigate that $3 75.
Speaker Change: And also we've been getting a lot of questions about your exposure to European defense budgets.
Speaker Change: And how much of the run rate is actually hitting calendar <unk> fiscal for Q I'm just trying to understand how are we at full speed, 3% hit for these three months of this quarter or is it more of a and it was helpful to say at the peak during this quarter. It's the 3% of Cogs I'm, just trying to get a sense of the ramp and if other actions are needed to be.
Speaker Change: If you could just sort of give us color on a what are you seeing in Europe, and specifically potential exposure within Aero two European defense. Thank you.
Speaker Change: Okay. So first.
Andrew: Hi, Andrew.
Speaker Change: Taking for say July one price increases or whatever wherever it may be.
Speaker Change: I'm talking about.
Speaker Change: Let's just start with.
Speaker Change: The European Defense.
Speaker Change: So that is pretty much the run rate as it sits today there is no ramp on that and I would tell you the actions have already been in place.
Speaker Change: We do have I think we talked about this the last time, we were together we do.
Speaker Change: Alright terrific. Thank you.
Speaker Change: Have.
Speaker Change: Context.
Speaker Change: Your next question comes from Andrew <unk> with Bank of America. Please state your question.
Speaker Change: We're well positioned globally in the defense market and we sell to both U S and international.
Speaker Change: Oh, yes.
Andrew: Good morning, I guess good morning, good morning, good morning.
Speaker Change: Prime so many of the U S built aircrafts are exported.
Andrew: Yes. So a question I guess about a month ago people were excited about.
Speaker Change: And we expect that for instance, with the F 35.
Speaker Change: Potential for European recovery International orders are improving can you just tell us what it is you are seeing in Europe.
Speaker Change: Third of that total fleet will be sold to the Allied military so that kind of gives you an idea of what our.
Speaker Change: Exposure is there.
Speaker Change: And also we've been getting a lot of questions about your exposure to European defense budgets are if you could just sort of give us color on a what are you seeing in Europe and specifically.
<unk>.
Speaker Change: Sorry, again, I got distracted with the key foreign military and your first question. Please.
Speaker Change: Yes. So the second question is just a German elections at Hanover I think.
Speaker Change: Potential exposure within Aero two European defense. Thank you.
Speaker Change: Nothing yet people sort of seem to be excited about potential what are you hearing from your partners in Europe.
Speaker Change: Okay. So first.
Speaker Change: Hi, Andrew.
Speaker Change: So obviously, we expect this broad based softness across the end markets in Europe to continue I mean, we don't we don't see that easing up but you know what what there is some positive sentiment out there about is the proposed stimulus and future defense spending and so you're just saying so.
Speaker Change: Talking about.
Speaker Change: Let's just start with that.
Speaker Change: European Defense, we do have I think we talked about this the last time, we were together.
Speaker Change: Uh huh.
Speaker Change: Tab.
Speaker Change: You had the European Commission proposal on defense spending.
Speaker Change: Contacts.
We're well positioned globally in the defense market and we sell to both U S and international defense Prime So many of the U S. Built aircrafts are exported.
Speaker Change: You have some big dollars out there for Germany infrastructure on energy transport.
Speaker Change: And then overall defense spending so that's longer term.
Speaker Change: That's what the teams are talking about to be positive about the future.
Speaker Change: And we expect that for instance, with the F 35.
Got you and just a follow up.
Speaker Change: A third of that total claim will be sold to the allied military so that kind of gives you an idea of what our.
Speaker Change: How are you guys reconsidering.
Speaker Change: Your footprint.
Speaker Change: The second round of tariffs.
Speaker Change: Exposure is there.
Speaker Change: The way and are you adjusting capex down in the fourth quarter in response to tariffs in any way shape or form. Thank you.
And.
Speaker Change: Sorry, again, I got distracted with E T foreign military and your first question. Please.
Speaker Change: Yes, we are not adjusting capex as a result of that and we don't see any big need for supply chain realignment due to tariffs.
Speaker Change: Yes. So the second question is just a German elections at Hanover, I think nothing.
Speaker Change: Nothing yet people sort of seem to be excited about potential what are you hearing from your partners in Europe.
Speaker Change: Yes.
Speaker Change: That local for local model gives us global capacity around the world.
Speaker Change: Yeah. So you know obviously, we expect this broad based softness across the end markets in Europe.
Speaker Change: And working with the multiple tiers throughout our supply chain.
Speaker Change: And.
Speaker Change: Continue I mean, we don't.
Speaker Change: We've got a lot of good actions leveraging our dual sourcing strategy.
Speaker Change: See that easing up but you know what what there is some positive sentiment out there about the proposed stimulus and future defense spending as you were just saying so have you had the European Commission proposed onset spending.
Speaker Change: So I think we're in a good position here.
Speaker Change: So much.
Speaker Change: Your next question comes from Nicole <unk> with Deutsche Bank. Please state your question.
Speaker Change: You have some big dollars out there for Germany infrastructure on energy transport.
Nicole: Yeah. Thanks, good morning, guys.
Speaker Change: Good morning, Nicole.
Speaker Change: Maybe just first of all with orders definitely kind of ahead of expectations. This quarter are you guys hearing or seeing any evidence at all of pre buy ahead of tariffs or was that not a factor in the strength.
Speaker Change: And then overall defense spending so that's longer term.
Speaker Change: That's what the teams are talking about to be positive about the future.
Speaker Change: Got you and just a follow up how are you guys reconsidering.
Speaker Change: Now I would say minimal evidence of pre buy activity and as we've talked about with this increase in orders.
Speaker Change: Our footprint.
Speaker Change: After the second round of tariffs.
Speaker Change: In any way and are you adjusting capex down in the fourth quarter in response to tariffs in any way shape or form. Thank you.
Speaker Change: All my recycle stream.
Speaker Change: Okay got it thanks, Jenny and then the margins have been a real bright spot in fiscal 'twenty five despite a challenging volume environment.
Speaker Change: Yeah, we are not adjusting capex as a result of that and we don't see any big need for supply chain realignment due to tariffs.
Speaker Change: Super impressive performance from Parker do you guys think you can continue to target like 30% to 35% Incrementals as we kind of flip the calendar to 2026, okay. At some point does it become tougher to expand margins to that extent. Thank you.
Speaker Change: You know that local for local model gives us global capacity around the world.
Speaker Change: And working with the multiple tiers throughout our supply chain.
Speaker Change: And.
Speaker Change: We've got a lot of good actions leveraging our dual sourcing strategy. So.
Speaker Change: Yes, Nicole this is Todd that is the number that we hold our team members accountable for across the organization. We think that is best in class number its not.
Speaker Change: I think we're in a good position here.
Speaker Change: Thanks, so much.
Nicole: Your next question comes from Nicole <unk> with Deutsche Bank. Please state your question.
Speaker Change: Always 30% right it depends on what's going on with the top line.
Nicole: Yeah. Thanks, good morning, guys.
Speaker Change: If the top line is more robust we think we can do better if the top line is a little bit.
Speaker Change: Good morning, good morning, Nicole.
Speaker Change: Maybe just first of all with orders definitely kind of ahead of expectations. This quarter are you guys hearing or seeing any evidence at all of pre buy ahead of tariffs or was that not a factor in the street.
Speaker Change: Lower we try to manage that as well so I would tell you. That's one of the things that I don't worry about.
Speaker Change: For our team members across the globe as.
Speaker Change: Now I would say minimal evidence of.
Speaker Change: Managing your Incrementals, whether we're in a growth environment or a challenge topline.
Speaker Change: Pre buy activity and as we've talked about with the.
Speaker Change: Increase in orders.
Thanks, Todd I'll pass it on.
Speaker Change: All are longer cycle strength.
Speaker Change: Your next question comes from Joe <unk> with Wells Fargo. Please state your question.
Speaker Change: Okay got it thanks, Jenny and then mid of March.
Speaker Change: <unk> have been a real bright spot in fiscal 'twenty five despite a challenging volume environment.
Speaker Change: Hi, good morning.
Jenny I'm sure you anticipated a question on 26% so encouraging in terms of your comments around industrial and potential for growth.
Super impressive performance from Parker do you guys think you can continue to target like 30% to 35% Incrementals that'd be kind of flipping the calendar to 2026, okay at some point.
Speaker Change: So my question is really around as you've seen some of that recovery push out this year. What it is that you're seeing that gives you confidence in seeing that growth next year.
Speaker Change: It does it become tougher to expand margins to that extent. Thank you.
Speaker Change: Yes, Nicole this is Todd that is the number that we hold our team members accountable for across the organization.
Speaker Change: Particular in light of an elevated uncertainty kind of macro backdrop.
Speaker Change: We think that is a best in class number its not a always 30% right. It depends on what's going on with the top line.
Speaker Change: Well first of all I would say.
Speaker Change: Longer cycle orders that we see coming in there what we see is going to hit in 26, we have a really good visibility of all our orders when they come in we know when they're going to hit right. So.
Speaker Change: If the top line is more robust we think we can do better if the top line's a little bit.
Speaker Change: Lower.
Speaker Change: Tried to manage that as well so I would tell you. That's one of the things that I don't worry about.
Speaker Change: We've seen.
Speaker Change: Very few cancellations through you know the last several quarters we're.
Speaker Change: For our team members across the globe is.
We're getting to the point if you want to consider the last couple of years of recession, a much shallower one at that on the industrial side of the business, we're getting to the point, where we are at the average or above the average amount of quarters.
Speaker Change: Managing your Incrementals, whether we're in a growth environment.
Speaker Change: Top line.
Speaker Change: Thanks, Todd I'll pass it on.
Speaker Change: Your next question comes from Joe O'dea with Wells Fargo. Please state your question.
Speaker Change: This industrial business would be would be negative so I'm. The optimist here as you've seen our guide throughout the whole year I mean, we've we've kept them.
Joe O'dea: Hi, good morning.
Joe O'dea: Jenny I'm sure you anticipated a question on 26, and so encouraging in terms of your comments around industrial and potential for growth.
Speaker Change: Planning for the next quarter and next quarter. It. Unfortunately, we're not able to put that in this fourth quarter.
Joe O'dea: My question is really around as you've seen some of that recovery push out this year.
Speaker Change: But we believe that it's going to come and when it does we're not only going be ready, but I think robyn enjoy it.
Speaker Change: What it is that you're seeing that gives you confidence in seeing that growth next year.
Speaker Change: Yeah.
Speaker Change: And kind of waiting for next quarter kind of dynamic.
Speaker Change: Particular in light of an elevated uncertainty kind of macro backdrop.
Speaker Change: Is that a matter of.
Speaker Change: Are there things like the adjustment to guide.
Speaker Change: Well the you know first of all I would say.
Speaker Change: Longer cycle orders that we see coming in there and what we've seen is going to hit 26, you know we have a really good visibility of all our orders when they come in we know when they're going to hit right. So.
Speaker Change: The question is.
Speaker Change: Are there demand trends that you're seeing soften sequentially.
Speaker Change: Or is it more a matter of things that you thought would get better sequentially, just didn't happen and thats, probably Atlantic seemed maybe theres, a little bit of everything, but but any color there would be helpful.
Speaker Change: We've seen you know.
Speaker Change: Very few cancellations through you know the last several quarters we're.
Speaker Change: We're getting to the point if you want to consider the last couple of years, a recession a much shallower one at that on the industrial side of the business, we're getting to the point, where we are at the average or above the average amount of quarters.
Speaker Change: I think that we thought would get better just didn't happen. So we had to pull it down in Q4.
Speaker Change: Okay. Thank you.
Joe: Thanks, Joe.
Speaker Change: And your next question comes from Jeff Sprague with vertical Research partners. Please state your question.
Speaker Change: Industrial business would be would be negative so I'm. The optimist here as you've seen our guide throughout the whole year I mean, we've we've kept them planning for the next quarter. The next quarter. It you know Unfortunately, we're not able to put that in this fourth quarter.
Jeff Sprague: Hey, Thanks, good morning, everyone.
Speaker Change: Hey, Jenny just back to sort of the breadth and the like.
Speaker Change: Maybe I misinterpreted, what you said, but it.
Speaker Change: But we believe that it and it's going to come and when it does we're not only going be ready, but I think robyn enjoy it.
Speaker Change: It sounds like Youre, not really looking at making a significant footprint changes.
Speaker Change: Is that just sort of surprises me right like.
Speaker Change: And you know that kind of waiting for next quarter kind of dynamic.
Speaker Change: I wouldn't think you want at E $375 million in tariffs I guess, you've got plans to action. It but are you basically saying that you're going to handle it with dual sourcing and then that leaves open the option to kind of flip back maybe to China at some point in the future.
Speaker Change: Is that a matter of.
Speaker Change: Are there things like you know would you just went to guide.
Speaker Change: The question is are there demand trends that you're seeing soften sequentially.
Speaker Change: Over simplifying a complex question, but.
Speaker Change: Or is it more a matter of things that you thought would get better sequentially, just didn't happen and thats, probably Atlanta, maybe theres, a little bit of everything, but but any color there would be helpful.
Just your view on I'm really kind of mitigating this maybe permanently as opposed to temporarily.
Speaker Change: Yeah. So first of all I'll say this much we are.
Speaker Change: Yeah, I think that we thought would get better just didn't happen. So we had to pull it down in Q4.
Speaker Change: We are always looking at our structure and our footprint right. That's just part of what we do.
Speaker Change: Okay. Thank you.
Speaker Change: Either through Kaizen, our Parker lean system. So we're constantly looking at that and we make sure that we're making the best use of all our resources.
Speaker Change: Thanks, Joe.
Speaker Change: And your next question comes from Jeff Sprague with vertical Research partners. Please state your question.
Jeff Sprague: Hey, Thanks, good morning, everyone.
Speaker Change: So that's something that's ongoing if you look back in time and what we've done.
Speaker Change: Hey, Jenny just back to sort of the what's Brett and the like.
Speaker Change: There's good numbers on that.
Speaker Change: I would say that because we've always had this local for local model we have the.
Jeff Sprague: Maybe I misinterpreted, what you said, but it.
Speaker Change: It sounds like Youre, not really looking at making any significant footprint changes.
Speaker Change: The advantage of having capacity around the world right. So we can leverage that capacity when we need to so it's not just.
Jeff Sprague: But just sort of surprises me right like you.
Jeff Sprague: I wouldn't think you want at E $375 million in tariffs I guess, you've got plans to action. It but are you basically saying that you can handle it with dual sourcing and then that leaves open the option to kind of flip back maybe to China at some point in the future.
Speaker Change: Footprint are turning one supplier often another supplier on that's going to mitigate all of these actions.
Speaker Change: It is the dual sourcing strategy, it's working closely with suppliers.
Speaker Change: On cost negotiations and further improvement.
Speaker Change: It's really making sure that all of our teams continue to use these tools that have provided this margin expansion, all along and and they're really good at it so I.
Jeff Sprague: Over simplifying a complex question, but.
Jeff Sprague: Just your view on I'm really kind of mitigating this maybe permanently as opposed to temporarily.
Speaker Change: I would tell you that those are the supply chain actions. In addition to the win strategy cost actions.
Speaker Change: Yeah. So first of all I'll say this much we are.
Speaker Change: We are always looking at our structure and our footprint right. That's just part of what we do.
And then the pricing actions that.
Speaker Change: We have a strong muscling in doing that.
Speaker Change: Either through Python, our Parker lean system. So we're constantly looking at that and we make sure that we're making the best use of all our resources.
Speaker Change: So are the pricing actions actually smaller than the win and sourcing actions collectively.
Speaker Change: I wouldn't say that there are smaller I would say that it's a little bit different for every business, but it is a collection of all of those actions. It gives us the confidence to say, we can fully mitigate the tariffs.
Speaker Change: And so that that's something that's ongoing if you look back in time and what we've done.
Speaker Change: Good numbers on that I would say that because we've always had this local for local model we have the.
Scott Davis: And then just maybe a little follow on that this is a 375 just simply tariffs I assume there is other just inflation that might not be directly tariff, but perhaps as indirect I'm sure. It's included in your guide, but just curious if that 375 is a just a mathematical tariffs.
Speaker Change: The advantage of having capacity around the world right. So we can leverage that capacity when we need to do so.
Speaker Change: It's not just.
Speaker Change: Footprint are turning one supplier often another supplier on that's going to mitigate all of these actions.
Speaker Change: It is a dual sourcing strategy, it's working closely with suppliers.
Jeff Sprague: Gross number yes, Jeff you're exactly right that 375 is solely tariff costs no other cost changes.
Speaker Change: On cost negotiations and further improvement.
Really making sure that all of our teams continue to use these tools that have provided this margin expansion, all along and and they're really good at it so.
Scott Davis: Great. Thank you guys appreciate it.
Joe Ritchie: Your next question comes from Joe Ritchie with Goldman Sachs. Please state your question.
Speaker Change: I would tell you that those are the supply chain actions. In addition to the win strategy cost action.
Joe Ritchie: Hey, everybody good morning.
Speaker Change: Good morning.
Speaker Change: And then the pricing action that.
Speaker Change: Danny can you can you just double click a little bit on the implant project delays and what Youre seeing there I guess the disconnect a little bit with the order rates that youre seeing but be curious maybe if you can just tell us a little bit more about that bidding activity and how you see it playing out in the coming quarters.
Speaker Change: You know we have a strong muscling in doing that.
Speaker Change: So are the pricing actions actually smaller than the win and sourcing actions collectively.
Speaker Change: I wouldn't say that there are smaller I would say that it's a little bit different for every business, but it is a collection of all of those actions it.
Speaker Change: It gives us the confidence to say, we can fully mitigate the tariffs.
Speaker Change: So when we when we look at implant and industrial like I mentioned.
Speaker Change: And then just maybe a little follow on that this is a 375 just simply tariffs I assume there is other just inflation that might not be directly tariff, but perhaps as indirect I'm sure. It's included in your guide, but just curious if that 375 is a just a mathematical tariffs kind of gross number.
Speaker Change: Did have that positive low single digit.
Speaker Change: Slightly positive low single digit and we took it to negative low single digit and really this is this is about you know.
Speaker Change: The industrial recovery delays just persisting.
Speaker Change: Our previous guidance as we just mentioned assumed that we were getting some recovery and we're not seeing that yet.
Speaker Change: Yes, Jeff you're exactly right that 375 is solely tariff call.
Speaker Change: Again, I would I would tell you that quoting is still active even though there are project delays.
Speaker Change: No other cost changes.
Speaker Change: Great. Thank you guys appreciate it.
Speaker Change: And we're not seeing a lot of cancellations, it's really more a delay so it's not it's not one big thing or even a small collection of of any of that or any area. It's just a continued delays.
Speaker Change: Your next question comes from Joe Ritchie with Goldman Sachs. Please state your question.
Joe Ritchie: Hey, everybody good morning.
Speaker Change: Good morning.
Speaker Change: Danny can you can you just double click a little bit on the implant project delays and what Youre seeing there and I guess the disconnect a little bit with the order rates that you're seeing but I'd be curious maybe if you can just tell us a little bit more about that big bidding activity and how you see it playing out in the coming quarters.
Speaker Change: Okay. That's helpful and if I could maybe just ask a follow up on that.
Speaker Change: Think about the type of work that you.
Speaker Change: You are bidding on and what that pipeline looks like there is a lot of activity that's happening in the U S. Its already been started from a megaproject standpoint, I'm just curious like how much of this is like new construction versus what you would normally kind of see as like maintenance or renovation.
Speaker Change: So when we when we look at implant and industrial like I mentioned.
Speaker Change: They'd have that positive low single digit.
Speaker Change: Slightly positive low single digit and we took it to negative low single digit and really this is this is about a.
Speaker Change: Repair type projects.
Speaker Change: I don't have a specific split for you, but I would I would tell you that it's both I mean, when we talk to the channel they tell us how they're participating in some retrofitting and plant upgrades and plants and then also with some new construction.
Speaker Change: The industrial recovery delays just persisting.
Speaker Change: Our previous guidance as we just mentioned assumed that we were getting some recovery and we're not seeing that yet.
Speaker Change: Again, I would I would tell you that quoting is still active even though there are.
Speaker Change: So it's a mix of both.
Speaker Change: Okay, great. Thank you.
Speaker Change: <unk> delayed.
Speaker Change: And we're not seeing a lot of cancellations, it's really more a delay so it's not it's not one big thing or even a small collection of of.
Speaker Change: Your next question comes from Andy Kaplowitz with Citigroup. Please state your question.
Andy Kaplowitz: Hey, good morning, everyone.
Speaker Change: Any of that or any area. It's just a continued delay.
Speaker Change: Good morning.
Speaker Change: So Jimmy I know you talked about Europe, a bit more but Asia seems to be holding up well for Parker and specifically, China seems to be holding up maybe you could give us a little more color on what youre seeing there in Latin America has continued to be a source of strength for Parker. So how sustainable is that growth going into 'twenty six.
Speaker Change: Okay. That's helpful and if I could maybe just ask a follow up on that.
Speaker Change: Think about the type of.
Speaker Change: Work that you're.
Speaker Change: You're bidding on and what that pipeline looks like there is a lot of activity that's happening in the U S. Its already been started from a megaproject standpoint, I'm just curious like how much of this is like new construction versus what you would normally kind of sea has like maintenance or renovation.
Speaker Change: So.
Speaker Change: So for Asia Pacific in.
Speaker Change: In Q3 that was up 2% as Todd mentioned and that growth was mainly driven by electronics and semicon.
Speaker Change: Did see some gradual improvement in.
Speaker Change: Repair type projects.
Speaker Change: I don't have a specific split for you, but I would I would tell you that it's both I mean.
Speaker Change: And in plant.
Speaker Change: China just to reminder, it's 5% of our sales.
Speaker Change: In Q3 sales were positive I would say low single digits over prior year and.
Speaker Change: When we talk to the channel they tell us how they're participating in some retrofitting and plant upgrades and plants and and also with some new construction.
Speaker Change: We're continuing to see that.
Speaker Change: Really be driven by electronics and semi con some some EV some distribution but.
Speaker Change: So it's a mix of both.
Speaker Change: Again, just a reminder, it's 5% of our sales.
Speaker Change: Okay, great. Thank you.
Speaker Change: And then and.
Speaker Change: Your next question comes from Andy Kaplowitz with Citigroup. Please state your question.
Speaker Change: Latam.
Speaker Change: Americas, Latin American vitamin Yeah, Yeah.
Andy Kaplowitz: Hey, good morning, everyone.
Speaker Change: Good morning.
Speaker Change: Latin America continues to be a robust I would say, it's really broad based are the team there really has been focusing on the areas. They win its a big filtration market for us with a lot of emotion.
Speaker Change: So can you I know you talked about Europe a bit.
Speaker Change: Nor but Asia seems to be holding up well for Parker and specifically, China seems to be holding up maybe you could give us a little more color on what youre seeing there in Latin America continue to be source of strength for Parker. So how sustainable is that growth going into 'twenty six.
Speaker Change: Emotion systems activity and other teams, it's really contingent to manage a really volatile situation extremely well.
Speaker Change: So.
Speaker Change: And Todd I, just wanted to ask you about the corporate G&A. The the bridge on slide 10, eight cents of positive I think you'd talked about relatively significant cost containment in your prepared remarks is any of that temporary you should be thinking about any of it coming back kind of to that line item look moving forward.
Speaker Change: So for Asia Pacific.
Speaker Change: Q3 that was up 2% as Todd mentioned and that growth was mainly driven by electronics and semicon, Although we did see some gradual improvement.
Speaker Change: And in plant.
Speaker Change: Yeah, I mean, there was a couple of things there that we talked about market based benefits those obviously fluctuate with market activity, but I think the team has done a really good job looking at what we can control I don't foresee any significant amount of that rolling back into the business.
Speaker Change: China just to reminder, it's 5% of our sales.
Speaker Change: In Q3 sales were positive I would say low single digits over prior year and <unk>.
Speaker Change: We're continuing to see that.
Speaker Change: Really be driven by electronics and semi con some some even some distribution, but it's.
Speaker Change: I think I pride ourselves on being a very SG&A frugal in that space.
Speaker Change: Again, just a reminder, it's 5% of our sales.
Speaker Change: I appreciate all the color.
Speaker Change: And then N.
Andy Kaplowitz: Thanks, Andy.
Speaker Change: Your next question comes from Stephen Volkmann with Jefferies. Please state your question.
Speaker Change: Latam secondary.
Speaker Change: Latin American Lenderman, yeah, yeah.
Speaker Change: Latin America continues to be a robust I would say, it's really broad based the team there really has been focusing on the areas. They win its a big filtration market for us with a lot of emotion.
Stephen Volkmann: Hey, good morning, guys. Thank you for fitting me in two follow ups for me one I guess I wanted to turn this whole tariff thing completely around then.
Stephen Volkmann: Like if I was a north American manufacturer trying to figure out how to have a more local supply chain you guys might be my first call given your kind of local for local so I'm curious if you're seeing more inquiries.
Speaker Change: Motion systems activity.
Speaker Change: It's really contingent to manage a really volatile situations really well.
Speaker Change: Thank God I just wanted to ask you about the corporate G&A. The the bridge on slide 10, eight cents of positive I think you'd talked about relatively significant cost containment in your prepared remarks is any of that temporary you should be thinking about any of it coming back kind of that line item moving forward.
Speaker Change: Other manufacturers try to read.
Stephen Volkmann: Rejigger their supply chains.
Stephen Volkmann: Actual people like reaching out to us for.
Speaker Change: I mean, there was a couple of things there that we talked about bark based benefits those obviously fluctuate with market activity, but I think the team has done a really good job looking at what we can control.
If I.
Speaker Change: No more reaching out to you for product I'm, sorry to interrupt, but given that a lot of your competitors are international.
Speaker Change: Don't foresee any significant amount of that rolling back into the business.
Speaker Change: Not as much but I wonder if there is an opportunity for you there well, we do think that there could be some share gain opportunities for us here I mean, as I was mentioning having this capacity globally and being able to serve the customers.
Speaker Change: I think pride ourselves on being a very SG&A frugal in that space.
Speaker Change: I appreciate all the color.
Speaker Change: Thanks Amy.
Speaker Change: Your next question comes from Stephen Volkmann with Jefferies. Please state your question.
Speaker Change: You know really well, we think that there are some opportunities here.
Stephen Volkmann: Hey, good morning, guys. Thank you for fitting me in two follow ups for me one I guess I wanted to turn this whole tariff thing completely around and I feel like if I was in north American manufacturer trying to figure out how to have a more local supply chain you guys might be my first call.
Speaker Change: Yesterday, we were just talking about that the other day I don't Wanna be overly bolt ons, but for any business that we could potentially lose because of tariff you know there is obviously some opportunity on business that we could win.
Speaker Change: So that's what the team is focused on and I think it's still early days, but.
Speaker Change: I like our chances there.
Stephen Volkmann: And given your kind of local for local so I'm curious if you're seeing more inquiries.
Speaker Change: Okay Fine and then maybe for you Todd I'm curious again, you stepped up the repo here. It feels like this may be a period, where it's a little tougher to get deals done in general I'm not really speaking for you, but there's a lot of uncertainty around outlooks and cost bases in Peru.
Other manufacturers try to read.
Stephen Volkmann: Rejigger their supply chains.
Stephen Volkmann: Actual people like reaching out to us for.
Stephen Volkmann: If I.
Speaker Change: No more reaching out to you for product I'm, sorry to interrupt, but given that a lot of your competitors are international.
Speaker Change: Sessions and so forth. So it is the fact that you stepped up on on repo, maybe telling us that the M&A is a little maybe further out and we should factor in a little more repo near term.
Speaker Change: You're not as much but I wonder if there's an opportunity for you there well, we do think that there could be some share gain opportunities for us here I mean, as I was mentioning having the capacity globally and being able to serve the customers.
Speaker Change: No.
Speaker Change: Jenny mentioned this our team continues to work the pipeline.
Speaker Change: The one thing that does become difficult is just really being able to accurately predict the timing.
Speaker Change: You know really well, we think that there are some opportunities here.
Speaker Change: Yesterday, we were just talking about that the other day I don't Wanna be overly bolt ons, but for any business that we could potentially lose because of tariff you know there is obviously some opportunity on business that we kept up with.
Speaker Change: Yes.
Speaker Change: I would tell you theres many targets of various sizes in the pipeline.
The reason, we ramped up the repo was really because of our our.
Speaker Change: So that's what it is.
Stated commitment to operate.
Speaker Change: Team is focused on and I think it's still early days, but.
Speaker Change: Around a two times leverage and we had been below that really for the.
Speaker Change: I like our chances there.
Speaker Change: Full part of FY 'twenty, five and we just took a little chunk out there.
Speaker Change: Okay Fine and then maybe for you Todd I'm curious again, you stepped up the repo here. It feels like this may be a period, where it's a little tougher to get deals done in general I'm not really speaking for you, but there's a lot of uncertainty around outlooks and cost bases in.
Speaker Change: Really just trying to fulfill our commitment to being active in that space. So we're going to balance that a decision depending on what we see with them.
Speaker Change: Each given month going here.
Speaker Change: But our commitment to everyone is that we will be active in the space.
Speaker Change: Recessions and so forth. So it is the fact that you stepped up on on repo, maybe telling us that the M&A is a little maybe further out and we should factor in a little more repo near term no.
Speaker Change: Much appreciate it thanks.
Speaker Change: Your next question comes from Tim <unk> with Raymond James Please state your question.
Speaker Change: Great. Thank you.
Speaker Change: Maybe the first one for Jenny I'm curious as to the kind of the tenor of conversations that youre, having with customers and.
Jenny: You know Jenny mentioned this our team continues to work the pipeline.
Speaker Change: As we've gone from.
Jenny: The one thing that does become difficult, there's just really being able to accurately predict the timing of it yes.
Speaker Change: And it hopes of animal spirits being unleashed after the U S election day now fears of recession concerns around trade policy and I'm curious if you think the damage is sort of done for the year in terms of.
Jenny: I would tell you theres many targets of various sizes in the pipeline.
Jenny: The reason, we ramped up the repo was really because of our.
Speaker Change: Customers pulling the trigger on those more discretionary capital decision your yes.
Jenny: Stated commitment to operate a.
Jenny: Around a two times leverage and we have been below that really for the.
Speaker Change: We're having this conversation in three months and Youre looking ahead to your FY 'twenty six.
Jenny: Full part of FY 'twenty five.
Jenny: We just took a little chunk out there.
Speaker Change: Is there a potential that that those.
Jenny: Really just trying to fulfill our commitment of being active in that space. So we're going to balance that a decision depending on what we see with them.
Speaker Change: Kind of reversed and there is more optimism just curious as to.
Speaker Change: What you hear your big customers.
Speaker Change: But yes, there's just a lot of uncertainty right. So I think everybody is gonna be smart, but at the same time I think everybody believes that.
Jenny: Each given month going here.
But our commitment to everyone is that we will react.
Jenny: Active in this space.
Jenny: Much appreciate it thanks.
Speaker Change: As we do that we'll get through this and that.
Speaker Change: Your next question comes from Tim <unk> with Raymond James Please state your question.
Speaker Change: That when.
Speaker Change: When we get through it we wanted to be able to operate at our best So I think people are cautious.
Speaker Change: Great. Thank you.
Speaker Change: Maybe the first one for Jenny I'm curious as to the kind of the tenor of the conversations that youre, having with customers and as.
Speaker Change: But just you know.
Speaker Change: Kind of waiting to see what happens in some cases, but I wouldn't say there's been anything overly.
Speaker Change: As we've gone from.
Speaker Change: And our hopes of animal spirits being unleashed after the U S election day now fears of recession concerns around trade policy.
Speaker Change:
Speaker Change: Overly negative that I'm hearing from the customers.
Speaker Change: Yeah, Okay, and then just on tariffs and the question is just in terms of the pricing flexibility you have in aerospace specifically just given.
Speaker Change: I'm curious if you think the damage is sort of done for the year in terms of.
Speaker Change: Customers pulling the trigger on those more discretionary capital decision you are.
Speaker Change: Typically you have more longer term agreements.
Speaker Change: So I'm just curious your ability to.
Speaker Change: We're having this conversation in three months and Youre looking ahead year FY 'twenty six.
Speaker Change: To react and adjust their I know, we've seen some suppliers announce force majeure clauses, but.
Speaker Change: Is there a potential that that those.
Speaker Change: Kind of reverse and there's more optimism just curious as to you.
Speaker Change: Just kind of the if you think about the tariff.
Speaker Change: The ability to offset that industrial versus arrow. If there was any notable difference between the two segments.
Speaker Change: What you hear.
Speaker Change: Paid customers.
Speaker Change: But yes, there's just there's a lot of uncertainty right. So I think everybody got.
Speaker Change: Using the same pricing tools and strategies on in aerospace that we use in the industrial segment. You are correct. There are some you know there are longer term agreements in aerospace, but we're having those conversations we've been having those conversations even prior to tariffs with the high inflationary times. So.
Speaker Change: Be smart, but at the same time I think everybody believes that.
Speaker Change: As we do that that will get through this and that.
Speaker Change: That when.
Speaker Change: When we get through it we wanted to be able to operate at our best So I think people are cautious.
Speaker Change:
Speaker Change: Uh huh.
Speaker Change: But just.
Speaker Change: We're doing everything that we do on the industrial side of the business and.
Speaker Change: Kind of waiting to see what happens in some cases, but.
Speaker Change: I wouldn't say there's been anything overly.
Speaker Change: Getting through what we can get through and obviously, we have a little bit more pricing availability on the aftermarket side.
Speaker Change: Oh really negative and I'm hearing from the customers.
Speaker Change: Yeah, Okay, and then just on tariffs.
Speaker Change: Great. Thank you.
Thanks, Tim San Diego I think we've got time for maybe one.
Speaker Change: The question is just in terms of the pricing flexibility that you have in aerospace specifically just given.
Speaker Change: Short question here, so, let's get a good one and finish strong.
Speaker Change: Typically you have more longer term agreements.
Absolutely and our final question comes from Brett Linzey with Mizuho Securities. Please state your question.
Speaker Change: So I'm just curious your ability to.
Speaker Change: To react and adjust there we've seen some suppliers announce force majeure clauses, but.
Brett Linzey: Hey, good morning, all thanks.
Brett Linzey: So I guess, maybe just yes, just one more on M&A and I understand it's just an episodic process, but I am surprised there hasnt been at least a smaller bolt on type deal given.
Speaker Change: I was just kind of if you think about the tariffs the.
Speaker Change: The ability to offset that industrial versus arrow. If there was any notable difference between the two segments.
Brett Linzey: Giving you a bit on your front foot I guess is it fair to say youre really targeting something larger more medium sized type assets and then have there been any priority assets that it is actually just fallen out of the funnel completely.
Speaker Change: Using the same pricing tools and strategies on in aerospace that we use in the industrial segment. You are correct. There are some you know there are longer term agreements in aerospace, but we're having those conversations we've been having those conversations even prior to tariffs with the high inflationary times, though.
Brett Linzey: But I mean can you just repeat myself again I mean, there are there are strategic assets in the pipeline of all sizes.
Speaker Change:
Speaker Change: Uh huh.
Speaker Change: We're doing everything that we do on the industrial side of the business and.
Brett Linzey: We are not.
Brett Linzey: I'm focused on one side versus the other really does have a lot to do with timing.
Speaker Change: Getting through what we can get through and obviously, we have a little bit more pricing availability on the aftermarket side.
Brett Linzey: And we are very committed to making sure that it is a strategic fit so.
Speaker Change: Great. Thank you.
Brett Linzey: Yeah.
Brett Linzey: We thought we always are looking at different different assets and we're evaluating them and we'll continue to do so on the pipeline is robust and active.
Speaker Change: Thanks, Tim Hey, Diego I think we've got time for maybe one <unk>.
Speaker Change: Short question here, so, let's get a good one and finish strong.
Speaker Change: Absolutely and our final question comes from Brett Linzey with Mizuho Securities. Please state your question.
Brett Linzey: Hey, Brett I would just I would just leave you with this you know the capacity that the company has never been greater.
Brett Linzey: Hey, good morning, all thanks.
Brett Linzey: We're going to generate over $5 billion of EBITDA. This year and I already mentioned, we're going to do over $3 billion.
Brett Linzey: So I guess, maybe just yes, just one more on M&A and I understand it's just an episodic process, but I am surprised there hasn't been at least the smaller bolt on type deal I'm, giving you a bit on your front foot I guess is it fair to say youre really targeting.
Brett Linzey: Cash flow. So it really is not an issue of capacity, it's really just making sure. It's the right.
Brett Linzey: Strategic or a series of strategic deals that makes sense for us in that.
Brett Linzey: Something larger and more medium size type assets, and then have there been any priority assets and it was actually just fallen out of the funnel completely.
Brett Linzey: We model.
Brett Linzey: The future of that so that we can generate returns on those so it's really just a combination of that.
Brett Linzey: But I mean can you just repeat myself again I mean, there are there are strategic assets in the pipeline of all sizes.
Brett Linzey: Alright, great. Thanks, I'll leave that as my my strong question.
Brett Linzey: Krishna. Thanks, so much. Thank you. Thank you.
Brett Linzey: We are not.
Dr. Bruno: Dr. Bruno for closing remarks. Thank you. Thank you Diego. This concludes our FY 'twenty five Q3 earnings release webcast. We appreciate your time and attention.
Brett Linzey: I'm focused on one side versus the other really does have a lot to do with timing.
Brett Linzey: And we are very committed to making sure that it is a strategic fit so.
Speaker Change: We thank you for joining us today, our Investor relations team of Jeff Miller genus Stuckey, and Shinto Kelley will be available today and tomorrow for any follow ups or clarifications.
Brett Linzey: We.
Brett Linzey: Always are looking at different yeah for.
Brett Linzey: Assets and we're evaluating them and we will continue to do so on the pipeline is robust and active.
Speaker Change: Thank you, everyone and have a wonderful day.
Brett Linzey: Hey, Brett I would just I would just leave you with this you know the capacity that the company has never been greater.
Speaker Change: Thank you. This concludes today's conference all parties may disconnect.
Brett Linzey: We're going to generate over $5 billion of EBITDA. This year and I already mentioned, we're going to do over $3 billion.
Brett Linzey: Cash flow. So it really is not an issue of capacity, it's really just making sure. It's the right.
Brett Linzey: Strategic or a series of strategic deals that makes sense for us in that.
Brett Linzey: We model our.
Brett Linzey: The future of that so that we can generate returns on those so it's really just a combination of that.
Brett Linzey: Alright, great. Thanks, I'll leave those my my strong question.
Brett Linzey: Krishna.
Brett Linzey: Thanks, so much thank you.
Brett Linzey: Alright back to Ohio.
Brett Linzey: Bruno for closing remarks. Thank you. Thank you Diego. This concludes our FY 'twenty five Q3 earnings release webcast. We appreciate your time and attention.
Speaker Change: We thank you for joining us today, our Investor relations team of Jeff Miller genus Stuckey, and Shinto Kelley will be available today and tomorrow for any follow ups or clarifications.
Brett Linzey: Thank you, everyone and have a wonderful day.
Brett Linzey: Thank you. This concludes today's conference all parties may disconnect.
Operator: conference call and webcast. At this time, all participants are in a listen-only mode.
Operator: A 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. Please note, this conference is being recorded.
Todd Leombruno: I will now turn the conference over to your host, Todd Leombruno, Chief Financial Officer. Thank you. You may begin. Well, thank you, Diego.
Todd Leombruno: I'd like to welcome everyone to Parker's fiscal year 2025 third quarter earnings release webcast. As Diego said, this is Todd Leombruno, Chief Financial Officer speaking.
Todd Leombruno: And as usual, with me today is Jenny Parmentier, our Chairman and Chief Executive Officer. We really do appreciate your interest in Parker and thank you for joining us If we could move to slide two, this slide addresses all of our disclosures on forward-looking projections and non-GAAP financial measures. Obviously, the items listed here could cause actual results to vary from our forecast.
Todd Leombruno: The press release, this presentation, all reconciliations for all non-GAAP measures were released this morning and are available under the investor section on our website at Parker.com.
Todd Leombruno: The agenda for today has Jenny starting with the highlights to our record third quarter performance. She's also going to reiterate the strengths of our transformed portfolio and how the tools of our win strategy allow us to drive performance in all economies.
Todd Leombruno: I'm going to follow, Jenny, with some more details on our third quarter financial results. And then we're going to provide an update to our FY25 outlook, including market verticals and, of course...
Todd Leombruno: We're going to conclude the session with the normal question and answer portion of our call and we are going to do our best to address as many questions as possible. We know it is a busy day out there. So with that, I'm going to ask everyone to move to slide 3 and Jenny, the floor is yours.
Jennifer Parmentier: Thank you, Todd, and thank you to everyone for attending our call today. Our third quarter performance demonstrates the strength of our business and our global team's ability to continue to deliver record results. We produced top quartile safety performance again this quarter, aligned with our goal to be the safest industrial company in the world. Record Adjusted Segment Operating Margin of 26.3%. This is our first quarter surpassing 26%. record-adjusted EBITDA margin of 27%. and year-to-date cash flow from operations of $2.3 billion. Parker order rates increased to 9%, reflecting our transformed portfolio and long-cycle strength. This team is continuing to expand margins and EPS in a most dynamic environment.
Jennifer Parmentier: Next slide. And this is how we do it. Our business system, the WIN strategy, has enabled us to consistently deliver strong results through business cycles. Safety, Engagement, and Ownership are the foundation of our culture. With our decentralized structure and the agility of our global... We are confident in our ability to manage through macroeconomic uncertainty, including tariffs. Every tool in this business system expands market.
Jennifer Parmentier: Next slide. And our portfolio is more resilient than ever. We have the number one position in the motion and control industry with interconnected technologies and solutions across our key market verticals. The acquisitions of Clark Corps, Lorde, Exotic, and Meggitt have doubled the size of our filtration, engineering materials, and aerospace. giving us greater exposure to longer cycle and secular growth.
Jennifer Parmentier: Next slide. Dedicated use of our simplification tools drives margin expansion across sites. Today, we have a more agile operating structure than we have ever had before. Through use of Kaizen and the Parker LEAN system, we evaluate and adjust our structure and footprint to ensure continuous improvement and optimization of our research. Disciplined use of our 80-20 tools has made us successful in reducing revenue complexity. Leveraging our distribution channel and rationalizing product allows us to serve our customers better. And our Simple by Design tools further reduce product and related manufacturing complexity that enables growth and efficiency in our operations.
Jennifer Parmentier: We are using all of these tools to expand margins, no matter what phase of the business cycle we are in.
Jennifer Parmentier: Supply chain leadership is a competitive differentiator for Parker-Hannifin Corp. The addition of enhanced demand and capacity tools, as well as dual sourcing strategies. has increased visibility and resilience, reduced lead times, and improved the customer experience. We have always had a local-for-local model, driven by our desire to be close to our community. This has also allowed us to leverage global capacity to better serve all of our communities. We have dealt with tariffs before and are extremely grateful for our excellent pricing and supply chain. Tariffs are a lot of noise and work, but our teams are leveraging analytics and robust processes to navigate and act quickly through these dynamic and challenging times.
Jennifer Parmentier: Announced tariffs are approximately 3% of cost of goods sold or $375 million on an annualized basis. Fully Offset by Mitigation Act. and Designed to Protect Earnings.
Todd Leombruno: I'll now turn it back over to Todd to review the third quarter highlights. Thank you, Jenny. I am on slide nine, and I'm going to just run through the financial results very quickly. As Jenny said, this was a strong quarter, a record-setting quarter, in fact. It was another quarter of continued margin expansion and EPS growth. Sales were down 2% versus prior. Organic growth was positive at 1%. Currency remained unfavorable at negative 1%. The main driver, really, of the overall decline is the result of those previously announced divestitures that we've made this year. That accounted for 2% of the decline, which is essentially the entire...
Todd Leombruno: As Jenny mentioned, adjusted segment operating margins were up 160 basis points to 26.3. That is a record. And adjusted EBITDA margins were up 150. Net income is $9.04, that's 18.2% return on sales, both of those numbers are records. And adjusted earnings for shares is up 7% to $6.99. You know, being able to grow earnings per share 7% with the top line down 2% is just another indicator of just how different Parker is. This was another quarter of strong performance that was consistent across all of the businesses. Each contributed to the margin expansion and cash flow performance that Jenny mentioned.
Todd Leombruno: And this performance that we had in Q3 continues to support the expectations we have for another.
Todd Leombruno: If we could go to the next slide, slide 10, this just shows the walk of the 43-cent increase in adjusted earnings per share. Q3, really the same story that we had in the first half of the year, unbelievably disciplined operating performance, segment operating income dollars are up $53 million, that's 32 cents of the increase in earnings per share. Aerospace continues to be the primary driver of our segment operating margin dollars. But the industrial businesses also delivered record segment operating margin percentages despite the pressures on the top. Interest expense continues to be down. That is the $0.17 favorable result this year.
Todd Leombruno: That is really the result of our commitment to reducing debt. Corporate G&A is favorable, $0.08. That really is related to lower market-based benefits and just great discretionary cost controls across the businesses. Other expense was a drag of $0.13. That really is a combination of just less favorable pension expense versus prior year and obviously some currency translation just based on FOMC. And then lastly, share count and income tax basically offset each other, and that's how we got to the 694 adjusted EPS. Really just want to commend our teams around the world for just great cost diligence and unbelievable operating...
Todd Leombruno: Okay, if we go to 11, we'll just dive into the segments a little bit. Order trend continues to be positive for the company. Orders are plus 9 versus prior year. Really, this is driven by longer cycle strength. That continues to drive order rates and backlog higher.
Todd Leombruno: And once again, every business delivered record segment operating margins. The total company is up 160 basis points. Specifically, in the diversified North American businesses, sales were 2 billion. Organic growth was down 3% versus prior.
Todd Leombruno: That did improve sequentially from Q2, but the result was lower than we expected going into the quarter. We continue to just see softness in the transportation, off-highway, and energy. Distribution sentiment remains positive, but what's really nice here is adjusted segment operating margins are up 110 base. to a record 25.2, really just driven by great operating performance, and like I said before, a cost. Gradual improvement in distribution kept quarters at North America positive at plus three versus prior. We were happy to see that.
Todd Leombruno: And this is the second quarter in a row of positive order entry results. If we look at the international businesses, order rates improved really to a double-digit positive 11 here. That is really driven by a nice recovery and the long cycle exposure there. Sales were 1.4 billion. Organically, that was also down 3%. Asia-Pacific specifically was up 2% organically. Latin America continues to be very robust at plus 8, while the EMEA region remains challenged at 9%. Our international teams really are remaining agile and focused on cost controls and reductions and really efficiency improvements. The evidence is clear in their margin performance.
Todd Leombruno: Adjusted segment operating margins here were 25.1 percent and expanded by 160 basis points for its prior.
Todd Leombruno: Aerospace continues to be the standout, unbelievable, inspiring results here. Sales were a record 1.6 billion in aerospace. That's up 12% for its prior year. Once again, this quarter, they exceeded our expectations on the top line. All of that growth was organic. Organic growth is 12%. Really continue to be driven by the aftermarket strength in both defense and commercial end markets. This is the ninth consecutive quarter of double-digit organic growth for aerospace. Just unbelievably stellar. Margins are up 200 basis points and reached a record 28.7, 28.7. We are certainly pleased that Aerospace is now a third of the company and Aerospace orders continue to be positive at plus.
Todd Leombruno: If we go to the next slide, slide 12, it's just some comments on cash flow, strong cash flow performance from the corporation. Cash flow from operations on a year-to-date basis is 15.8%. That equates to $2.3 billion. That is up 8% versus prior year, and the $2.3 billion is a year-to-date record. Unit A free cash flow is also up 8% versus prior, that's about $2 billion, or 13.7% of sales, so just great cash flow performance across.
Todd Leombruno: You may have noticed last Wednesday, our board approved a 10% increase to our quarterly dividend as a result of their confidence in the company's ability to continue to generate strong cash flows no matter what the business cycle brings us. And our dividend per share on a quarterly basis is now $1.00. The action will extend our record of increasing annual dividends paid per share to an amazing 69.
Todd Leombruno: Lastly, during the quarter, we purchased $600 million of shares, in addition to the usual $50 million that we purchased as part of our 10B51 program. Total repurchases in the quarter equated to $650 million, and on a year-to-date basis, repurchases now total $750 million.
Todd Leombruno: So, moving on to guidance, let's move to slide 14.
Jennifer Parmentier: Jenny, I'm going to hand it back to you to start with the update on Mark. Thank you, Todd. So taking a look at our FY25 sales forecast by market vertical. For aerospace and defense, Todd just went over some strong results. We are raising full year organic growth to 12% on continued aftermarket strength and gradual OEM recovery. Previous guidance was 11%. We are lowering in-plant and industrial equipment growth to be negative low single digits. Now this was previously slightly positive low single digits. But this lowering is due to a prolonged delay in industrial recovery, but it is worth noting that the quoting activity remains strong despite the project delays that are For more information visit www.FEMA.gov We are lowering transportation growth to be negative low single digit.
Jennifer Parmentier: This was previously neutral, and this is primarily due to lower automotive production forecast in North America and India. Work truck demand does remain stronger than on highway, same as last quarter. Off-highway improved slightly to negative low teens, this was previously negative mid- OEM destocking and end-market weakness does persist, but it is partially offset by stronger after-prices. Ag weakness continues, no real sign of recovery here. Lowered energy to negative low single digits, this was previously neutral, and this is due to lower oil prices and a disciplined approach to capital. And we have increased HVAC and R to high single digits.
Jennifer Parmentier: This was previously mid-single digits and driven primarily by. and Residential Air.
Todd Leombruno: I'll hand it back to you, Todd, to go over the guidance.
Todd Leombruno: Okay, thank you, Jenny. Moving to slide 15, I'm just going to go through some of the details for the guide. Reported sales growth for the year is now forecasted to be approximately minus one. In respect to organic growth, for the full year, we expect organic growth to be about positive. We have raised aerospace organic growth to 12% for the year. But we've lowered industrial segment, the industrial segment. In industrial North America, organic growth is now forecasted to be approximately minus four, and industrial international organic growth is now forecasted to be approximately minus three. The previously announced divestitures on a full-year basis will be negative 1.5 percent.
Todd Leombruno: One hundred percent of those divestitures were reported within the industrial North American businesses, and currency is now expected to be just a slight negative 0.5 percent headwind, and those are base.
Todd Leombruno: March 31st. In respect to segment operating margins, we are raising guidance by 10 basis points for the full year. That will now be 25.9% segment operating margin. That forecast will be a full year margin expansion of 100 basis points.
Todd Leombruno: first prior. Of course, that improvement is being contributed by all. Assumptions for corporate G&A, interest, and other, as usual, we've provided those in the appendix. We expect full year tax rate to be 21 points. When you look at adjusted EPS, we now see the full year, excuse me, as reported EPS, the full year is now $26.02 at the midpoint, and we are maintaining our adjusted EPS guide of $26.70 at the midpoint. On both of those numbers, there's a range of plus or minus.
Todd Leombruno: on both the. In respect to tariffs, Jenny mentioned this earlier, but we expect to fully mitigate any additional costs associated with all the announced tariffs. Our EPS guidance does include costs and mitigation actions with all announced tariffs, and those will be fully offset within the Corps.
Todd Leombruno: for Parker on an annualized basis. We have targeted the announced tariff cost to be about $375 million, and that equates to roughly 3% of our cost. We foresee full-year free cash flow to be $3.1 billion and, of course, free cash flow conversion is expected to be greater than that. For Q4, the last quarter of our fiscal year, more specifically, we expect reported sales to be $5.1 billion. Organic growth of positive one-half percent. Adjusted segment operating margin is expected to be approximately 26.1 percent. We have modeled a tax rate of 22 percent for the quarter. And adjusted EPS is expected to be $7.05.
Todd Leombruno: That also includes all announced tariffs and our mitigating...
Todd Leombruno: So that's it for the details on the guide.
Jennifer Parmentier: Jenny, I'll hand it back to you and ask everyone to move to... Thanks, Todd. And just a final reminder on what drives Parker.
Jennifer Parmentier: I said it at the beginning of the presentation, safety, engagement, and ownership are the foundation of our culture. It's our people and living up to our purpose that drives Tap Portal. And we remain committed to being great generators and deployers of cash. We are actively focused in extending our track record, deploying capital to deliver the best shareholder value possible.
Operator: Thank you, Chad.
Operator: Okay, Diego, we are ready to start the Q&A portion of the call, so we'll take whoever you have in queue. Thank you.
Operator: A reminder to the audience to ask a question, press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in a question queue. You may press star 2 if you would like to remove your question from the queue.
Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star 2.
Meg Dobre: Our first question comes from Meg Dobre with Baird Police. Thank you for taking a question.
Meg Dobre: Good morning, everyone. I guess the orders, at least to me, were quite surprising in the quarter. It's been, what, more than three years since we've seen international orders up 14% positive in North America as well.
Meg Dobre: So I guess my question is this. When you talk about longer cycle, can you maybe talk a little bit more about that? How do these actually get to convert to revenues? What's kind of the time cycle here? And related to this, and I recognize that you don't provide fiscal 26 guidance now, but given this inflection that we've seen in orders, is it fair for us to expect positive organic growth in fiscal 26 in your industry?
Jennifer Parmentier: Sure, Mick. So to answer your last question first, I think it is fair to say that we should get some positive industrial growth in FY26. And these orders that we're talking about long cycle are definitely beyond this last quarter here in fiscal year 25. So, as Todd went through and you said, the rates increased to 9% for total parkers. So, when you look at North America, this was the second consecutive quarter of positive orders and stayed the same at 3%. So, you know, remember we have aerospace and defense business in our industrial segment. So, we saw some strong orders there and we also saw HVAC and refrigeration orders remain strong.
Jennifer Parmentier: There was some gradual improvement from the distribution channel. Not anything that I would call restocking, but their sentiment is positive and they are awaiting the recovery. When you look at international order growth, it definitely accelerated on long-cycle strength. So, you know, Europe, mainly driven by long-cycle energy orders, power gen and oil and gas. Todd mentioned Asia orders remained solidly positive, and that is primarily driven by electronics and semicon. And this is the third quarter in a row of positive orders for international. And aerospace, obviously, I think, well aware of that, but the backlog did increase again.
Jennifer Parmentier: Last quarter was a record at $7 billion, and this quarter it went up to $7.3 billion. on both strong commercial and defense orders. So that's...
Jennifer Parmentier: © The Bulletproof Executive 2013 Great, thank you. And my follow-up, speaking of backlog, very sizable in aerospace, more than a year's worth of business in there. And you size the tariff impact here, but I sort of do wonder how you think about the risks that you might have on a cost side, whether it's tariff or any other costs related to this backlog, and your ability to kind of either manage that through for any other mechanisms that you So we, as we said, we expect we will fully mitigate, you know, the tariff impact. We, as I was going through in my slides, we have several different actions in place.
Jennifer Parmentier: And when you look at the mitigation actions, I would put them in three different buckets, you know, pricing actions, supply chain actions, and what we do all the time with the WIN strategy, reducing costs on an ongoing basis. So those three areas are how we're confident that we're going to fully mitigate this, and you know, we're ready. All right, good luck. Thanks, Nick.
Jamie Cook: And our next question comes from Jamie Cook with Truist Securities.
Jamie Cook: Please state your question. Hi, good morning and congratulations on another nice quarter. I guess my first question, Jenny, just the strength and margins, you know, in aerospace and defense. So, to what degree are you worried that the aftermarket story and the strength in aftermarket is driving the margins that in 2026, I guess, that becomes a headwind as OE starts to pick up? And if you could just, you know, break apart, you know, if there's anything more structural there on margins besides just aftermarket, right, improving the air associated with MEGID, I guess, that's my first question.
Jamie Cook: And my second question, you know, understanding you just put out these targets last June, but if we look at your implied adjusted EBITDA margins as we, you know, for the full year, you're targeting 25.9%, I think, versus the target laid out last year of 27%. And your industrial businesses are still fairly depressed. So, again, just trying to understand why that isn't conservative or, again, is the concern that aftermarket, sorry, aerospace margins are sort of over-earning, you know what I mean, as that normalizes and industrial picks up, 27% is really the right target. Thank you.
Jennifer Parmentier: Okay, Jamie, so starting out with just a little bit of color on Arrow aftermarket. So it's been very strong for us. It was strong in Q3. I mean, year-to-date, our aftermarket is 50% through Q3. So now going into Q4, we're forecasting around 49%. For the full year, it'll be 50%. And, you know, just a reminder, too, we did, you know, really gain a lot of aftermarket with the MEG-IT acquisitions. So we're in a higher aftermarket position to begin with. We do see that, you know, the gradual recovery on the rates, the OEM rates. are having an impact on that mix, but we do feel very confident about our ability.
Jennifer Parmentier: We have not seen any degradation as a result of some of the reports out there about North America air traffic growth slowing. We're keeping a close eye on that.
Jennifer Parmentier: But we still have a very strong aftermarket business here, and we see that into the foreseeable As far as the targets go, I mean, obviously, you know, Todd mentioned this, we couldn't be any prouder of these teams and how they've delivered in a, especially the industrial side of the business, in a negative top-line environment. We really do believe and will continue to expand margins with all the tools in the WIN strategy. You know, obviously, we'd like to see this industrial side of the business turn around. I think we all will enjoy that and benefit from it.
Todd Leombruno: But right now, you know, we have a lot of confidence with everything going on in the environment that we're going to hit those targets. And that's what we're sticking with.
Todd Leombruno: You know, Jamie, I would just add to what Jenny said, couldn't be happier with the progress we're making on margins, but when we set those targets, we also set a four to six percent growth target, we also set an EPS growth target, and we also set a cash flow target, and while we are making progress on those, we are far away from achieving those as well, so we look at these kind of holistically together. It's not just one of the margins, it's really all of the targets, so I tell you that's Okay, that's helpful. Thank you.
Julian Mitchell: And your next question comes from Julian Mitchell with Barclays, please. Hi, good morning. Maybe first off, just wanted to circle back to the sort of the jaws widening between industrial organic orders and sales trends that's been apparent for a couple of quarters. I understand on some level it's natural if orders are meant to lead sales that there'd be a delta a lot of the time. And you mentioned the longer cycle element boosting the orders growth versus sales. Just wondered if there was any other dynamic to be aware of, perhaps sort of the dollar comps that we don't see from the outside.
Julian Mitchell: Is there anything notable there on orders versus sales and maybe sort of allied to that? Is there any color you could give us on how that industrial backlog is moving? I think it was three and a half billion or so at the end of December. Yeah, so, first of all, I would say that, you know, with the way that the portfolio has transformed over the last several years, the connection between orders and shipments has extended, right? I mean, we do see more long-recycle businesses. As we mentioned earlier, aerospace being a third of the business, and the aerospace that is sitting inside of our industrial businesses, as well as some other industrial business that we consider long-recycle, it is different than it was in the past.
Julian Mitchell: So, that connection isn't as tight as we may have been used to, even on the industrial side of the business. Second part of your question, Julian? It was really just around, um, any color you could give us on, say, the backlog movement at Industrial? I think that was $3.5 billion at the end of December. So it was $3.7 billion for Industrial and $7.3 billion for Aerospace, so it was 2% higher than prior year. and 5% of Sequentia.
Todd Leombruno: That's very helpful. Thank you.
Jennifer Parmentier: And then just... You know, if you could put a finer point on some of the aerospace growth trends, sort of in the fourth quarter, as you see it, just so we have the jumping off point into 2026, on the sort of, you know, OE versus aftermarket dynamics in commercial and military. Sure, you bet. So we, as we said, we've raised the full year guidance organic growth to 12%. We expect commercial OEM to be mid-single digit, and this obviously is, you know, as a result of the narrow body increases and some of the wide body recovery we're seeing as well.
Jennifer Parmentier: We expect defense OEM to be low single digit growth. We expect commercial MRO of high teens growth. So again, even though there's been some reports of North America air traffic growth flowing, global growth is still increasing. And we still see that we have an aging fleet out there. We expect a sense MRO of high teens growth, and this is really a focus on retrofits and upgrades and really some nice increases in the public-private partnerships that we have with the Department of Health. That's great. Thank you.
Scott Davis: Your next question comes from Scott Davis with Mellius Research. Hey, good morning. And again, congrats on the margins and getting through what's been kind of a slower time and the core industrial stuff.
Scott Davis: This may be an impossible question to answer, Jenny, but have you guys And, you know, when you think about the margin gains you've made, obviously mix has got to have a huge part of it. But is there any way to kind of tease out what kind of, you know, how much operational improvements have really helped you guys, even if you even if you can't quantify it just to color around underlying operational improvements that could, you know, really help things snap back outside of aerospace? Let's just assume aerospace isn't as much of a tailwind incrementally, you know, 26, 27.
Scott Davis: But I don't know, it may just be an impossible question, but I'm curious to hear your response.
Jennifer Parmentier: Well, I would say that, you know, as I was mentioning in the presentation, I've heard us talk a lot about all the tools that we have in the WIN strategy and, you know, the nature of our decentralized operating structure, you know, allowing those general managers to be, you know, you know, completely in control of their business, right? So with our enhanced demand and capacity tools that we have, they have better visibility than they've ever had. So their planning ability around their operations, how they run their operations, how they control the cost of their operations is greater than it's ever been.
Jennifer Parmentier: So the operational improvements, you know, are gonna continue to happen. Because they have the right tools in our toolbox, and they have the ability to make these improvements even when the volume is down. So we expect that as the volume comes back, we're going to use those same tools, and we're going to be very mindful of how cost comes back into the business, and we're going to continue to do what we've been doing. Makes sense.
Jennifer Parmentier: Just as a totally different follow-on, but M&A, just again, I know you still talk about having a pretty strong pipeline, but any additional color on what we might expect to see, whether larger deals, mid-sized, small, more bolt-ons. I mean, if you can talk through that pipeline, just a little bit of color there, please. Yeah, I mean, listen, the pipeline has deals of all sizes. It really does. I mean, the timing is hard to predict right now. You know, the big thing for us, you've heard me say this before, has to be strategic. You know, the relationships and the analysis continue to be very active, and we're still looking to acquire companies where we're the clear best owner, that complements our interconnected technologies, follows the secular trends, you know, all the same criteria that you've heard me talk about before, but it's active, it's the timing right now that's hard to Thank you, Jenny and Todd.
Todd Leombruno: https://www.youtube.com.uk Got you.
Todd Leombruno: Thank you.
Todd Leombruno: I'll pass it on.
David Raso: And your next question comes from David Raso with Evercore ISI.
David Raso: Please stay. Hi, thank you for the time. The tariff, 3% a car. Is that a number that is expected to go up for the new fiscal year, meaning you would think the first quarter there's some inventory on the ground, there's some mitigating costs that already landed before tariffs? Or should we think of 3% of COGS as the run rate for fiscal 26? you know, based off the tariffs as they are.
Todd Leombruno: Yeah, David, hey, this is Todd. That is an annualized number. So the way we calculated that is basically looking at every tariff that has been announced and what our current run rate is in those areas. So I don't expect that to go up unless there's some kind of other change in the tariff space. And like Jenny said, our team is working feverishly around the globe . to do everything we can to not just make sure that we protect earnings per share, but to make sure that we make the best decisions to mitigate that 370. And how much of the run rate is actually hitting calendar 2Q, fiscal 4Q?
Todd Leombruno: I'm just trying to understand. Are we at full speed, 3% hit for these three months of this quarter? Or is it more of a, and it's helpful to say at the peak during this quarter, it's the 3% of COGS. I'm just trying to get a sense of the ramp and if other actions are needed to be taking for, you know, say, July 1 price increases or whatever. No, that is pretty much the run rate as it sits today. There is no ramp on that, and I would tell you the actions have already been taken.
David Raso: Terrific, thank you.
Andrew Obin: Your next question comes from Andrew Obin with Bank of America. Oh, yes. Good morning, I guess. Still good morning? Yes, good morning. Oh, good morning.
Andrew Obin: Yeah, so a question I guess, about a month ago, people were excited about potential for European recovery, international orders are improving. Can you just tell us what it is you are seeing in Europe, and also we've been getting a lot of questions about your exposure to European defense budgets, if you could just sort of give us color on A, what are you seeing in Europe, and specifically potential exposure within ERO to European defense, thank you. Okay, so first, Andrew, talking about, let's just start with The European Defense. We do have, I think we talked about this the last time we were together, we do have We're well positioned globally in the defense market, and we sell to both U.S.
Jennifer Parmentier: and international defense primes, so many of the U.S.-built aircraft are exported. And we expect that, you know, for instance, with the F-35, you know, a third of that total fleet will be sold to the Allied military. So, that kind of gives you an idea of what our...
Jennifer Parmentier: https://www.fema.gov Sorry again, I got distracted with the C-4 in military. Your first question.
Jennifer Parmentier: Yeah, so the second question is just, you know, German elections at Hanover, I think. Nothing yet. People sort of seem to be excited about potential. What are you hearing from your partners in Europe? Yeah, so, you know, obviously, we expect this broad-based softness across the end markets in Europe to continue. I mean, we don't see that easing up, but, you know, what there is some positive sentiment out there about is the proposed stimulus and future defense spending, as we were just saying. So, you have the European Commission proposal on defense spending, you have some big dollars out there for Germany infrastructure on energy, transport, and then overall defense spending.
Jennifer Parmentier: So, that's longer term, but that's, you know, what the teams are talking about to be positive about. Gotcha.
Jennifer Parmentier: And just to follow up, how are you guys reconsidering your footprint, you know, after the second round of tariffs, if in any way? And are you adjusting CAPEX down in the fourth quarter in response to tariffs in any way, shape, or form? Thank you. No, we are not adjusting CapEx as a result of that, and we don't see any big need for supply chain realignment due to tariffs. You know, just, you know, that local-for-local model gives us global capacity around the world. We've been working with the multiple tiers throughout our supply chain. And, you know, we've got a lot of good actions leveraging our dual sourcing strategy.
Jennifer Parmentier: So, I think we're in a good position. Thanks so much.
Nicole DeBlase: Your next question comes from Nicole DeBlase with Deutsche Bank. Yeah, thanks. Good morning, guys. Good morning, Nicole.
Nicole DeBlase: Maybe just first of all, with orders definitely kind of ahead of expectations this quarter, are you guys hearing or seeing any evidence at all of pre-buy ahead of tariffs, or was that not a factor in the strength? No, I would say minimal evidence of prebiotic activity, and as we've talked about with this, you know, increase in orders, it's, you know, all long-cycle strains. Okay, got it. Thanks, Jenny.
Nicole DeBlase: And then, you know, the margins have been a real bright spot in fiscal 25, despite a challenging volume environment. Super impressive performance from Parker. Do you guys think you can continue to target like 30 to 35% incrementals as we kind of flip the calendar to 2026? Or at some point, you know, does it become tougher to expand margins to that extent? Thank you.
Todd Leombruno: Yeah, Nicole, this is Todd. That is the number that we hold our team members accountable for across the organization. We think that is a best-in-class number. It's not a always 30%, right? It depends on what's going on with the top line. If the top line is more robust, we think we can do better. If the top line is a little bit lower, you know, we try to manage that as well. So I would tell you that's one of the things that I don't worry about for our team members across the globe is managing incrementals, whether we're in a growth environment or if we're in a challenge time.
Todd Leombruno: Thanks, Todd.
Todd Leombruno: I'll pass it on.
Joe Odea: Your next question comes from Joe Odea with Wells Fargo, please state your name and phone number. Hi, good morning. Jenny, I'm sure you anticipated a question on 26. And so encouraging in terms of your comments around industrial and potential for growth. I think my my question is really around, as you've seen some of that recovery push out this year, what it is that you're seeing that gives you confidence in seeing that growth next year in particular, in light of an elevated uncertainty kind of macro backdrop. Well, first of all, I would say the longer cycle orders that we see coming in there, what we see is going to hit in 26.
Joe Odea: We have a really good visibility of all our orders. When they come in, we know when they're going to hit. So we've seen very few cancellations through the last several quarters. We're getting to the point, if you want to consider the last couple of years a recession, a much shallower one at that on the industrial side of the average amount of quarters, that this industrial business would be negative. So I'm an optimist here, as you've seen our guide throughout the whole year. I mean, we've kept planning for it the next quarter. The next quarter, unfortunately, we're not able to put that in this fourth quarter.
Jennifer Parmentier: But we believe that it's going to come. And when it does, we're not only going to be ready, but I think we're all going to enjoy it.
Jennifer Parmentier: and you know that kind of waiting for it next quarter kind of dynamic is is that a matter of are there things like you know the adjustment to guide it's a I guess the question is are there demand trends that you're seeing soften sequentially um or is it more a matter of things that you thought would get better sequentially just didn't happen and that's probably broad strokes maybe there's a little bit of everything but but any color there would yeah things that we thought would get better just didn't happen so we had to pull it down into Q4.
Jeff Sprague: Thank you. Thanks, Jeff.
Jeff Sprague: And your next question comes from Jeff Sprague with Vertical Research Partners. Hey, thanks. Good morning, everyone.
Jennifer Parmentier: Hey, Jenny, just back to sort of the footprint and the like, maybe I misinterpreted what you said, but it sounds like you're not really looking at making any significant footprint changes that that just sort of surprises me, right? Like, you know, I wouldn't think you want to eat 375 million in tariffs. I get you've got plans to action it. But are you basically saying that you can handle it with dual sourcing? And then that leaves open the option to kind of flip back maybe to China at some point in the future? Probably oversimplifying a complex question, but.
Jennifer Parmentier: Just your view on really kind of mitigating this maybe permanently as opposed to temporarily.
Jennifer Parmentier: Yeah, so you know, first of all, I'd say this much, we are, we are always looking at our structure and our footprint, right? That's just part of what we do, either through Kaizen or Parker LEAN systems. So we're constantly looking at that. And we make sure that we're making the best use of all our resources. So that's, that's something that's ongoing. If you look back in time at what we've done, there's there's good numbers on that. I would say that because we've always had this local for local model, we have the, the advantage of having capacity around the world, right?
Jennifer Parmentier: So we can leverage that capacity when we need to. So it's not just, you know, footprint or turning one supplier off and another supplier on that's going to mitigate all these actions. It's, it is the dual sourcing strategy. It's working closely with suppliers on cost negotiations and further improvements. It's really making sure that all of our teams continue to use these tools that have provided this margin expansion all along. And, and they're, they're really good at it. So I would tell you that those are the supply chain actions, in addition to the wind strategy, cost actions, and then the pricing actions that You know we have a strong muscle in doing this.
Todd Leombruno: So, are the pricing actions actually smaller than the win and sourcing actions, collectively? I wouldn't say that they're smaller. I would say that it's a little bit different for every business, but it is a collection of all of those actions. It gives us the confidence to say we can fully mitigate the tariff. And then just maybe a little follow on that, is the 375 just simply tariffs? I assume there's other just inflation that might not be directly tariffed, but perhaps is indirect. I'm sure it's included in your guide, but just curious if that 375 is a just a mathematical tariff kind of gross number.
Todd Leombruno: Yeah, Jeff, you're exactly right. That 375 is solely tariff cost. No other cost. Great, thank you guys, appreciate it.
Joe Ritchie: Your next question comes from Joe Ritchie with Goldman Sachs. Please stay. Hey everybody, good morning. Morning.
Joe Ritchie: Jenny, can you just double-click a little bit on the in-plant project delays and what you're seeing there? I get the disconnect a little bit with the order rates that you're seeing, but be curious, maybe if you can just tell us a little bit more about that bidding activity and how you see it playing out in the coming quarter. So when we look at implant and industrial, like I mentioned, we did have that at positive low single digit, slightly positive low single digit, and we took it to negative low single digit. And really, this is about, you know, the industrial recovery delays just persisting.
Jennifer Parmentier: Our previous guidance, as we just mentioned, assumed that we were getting some recovery, and we're not seeing that yet. Again, I would tell you that coding is still active, even though there are project delays. And we're not seeing a lot of cancellations. It's really more of delays. So it's not one big thing or even a small collection of any event or any areas, just continued delays.
Jennifer Parmentier: Okay, that's helpful. And if I can maybe just ask a follow up on that. If you think about the type of, you know, work that that you're bidding on and what that pipeline looks like, there's a lot of activity that's happening in the US that's already been started from a megaproject standpoint. I'm just curious, like, how much of this is like, new construction versus what you would normally kind of see as like, you know, maintenance or renovation, you know, repair type projects? I don't have a specific split for you, but I would tell you that it's both.
Jennifer Parmentier: I mean, you know, when we talk to the channel, they tell us how they're participating in some retrofitting in plants, upgrades in plants, and then also with some new construction. So it's a mix of both. Okay, great.
Jennifer Parmentier: Thank you.
Andrew Kaplowitz: Your next question comes from Andy Kaplowitz with Citigroup Police State. Hey, good morning, everyone. Morning. So Jenny, I know you talked about Europe a bit more, but Asia seems to be holding up well for Parker, and specifically China seems to be holding up. Maybe you could give us a little more color on what you're seeing there.
Jennifer Parmentier: And Latin Americans continue to be a source of strength for Parker, so how sustainable is that growth going into 20 seconds? So, um... So for Asia-Pacific, in Q3, that was up 2%, as Todd mentioned. And that growth was mainly driven by electronics and Semicon. And we did see some gradual improvement in plants. China, just a reminder, it's 5% of our sales, and Q3 sales were positive, I would say, low single digits over prior year, and, you know, we're continuing to see that. really be driven by electronics and semi-cons. Some EV, some distribution, but it's, again, just a reminder, it's 5% of our sales.
Jennifer Parmentier: and Ben N. Latin America continues to be robust. I would say it's really broad-based. The team there really has been focusing on the areas they win. It's a big filtration market for us with a lot of motion systems activity, and the team just really continues to manage a really volatile situation.
Todd Leombruno: Todd, I just want to ask you about the corporate GNA, the bridge on slide 10, the 8 cents positive. I think you talked about relatively significant cost containment in your prepared marks. Is any of that temporary? You should be thinking about any of it coming back. How does that line item look moving forward? Yeah, I mean, there was a couple of things there that we talked about, market-based benefits. Those obviously fluctuate with market activity, but I think the team has done a really good job looking at what we can control. I don't foresee any significant amount of that rolling back into the business.
Todd Leombruno: I think I pride ourselves on being a very SG&A frugal in that space. Appreciate all the color. Thanks, Andrew.
Stephen Volkmann: Your next question comes from Stephen Volkmann with Jeffreys Police Station. Hey, good morning, guys. Thank you for fitting me in. Two follow ups from me. One, I guess I want to turn this whole tariff thing completely around. And I feel like if I was a North American manufacturer trying to figure out how to have a more local supply chain, you guys might be my first call given you're kind of local for local. So I'm curious if you're seeing, you know, more inquiries as other manufacturers try to re-jigger their supply chain. actual people like reaching out to us for Goodbye.
Jennifer Parmentier: No, more reaching out to you for product. Sorry to interrupt, but given that a lot of your competitors are international and you're not as much, I wonder if there's an opportunity for you there. Well, we do think that there could be some shared gain opportunities for us here. I mean, as I was mentioning, having this capacity globally and being able to serve the customers really well, we think that there are some opportunities. Yes, Steve, we were just talking about that the other day. I don't want to be overly bold on this, but for any business that we could potentially lose because of tariff, you know, there is obviously some opportunity on business that we could have.
Todd Leombruno: So that's what the team is focused on. And I think it's still early days. But... I like our chair. Okay, fine.
Todd Leombruno: And then maybe for you, Todd, I'm curious, again, you know, you stepped up the repo here, it feels like this may be a period where it's a little tougher to get deals done in general. I'm not really speaking for you, but there's a lot of uncertainty around outlooks and cost bases and recessions and so forth. So is the fact that you stepped up on repo maybe telling us that the M&A is a little maybe further out and we should factor in a little more repo near term? Now, you know, Jenny mentioned this, our team continues to work the pipeline.
Todd Leombruno: The one thing that does become difficult is just really being able to accurately predict the timing of a yes. I would tell you there's many targets of various sizes in that pipeline. The reason we ramped up the repo was really because of our https://www.youtube.com.uk full part of FY 25 and you know we just took a little chunk out there really just trying to fulfill our commitment to being active in that space so we're going to balance that a decision depending on what we see within you know each given month going here but our commitment to everyone is that we will be active.
Todd Leombruno: Much appreciated, thanks.
Tim Thein: Your next question comes from Tim Thein with Raymond James.
Tim Thein: Please stay. Great, thank you.
Tim Thein: And maybe the first one for Jenny, I'm curious as to the kind of the tenor of conversation that you're having with customers and, you know, as we've gone from in hopes of animal spirits being unleashed after the U.S. election to now fears of recession and concerns around trade policy. I'm curious if you think the damage is sort of done for the year in terms of customers pulling the trigger on those more discretionary capital decisions, or if we're having this conversation in three months and you're looking ahead to your FY26, is there a potential that that those There's kind of reverse and there's more optimism.
Jennifer Parmentier: Just curious as to, you know, what you hear from your big customers. But yeah, there's just a lot of uncertainty, right? So I think everybody's, you know, going to be smart, but at the same time, I think everybody believes that as we do that we'll get through this and that when we get through it, we want to be able to operate at our best. So I think people are cautious, but, you know, just, you know, kind of waiting to see what happens in some cases. But I wouldn't say there's been anything overly negative that I'm hearing from the customers.
Jennifer Parmentier: Okay, and then I'm just on tariffs, and the question is just in terms of the pricing flexibility that you have in aerospace specifically, just given, you know, typically you have more longer term agreements, so I'm just curious your ability to react and adjust there. I know we've seen some suppliers announce force majeure clauses, but anyways, just kind of the, as you think about the tariff ability to offset that industrial versus aero, if there's any notable difference between the two segments. Well, you know, we're using the same pricing tools and strategies in aerospace that we use in the industrial segment.
Jennifer Parmentier: You are correct. There are some, you know, there are longer term agreements in aerospace, but we're having those conversations. We've been having those conversations even prior to tariffs with the high inflationary times, so, you know, we're doing everything that we do on the industrial side of the business and, you know, getting through what we can get through, and obviously we have a little bit more pricing availability on the aftermarket side. Great, thank you. Thanks, Tim.
Operator: Hey, Diego, I think we've got time for maybe one short question here, so let's get a good one and finish strong.
Operator: Absolutely, and our final question comes from Brett Linzey with Mizzouho Securities, please state your name. Well, I'm going to just repeat myself again. There are strategic assets in the pipeline of all sizes. We are not focused on one size versus the other. It really does have a lot to do with timing, and we are very committed to making sure that it is a strategic fit. So, you know, we always are looking at different assets, and we're evaluating them, and we'll continue to do so. The pipeline is robust and active. Hey Brett, I would just leave you with this, you know, the capacity that the company has has never been greater.
Todd Leombruno: We're going to generate over $5 billion of EBITDA this year, I already mentioned we're going to do over $3 billion of cash flow. So it really is not an issue of capacity, it's really just making sure it's the right strategic or series of strategic deals that make sense for us and that we model a future that we can generate returns on those. So it's really just the company.
Todd Leombruno: All right, great, thanks, and I'll leave that as my strong question. Thank you. Appreciate it. Thanks so much. Thank you.
Todd Leombruno: All right.
Todd Leombruno: Back to Todd Leombruno for closing remarks. Thank you. Thank you, Diego.
Todd Leombruno: This concludes our FY25 Q3 earnings release webcast. We appreciate your time and attention. We thank you for joining us today.
Jeff Miller: Our investor relations team of Jeff Miller, Jenna Stuckey, and Chantel O'Kelley will be available today and tomorrow for any follow-ups or clarifications. Thank you everyone and have a wonderful day. Thank you.
Operator: This concludes today's conference. All parties may