Q1 2026 Parker-Hannifin Corp Earnings Call
Please be advised that today's conference is being recorded if you should need operator assistance, please press star zero.
I would now like to turn the call over to Todd. Liam Bruno. Chill ahead.
Thank you Chloe uh good morning everyone and welcome to Parker's fiscal year. 2026 first quarter earnings release webcast.
Uh, this is Todd, Chief Financial Officer speaking. And with me today is Jenny Bartier, our Chairman and Chief Executive Officer. As always, we appreciate your interest in Parker, and thank you for joining us today.
Uh, we address our disclosures on forward-looking projections and non-gaap financial measures on slide 2. Items listed here could cause actual results to vary from our forecast uh our press release.
Uh was released this morning along with this presentation and reconciliations for all non-gaap Financial measures. Uh those are available uh on our website under the investor section on parker.com.
The agenda for today has Jenny starting with an overview of our record FY, 26 first quarter performance. Uh she will share some highlights from our day. 1 celebrations welcoming the Curtis team members to partner
Uh Jenny will also uh then reiterate the strengths of our interconnected portfolio.
Uh, and share an example from our energy Market vertical, I will follow Jenny with more details on our strong first quarter results and then we'll both provide some color on our increase to our FY, 26 guidance.
After that, we will move to the Q&A, uh, portion of the call and address as many questions as possible within the hour. I now call your attention to slide 3 and Jenny, I will hand it over to you.
Chad, and
the fiscal year, operational excellence was on full display powered by the wind strategy.
We achieved top quartile safety performance with a 20% reduction in our recordable incident rate.
Performance is aligned with our goal to be the safest Industrial company in the world.
Our team delivered record 21 sales of 5.1 billion, organic growth of 5% and 170 basis points of margin expansion. Resulting in 27.4% adjusted segment, operating margin
Adjusted earnings per share, grew 16% and cash flow from operations, with 782 million.
And we completed the acquisition of Curtis instruments.
Next slide, please.
A long-standing practice within Parker is for a Parker leader to personally, welcome the new team at every location.
This slide shows pictures from our day 1 events held around the world welcoming the Curtis team to Parker. This was a great day for all of us and we are thrilled to have Curtis in the Parker portfolio.
Next slide, please.
Obviously we are very proud of the q1 results. Delivered by our team and equally excited about our future. So just a reminder on why we went
First.
The wind strategy is our business system.
We have a decentralized operating structure, 85 divisions run by general managers with full pnl responsibility. Acting like owners close to their customers and executing the win strategy every day.
Next, we have Innovative products that solve customer problems.
85% covered by intellectual property.
Our application Engineers provide the expertise that allows us to have a competitive Advantage with our interconnected technologies that provide efficient solutions for our customers.
And finally,
our distribution network is the Envy of the competition and the best in the world.
It took us over 60 years to build it and it is truly an extension of our engineering teams providing solutions to all of those small to mid-size oems that are participating in capital spending and Investments.
These partners are experts at applying our interconnected technology.
Next slide, please.
Industry. A growing space. Where we continue to gain share?
These 6 Market verticals represent greater than 90% of the company's Revenue.
Our interconnected Technologies cut across these Market verticals and give us a clear competitive advantage.
2/3 of our Revenue comes from customers who buy 4 or more Technologies.
And our growth is focused on faster growing longer, cycle markets, and secular trends.
Next slide, please.
Our presence and the energy Market vertical.
Parker is a significant supplier of products, into heavy duty, gas, turbines used for electrical power generation.
We bring both proprietary designs and world-class manufacturing capabilities.
To offer a comprehensive suite of interconnected technologies.
Parker supports multiple Global industry-leading customers and we are seeing significant growth in this space.
This business is long life, cycle with multi-year, backlogs and durable. Aftermarket.
This is a great example of products and technology that are shared across Aerospace and Industrial markets.
I'll hand it back to Todd to go through our first quarter highlights.
Thank you, Jenny. Uh, this was a great start to the fiscal year. Um, I'm on slide 9 and I will start with the summary of our q1 results. Uh, once again and I I love seeing this every number in the gold column on. This slide is a record. It was just a fantastic quarter where mid single digit sales growth combined, with strong margin expansion. Uh, resulting in a sales were up 4% versus prior, organic growth was positive at plus 5%.
Currency was favorable at 1% and the vestures were 2% unfavorable. Those are the the vestures that we've previously completed and I would just note. This is the last full quarter that we will have a full quarter of what the vesture impact.
Uh, moving to adjusted second operating margins. As Jenny said, we did 27.4%. That's an increase of 170 basis points versus the prior year. Adjusted EBIT margin was 27.3%, which was up 240 basis points, and adjusted net income was $927 million, or an 18.2% return.
First drove, adjusted earnings per share up 16% to reach a record 7.22.
Per share. It was really nice to start the fiscal year uh, with strong quarter across the board. And it gives us confidence for the remainder of the fiscal year. Our Global team members really continue to drive, uh results uh enabled by the power of the wind strategy.
If we could jump the slide 10, you'll see a bridge on the year-over-year, Improvement and adjusted EPS. The majority of our EPS growth came from continued strength across our operations as segments operating income dollars increased by 132 million or 10%.
Uh, that contributed $0.80 to our EPS growth this quarter.
Corporate GNA and other were favorable 18 cents that was primarily due to foreign currency exchange. Uh in the prior period quarter last year, that was unfavorable last year, it created a favorable for this year. Interest expense was also a favorable by 7 cents and that's driven by uh lower average. Debt bounces across the quarter and lowers interest rates across the quarter 10's favorable, and that was driven.
by the discretionary share repurchases that we completed over the last three quarters.
Income tax was unfavorable by 16 cents, and that was really simply due to a few favorable discrete items in the prior period that did not repeat, uh, and that is basically had a really clean bridge to the 16% increase and adjust the EPS. Uh, This Record was really achieved by strong sales growth across the board margin expansion and great, uh, adherence to cost controls across the company.
If we move to slide 11, we'll just talk about the second performance, uh, orders were strong at Plus 8 versus prior year with order race increasing across all reported segments.
Uh organic growth came in at plus 5%. Um, this was the first time in 2 years, we've had positive organic growth across all of our businesses.
As a diversified industrial, organic growth, turned positive, every business, delivered record of tested segment, operating margins, resulting in, great incremental and that 170 basis points of margin expansion.
Uh looking specifically at the Diversified industrial North America businesses sales were over 2 billion dollars with Organic growth positive at 2%. That's the first time in 7. Quarters. North America posted a positive organic growth number that was better than our expectations going into the quarter.
Uh, we continue to seek gradual Improvement across Market, verticals with Positive Growth driven by the Aerospace and defense businesses in industrial North America.
In the implant and Industrial Equipment, vertical and also improving and off Highway that exceeded expectations.
Uh, if you look at North America, they also had 170 basis points of margin expansion and reached a record. 27.0% 7 Operating margin
Uh, that was really driven by higher productivity, some new business wins at at Great margins and uh, margin mix with strong aftermarket.
All those businesses in North America.
Plus 3, uh, versus prior year.
Uh, looking at the Diversified industrial International businesses sales were up. Uh, they were a record of 1.4 billion up 3% versus prior organic growth remained positive at plus 1. Um, looking at Asia, Pacific Asia Pacific. That was our strongest region with a plus 6.
EMA EMA remained down at minus 3 and Latin America was flat versus prior year. So Asia Pac, really drove the uh, outperformance of
growth in the
adjusted segment. Operating margins were also a record at 25.0 that is a 90 basis point improvement from prior year and I can't say this enough our International Teams continue to show a great resilience other driving margin expansion and it's really a great cost controls and they're really uh executing the win strategy to uh to create success.
Uh International orders rebounded, they improved to plus 6 after a flat Q4 both EMA and Asia Pac had positive orders. This
And lastly Aerospace Systems just another exceptional quarter from this group uh sales were a record 1.6 billion, that's an increase of 13%, first prior organic growth uh of 13%. That's the 11th quarter in a row that we've had double digit organic growth for Aerospace. Uh, commercial OEM is the strongest market segments.
Uh, growing 24% versus prior year.
Uh adjusted segment operation uh operating margins increased by 210 basis points and I'm proud to say reached 30% for the first time ever.
Uh, record Topline productivity continued, aftermarket strength, all drove, the margin expansion and Aerospace orders continue to be impressive increasing, plus 15%. Uh, and backlog also reached a new level
Aerospace. Uh, there's just robust demand and that continues to cross all of our arrow and defense markets. It's great to be in the Aerospace business right now.
Uh, if we move the slide 12, uh let's look at our cash flow. Performance cash flow from operations, a record 782 million, that's 15.4% of sales. That's up 5% versus prior year. Free cash flow is 693 million. That is 13.6% of sales that is up 7% versus prior year, a cash flow conversion for the quarter is at 86%. I just want to remind everybody. Uh, I think everyone knows this but our cash flow is historically. Second half weighted. We remain committed to free cash flow conversion of greater than 100% for the year. And lastly on this slide we did uh repurchase 475 million of shares on a discretionary basis within the quarter. Uh that is a wrap on q1. And uh Jenny, I'm going to turn it back to you on slide, 14 and we'll move on to our updated uh fiscal year guides.
Thank you, Todd. This slide shows our updated, uh, fiscal year 26, organic sales growth forecasts by key Market vertical.
In Aerospace.
We're in our forecast from 8% to 9.5%, organic growth. We can continue to see strength and Commercial OEM and aftermarket.
Implant and Industrial Remains the Same. As our initial guidance at positive low, single digit, organic growth, the sentiment does remain positive with continued quoting activity. While customer cap expending remains selected
transportation is our most challenged Market this year forecast stays the same at Mid single digit, organic decline.
We are increasing the up Highway forecast from negative low. Single digits to neutral, we see gradual recovery progress and construction while the a challenges do persist.
We are maintaining energy at positive low single-digit growth with robust power gen activity, offset by oil and gas.
And we are increasing HVAC and Refrigeration from positive low. Single digits to positive mid single digits, we see strength and Commercial Refrigeration and filtration with some nice new business wins with our filtration technology.
As a result of these changes we are increasing our organic sales growth. Guidance from 3% to 4% at the midpoint
Give it back to Todd for some more guidance details. Uh, thanks Jenny. Uh, I'm on 15 with 515 with just some of those details uh in respect to reported sales so we are increasing the range.
Uh, to 4 uh, to 7 or 5 and a half percent. At the midpoint currency is expected to be favorable 1.5 points and that is based on September 30th.
A spot rates. Um, now that we have the uh, acquisition of Curtis closed. We are including uh, sales and uh segment, operating income from Curtis, in our guide, uh, we have added 235 million to our guide for the remainder of the year.
The percent of sales and investors that we've already previously completed are 1% unfavorable.
To organic growth. The forecast is now increase to a range of 2 and a half to 5 and a half or 4.
Percent at the midpoint, uh, we have increased uh, Aerospace organic growth to 9 and a half percent at the midpoint and for the Diversified industrial segment. We have increased North America or organic growth for the year to plus 2.
Uh, and for international we still expect organic growth to be 1% at the midpoint.
Uh, we are raising adjusted 7 Operating margins. So we're raising that 50 basis points to 27.0 for the year. That is now a forecasted increase of 90 basis points for prior year. And incremental are now forecasted to be approximately 40% for the full year. Uh, just a few additional items, corporate GNA is unchanged at 200 million. Um, interest expense has been increased by 30 million, uh, we now expect 420 million for the full year and that is driven solely uh, by the funding of the Curtis acquisition. And other expenses, just slightly up to 90 million uh, from 80 million land.
This quarter.
A full year tax rate, we expect 22 and a half percent. And uh we are raising adjusted uh, earnings per share to an even $30 at the midpoint
Uh, that would be a 10% increase versus prior year. Uh, the range on that EPS is plus or minus 400 cents on.
Each side and the split is 48.52 first half. Second half,
Uh, in respect the full year uh free cash flow. We're also raising our guidance there to a range of 3.1 billion to 3.5 billion, uh, with conversion. Like I said, greater than 100%,
And, uh, finally looking specifically at Q2 for FY, 26, we expect organic growth to be or excuse me. Reported sales, are expected to be 6.5%. Organic growth is expected to be 4%, uh, adjusted segment, operating margins. 26.6
And uh, EPS for the second quarter and an adjusted basis is $7.10.
Uh as usual we have the some additional details in the appendix um and really just in summary FY 26 is off to a great start. Uh that gives us confidence to raise a full year guidance for sales margin Epps and free cash flow.
Uh, with that. Um, I asked you to move to slide 16 and Jenny I'll turn it back to you. Thanks Dad. And a reminder on what D Parker
Safety engagement and ownership are the foundation of our culture. It's our people and living up to our purpose, that drives top quartile performance. It allows us to be great generators and deployers of cash.
All right. Chloe, we are ready to begin the Q&A session. So, um, we'll take, uh, the first first question.
Thank you as a reminder to ask a question. Please press star 1 on your telephone keypad to withdraw, your question, press others can hear your questions. Clearly, we ask that you pick up your handset for best sound quality.
We'll take our first question from.
From Julian Mitchell with Barclays, your line is open.
Hi, good morning. Um
Just, uh, wanted to start off perhaps with the um, organic sales picture in the DI North America business. Um,
Maybe help us understand a little bit better, the Cadence of demand. It did seem to surprise you um positively I think in the quarter. Um you know, how is demand moved there in recent months? And and then when we're looking at the full year guide I think your midpoint for Di North America doesn't embed, uh, any acceleration from the September quarter growth rate. Uh,
Um, just wanted the thinking there.
Good morning, Julian. Um, so, yes, we're we're very pleased with, um, with the
And and came in at a positive too. So um North America performed better than expected with the um Aerospace and defense business that sits inside of our industrial businesses. Um, distribution HVAC, um, and electronics, uh, construction continued to outperform versus our expectations.
Updated for the year, we were looking at a total of of 1%. So, um, you know, as I was just talking about what we saw in q1, we do believe that industrial Aerospace and, and, and defense will remain strong. We're still talking about a fragile implant industrial recovery. Certainly positive sentiment from our distribution Channel continues voting activity is good. Um but as I commented earlier, I'm still customers are being very selective on their projects and their capex spending. Um, we still see Transportation challenged in in automotive and trucks, so we don't expect the truck recovery, this fiscal year. Um, but we will see some benefits from the aftermarket, um, and off Highway gradual recovery, progress and construction, but, but a challenge is still persist
um, Energy power gen robust, but um, oil and gas Upstream,
uh, you know, still weak and um you know we're um
HVAC and Refrigeration. We're coming up a very strong fiscal year, um, and, uh, we have increased that for the, for the rest of the year. So, whilst dropped some markets are increasing, not, all of them are. And, um, that's why we see Q2 pretty much the same as q1, but an increase for for the total year.
Hey, Julian. I I would just add. Um,
Agenda, covered the organic growth piece uh perfectly but I would just add on a margin standpoint. We did increase, um Diversified industrial North America, margins. Uh, 70 basis points for the full year versus our previous guide, so the teams are converting on that. And uh, I have great confidence in telling you,
yeah, and Q2 is, um,
Margin is 150 basis points.
Higher than prior year. Correct?
That's helpful. Thank you and just following up on that last Point perhaps. Um, so understand that you've you've had a, a higher margin performance year on year, for the total company than is guided for the full year. Um, I assume that's just sort of natural conservatism given where early in the year wondered if there was any other factors to think about and Allied to that, your Q2 EPS guide is a decline in sequentially, which is quite unusual in Q2 um, any uh, color on that please.
Well, I think, um, you know, we we left the second half, pretty much alone. So, based on what we see today, we feel we feel really good about Q2 and I think we'll have, you know, we'll have a better line of sight here after the first of the year.
Yeah, Julian Q2 you know sequentially it it usually is our softest uh Top Line.
I think the EPS is just pulling off of that. Um,
Nothing out of the normal.
Great. Thank you.
Thanks.
We'll move next to make dobre with beard. Your line is open.
Thank you for taking the question. Good morning. Um, I uh, would like to uh, talk a little bit about industrial International.
What is there were um, quite good and frankly, better than than what I would have guessed. Um, little bit of update in terms of what you're seeing, um, various geographies
And related to this, if I look at the past 4 quarters um you you know I think your order intake average about 5% so it's quite a bit better than what you have in bed. I didn't know or forward outlook for organic growth. So I'm kind of curious at what point in time. Do we start to see these higher orders, really close to the organic growth in this set.
Good morning, Meg. So, um, you know, with, uh, industrial international orders, should they have been really choppy as we often say. If you go back to our Q3, we had a, we had a +11%, and then Q4 we went, we went flat. And that was because we had some, um, one-time long-cycle orders that didn't repeat in Q4. So,
Asia Pacific, we have, um, positive low, single digit organic growth for the fiscal year.
Um, we continue to see strong electronics, and semiconductors.
Um, implant is mixed as delays continue in China, but we do see some slight growth in India and Japan, um, seeing some Mining and transportation Improvement in China. Um, but I think there's still some continued uncertainty from terrorists across um, this market. So, um, this is what we're seeing today on on uh, industrial internet. I mean, we look forward to the time when this will be a uh a higher organic growth.
Understood.
And my follow-up. And and I don't know if you can answer this question, Jamie. It's kind of in the weeds. You, you talk about the as Market where challenges persist, but, but I do Wonder in terms of your exposure if you sort of separate out the large egg equipment. So, you know, Park horse power factors combines versus midsize and and, and lower Force Power. I'm just wondering kind of what your exposure looks like there because I am starting to see a bit of a Divergence forming where large egg. If you say, it's a challenge but but some of these smaller tractors are are starting to grow in terms of volume.
And the volumes are actually much higher in lower post Power Equipment than large ad. So I'm I'm wondering if this and Market might turn a little bit sooner than um, than maybe we're thinking about when we're thinking about large, add thank you.
You know, when we talked about ad last quarter, you know, I made the comment that we we thought that that that market that kind of hit trough and um you know, I would say it's it's broad-based when we look at egg between that equipment but um, you can certainly follow up with Stefan maybe more details and and 1 of the follow-up calls.
Yeah, the guy was just said, you know, when we look at egg, it's it's, you know, it's 4% of total company sales. So it's just become, you know, a smaller piece of the total pie, it is broad-based. You know, there's aftermarket, there's the OEM side of it. So, um, I don't know if I'd read too much into, um, movements there.
Okay, thank you. We'll take our next question from David Rosso with evercore isi. Your line is open.
Hi. Thank you. Love the organic guide. Raise how much was volume versus a change in price?
And of the 50 bips margin Improvement. Can you give us a sense of how much is that maybe related to the answer to the first question volume Improvement versus maybe price costs different than your originally expected for the year. Thank you.
Good morning. David. Well, as you know, we we don't disclose pricing, um, you know, regardless of pricing, um, or volume. I think that we've shown that we can expand margins pretty much in in any climate we have at 2 years of negative, industrial growth. Um and you know we're seeing the gradual industrial recovery playing out.
With um industrial organic growth. Now positive in q1. So um we're definitely seeing the impact of slightly stronger volume
That's great. Thank you very much, I appreciate it.
Thanks David.
We'll move next to Scott Davis with mis research, your line is open.
Hey, good morning, Jenny and Todd.
Um, I've got to ask about m&a, I'd probably do a lot of quarters, but I'm going to, I'm going to lead with it anyways, because it's been a few years since you closed maggot and
Obviously, they have such a great deal, uh, for you guys. But, uh, Curtis seems like an interesting deal too. It's just not as big as maybe some of those others so, um, can you just update us on your your pipeline and, uh, and such
Too bad. So obviously, we're committed to actively deploying our Capital. Um, and as you mentioned, we did close Curtis instruments in September, and we're really excited about that. Um, and moving forward, the strategy Remains the Same with, um, plenty of optionality. So, um, when it comes to Capital deployment, obviously, we prefer Acquisitions, but it has to be strategic and disciplines. You've heard me talk about this criteria before. Um, and I would tell you that the pipeline, the relationships, and the analysis continues to be very active, um, while sometimes, uh, timing is, is hard to predict we are, we are working it.
And, um, you know, we want to continue to acquire companies where we're the clear best owner.
Um and we, you know, we feel like we have a strong competitive Advantage with our interconnected Technologies and and that's what we want to add to the portfolio. So
Still looking for those deals that are creative to growth.
Resiliency margins, cash flow and eps.
Yes. Um, and as I've said many times before the pipeline has um, deals of all sizes.
May rotra with UBS. Your line is open.
Thanks operator, hi everybody. Um, good. Yeah, still morning. Good morning. Um so uh obviously nice to see the the order Improvement Jenny. Um quick question. Question about, you know, just the um,
The broad basis of that. I mean, are we seeing a broader activity in pickup?
Um, you also want, I think, I think I saw this somewhere. You guys want to large contract to supply components for arridy derivative gas turbines. Um, I'm just trying to get a sense of are we seeing broad-based green shoots here? Or is it mostly explained by the longer cycle Pockets that kind of have been working for a while?
Um, you know, we had the long recycle box.
And we're also seeing.
Verticals. So, when you, when you look at the change that we had in the guide this month, um, we took obviously, we took Aerospace and defense up. We also, um, moved off highway from negative low single digits in neutral and we increased HVAC and Refrigeration from low single digits to, um, positive mid single digits. So, we are seeing some some Pockets, um, within those industrial businesses where we're where we're seeing some growth.
Okay? And, and the other, the other, uh, uh, question I have is on on Aerospace, margins obviously, just really good 1 thing. I noticed is obviously, the incremental margins being so high. Despite OE Revenue up 20%, Which I would imagine would be a little bit mixed dilutive. As as the OE build Cycles continues to improve. Can we talk about? You know what the mix impact is on Aero, margins going forward because it seemed to like, defy gravity in the quarter.
Yeah. Well, you
Did have 51%. Oh.
Margins are very strong in q1. Uh, and we had a nice, a nice uh, bit of spares in q1, which is is really nice margin for us, so that that helped us reach that record. 30%, hit 30% for the first time. Um, going forward. We're very confident in our ability um, to, you know, maintain um, the margins where we've been and and go forward with strong margins. If you look at what we did with the guide, um, we have full year of 29.5%. Now, that's a 100 basis points higher than prior year.
And that was raised 60 basis points from the initial day. Uh, Q2 we're forecasting 29.1% and that's 90 basis points higher um than previous year. So um, we're gonna we're in a good spot with Aerospace. Our teams are doing an excellent job. Um, you know, executing the wind strategy and, um, you know, really benefiting from this volume.
Got it. Okay. Congrats. Thank you, guys. Thank you. I appreciate it.
We'll move next to just spread with vertical research Partners your line is open.
Hey, thank you. Good morning everyone. Um hey can we just cut a little further into the Aerospace and also Jenny, maybe just a little bit of color on kind of how you see the defense side playing out in 2026, versus the commercial side, any change of thinking there?
um, so
Jeff. I'm sorry. What what was you want to dig deeper into Arrow? Especially the best, right? Yeah, yeah, yeah. I want to kind of get a sense of Defense versus commercial mix and how that's playing. And if that's changed versus your initial view. Yeah, you know, we, uh, we came out with, uh, mid single digit growth for both defense OEM and mro. And that's the same we we haven't. Um, we're not forecasting, any change there.
Isn't that great? And then just on on Curtis, um, I think it comes in a bit margin. Deluded. It's not apparent given kind of all the other execution and everything that's going on. But uh, can you just kind of give us a little color on? Um, you know, at the margin rate, it comes in at um, you know, the work you're doing to integrate it and any thoughts on, you know, kind of
You know how it might be positioned in the next year, after you've got a kind of fully digested.
Like that, you know, I mentioned, um, earlier, we... we.
235.
Sales into the guide. Um, you're right. It is, it is slightly diluted, but it's, uh, it's smaller. So, it doesn't really have an impact. You can see, we did raise.
Uh it does add um you know it is EPS accretive in the sub year. Even uh you saw that we added 30 million for interest uh there and you know, it's it's only been a little over a month. Uh the team is super excited about it. Uh Jenny mentioned the welcoming day and uh I could tell you, they're working really hard.
To integrate and make this part of Parker just like we have on the last day deals.
Instead, I would just add that, you know, as Chad said, the integration is well underway. Very similar, we've assembled a dedicated integration leader and a team of high-talent team members. And, you know, this is how we ensure a very smooth integration.
Okay. Thanks, I'll leave it there.
We'll move next to Joe Richie. With Goldman Sachs, your line is open.
Uh Hey guys. Good morning.
Hey, Joe.
Hey, Jenny Andor Todd, is there a way that you could maybe, you know, size the opportunity on slide 7 um or give some color just around. Like what the growth rates would look like, I'm just curious, um, how to think about this business for you guys going forward?
well, um,
I don't think we're in a position to, um, to go over the growth rates. But, you know what's, what's great about this powergen business is that, um,
you know, we we do have this Suite of interconnected Technologies for powergen applications and you can see on that slide all the different examples of the products that we have. Um, and it's just a, a, very robust order book, like I commented multi-year, um, we expect solid growth for years to come
And, um, we're working with all of the leading, um, industry customers. So, uh, while this Market vertical makes up about 7% of our sales and powergen is about half of that. Um, you know, it's it's a small percent overall but a very nice growth area for us. And, um, you know, we expect to not only continue to win in this market, but really benefit from it,
Yeah, so it's great. It's great to see and, um, glad that you guys highlighted it, uh,
The other quick question, I know that um we won't be talking specifically around pricing, but in, in an environment let's say where you do see some of these tariffs uh, potentially getting rolled back. Like, how does that, how does that impact? The, you know, the pricing that you've already put through and then ultimately, you know, is is that another potential boost to margins. If, if we do see some pullback on tariffs,
Well, you know, obviously, as we've talked about tariffs, we we have, um, you know, we have the analytics and the processes to navigate and act quickly up or down, and we've had to do a lot of that over, uh, over the last, uh, you know, several months in the teams have just done a, a fantastic job. So, um, you know, we're
we have a strong muscle when it comes to pricing and to price costs.
And um we'll adjust as we need to. Um, but as I've stated you know, time and time again, we can't, um, you know, use use tariffs as a as a margin expansion device. This is something that we have to recover from a cost standpoint and um you know we'll adjust as we need to going forward.
Okay, great. Thank you.
We'll take our next question. From Joe OD with Wells Fargo. Your line is open.
Hi, good morning, thanks for taking my questions. Um, wanted to start on the the North America implant side of things. And what you're seeing from from customer activity, or what you're hearing from dealers with respect to Greenfield and and Brownfield investment in the US and then around that whether you're getting any color on the the nature of those Investments and kind of local for local or you're seeing more kind of foreign participants looking to invest in the US.
Yeah, I I don't. Um, I don't have the details too much for local for local versus, um, versus foreign investment. But I would tell you, um, you know, my comment earlier about the capex being
Selective. Um, I do believe it. It's still selective, but in the past, you know, we were just talking about delays and delays and and obviously, um, we saw a stronger area there through distribution and implant in q1. So you know we're seeing we're seeing some things get across the line and projects get started. Um but um, I don't have a specific uh breakdown for you. Um, at this time.
Refrigeration and filtration, I think you talked about some nice new winds infiltration. Can you just expand on that a little bit in in terms of kind of verticals? You're serving there um, where you're seeing some of that strength.
Yeah, we've had some nice um filtration wins when it comes to um gas turbines. Um we have some proprietary Technologies, really nice, filtration products.
Um, and the energy Market. Um, and then we've also had um some nice filtration
Um, when on the, um, actually on the mobile side of the business as well. So it's been a, it's been a growth area for our filtration group of this past year.
Great. I appreciate it. Thank you.
For moving next to Christopher. Snider with Morgan Stanley, your line is open.
Thank you. Um so you know obviously North America industrial turned organic uh, positive in the quarter. Um, you know, I'd imagine there's some, you know, benefit of incremental price and it does sound like some of the longer cycle, verticals, kind of help that. But I guess my question is is when you look at North America industrial the more cyclical pieces, you know, do you feel like the cycle is starting to get better?
Uh, yeah, I would definitely say the q1 is is evidence of that, right? And especially those key Market verticals, where we we've increased our outlook for the year. So, um, yes, I would definitely say we're starting to see that.
Yeah, Chris I was just saying that.
About inventory across the channel. And we feel that, um, you know, it's kind of a, at a trough level, um, can't say that we've seen a restocking yet, but, uh, you know, it feels like, uh, we're closer to that than going the other direction.
Yeah, no happy to hear that. Um, you know, you talked about implant um you know as being you know 1 of the industrial verticals doing well showing momentum, you know I you know do you have any color um to to provide on how that business did in the US versus the international markets just to get a sense of um you know some of the policy is driving activity into the us, thank you.
Um, you know, in um, in North America. Um, you know, as I commented before it's a gradual implant industrial recovery. Um, but as uh, tie was just saying it. Although we don't see restocking yet. We still have that very positive sentiment from our distribution Channel. Um, and a lot of a lot of quoting activity.
um, when we talk about, um, Amia
Um, it's you know it's still some uncertainty that remains. So we're we're expecting a slow implant industrial recovery. Um, when we look to Asia Pacific, um, it's kind of mixed delays continue in China but there's been some growth in, in India, in Japan.
Thank you, I appreciate that.
We'll take our next question from Jeff Hammond with keybanc capital markets.
Your line is open.
Hey, good morning. Um maybe just uh you know and at the analyst day you called out Data Center and I know you know, clearly powergen probably benefiting from that but maybe just update us on on what you're seeing, on the liquid cooling side. Clearly, you know, we're seeing some pretty mind-boggling, uh, order rates from certainly peers, you know, Etc.
I did not yet large enough for us to call it its own Market vertical, it's it still makes up less than 1% of our sales.
But again.
You know, this is this is something. Um, what I feel is unique about about Parker and it's these interconnected Technologies and its competitive Advantage. Um, we can provide Great Value to our customers in this space. Um, you know, we have the products that they need for the data center Cooling, and, you know, we have been working with all the industries here. So um, our ability to provide liquid cooling systems and subsystem components is really giving us. I think um a nice position here.
Okay, and just a couple housekeeping, um, 1 on the Curtis Revenue, can you give us a split between uh, North American International kind of how that flows through the 2 segments and then just, you know, you've been more active on buyback. I'm assuming the guy doesn't
Build in any more buyback but but correct me if I'm wrong.
yeah, I'll I'll
um, you know, the sales display
The 50/50, North America international. Um I think we'll refine that as we uh get further on in the integration process but right now it's kind of how we're modeling it.
Uh, net debt to adjust to leave it up 1.8, you know, so we're well below our, our Target of 2 that's even after funding um the Curtis transaction.
Um we haven't forecasted any additional uh you heard Jenny talked about the pipeline. So we're it's always a balance of actionability and timing on that.
uh, but I would just restate with Jenny set where where, uh,
We're going to be active when it comes to uh deploying the balance sheet.
Okay, great. Thanks.
Move next.
To Andrew Ovis with Bank of America. Your line is open,
I guess. Good morning Andrew.
um, just a follow-up on, you know, all these exciting, new verticals, uh, Power, uh, AI
Is there any thoughts, you know, how do you think about a available capacity at your technology portfolio to RAM and expand your presence in these markets over the next several years? How much room is there to sort of grow organically or full bolt ons? Targeting these specific uh high growth verticals that are seemingly new versus where we work for the past decade.
Yeah, good question, Andrew. So we, um, obviously, as I was saying, we've been working with, you know, some of the, um, the names, everybody would recognize when it comes to to Data Centers. And we've been working very closely with them globally. Um, to understand the capacity that is needed for our products. And it's, um, you know, it's another good example of how having this Global footprint, really helps us, because we can partner with these customers in, uh, in the regions where they need us, um, in some cases, um, you know, we can add chip shifts and add capacity. Um, and in other cases, there's, you know, some, some other, uh, capacity increases that we'll have to do, but but nothing of, um, significant expense or, or nothing that, um, doesn't have a have a real nice return to it. So constantly evaluating it, um, and making sure that we're staying, um, a bit ahead of it as we always do. Um, so we can, um, really give them a a good delivery and quality experience.
As we're sort of sitting at the bottom of the cycle, uh, how do you think about, you know, the ramp over the next couple of years and specifically labor availability? Uh, that needs to frame the labor in any sort of inefficiency as we go from multiple years of limited, no growth to actually growing. How do we make sure that the ramp is smooth? Thank you.
Yeah. Well, we we rely heavily on, um, you know, our tools sitting inside of the Parker lean system and, and on our, uh, you know, our culture of Kaizen. Um, you know, that's where we really do get a lot of our efficiency improvements. And um, the way that we, that we work with kaisan and the way that we work with our teams, we establish, you know, how our production lines, how our assembly cells can, um, operate at different volumes and what that takes from a labor standpoint or or flexing at other other areas of the fact, uh, the factory. So in many cases, um, we've been able to do that with with without adding team members and in other cases, you know, we will add team members as needed, but we, um, you know, we put a lot of energy into onboarding and training new team members and I think we have some really, really robust programs when it comes to that. So, um, I think we're in a good position.
You know, Andrew this is this is Todd, I would just add, you know, we we did bump up our capex.
Uh, forecast for the year, you know, that's higher than we've been historically. A lot of that is going towards automation safety, related items, uh, capacity in certain regions were needed,
So, um, we are, uh, I think we're being thoughtful about it, and I think we are obviously preparing for growth.
Thank you very much.
We'll take our next question from Nicole diblasi with Deutsche Bank. Your line is open,
Yeah, thanks. Good morning guys. Morning. Nicole
Just maybe circling back to, you know, the really impressive Aerospace margin performance this quarter. Um, if we kind of look at what you guys are forecasting for the rest of the year, there is a bit of, you know, a step down versus the 30%. And I know that's a really, you know, robust result. But is that just because of the mix within the mix with what you said, Jenny, around spares shipments?
All right, if Nicole. So you know, okay.
for um,
Q2, we have margins at 29.1% for Aerospace, which is a 90 basis point increase.
Okay, perfect, that makes sense. And, um, the incremental stepping up to 40% is also really good to see. I know kind of the previous long-term target of what's baked into the longer-term 2029 targets is closer to 35%. Could this possibly be a new norm for Parker, given how strong margin performances are, or do you still think it's best for us to kind of anchor to the 35% or so in forward years?
Yeah, Nicole. This is Todd, you know. Um, I'm glad to see those incremental. They're very, uh, are very much impressive, uh, as you know, they're not easy to get. There's a lot of work around the globe that happens to to turn out these great results. Um, you know, sometimes it's a little easier when the, uh, when the sales are, you know, the math Works. A little funny, when the, when the sales growth is not enormous.
Um, but you know, you've seen our margin. Expands you've seen uh our Evita expand. Um, but as far as what we hold our team to, uh we model that 30 to 35% of course it. Varies depending on where you're at in the cycle, um, but I don't think we're ready to change that. Uh, that guy should
Understood. Thanks Tom. I'll pass it on.
We'll take our next question. From Brett Lindsay with Mizuho, your line is open.
Hey, good morning. Um, first question, just on construction. So you noted, the gradual recovery is is this predominantly the mro piece of that business? Are you beginning to see a little bit of loading from oems as they're seeing some dealer increases?
I think it's, uh, it's both.
A little bit of both. Okay, a little bit about um, yeah. And then just to follow up on that, that last question regarding the fiscal 29 Target. So the adjusted op Target was was 27%. The top end of the guy this year is, is 27%. So basically got their 3 years early. Should we think of this year as the new bouncing off point um and you're comfortably marching above that or is there something about mix or discretionary costs that might need to come back. Well, you know, listen, we're we're really um, pleased to see what the the team was able to accomplish in q1 and, um, very happy to be able to increase our organic growth. Forecasts Outlook, from from 3, to 4 percent. Um, you know, we do, uh, we do still have some markets that need to recover. Um, and, you know, we think that um, what we have out there in the guide right now, reflects what we see today,
Um, obviously we could not have achieved this 27% adjusted operating margin without.
Um, the hard work and dedication of our team. But just a reminder, with the FY29 targets, um, adjusted operating margin is not the only target, and we're focused on achieving all five of those targets. Um, there's still work to do there, but we're confident we're going to get there.
All right, thanks a lot.
Thanks Brett.
We'll take our next question, from Nigel Cully, with wolf research, your line is open.
Thanks. Good morning. It's, uh, it is so good morning. Um, we've got a lot of ground to cover, uh, but I did want to go back to the error margins. And I'm actually wondering, is there a way to think about Legacy, Parker error margins, and nuggets? And, uh, the third question is, I'm trying to judge how much more runway there might be, uh, to operationalize, uh, you know, the makeup margins.
And as you know, this is Todd. Um,
You know that integration has gone unbelievably well. Uh, we have certainly um,
made that part of the Parker operating strategy. It is really hard to tell the difference between the Legacy margins now and the mega margins now. Um, a lot of the synergies I really came from, uh,
Across the group.
Um and you know quite honestly that's not the way we're really running the the company. Now it's not part of nugget and Parker Aerospace is Parker Aerospace.
Um, I would tell you they're both Stellar, you know, hitting 30 for the first time. Um, it was a equal parts of both.
And um, you know, we've got a very bright future there. Yep. I think that's the right answer, by the way. Um, and then I'm going back to palen. Um, I think Jenny mentioned or maybe, maybe, as you tell it to roughly half of that 7% is, is powin. So I'm actually curious, you know, when would you think about, you know, breaking it out as a separate reportable sub segments. Um, it seems to be getting to the same sort of size as HVAC, so just just curious on that and then, uh, any more cuddly, you can provide on the exposures. And then, I'm, I'm curious the heavy duty exposure versus the, uh, the arrows, uh, and, and maybe some of the smaller gas turbines. Um, sorry for the detail. But but it'd be interesting to know that
No, the difference. Oh, you know, um,
Um, we don't look at the, at the percentage on the market verticals as to when we can break out some, some sub segments, we haven't gotten that far yet. Um, so I I really don't uh, have a number in my, where it would become its own Market vertical. Um, obviously we're very bullish about the future of powergen, um, so it's something we continue to evaluate but um, you know, energy is um, you know, an area, all all types of energy we think, um, belongs together. So, um, no no real plans to break that out yet. Um, and I would say, you know, maybe in a, in a follow-up with Jeff, you could look at some of the uh, the other details that you were asking for, but I don't have that available for you right now. Sounds good thanks.
We'll move next to Nathan Jones with Steve. Your line is open.
Good morning everyone. Good morning morning. Uh oh, got a quick follow up on the gas tub in business. If I remember correctly, many years ago um probably after numerous a decade ago, the the OEM margins on. At least some of the components that went into the gas serving. Business were pretty low and the aftermarket margins were pretty high just wondering if that's still the case. And, you know, that might be a little bit of a drag as, as the OAS out of that ramps up or if that Dynamics changed over the last decade,
Yeah, this is Todd, you know. Um, when you go back and try to compare Parker to a decade ago, it's very difficult. You know, it's a totally different company. The margin expansion is significant, uh, you see that?
Every 1 of these businesses have been part of that uh margin expansion. Uh we still have the the mix between aftermarket and OEM margins. I would say that that that that's probably always going to be like that.
Uh, there's nothing here in Powergen that dramatically sticks out that, um, you know, it's lower than the rest of the OEMs.
Fair enough. And then I had one follow-up on Mig's question earlier on the, uh, the longer cycle industrial international laws.
Any color you can give us around what drove those, and they were maybe.
Four key last year that they came in, and Jenny was giving us some cadence on how that doesn't trade in, I guess, to revenue this year. But any color you can give us on when that starts to contribute to growth in international? Thanks.
so the, uh,
The longer cycle orders that we had in Q3, I believe, were in our engineered materials business. And, you know, that lumber cycle could be anywhere from 6 to 12 months. I don't have the details committed to memory on exactly what those were, but they did not repeat in Q4. So, longer cycles and longer demand are anywhere between 6 and 12 months.
Thanks for taking the questions.
For maybe 1 quick.
Absolutely, we'll take our last question. From Andy Kapow with City. Your line is open.
Hey, good morning guys. Uh thank you for changing in here. Uh this is actually Jose on for Andy um, you know, maybe to wrap it up. Uh you've talked in the past about Mega projects and how, you know, they could potentially impact Parker curious. If you could talk about, how customers are are moving forward with the mega projects, what are you guys listening uh, from your Distributors? And how are you approaching that trade-off? Between there's still a lot of larger projects out there, you know, versus uh, somewhat still uncertain, macro environments.
Talking about, um, you know, our distribution channel and how they serve all those small to mid-size OEMs on, um, capital investments and CapEx. Those definitely are those mega projects. So, um, we still see a very large amount of them out there. Um, we still do hear, you know, that there are delays, but there's obviously some of these that, you know, are starting to, um, to kick off, and they're mainly focused on, um, you know, customers looking for productivity and efficiency. And that's what we're hearing from our channel that supports those customers.
Um, that's where we believe most of that is happening today.
Thanks for the time.
Thank you.
Uh, Chloe, I think we're running out of time. So, um, this concludes our FY 26 Q1 earnings release webcast.
This concludes today's call, we appreciate your participation. You may disconnect at any time and have a wonderful afternoon.