Parker-Hannifin Q2 2026 Parker-Hannifin Corp Earnings Call | AllMind AI Earnings | AllMind AI
Q2 2026 Parker-Hannifin Corp Earnings Call
Todd Leombruno: ...And then we'll move on to Q&A, and we'll try to address as many questions as possible within the hour. We know it's a busy day to everyone, so we will stick to the one-hour time slot. Now, I call your attention to slide number three, and Jenny, I'll hand it over to you.
Todd Leombruno: ...And then we'll move on to Q&A, and we'll try to address as many questions as possible within the hour. We know it's a busy day to everyone, so we will stick to the one-hour time slot. Now, I call your attention to slide number three, and Jenny, I'll hand it over to you.
Speaker #1: And then we'll move on to Q&A, and we'll try to address as many questions as possible within the hour. We know it's a busy day for everyone, so we will stick to the one-hour time slot.
Speaker #1: Now, I call your attention to slide number three, and Jenny, I'll hand it
Speaker #1: over to you. Thank you, Todd.
Jennifer Parmentier: Thank you, Todd, and thank you to everyone for attending the call today. Q2 was another great quarter, where our team and our strategy demonstrated our ability to compound performance. We achieved top-quartile safety performance with an 8% reduction in our recordable incident rate. This performance is aligned with our goal to be the safest industrial company in the world. Our team delivered record Q2 sales of $5.2 billion, organic growth of 6.6%, and 150 basis points of margin expansion, resulting in 27.1% adjusted segment operating margin. Adjusted earnings per share grew 17%, and cash flow from operations was $1.6 billion. In the quarter, we announced the acquisition of Filtration Group Corporation. Moving to slide 4. Many of you on the call today have seen this slide before. Why we win.
Jennifer Parmentier: Thank you, Todd, and thank you to everyone for attending the call today. Q2 was another great quarter, where our team and our strategy demonstrated our ability to compound performance. We achieved top-quartile safety performance with an 8% reduction in our recordable incident rate. This performance is aligned with our goal to be the safest industrial company in the world. Our team delivered record Q2 sales of $5.2 billion, organic growth of 6.6%, and 150 basis points of margin expansion, resulting in 27.1% adjusted segment operating margin. Adjusted earnings per share grew 17%, and cash flow from operations was $1.6 billion. In the quarter, we announced the acquisition of Filtration Group Corporation. Moving to slide 4. Many of you on the call today have seen this slide before. Why we win.
Speaker #2: And thank you to everyone for attending the call today. Q2 was another great quarter where our team and our strategy demonstrated our ability to compound performance.
Speaker #2: We achieved top quartile safety performance with an 8% reduction in our recordable incident rate. This performance is aligned with our goal to be the safest industrial company in the world.
Speaker #2: Our team delivered record Q2 sales of $5.2 billion, organic growth of 6.6%, and 150 basis points of margin expansion, resulting in a 27.1% adjusted segment operating margin.
Speaker #2: Adjusted earnings per share grew 17%, and cash flow from operations was $1.6 billion. And in the quarter, we announced the acquisition of Filtration Group Corporation.
Speaker #2: Moving to slide four. Many of you on the call today have seen this slide before—why we win. The win strategy is our business system.
Jennifer Parmentier: The Win Strategy is our business system. We have innovative products that solve customer problems. Our application engineers provide the technical expertise that creates a competitive advantage, and our distribution network serves global aftermarket and small to mid-sized OEMs. Today, I would like to highlight the interconnected technologies that provide efficient solutions for our customers across all of our market verticals. I'm on slide 5 now. We have the No. 1 position in the $145 billion motion and control industry, a growing space where we continue to gain share. These 6 market verticals represent greater than 90% of the company's revenue. We have a focused portfolio, creating distinct value for our customers. Our powerhouse of interconnected solutions cuts across these market verticals and gives us a clear competitive advantage.
The Win Strategy is our business system. We have innovative products that solve customer problems. Our application engineers provide the technical expertise that creates a competitive advantage, and our distribution network serves global aftermarket and small to mid-sized OEMs. Today, I would like to highlight the interconnected technologies that provide efficient solutions for our customers across all of our market verticals. I'm on slide 5 now. We have the No. 1 position in the $145 billion motion and control industry, a growing space where we continue to gain share. These 6 market verticals represent greater than 90% of the company's revenue. We have a focused portfolio, creating distinct value for our customers. Our powerhouse of interconnected solutions cuts across these market verticals and gives us a clear competitive advantage.
Speaker #2: We have innovative products that solve customer problems. Our application engineers provide the technical expertise that creates a competitive advantage. And our distribution network serves global aftermarket and small to mid-size OEMs.
Speaker #2: Today, I would like to highlight the interconnected technologies that provide efficient solutions for our customers across all of our market verticals. I'm on slide five now.
Speaker #2: We have the number one position in the $145 billion motion and control industry—a growing space where we continue to gain share. These six market verticals represent greater than 90% of the company's revenue.
Speaker #2: We have a focused portfolio creating distinct value for our customers. Our powerhouse of interconnected solutions cuts across these market verticals, and gives us a clear competitive advantage.
Speaker #2: Two-thirds of our revenue comes from customers who buy four or more technologies. And our growth is focused on faster-growing, longer-cycle markets and secular trends.
Jennifer Parmentier: 2/3 of our revenue comes from customers who buy four or more technologies, and our growth is focused on faster-growing, longer-cycle markets and secular trends. Moving to slide 6. On this slide, I would like to highlight how our interconnected technologies come to life in the off-highway market vertical. Parker is a market-leading provider of highly engineered solutions for equipment used in construction, agriculture, and mining applications. Our comprehensive offering of interconnected technologies, deep application expertise, and embedded engineering relationships with OEMs are key to our success. We win with innovative and differentiated product technology, subsystems, and full system capabilities designed to increase the capability and productivity of our customers. Our global footprint allows for in-region delivery and expertise for OEMs, and our extensive distribution network provides aftermarket support for end users. I'm now on slide 7. We are making continued progress on the Filtration Group acquisition.
2/3 of our revenue comes from customers who buy four or more technologies, and our growth is focused on faster-growing, longer-cycle markets and secular trends. Moving to slide 6. On this slide, I would like to highlight how our interconnected technologies come to life in the off-highway market vertical. Parker is a market-leading provider of highly engineered solutions for equipment used in construction, agriculture, and mining applications. Our comprehensive offering of interconnected technologies, deep application expertise, and embedded engineering relationships with OEMs are key to our success. We win with innovative and differentiated product technology, subsystems, and full system capabilities designed to increase the capability and productivity of our customers. Our global footprint allows for in-region delivery and expertise for OEMs, and our extensive distribution network provides aftermarket support for end users. I'm now on slide 7. We are making continued progress on the Filtration Group acquisition.
Speaker #2: Moving to slide six. On this slide, I would like to highlight how our interconnected technologies come to life in the off-highway market vertical. Parker is a market-leading provider of highly engineered solutions for equipment used in construction, agriculture, and mining applications.
Speaker #2: Our comprehensive offering of interconnected technologies, deep application expertise, and embedded engineering relationships with OEMs are key to our success. We win with innovative and differentiated product technology, subsystems, and full system capabilities designed to increase the capability and productivity of our customers.
Speaker #2: Our global footprint allows for in-region delivery and expertise for OEMs, and our extensive distribution network provides aftermarket support for end users. I'm now on slide seven.
Speaker #2: We are making continued progress on the Filtration Group acquisition. Integration planning is underway using our proven integration playbook. We expect to close in 6 to 12 months from our November announcement date.
Jennifer Parmentier: Integration planning is underway using our proven integration playbook. We expect to close in 6 to 12 months from our November announcement date. This is a great company with a great culture, and we really look forward to welcoming everyone to the Parker team. The acquisition of Filtration Group adds complementary and proprietary technologies for critical applications while expanding our presence in life sciences, HVAC and refrigeration, and in-plant industrial market verticals. The combination of Parker Filtration and Filtration Group creates one of the largest global industrial filtration businesses and increases Parker Filtration aftermarket sales by 500 basis points. We will leverage our business system, the Win Strategy, to achieve approximately $220 million in cost synergies, and we expect this deal to meet our disciplined acquisition criteria of being accretive to organic growth, synergize EBITDA margin, adjusted EPS, and cash flow.
Integration planning is underway using our proven integration playbook. We expect to close in 6 to 12 months from our November announcement date. This is a great company with a great culture, and we really look forward to welcoming everyone to the Parker team. The acquisition of Filtration Group adds complementary and proprietary technologies for critical applications while expanding our presence in life sciences, HVAC and refrigeration, and in-plant industrial market verticals. The combination of Parker Filtration and Filtration Group creates one of the largest global industrial filtration businesses and increases Parker Filtration aftermarket sales by 500 basis points. We will leverage our business system, the Win Strategy, to achieve approximately $220 million in cost synergies, and we expect this deal to meet our disciplined acquisition criteria of being accretive to organic growth, synergize EBITDA margin, adjusted EPS, and cash flow.
Speaker #2: This is a great company with a great culture, and we really look forward to welcoming everyone to the Parker team. The acquisition of Filtration Group adds complementary and proprietary technologies for critical applications, while expanding our presence in life sciences, HVAC and refrigeration, and important industrial market verticals.
Speaker #2: The combination of Parker Filtration and Filtration Group creates one of the largest global industrial filtration businesses and increases Parker Filtration aftermarket sales by 500 basis points.
Speaker #2: We will leverage our business system, the win strategy, to achieve approximately $220 million in cost synergies and we expect this deal to meet our disciplined acquisition criteria of being accretive to organic growth, synergize EBITDA margin, adjusted EPS, and cash flow.
Speaker #2: This strategic transaction continues our investment in high-quality businesses that continue to transform our portfolio and accelerate sales growth, improve profitability, and drive shareholder value.
Jennifer Parmentier: This strategic transaction continues our investment in high-quality businesses that continue to transform our portfolio, accelerate sales growth, improve profitability, and drive shareholder value. Moving to slide 8. Clarkor, Lord, Exotic, and Meggitt have been a big part of our transformation. Curtis is still early days, and as I just mentioned, we are very excited about Filtration Group. Over the time period you see on this slide, we have compounded EPS at 16%, and approximately 60% of this has come from the Win Strategy and our legacy businesses, while approximately 40% has come from the acquisitions. The acquisition of Filtration Group will continue our track record of accretive acquisitions. I'll turn it back to Todd to review the Q2 highlights.
This strategic transaction continues our investment in high-quality businesses that continue to transform our portfolio, accelerate sales growth, improve profitability, and drive shareholder value. Moving to slide 8. Clarkor, Lord, Exotic, and Meggitt have been a big part of our transformation. Curtis is still early days, and as I just mentioned, we are very excited about Filtration Group. Over the time period you see on this slide, we have compounded EPS at 16%, and approximately 60% of this has come from the Win Strategy and our legacy businesses, while approximately 40% has come from the acquisitions. The acquisition of Filtration Group will continue our track record of accretive acquisitions. I'll turn it back to Todd to review the Q2 highlights.
Speaker #2: Moving to slide eight. Parker Lord Exotic and Megat have been a big part of our transformation. Curtis is still early days, and as I just mentioned, we are very excited about Filtration Group.
Speaker #2: Over the time period you see on this slide, we have compounded EPS at 16%, and approximately 60% of this has come from the Win Strategy and our legacy businesses.
Speaker #2: While approximately 40% has come from the acquisition. The acquisition of Filtration Group will continue our track record of accretive acquisitions. I'll turn it back to Todd to review the second quarter.
Speaker #2: highlights. Oh, thank you, Jenny.
Todd Leombruno: Thank you, Jenny. This was another strong quarter of record performance. I'm on slide 10, and we'll start with just a summary of the Q2 results. We are proud to have once again set new records for sales, adjusted segment operating margin, EBITDA, net income, and EPS. Sales were up 9% versus prior. Organic growth was positive at nearly 7%. Currency was favorable 2%. Acquisitions were favorable by 1.5%, and divestitures were a 1% headwind. Just to note, it's been now 12 months since we've completed those divestitures. This was the last quarter that we will have a divestiture adjustment going forward. Moving on to margins. Segment operating margin was 27.1%. That is up 150 basis points from prior year.
Todd Leombruno: Thank you, Jenny. This was another strong quarter of record performance. I'm on slide 10, and we'll start with just a summary of the Q2 results. We are proud to have once again set new records for sales, adjusted segment operating margin, EBITDA, net income, and EPS. Sales were up 9% versus prior. Organic growth was positive at nearly 7%. Currency was favorable 2%. Acquisitions were favorable by 1.5%, and divestitures were a 1% headwind. Just to note, it's been now 12 months since we've completed those divestitures. This was the last quarter that we will have a divestiture adjustment going forward. Moving on to margins. Segment operating margin was 27.1%. That is up 150 basis points from prior year.
Speaker #3: This was another strong quarter of record performance. I'm on slide 10, and we'll start with just a summary of the Q2 results. We are proud to once again set new records for sales.
Speaker #3: Adjusted segment operating margin, EBITDA, net income, and EPS. Sales were up 9% versus prior, organic growth was positive at nearly 7%. Currency was favorable 2%.
Speaker #3: Acquisitions were favorable by 1.5%. And divestitures were a 1% headwind. Just to note, it's been now 12 months since we've completed those divestitures. This was the last quarter.
Speaker #3: That we will have a divestiture adjustment going forward. Moving on to margins, segment operating margin was 27.1%. That is up 150 basis points from prior year.
Speaker #3: Adjusted EBITDA margin was 27.7%. That's an increase of 90 basis points from the prior year. Net income was $980 million, which is an 18.9% return on sales—just fantastic ROS performance.
Todd Leombruno: Adjusted EBITDA margin was 27.7%. That's an increase of 90 basis points from prior year. Net income was $980 million. That's 18.9% return on sales. Just fantastic ROS performance. Lastly, adjusted earnings per share were $7.65. That's up 17% versus prior year. When you look at the quarter, this was just another quarter in which our team delivered high single-digit sales growth, solid margin expansion, and all of that resulted in mid-teens EPS growth. We do remain confident that we're gonna be able to deliver another record fiscal year in 2026. If we move to slide 11, this just displays the walk on adjusted EPS. You can see it was a clean quarter that delivered that 17% increase in adjusted EPS.
Adjusted EBITDA margin was 27.7%. That's an increase of 90 basis points from prior year. Net income was $980 million. That's 18.9% return on sales. Just fantastic ROS performance. Lastly, adjusted earnings per share were $7.65. That's up 17% versus prior year. When you look at the quarter, this was just another quarter in which our team delivered high single-digit sales growth, solid margin expansion, and all of that resulted in mid-teens EPS growth. We do remain confident that we're gonna be able to deliver another record fiscal year in 2026. If we move to slide 11, this just displays the walk on adjusted EPS. You can see it was a clean quarter that delivered that 17% increase in adjusted EPS.
Speaker #3: And lastly, adjusted earnings per share were $7.65. That's up 17% versus the prior year. When you look at the quarter, this was just another quarter in which our team delivered high single-digit sales growth, solid margin expansion, and all of that resulted in mid-teens EPS growth.
Speaker #3: We do remain confident that we're going to be able to deliver another record fiscal year in 2026. If we move to slide 11, this just displays the walk on adjusted EPS.
Speaker #3: You can see it was a clean quarter. That delivered that 17% increase in adjusted EPS. Segment operating margin continues to be the main driver of our EPS growth.
Todd Leombruno: Segment operating margin continues to be the main driver of our EPS growth. Dollars increased by $190 million or 16%. That added $1.15 of our EPS growth. Share count was $0.16 favorable, and it was really driven by the discretionary share repurchases that we completed over the last four quarters. Corporate G&A and income tax were favorable by just $0.01. Other was unfavorable by $0.18. That's really primarily due to foreign currency exchange that happened in the prior year period. That did not happen this year. That was a prior year period item. Interest is just slightly unfavorable by $0.03, and that is driven by just slightly higher average debt balance that was offset slightly by lower interest rates.
Segment operating margin continues to be the main driver of our EPS growth. Dollars increased by $190 million or 16%. That added $1.15 of our EPS growth. Share count was $0.16 favorable, and it was really driven by the discretionary share repurchases that we completed over the last four quarters. Corporate G&A and income tax were favorable by just $0.01. Other was unfavorable by $0.18. That's really primarily due to foreign currency exchange that happened in the prior year period. That did not happen this year. That was a prior year period item. Interest is just slightly unfavorable by $0.03, and that is driven by just slightly higher average debt balance that was offset slightly by lower interest rates.
Speaker #3: Dollars increased by $190 million, or 16%. That added $1.15 of our EPS growth. Share count was $0.16 favorable. That was really driven by the discretionary share repurchases that we completed over the last four quarters.
Speaker #3: And corporate G&A and income tax were favorable by just one penny. Other was unfavorable by 18 cents. That's really primarily due to foreign currency exchange that happened in the prior year period that did not happen this year.
Speaker #3: That was a prior period item. And interest is just slightly unfavorable by $0.03, and that is driven by just slightly higher average debt balance that was offset slightly by lower interest rates.
Speaker #3: The adjusted EPS is 7.65 as a record, and it's really driven by strong growth and great margin expansion. I really commend our team members around the world for just stellar operating performance across the company.
Todd Leombruno: The adjusted EPS of $7.65 is a record, and it's really driven by strong growth and great margin expansion. I really commend our team members around the world for just stellar operating performance across the company, and it's a pleasure to be able to share these results. If we go to slide 12, let's take a look at the segments. Starting with orders for the company. Orders were +9% versus prior year, and a positive note is order rates were positive in all of our reported businesses. Backlog increased to a record $11.7 billion. This was another quarter of strong incrementals for the company that created the record margins across the board, and that's 150 basis points of margin expansion. Really nice to see.
The adjusted EPS of $7.65 is a record, and it's really driven by strong growth and great margin expansion. I really commend our team members around the world for just stellar operating performance across the company, and it's a pleasure to be able to share these results. If we go to slide 12, let's take a look at the segments. Starting with orders for the company. Orders were +9% versus prior year, and a positive note is order rates were positive in all of our reported businesses. Backlog increased to a record $11.7 billion. This was another quarter of strong incrementals for the company that created the record margins across the board, and that's 150 basis points of margin expansion. Really nice to see.
Speaker #3: It's a pleasure to be able to share these results. If we go to slide 12, let's take a look at the segments. Starting with orders for the company, very strong—orders were plus 9% versus prior year.
Speaker #3: And a positive note is, order rates were positive in all of our reported businesses. Backlog increased to a record $11.7 billion. This was another quarter of strong incrementals for the company that created the record margins across the board.
Speaker #3: And that's 150 basis points of margin expansion. Really nice to see. If we look at North America, sales were approximately $2 billion. Organic growth was positive of 2.5.
Todd Leombruno: If we look at North America, sales were approximately $2 billion. Organic growth was positive 2.5%. That was slightly better than our expectations. The slightly better was driven by strength in off-highway and the aerospace and defense verticals in the North American businesses. Adjusted operating margins reached a record 25.4%. That is up 80 basis points from prior year, with incrementals of 52%. Orders in North America took a big jump and increased to +7% compared to the prior year. A notable driver there were a few multiyear aerospace and defense orders within those North American businesses. Nice quarter for the North American businesses. International sales were up to a record $1.5 billion. That's up 12% versus prior year.
If we look at North America, sales were approximately $2 billion. Organic growth was positive 2.5%. That was slightly better than our expectations. The slightly better was driven by strength in off-highway and the aerospace and defense verticals in the North American businesses. Adjusted operating margins reached a record 25.4%. That is up 80 basis points from prior year, with incrementals of 52%. Orders in North America took a big jump and increased to +7% compared to the prior year. A notable driver there were a few multiyear aerospace and defense orders within those North American businesses. Nice quarter for the North American businesses. International sales were up to a record $1.5 billion. That's up 12% versus prior year.
Speaker #3: That was slightly better than our expectations. The slightly better was driven by strength in off-highway and the aerospace and defense verticals in the North American businesses.
Speaker #3: margins reached a record Adjusted operating 25.4%. That is up 80 basis points from prior year with incrementals of 52%. And orders in North America took a big jump and increased to plus 7 compared to the prior year.
Speaker #3: And a notable driver there were a few multi-year aerospace and defense orders within those North American businesses. Nice quarter for the North American businesses.
Speaker #3: International sales were up to a record $1.5 billion. That's up 12% versus the prior year. Organic growth for the quarter was 4.6% in the international businesses.
Todd Leombruno: Organic growth for the quarter was 4.6 in the international businesses. In Asia Pacific, organic growth was the strongest at +9, and Europe turned positive in the quarter to +2. We were really glad to see Europe turn positive. Latin America is just down slightly, 3% versus prior year. It was really a positive to see Europe turn to positive organic growth. We were glad for that team to see that finally make the turn. When you look at margins, a record was achieved, 26% margins in the international businesses. That's up 190 basis points from prior year. And that margin expansion came from great improvements in productivity and just solid operational execution across all of those businesses.
Organic growth for the quarter was 4.6 in the international businesses. In Asia Pacific, organic growth was the strongest at +9, and Europe turned positive in the quarter to +2. We were really glad to see Europe turn positive. Latin America is just down slightly, 3% versus prior year. It was really a positive to see Europe turn to positive organic growth. We were glad for that team to see that finally make the turn. When you look at margins, a record was achieved, 26% margins in the international businesses. That's up 190 basis points from prior year. And that margin expansion came from great improvements in productivity and just solid operational execution across all of those businesses.
Speaker #3: In Asia PAC, organic growth was the strongest at plus 9. And Europe turned positive in the quarter to plus 2. We were really glad to see Europe turn positive.
Speaker #3: And Latin America is just down slightly, 3% versus prior year. It was really a positive to see Europe turn to positive organic growth. We were glad for that team to see that finally make the turn.
Speaker #3: When you look at margins, a record was achieved: 26% margins in the international businesses. That's up 190 basis points from the prior year. And that margin expansion came from great improvements in productivity.
Speaker #3: And just solid operational execution across all of those businesses. Orders improved in the international businesses to plus 6%, with positive orders both in Europe and Asia PAC.
Todd Leombruno: Orders improved in the international businesses to +6%, with positive orders both in Europe and Asia Pacific. Nice quarter for the international team. And lastly, aerospace continues to perform exceptionally well. Sales for the quarter were a record $1.7 billion. That's up 14.5% versus prior year. Organic growth was 13.5%, and that was driven by great strength in the commercial markets, both OEM and aftermarket. Margins are up significantly. Adjusted segment operating margin increased by 200 basis points and reached 30.2% for the aerospace systems segment. Again, great productivity. The higher volumes actually helped productivity in that business. This was another strong quarter of commercial spares and repairs volume, and all of that translated to a fantastic performance on the margin line.
Orders improved in the international businesses to +6%, with positive orders both in Europe and Asia Pacific. Nice quarter for the international team. And lastly, aerospace continues to perform exceptionally well. Sales for the quarter were a record $1.7 billion. That's up 14.5% versus prior year. Organic growth was 13.5%, and that was driven by great strength in the commercial markets, both OEM and aftermarket. Margins are up significantly. Adjusted segment operating margin increased by 200 basis points and reached 30.2% for the aerospace systems segment. Again, great productivity. The higher volumes actually helped productivity in that business. This was another strong quarter of commercial spares and repairs volume, and all of that translated to a fantastic performance on the margin line.
Speaker #3: Nice quarter for the international team. And lastly, Aerospace continues to perform exceptionally well. Sales for the quarter were a record $1.7 billion. That's up 14.5% versus prior year.
Speaker #3: Organic growth was 13.5%, and that was driven by great strength in the commercial markets, both OEM and aftermarket. Margins are up significantly; adjusted segment operating margin increased by 200 basis points.
Speaker #3: And reached 30.2% for the aerospace systems segment. Again, great productivity—the higher volumes actually helped productivity. In that business, this was another strong quarter of commercial spares and repairs volume.
Speaker #3: And all of that translated to a fantastic performance on the margin line. Order rates remain impressive in Aerospace at plus 14%. Backlog also increased plus 14% and reached a record $8 billion for Aerospace for the first time in the history of the company.
Todd Leombruno: Order rates remain impressive in aerospace at +14%. Backlog also increased +14% and reached a record $8 billion for aerospace for the first time in the history of the company. Aerospace and defense remains robust, and that's really led by the commercial markets. Great performance across all of our businesses. Great, glad to see these results. If we move to slide 13, you can see our year-to-date cash flow performance. Cash flow from operations, $1.6 billion. That's 16% of sales. Free cash flow came in at $1.5 billion, that's 14.2% of sales. Just to note here, the first half, there's a slight drag from working capital and the timing of some tax payments. We expect that to be a first-half only issue.
Order rates remain impressive in aerospace at +14%. Backlog also increased +14% and reached a record $8 billion for aerospace for the first time in the history of the company. Aerospace and defense remains robust, and that's really led by the commercial markets. Great performance across all of our businesses. Great, glad to see these results. If we move to slide 13, you can see our year-to-date cash flow performance. Cash flow from operations, $1.6 billion. That's 16% of sales. Free cash flow came in at $1.5 billion, that's 14.2% of sales. Just to note here, the first half, there's a slight drag from working capital and the timing of some tax payments. We expect that to be a first-half only issue.
Speaker #3: Aerospace and defense remains robust, and that's really led by the commercial markets. Great performance across all of our businesses. Glad to see these results.
Speaker #3: If we move to slide 13, you can see our year-to-date cash flow performance. Cash flow from operations: $1.6 billion. That's 16% of sales. Free cash flow came in at $1.5 billion.
Speaker #3: That's 14.2% of sales. Just a note here—in the first half, there's a slight drag from working capital and the timing of some tax payments.
Speaker #3: We expect that to be a first half-only issue. I think everyone knows this, but as a reminder, our free cash flow is second half weighted.
Todd Leombruno: I think everyone knows this, but as a reminder, our free cash flow is second-half weighted. We remain committed to free cash flow conversion of greater than 100% for the year, and we'll talk a little bit more on guidance. We are increasing our guidance. Okay, that's the details on Q2, and Jenny, I will turn it back over to you on slide 15, to talk about our increase to guidance.
I think everyone knows this, but as a reminder, our free cash flow is second-half weighted. We remain committed to free cash flow conversion of greater than 100% for the year, and we'll talk a little bit more on guidance. We are increasing our guidance. Okay, that's the details on Q2, and Jenny, I will turn it back over to you on slide 15, to talk about our increase to guidance.
Speaker #3: We remain committed to free cash flow conversion of greater than 100% for the year. And we'll talk a little bit more in guidance we are increasing our guidance on cash flow for the year.
Speaker #3: Okay, that's the details on Q2. And Jenny, I will turn it back over to you on slide 15. Let's talk about our increased guidance.
Speaker #2: Thanks, Todd. This slide shows our updated fiscal year '26 organic sales growth forecast by market vertical. So in Aerospace, we are increasing our forecast from 9.5% to 11% organic growth.
Jennifer Parmentier: Thanks, Todd. This slide shows our updated fiscal year 2026 organic sales growth forecast by market vertical. So in aerospace, we are increasing our forecast from 9.5% to 11% organic growth. We continue to see strength in commercial OEM and aftermarket. In plant and industrial remains the same at positive low single-digit organic growth. Recovery continues, while customer CapEx spending does still remain selective. Distributor inventories are stable, and our distributors are ordering to their demand. In transportation, our forecast stays the same at mid-single-digit organic decline. Demand challenges persist in both truck and auto, which is partially offset with some strength in aftermarket. We are raising our outlook in off-highway from neutral to positive low single digits. This is based on construction and mining growth, while ag remains under pressure.
Jennifer Parmentier: Thanks, Todd. This slide shows our updated fiscal year 2026 organic sales growth forecast by market vertical. So in aerospace, we are increasing our forecast from 9.5% to 11% organic growth. We continue to see strength in commercial OEM and aftermarket. In plant and industrial remains the same at positive low single-digit organic growth. Recovery continues, while customer CapEx spending does still remain selective. Distributor inventories are stable, and our distributors are ordering to their demand. In transportation, our forecast stays the same at mid-single-digit organic decline. Demand challenges persist in both truck and auto, which is partially offset with some strength in aftermarket. We are raising our outlook in off-highway from neutral to positive low single digits. This is based on construction and mining growth, while ag remains under pressure.
Speaker #2: We continue to see strength in commercial OEM and aftermarket. In-plant and industrial remains the same, at positive low single-digit organic growth. Recovery continues, while customer CapEx spending does still remain selective.
Speaker #2: Distributor inventories are stable, and our distributors are ordering to their demand. In transportation, our forecast stays the same at mid-single-digit organic decline. Demand challenges persist in both truck and auto, which is partially offset with some strength in aftermarket.
Speaker #2: We are raising our outlook in off-highway from neutral to positive low single-digit. This is based on construction and mining growth, while ag remains under pressure.
Speaker #2: We are maintaining energy at positive low single-digit growth, with robust power gen activity offset by upstream oil and gas, which remains soft. And we are maintaining HVAC and refrigeration at positive mid-single-digit growth.
Jennifer Parmentier: We are maintaining energy at positive low single-digit growth, with robust power gen activity offset by upstream oil and gas, which remains soft. We are maintaining HVAC and refrigeration at positive mid-single-digit growth. We see strength in commercial HVAC, refrigeration, filtration, and aftermarket. As a result of these changes, we are increasing our organic sales growth guidance from 4% to 5% at the midpoint. Back to Todd for some more guidance details.
We are maintaining energy at positive low single-digit growth, with robust power gen activity offset by upstream oil and gas, which remains soft. We are maintaining HVAC and refrigeration at positive mid-single-digit growth. We see strength in commercial HVAC, refrigeration, filtration, and aftermarket. As a result of these changes, we are increasing our organic sales growth guidance from 4% to 5% at the midpoint. Back to Todd for some more guidance details.
Speaker #2: We see strength in commercial HVAC, refrigeration, filtration, and aftermarket. As a result of these changes, we are increasing our organic sales growth guidance from 4% to 5% at the midpoint.
Speaker #2: Back to Todd for some more guidance details.
Speaker #3: Okay, thanks, Jenny. If you turn to slide 16, you'll see some of the details. Then we're talking about, based on what we've done in the first half, strong orders.
Todd Leombruno: Okay, thanks, Jenny. If you turn to slide 16, you'll see some of the details that we're talking about. Based on what we've done in the first half, strong orders, we are raising our full year guidance really across the board here. Reported sales are going up to the range of 5.5% to 7.5%, or 6.5% at the midpoint. We expect currency to be a favorable 1.5%. That is based on December 31 spot rates. Previously completed acquisitions and divestitures basically offset each other at 1%. Jenny just mentioned this, but we are increasing organic growth to the range of 4% to 6%. That is 5% at the midpoint. If you look at the businesses, aerospace is being increased to organic growth of 11%.
Todd Leombruno: Okay, thanks, Jenny. If you turn to slide 16, you'll see some of the details that we're talking about. Based on what we've done in the first half, strong orders, we are raising our full year guidance really across the board here. Reported sales are going up to the range of 5.5% to 7.5%, or 6.5% at the midpoint. We expect currency to be a favorable 1.5%. That is based on December 31 spot rates. Previously completed acquisitions and divestitures basically offset each other at 1%. Jenny just mentioned this, but we are increasing organic growth to the range of 4% to 6%. That is 5% at the midpoint. If you look at the businesses, aerospace is being increased to organic growth of 11%.
Speaker #3: We are raising our full-year guidance really across the board here. Reported sales are going up to the range of 5.5 to 7.5, or 6.5% at the midpoint.
Speaker #3: We expect currency to be a favorable 1.5%. That is based on December 31 spot rates. Previously completed acquisitions and divestitures basically offset each other at 1%.
Speaker #3: Jenny just mentioned this, but we are increasing organic growth to the range of 4 to 6%. That is 5% at the midpoint. If you look at the businesses, Aerospace is being increased to organic growth of 11%.
Todd Leombruno: In the diversified industrial segment, in the North America businesses, we are increasing organic growth to 2.5%. And finally, we are increasing international organic growth to +2%. Adjusted segment operating margins, we're raising guidance there by 20 basis points to 27.2 for the full year. That will now be a forecasted increase of 110 basis points versus prior year, and the forecast for incrementals for the full year is 40%, full year incrementals. A few other items just to note, corporate G&A remains unchanged at $200 million. Interest expense slightly tweaked down by $5 million. We're now expecting that to be $415 million for the year, and other expenses down slightly to $85 million.
Speaker #3: In the Diversified Industrial segment in the North America businesses, we are increasing organic growth to 2.5%. And finally, we are increasing international organic growth to plus 2%.
In the diversified industrial segment, in the North America businesses, we are increasing organic growth to 2.5%. And finally, we are increasing international organic growth to +2%. Adjusted segment operating margins, we're raising guidance there by 20 basis points to 27.2 for the full year. That will now be a forecasted increase of 110 basis points versus prior year, and the forecast for incrementals for the full year is 40%, full year incrementals. A few other items just to note, corporate G&A remains unchanged at $200 million. Interest expense slightly tweaked down by $5 million. We're now expecting that to be $415 million for the year, and other expenses down slightly to $85 million.
Speaker #3: Adjusted segment operating margins—we're raising guidance there by 20 basis points to 27.2% for the full year. That will now be a forecasted increase of 110 basis points versus the prior year.
Speaker #3: And the forecast for incrementals for the full year is 40%. Full-year incrementals. A few other items just to note: corporate G&A remains unchanged at 200 million.
Speaker #3: Interest expense slightly tweaked down by $5 million. We're now expecting that to be $415 million for the year. And other expenses down slightly to $85 million.
Speaker #3: On tax rate, the guide for the second half is forecasted to be 22.5%. The full-year tax rate is expected to be 22.1%. That's with a second half of 22.5%.
Todd Leombruno: On tax rate, the guide for the second half is forecasted to be 22.5. The full year tax rate is expected to be 22.1. That's with a second half of 22.5. And finally, when we look at EPS, we're raising EPS to $30.70 at the midpoint. That's an increase of 12.3% versus prior, and the range on that adjusted EPS is plus or minus 30 cents. I mentioned it earlier, but we are raising our full year free cash flow guide to a range of $3.2 to 3.6 billion. That is about $3.5 billion at the midpoint, with conversion greater than 100%. Looking specifically at Q3, reported sales are expected to be nearly $5.4 billion.
On tax rate, the guide for the second half is forecasted to be 22.5. The full year tax rate is expected to be 22.1. That's with a second half of 22.5. And finally, when we look at EPS, we're raising EPS to $30.70 at the midpoint. That's an increase of 12.3% versus prior, and the range on that adjusted EPS is plus or minus 30 cents. I mentioned it earlier, but we are raising our full year free cash flow guide to a range of $3.2 to 3.6 billion. That is about $3.5 billion at the midpoint, with conversion greater than 100%. Looking specifically at Q3, reported sales are expected to be nearly $5.4 billion.
Speaker #3: And finally, when we look at EPS, we're raising EPS to $30.70 at the midpoint. That's an increase of 12.3% versus prior. And the range on that adjusted EPS is plus or minus 30 cents.
Speaker #3: I mentioned it earlier, but we are raising our full-year free cash flow guide to a range of $3.2 to $3.6 billion. That is about $3.5 billion at the midpoint, with conversion greater than 100%.
Speaker #3: Looking specifically at Q3, reported sales are expected to be nearly $5.4 billion. That is approximately 8.5% up. Organic sales growth, we are expecting 5%.
Todd Leombruno: That is approximately 8.5% up. Organic sales growth, we are expecting 5%. Segment operating margins, we are expecting 27%, and adjusted EPS for the quarter is expected to be $7.75. Each one of those is an increase to our prior guide. As usual, additional details can be found in the appendix here, and that is a wrap on our guidance. Jenny, I'll hand it back to you for slide 17.
That is approximately 8.5% up. Organic sales growth, we are expecting 5%. Segment operating margins, we are expecting 27%, and adjusted EPS for the quarter is expected to be $7.75. Each one of those is an increase to our prior guide. As usual, additional details can be found in the appendix here, and that is a wrap on our guidance. Jenny, I'll hand it back to you for slide 17.
Speaker #3: Segment operating margins, we are expecting 27%. And adjusted EPS for the quarter is expected to be $7.75. Each one of those is an increase to our prior guide.
Speaker #3: As usual, additional details can be found in the appendix here. And that is a wrap on our guidance, Jenny. I'll hand it back to you, for slide
Speaker #2: Thanks, Todd. Just a 17. 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.
Jennifer Parmentier: Thanks, Todd. Just a reminder on what drives 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 that allows us to be great generators and deployers of cash.
Jennifer Parmentier: Thanks, Todd. Just a reminder on what drives 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 that allows us to be great generators and deployers of cash.
Speaker #2: reminder on what drives Parker.
Speaker #2: That allows us to be great generators and deployers of
Speaker #2: cash. Okay, Katie,
Todd Leombruno: Okay, Katie, we are ready for the Q&A portion of the call, and we'll take first one in queue.
Todd Leombruno: Okay, Katie, we are ready for the Q&A portion of the call, and we'll take first one in queue.
Speaker #3: We are ready for the Q&A portion of the call, and we'll take
Speaker #3: The first one in Q. Thank you.
Speaker #4: As a reminder, to ask a question, please press star 1 on your telephone keypad. To withdraw your question, please press star 2. So others can hear your question clearly, we ask that you please pick up your handset for best sound quality.
Operator: Thank you. As a reminder, to ask a question, please press star one on your telephone keypad. To withdraw your question, please press star two. So others can hear your question clearly, we ask that you please pick up your handset for best sound quality. Our first question will come from Jamie Cook with Truist Securities. Your line is open.
Operator: Thank you. As a reminder, to ask a question, please press star one on your telephone keypad. To withdraw your question, please press star two. So others can hear your question clearly, we ask that you please pick up your handset for best sound quality. Our first question will come from Jamie Cook with Truist Securities. Your line is open.
Speaker #4: Our first question will come from Jamie Cook with Truist Securities. Your line is open.
Speaker #5: Hi, good morning, and congratulations on a nice quarter. I guess two questions, Jenny. First, when I look at your technology platforms, if we look at the technology platforms within diversified industrial, motion systems, flow processing control, and filtration and engineering materials, I think it's the first quarter since June of 2023 where you saw positive organic growth across all three technology platforms.
[Analyst] (Truist Securities): Hi, good, good morning, and congratulations on a, on a nice quarter. I guess two, two questions, Jenny. You know, first, when I look at your technology platforms, if we look at, you know, the technology platforms within diversified industrial motion systems, flow processing control, and filtration and engineering materials, I think it's the first quarter since June 2023, where you saw positive organic growth across all three technology platforms. So just wondering, do you think that's something specific to Parker Hannifin? Do you think it's, it's more a function of the cycle? Just very encouraging signs there. And then I guess my second, you know, follow-on question to that is, it's, you know, the first quarter too, that, you know, filtration has seen positive growth.
Jamie Cook: Hi, good, good morning, and congratulations on a, on a nice quarter. I guess two, two questions, Jenny. You know, first, when I look at your technology platforms, if we look at, you know, the technology platforms within diversified industrial motion systems, flow processing control, and filtration and engineering materials, I think it's the first quarter since June 2023, where you saw positive organic growth across all three technology platforms. So just wondering, do you think that's something specific to Parker Hannifin? Do you think it's, it's more a function of the cycle? Just very encouraging signs there. And then I guess my second, you know, follow-on question to that is, it's, you know, the first quarter too, that, you know, filtration has seen positive growth.
Speaker #5: So just wondering, do you think that's something specific to Parker-Hannifin? Do you think it's more a function of the cycle? Just very encouraging signs there.
Speaker #5: And then I guess my second follow-on question to that is, in the first quarter too, that filtration has seen positive growth. Just wondering how you're thinking about that relative to the acquisition that's coming on Filtration Group.
[Analyst] (Truist Securities): Just wondering how you're thinking about that relative to the acquisition that's coming on Filtration Group, signs that you bought that at a bottom, or is there any reason why, you know, they wouldn't be seeing, understanding the more aftermarket and a little different end market mix, why they wouldn't be seeing, you know, positive momentum there as well? Thank you.
Just wondering how you're thinking about that relative to the acquisition that's coming on Filtration Group, signs that you bought that at a bottom, or is there any reason why, you know, they wouldn't be seeing, understanding the more aftermarket and a little different end market mix, why they wouldn't be seeing, you know, positive momentum there as well? Thank you.
Speaker #5: Signs that you bought that at a bottom, or is there any reason why they wouldn't be seeing—understanding them more, aftermarket and a little different end market mix—why they wouldn't be seeing positive momentum there as well?
Speaker #5: Thank
Speaker #5: you.
Speaker #2: Yeah. Well, thanks, Jamie. Thanks for the
Jennifer Parmentier: Yeah. Well, thanks. Thanks, Jamie. Thanks for the question. So, yeah, so first of all, you know, we do think that, obviously, you're right, those businesses did see positive organic growth, and it's great to see. The teams have worked very hard for that, and they're performing well. You know, I would say that it's a combination of what we're seeing in some of our short cycle businesses that we've pointed out. While all of them are not returning to positive growth, we did see, you know, some nice improvement in off-highway. And then, you know, I would say the aerospace business that sits inside of these industrial businesses is performing very well.
Jennifer Parmentier: Yeah. Well, thanks. Thanks, Jamie. Thanks for the question. So, yeah, so first of all, you know, we do think that, obviously, you're right, those businesses did see positive organic growth, and it's great to see. The teams have worked very hard for that, and they're performing well. You know, I would say that it's a combination of what we're seeing in some of our short cycle businesses that we've pointed out. While all of them are not returning to positive growth, we did see, you know, some nice improvement in off-highway. And then, you know, I would say the aerospace business that sits inside of these industrial businesses is performing very well.
Speaker #2: question. So yeah, so first of all, we do think that, obviously, you're right, those businesses did see positive organic growth, and it's great to see.
Speaker #2: The teams have worked very hard for that, and they're performing well. I would say that it's a combination of what we're seeing in some of our short-cycle businesses that we've pointed out.
Speaker #2: While all of them are not returning to positive growth, we did see some nice improvement in off-highway. And then I would say the aerospace business that sits inside of these industrial businesses is performing very well.
Speaker #2: So to that point, what you said, some of this is specific to Parker, and some of it is seeing some of the short-cycle business return.
Jennifer Parmentier: So, to that point, what you said, some of this is specific to Parker, and some of it is seeing some of the short cycle business return. You know, our distribution did have low single digit organic growth in the quarter, so we're encouraged by what we see, encouraged by the orders, so I think that's part of it. Your Filtration Group question was a long one, so I'm gonna ask you to repeat that for me.
So, to that point, what you said, some of this is specific to Parker, and some of it is seeing some of the short cycle business return. You know, our distribution did have low single digit organic growth in the quarter, so we're encouraged by what we see, encouraged by the orders, so I think that's part of it. Your Filtration Group question was a long one, so I'm gonna ask you to repeat that for me.
Speaker #2: Our distribution did have low single-digit organic growth in the quarter, so we're encouraged by what we see—encouraged by the orders. So I think that's part of it.
Speaker #2: Your filtration group question was a long one, so I'm going to ask you to repeat that for me.
Speaker #5: No, sorry. My comment was just that it's interesting timing. Maybe a compliment that it's the first quarter we've seen positive growth in your filtration group business.
[Analyst] (Truist Securities): No, sorry. My comment was just that, you know, it's interesting timing, maybe a compliment, that it's the first quarter we've seen positive growth in the in your Filtration Group business. Wondering what that implies for the acquisition of the Filtration Group, you know, implying that potentially you bought that business at a cyclical bottom, understanding there's different in mix because they're aftermarket. I'm just wondering, you know, there's differences between the business, but could their sales also be improving organically, just like we're seeing within your Filtration Group business? Thank you.
Jamie Cook: No, sorry. My comment was just that, you know, it's interesting timing, maybe a compliment, that it's the first quarter we've seen positive growth in the in your Filtration Group business. Wondering what that implies for the acquisition of the Filtration Group, you know, implying that potentially you bought that business at a cyclical bottom, understanding there's different in mix because they're aftermarket. I'm just wondering, you know, there's differences between the business, but could their sales also be improving organically, just like we're seeing within your Filtration Group business? Thank you.
Speaker #5: Wondering what that implies for the acquisition of the Filtration Group. Implying that potentially you bought that business at a cyclical bottom, understanding there's a difference in mix because they're aftermarket.
Speaker #5: I'm just wondering, there are differences between the businesses, but could their sales also be improving organically, just like we're seeing within your Filtration Group business?
Speaker #5: Thank you.
Jennifer Parmentier: Yes, we, we do believe that that will be the case. Now, historically, Filtration Group's organic growth from pre-COVID to now has been mid-single digit CAGR, so this is higher than Parker's Filtration Group. But many of the areas where we have the complementary technologies in the same markets with some of the same customers that we play, we do see that their growth will be increasing just as it is with ours. So, again, we think that this is just a great fit for Parker because of the complementary and proprietary technologies that it adds, and because they play in the markets that we know, where we expect to see growth. And, again, they have this decentralized structure that's very, very similar to Parker. So we see, we see upside here.
Speaker #2: Yes. We do believe that that will be the case. Now, historically, filtration groups organic growth from pre-COVID to now has been mid-single-digit CAGR. So this is higher than Parker's filtration group.
Jennifer Parmentier: Yes, we, we do believe that that will be the case. Now, historically, Filtration Group's organic growth from pre-COVID to now has been mid-single digit CAGR, so this is higher than Parker's Filtration Group. But many of the areas where we have the complementary technologies in the same markets with some of the same customers that we play, we do see that their growth will be increasing just as it is with ours. So, again, we think that this is just a great fit for Parker because of the complementary and proprietary technologies that it adds, and because they play in the markets that we know, where we expect to see growth. And, again, they have this decentralized structure that's very, very similar to Parker. So we see, we see upside here.
Speaker #2: But many of the areas where we have the complementary technologies in the same markets with some of the same customers that we play, we do see that their growth will be increasing just as it is with ours.
Speaker #2: So again, we think that this is just a great fit for Parker because of the complementary and proprietary technologies that it adds. And because they play in the markets that we know, where we expect to see growth.
Speaker #2: And again, they have this decentralized structure that's very similar to Parker. So we see upside here.
Speaker #5: Thanks, and
[Analyst] (Truist Securities): Thanks, and congratulations.
Jamie Cook: Thanks, and congratulations.
Speaker #5: congratulations. Thank
Speaker #2: you. Thank you.
Jennifer Parmentier: Thank you.
Jennifer Parmentier: Thank you.
Operator: Thank you. Our next question will come from Andrew Kaplowitz with Citigroup. Your line is open.
Operator: Thank you. Our next question will come from Andrew Kaplowitz with Citigroup. Your line is open.
Speaker #4: Our next question will come from Andy Kapowitz with Citigroup. Your line is open.
Speaker #6: And good
[Analyst] (Citigroup): Good morning, everyone.
Speaker #6: morning, everyone. Good Jenny, could you give us a
Andrew Kaplowitz: Good morning, everyone.
Speaker #2: morning.
Jennifer Parmentier: Good morning.
Jennifer Parmentier: Good morning.
[Analyst] (Citigroup): Jenny, could you give us a little more color on what you're seeing by region? I, I think Todd's comments around Europe were very interesting. Do you see that sort of turn as durable? And then Parker's continued to do very well in the APAC. Do you see still a good outlook for that in 2026 and beyond?
Andrew Kaplowitz: Jenny, could you give us a little more color on what you're seeing by region? I, I think Todd's comments around Europe were very interesting. Do you see that sort of turn as durable? And then Parker's continued to do very well in the APAC. Do you see still a good outlook for that in 2026 and beyond?
Speaker #6: little more color on what you're seeing by region? I think Todd's comments around Europe, we're very interesting. Do you see that sort of turn as durable?
Speaker #6: And then Parker's continues to do very well in the APAC. Do you see still a good outlook for that in 26 and
Speaker #6: beyond? Yeah.
Speaker #2: So just let me give you just kind of an overview of some of the market verticals by region. So as Todd mentioned, in North America, we're increasing our full-year organic growth to 2.5% versus the prior guide of 2%.
Jennifer Parmentier: Yeah. So just let me give you just kind of an overview of some of the market verticals by region. So, as Todd mentioned, you know, in North America, we're increasing our full year organic growth to 2.5% versus the prior guide of 2%. So again, industrial, aerospace, and defense growth is very strong. Gradual in-plant industrial recovery, positive sentiment from our distribution channel, continued quoting activity. As I mentioned, CapEx remains selective. It seems like a lot of their customers are prioritizing productivity and automation projects versus large capacity expansion. So we see that increased infrastructure spending will increase in-plant and industrial equipment demand in the future. I mentioned transportation is most challenged in auto and trucks. Truck OEM recovery not expected this fiscal year, but will benefit from some aftermarkets.
Jennifer Parmentier: Yeah. So just let me give you just kind of an overview of some of the market verticals by region. So, as Todd mentioned, you know, in North America, we're increasing our full year organic growth to 2.5% versus the prior guide of 2%. So again, industrial, aerospace, and defense growth is very strong. Gradual in-plant industrial recovery, positive sentiment from our distribution channel, continued quoting activity. As I mentioned, CapEx remains selective. It seems like a lot of their customers are prioritizing productivity and automation projects versus large capacity expansion. So we see that increased infrastructure spending will increase in-plant and industrial equipment demand in the future. I mentioned transportation is most challenged in auto and trucks. Truck OEM recovery not expected this fiscal year, but will benefit from some aftermarkets.
Speaker #2: So again, industrial, aerospace, and defense growth is very strong. Gradual in-plant industrial recovery, positive sentiment from our distribution channel, continued quoting activity. As I mentioned, CAPEX remains selective.
Speaker #2: It seems like a lot of their customers are prioritizing productivity and automation projects versus large capacity expansion. So, we see that increased infrastructure spending will increase in plant industrial equipment demand in the future.
Speaker #2: I mentioned transportation is most challenged in auto and trucks. Truck OEM recovery not expected this fiscal year, but will benefit from some aftermarket. And again, strength in construction.
Jennifer Parmentier: And again, strength in construction, off-highway construction, while ag still remains slow. Energy, power gen, very robust. Oil and gas is weak with upstream, but midstream is benefiting from some capital spending. HVAC is coming off of a strong fiscal year 2025. Residential is down, but is more than offset with commercial HVAC and refrigeration. So, this is what we see for North America. So international, we are increasing full year organic growth to 2%, and that was previously 1%, so they did have a fantastic Q2. This was primarily from some large project shipments that went out, which really helped them. But we are increasing full year FY 2026 organic growth for EMEA to low single digits. It was flat in our prior guide.
And again, strength in construction, off-highway construction, while ag still remains slow. Energy, power gen, very robust. Oil and gas is weak with upstream, but midstream is benefiting from some capital spending. HVAC is coming off of a strong fiscal year 2025. Residential is down, but is more than offset with commercial HVAC and refrigeration. So, this is what we see for North America. So international, we are increasing full year organic growth to 2%, and that was previously 1%, so they did have a fantastic Q2. This was primarily from some large project shipments that went out, which really helped them. But we are increasing full year FY 2026 organic growth for EMEA to low single digits. It was flat in our prior guide.
Speaker #2: Off-highway construction, well, AG still remains slow. Energy, power gen—very robust. Oil and gas is weak with upstream, but midstream is benefiting from some capital spending.
Speaker #2: HVAC is coming off of a strong fiscal year '25. Residential is down, but is more than offset with commercial HVAC and refrigeration. So this is what we see for North America.
Speaker #2: So, International—we are increasing full-year organic growth to 2%. That was previously 1%. So, they did have a fantastic Q2. This was primarily from some large project shipments that went out, which really helped them.
Speaker #2: But we are increasing full-year FY '26 organic growth for AMIA to low single digits. It was flat in our prior guide. Again, we see gradual improvement in transportation there.
Jennifer Parmentier: Again, we see gradual improvement in transportation there, primarily on the truck side. We see continued strength in mining and energy, both oil and gas, and power gen. And then we do see where the proposed stimulus in future defense spending is a long-term positive, but not seeing the impact of that this fiscal year. In Asia Pacific, we're increasing our full year organic growth to positive mid-single digit versus positive low single digit in the prior guide. We're seeing continued strength with electronics and semicon demand. In-plant orders and shipments, there's some progress there, but it still remains a little bit mixed. We're seeing some mining improvements in China. And I would say that there's still some continued uncertainty from tariffs across these markets. So, that's really a kind of a recap of what we're seeing in the regions.
Again, we see gradual improvement in transportation there, primarily on the truck side. We see continued strength in mining and energy, both oil and gas, and power gen. And then we do see where the proposed stimulus in future defense spending is a long-term positive, but not seeing the impact of that this fiscal year. In Asia Pacific, we're increasing our full year organic growth to positive mid-single digit versus positive low single digit in the prior guide. We're seeing continued strength with electronics and semicon demand. In-plant orders and shipments, there's some progress there, but it still remains a little bit mixed. We're seeing some mining improvements in China. And I would say that there's still some continued uncertainty from tariffs across these markets. So, that's really a kind of a recap of what we're seeing in the regions.
Speaker #2: Primarily on the truck side, we see continued strength in mining and energy. Both oil and gas and power gen. And then we do see where the proposed stimulus and future defense spending is a long-term positive, but not seeing the impact of that this fiscal year.
Speaker #2: In Asia Pacific, we're increasing our full-year organic growth to positive mid-single digits versus positive low single digits in the prior guide. We're seeing continued strength with electronics and semicon demand.
Speaker #2: In plant orders and shipments, there's some progress there, but it still remains a little bit mixed. We're seeing some mining improvements in China. And I would say that there's still some continued uncertainty from tariffs across these markets.
Speaker #2: So that's really kind of a recap of what we're seeing in the regions.
Speaker #6: Very helpful, Jenny. And then, Todd, you've continued to generate over 40% incremental margin. I know you've said you're still sort of guiding to that 30% to 35%.
[Analyst] (Citigroup): Very helpful, Jenny. Then, Todd, you've continued to generate over 40% incremental margin. I know you've said, you know, you're still sort of guiding at 30 to 35. But, you know, as you look forward, you know, how long before, you know, after this good performance, do you say to yourself, like, you can do over 40%? And when you talk about price versus cost, is it better pricing? Is it execution? You know, what's sort of driving this performance?
Andrew Kaplowitz: Very helpful, Jenny. Then, Todd, you've continued to generate over 40% incremental margin. I know you've said, you know, you're still sort of guiding at 30 to 35. But, you know, as you look forward, you know, how long before, you know, after this good performance, do you say to yourself, like, you can do over 40%? And when you talk about price versus cost, is it better pricing? Is it execution? You know, what's sort of driving this performance?
Speaker #6: But as you look forward, how long after this good performance do you say to yourself, you can do over 40? And when you talk about price versus cost, is it better pricing?
Speaker #6: Is it execution? What's sort of driving this performance?
Todd Leombruno: ... Andy, thanks for noticing that. I'll tell you, it's not easy. It's a lot of hard work from our team members every day, every week, every month, every quarter. We are really proud to see what they've been able to put up there. We are guiding the second half at 35% incrementals, so really across the company. That puts the full company to 40 for the full year. We still think that that's best in class when you look at what's going on across the environment. We're really happy to see the industrial businesses pivot to positive organic growth. You know, those numbers are a little bit muted still. You know, so I think our guide is unchanged when it comes to what we think is best in class on incrementals.
Todd Leombruno: ... Andy, thanks for noticing that. I'll tell you, it's not easy. It's a lot of hard work from our team members every day, every week, every month, every quarter. We are really proud to see what they've been able to put up there. We are guiding the second half at 35% incrementals, so really across the company. That puts the full company to 40 for the full year. We still think that that's best in class when you look at what's going on across the environment. We're really happy to see the industrial businesses pivot to positive organic growth. You know, those numbers are a little bit muted still. You know, so I think our guide is unchanged when it comes to what we think is best in class on incrementals.
Speaker #3: Andy, thanks for noticing that. I'll tell you, it's not easy—it's a lot of hard work from our team members every day, every week, every month, every quarter.
Speaker #3: We are really proud to see what they've been able to put up there. We are guiding the second half at 35% incrementals, and really across the company.
Speaker #3: That puts the full company to 40 for the full year. We still think that that's best-in-class when you look at what's going on across the environment.
Speaker #3: We're really happy to see the industrial businesses pivot to positive organic growth. Those numbers are a little bit muted still, so I think our guide is unchanged when it comes to what we think is best in class on incrementals.
Speaker #3: You look at these margins, these margins are all-time highs across every business. It is great to see that work. And that's generating these results.
Speaker #3: You look at these margins, these margins are all-time highs across every business. It is great to see that work, and that's generating these results.
Todd Leombruno: You look at these margins; these margins are all-time highs across every business. It is great to see that work, and that's generating these results.
You look at these margins; these margins are all-time highs across every business. It is great to see that work, and that's generating these results.
Speaker #2: Yeah. Strong operational
Jennifer Parmentier: Yeah. Strong operational execution.
Jennifer Parmentier: Yeah. Strong operational execution.
Speaker #3: Yeah, it's a litany of things. I couldn't even give you a list of the top three because it varies by business, and it depends on what opportunities exist across each and every business.
Todd Leombruno: Yeah. It's a litany of things. I couldn't even give you, like, you know, a list of the top three, because it varies by business, and it depends on what opportunities exist across each and every business.
Todd Leombruno: Yeah. It's a litany of things. I couldn't even give you, like, you know, a list of the top three, because it varies by business, and it depends on what opportunities exist across each and every business.
Speaker #6: Appreciate all the color. Yep.
[Analyst] (Citigroup): Appreciate all the color.
Andrew Kaplowitz: Appreciate all the color.
Speaker #3: Thanks, Andy.
Todd Leombruno: Thanks, Andy.
Todd Leombruno: Thanks, Andy.
Speaker #4: Thank you. Our next question will come from Andrew Obin with Bank of America. Your line is
Operator: Thank you. Our next question will come from Andrew Obin with Bank of America. Your line is open.
Operator: Thank you. Our next question will come from Andrew Obin with Bank of America. Your line is open.
Speaker #4: open. Good Yes, good morning.
[Analyst] (Bank of America): Yes, good morning.
Andrew Obin: Yes, good morning.
Jennifer Parmentier: Good morning.
Jennifer Parmentier: Good morning.
Speaker #7: Just a question, morning, on international growth. I think you may have answered it, but I think if you sort of do the math, it just seems that sequentially, the growth is going to slow down to 2% at midpoint in the third quarter.
[Analyst] (Bank of America): Just a question on international growth, and I think you may have answered it, but I think if you sort of do the math, it just seems that sequentially the growth is gonna slow down to 2% at midpoint in Q3. And then I think the guide sort of implies it stays there in Q4. And I think you sort of alluded to large projects, but just thinking that the comp is similar from Q2 to Q3, even easier in a two-year stack. Are we being conservative, or is there sort of specific dynamics taking place in international in Q3 and Q4?
Andrew Obin: Just a question on international growth, and I think you may have answered it, but I think if you sort of do the math, it just seems that sequentially the growth is gonna slow down to 2% at midpoint in Q3. And then I think the guide sort of implies it stays there in Q4. And I think you sort of alluded to large projects, but just thinking that the comp is similar from Q2 to Q3, even easier in a two-year stack. Are we being conservative, or is there sort of specific dynamics taking place in international in Q3 and Q4?
Speaker #7: And then I think the guide sort of implies it stays there in the fourth quarter. And I think it's sort of alluded to large projects, but just thinking that the comp is similar from second quarter to third quarter, even easier in a two-year stack would be in conservative or is there sort of specific dynamics taking place in international interview and 4Q?
Speaker #7: And then I think the guide sort of implies it stays there in the fourth quarter. And I think it's sort of alluded to large projects, but just thinking that the comp is similar from second quarter to third quarter, even easier in a two-year stack would be in conservative or is there sort of specific dynamics taking place in international interview and
Speaker #2: Yeah, Andrew, it was really—they did benefit in Q2 from the timing of some large project shipments. And that was primarily power gen and commercial HVAC filtration.
Jennifer Parmentier: Yeah, Andrew, it was really, it did benefit in Q2 from the timing of some large project shipments, and that was primarily power gen and commercial HVAC filtration, and that was in EMEA. And that, you know, it kind of aligns with, you know, some of the choppiness of the orders from the prior year. So those aren't going to repeat in Q3, so we do, you know, forecast 2%, and that's based on a, you know, a continued gradual industrial recovery.
Jennifer Parmentier: Yeah, Andrew, it was really, it did benefit in Q2 from the timing of some large project shipments, and that was primarily power gen and commercial HVAC filtration, and that was in EMEA. And that, you know, it kind of aligns with, you know, some of the choppiness of the orders from the prior year. So those aren't going to repeat in Q3, so we do, you know, forecast 2%, and that's based on a, you know, a continued gradual industrial recovery.
Speaker #2: And that wasn't in AMIA, and it kind of aligns with some of the choppiness of the orders from the prior year. So those aren't going to repeat in Q3.
Speaker #2: So we do forecast 2%. And that's based on a continued gradual industrial recovery.
Speaker #3: Yeah. Andrew, we basically doubled the guide there. We were one. We're now basically two. You look at that from what we thought would happen at the beginning of the year.
Todd Leombruno: Yeah. Andrew, we basically have doubled the guide there. You know, we were 1, we're now basically 2. You look at that from what we thought would happen at the beginning of the year, we're pretty happy with what's going on there. The orders are also very impressive, but like we've kept saying, there are a number of longer cycle businesses that just don't necessarily need to ship in the second half of our fiscal year. We'll see those in the out months.
Todd Leombruno: Yeah. Andrew, we basically have doubled the guide there. You know, we were 1, we're now basically 2. You look at that from what we thought would happen at the beginning of the year, we're pretty happy with what's going on there. The orders are also very impressive, but like we've kept saying, there are a number of longer cycle businesses that just don't necessarily need to ship in the second half of our fiscal year. We'll see those in the out months.
Speaker #3: We're pretty happy with what's going on there. The orders are also very impressive. But like we've kept saying, there are a number of longer-cycle businesses that just don't necessarily need to ship in the second half of our fiscal year.
Speaker #3: We'll see those in the out months.
Speaker #7: And also, maybe sort of nitpicking here, but if you sort of back into growth by end market, you had a raise for off-highway and aerospace and defense.
[Analyst] (Bank of America): Also, maybe sort of nitpicking here, but if sort of back into growth by end market, you know, you had a raise for off highway and aerospace and defense, but then the other segment sort of implies a big jump in the midpoint of the guide just to make the math work. You know, can you just comment with sort of thinking from +10 to, you know, sort of squiggle line 40? Can you comment on that, what's in the other segment, if I'm doing the math right?
Andrew Obin: Also, maybe sort of nitpicking here, but if sort of back into growth by end market, you know, you had a raise for off highway and aerospace and defense, but then the other segment sort of implies a big jump in the midpoint of the guide just to make the math work. You know, can you just comment with sort of thinking from +10 to, you know, sort of squiggle line 40? Can you comment on that, what's in the other segment, if I'm doing the math right?
Speaker #7: But then the other segment sort of implies a big jump in the midpoint of the guide just to make the math work. Can you just comment with sort of thinking from plus 10 to sort of squiggle line 40?
Speaker #7: Can you comment on that? What's in the other segment if I'm doing the math right?
Speaker #3: Yeah, I don't know if I'm following your math there, Andrew. Jenny went through the logic behind the increases that we've seen by market vertical.
Todd Leombruno: Yeah, I don't know if I'm following your math there, Andrew. Jenny went through the logic behind the increases that we've seen by market vertical. Obviously, aerospace continues to be stellar. You know, we have a significant amount of aerospace in the industrial businesses. That was a driver, and we bumped up off highway a bit.
Todd Leombruno: Yeah, I don't know if I'm following your math there, Andrew. Jenny went through the logic behind the increases that we've seen by market vertical. Obviously, aerospace continues to be stellar. You know, we have a significant amount of aerospace in the industrial businesses. That was a driver, and we bumped up off highway a bit.
Speaker #3: Obviously, aerospace continues to be stellar. We have a significant amount of aerospace in the industrial businesses—that was a driver. And we bumped up off-highway a bit.
Speaker #2: Yeah. And yeah. And one other thing to add—some of what sits in 'Other,' obviously, is electronics. And what you see in there is some data center, which is still less than 1% of our sales, but it's been very strong.
Jennifer Parmentier: Yeah, and some of what-
Jennifer Parmentier: Yeah, and some of what-
[Analyst] (Bank of America): All right, yeah.
Andrew Obin: All right, yeah.
Jennifer Parmentier: And one other thing to add, some of what sits in the, in the other, obviously, is electronics. And what you see in there is, some data center, which is still less than 1% of our sales, but it, it's been very strong. It's been some nice growth for us. So that may be part of what you're not seeing in, in our numbers.
Jennifer Parmentier: And one other thing to add, some of what sits in the, in the other, obviously, is electronics. And what you see in there is, some data center, which is still less than 1% of our sales, but it, it's been very strong. It's been some nice growth for us. So that may be part of what you're not seeing in, in our numbers.
Speaker #2: It's been some nice growth for us. So that may be part of what you're not seeing
Speaker #2: in our numbers. Sounds
Speaker #7: Like a great answer. Thanks so much.
Speaker #7: That sounds like a great answer. Thanks so much.
[Analyst] (Bank of America): Sounds like a great answer. Thanks so much.
Andrew Obin: Sounds like a great answer. Thanks so much.
Speaker #3: Thanks. Thank you.
Todd Leombruno: Thank you.
Todd Leombruno: Thank you.
Operator: Thank you. Our next question will come from Joe Ritchie with Goldman Sachs. Your line is open.
Operator: Thank you. Our next question will come from Joe Ritchie with Goldman Sachs. Your line is open.
Speaker #4: Our next question will come from Joe Ritchie with Goldman Sachs. Your line is open.
Speaker #8: Hi. Good morning, everyone.
[Analyst] (Goldman Sachs): Hi, good morning, everyone.
Joe Ritchie: Hi, good morning, everyone.
Speaker #2: Good morning.
Jennifer Parmentier: Good morning.
Jennifer Parmentier: Good morning.
Speaker #8: So Jenny, great color is always on the end markets. I guess just a broader question: with reshoring and all the investment that's already occurred here in the US, what's your—I know it's hard to have a crystal ball—but what's your take on what's happening with in-plant and equipment in the US?
[Analyst] (Goldman Sachs): So, Jenny, great color as always on the end markets. I guess just a broader question, you know, with reshoring and all the investment that's already occurred here in the US, like, what's your, you know... I know it's hard to have a crystal ball, but, like, what's your, what's your take on, what's happening with in-plant equipment in the US? And then, you know, what gets it going? What are you guys looking at specifically as kind of leading indicators, for the, like, short cycle inflection?
Joe Ritchie: So, Jenny, great color as always on the end markets. I guess just a broader question, you know, with reshoring and all the investment that's already occurred here in the US, like, what's your, you know... I know it's hard to have a crystal ball, but, like, what's your, what's your take on, what's happening with in-plant equipment in the US? And then, you know, what gets it going? What are you guys looking at specifically as kind of leading indicators, for the, like, short cycle inflection?
Speaker #8: And then what gets it going? What are you guys looking at specifically as kind of leading indicators for the short cycle?
Speaker #2: Yeah, so we get a lot of—we get a lot of intel from distribution, and we continue to say that this is gradual. But the sentiment is still positive.
Jennifer Parmentier: Yeah, so you know, we get a lot of intel from distribution, and you know, we continue to say that this is gradual. But the sentiment is still positive, and I've been saying that for quite some time, because the distributors do talk a lot about all of the quoting activity. But you know, I would say in the recent conversations, the CapEx remains selective. And you know, the customers are prioritizing productivity and automation projects versus large-scale capacity expansion. And you see that in pockets, and that's you know, why we consider it gradual, because you'll see some in different markets.
Jennifer Parmentier: Yeah, so you know, we get a lot of intel from distribution, and you know, we continue to say that this is gradual. But the sentiment is still positive, and I've been saying that for quite some time, because the distributors do talk a lot about all of the quoting activity. But you know, I would say in the recent conversations, the CapEx remains selective. And you know, the customers are prioritizing productivity and automation projects versus large-scale capacity expansion. And you see that in pockets, and that's you know, why we consider it gradual, because you'll see some in different markets.
Speaker #2: And I've been saying that for quite some time because distributors do talk a lot about all of the quoting activity. But I would say in the recent conversations, the CapEx remains selective.
Speaker #2: And the customers are prioritizing productivity and automation projects versus large-scale capacity expansion. And you see that in pockets, and that's why we consider it gradual, because you'll see some in different markets.
Speaker #2: And I think we're going to continue to see this gradual recovery, and we're going to continue to see better numbers in some of these markets that we've talked about.
Jennifer Parmentier: And I think, you know, we're gonna continue to see this gradual recovery, and we're gonna continue to see, you know, better numbers in some of these markets that we've talked about. But, I don't know that there's just one catalyst to get this short cycle going. It's really, I think, a matter of, you know, taking out some of the noise that, really doesn't have anything to do with the business, some of the geopolitical noise, tariffs, and, maybe possibly interest rates as well.
And I think, you know, we're gonna continue to see this gradual recovery, and we're gonna continue to see, you know, better numbers in some of these markets that we've talked about. But, I don't know that there's just one catalyst to get this short cycle going. It's really, I think, a matter of, you know, taking out some of the noise that, really doesn't have anything to do with the business, some of the geopolitical noise, tariffs, and, maybe possibly interest rates as well.
Speaker #2: But I don't know that there's just one catalyst to get this short cycle going. It's really—I think—a matter of taking out some of the noise that really doesn't have anything to do with the business, some of the geopolitical noise, tariffs, and maybe possibly interest rates as well.
Speaker #8: Yeah, that makes sense. And then I guess maybe just for Todd, just a quick question. The aero business has been doing great. Margins were above 30% in the first half.
[Analyst] (Goldman Sachs): Yeah, that, that makes sense.
Joe Ritchie: Yeah, that, that makes sense.
[Analyst] (UBS): ... And then I guess maybe just, for Todd, just a quick question. Like, the aero, the aero business has been doing great. Margins were above 30% in the first half. The guidance implies a step down in the second half. If anything we need to be aware of from mix standpoint and why they would step down in 2H?
... And then I guess maybe just, for Todd, just a quick question. Like, the aero, the aero business has been doing great. Margins were above 30% in the first half. The guidance implies a step down in the second half. If anything we need to be aware of from mix standpoint and why they would step down in 2H?
Speaker #8: The guidance implies a step down in the second half. Does anything we need to be aware of from mixed standpoint and why they would step down in
Speaker #8: The guidance implies a step down in the second half. Is there anything we need to be aware of from a mix standpoint and why there would be a step down in 2H?
Speaker #3: No, we called out high spares and repairs in Q2. Those are great—the business is high. It's hard to predict that going forward, so we've not put that into our forward guide there.
Todd Leombruno: No, you know, we, we called out high spares and repairs in Q2. Those are great. The business is high. It's hard to predict that going forward, so, you know, we've not put that into our forward guide there. But I would tell you, the activity is robust. The team is doing a great job converting, serving our customers. And, you know, you look at those margins that we're forecasting, it's still showing 60 basis points improvement from prior year. And, you know, it's high 20s, you know, mid-29.5 type range. So, you know, we feel pretty good about giving you a guide with those numbers.
Todd Leombruno: No, you know, we, we called out high spares and repairs in Q2. Those are great. The business is high. It's hard to predict that going forward, so, you know, we've not put that into our forward guide there. But I would tell you, the activity is robust. The team is doing a great job converting, serving our customers. And, you know, you look at those margins that we're forecasting, it's still showing 60 basis points improvement from prior year. And, you know, it's high 20s, you know, mid-29.5 type range. So, you know, we feel pretty good about giving you a guide with those numbers.
Speaker #3: But I would tell you, the activity is robust. The team is doing a great job converting and serving our customers. And if you look at those margins that we're forecasting, it's still showing a 60 basis point improvement from prior year.
Speaker #3: And it's high 29, mid-29-and-a-half type range. So we feel pretty good about giving you a guide with those numbers.
Speaker #8: Got it. Okay. Thank you both.
[Analyst] (UBS): Got it. Okay. Thank you both.
Joe Ritchie: Got it. Okay. Thank you both.
Speaker #4: Thank you. Our next question will come from Scott Davis with Melius Research. Your line is open.
Operator: Thank you. Our next question will come from Scott Davis with Melius Research. Your line is open.
Operator: Thank you. Our next question will come from Scott Davis with Melius Research. Your line is open.
Speaker #7: Good morning. Jenny and Todd, Jeff, congrats on the great start to the fiscal and calendar year here. A couple of
[Analyst] (Melius Research): Hey, good morning, Jenny and Todd. Jeff, congrats on the great start to the fiscal and calendar year here, couple quarters in a row.
Scott Davis: Hey, good morning, Jenny and Todd. Jeff, congrats on the great start to the fiscal and calendar year here, couple quarters in a row.
Speaker #7: quarters in a row. Yep.
Speaker #3: Thank
Speaker #3: Thank you. I know you guys don’t love
Todd Leombruno: Thank you.
Todd Leombruno: Thank you.
[Analyst] (Melius Research): I know you guys don't love to talk about price, but given inflation, like recent commodity prices and some of your input costs, I'm sure even in things that may be derived from things like natural gas and obviously metals. But is it an increasing? Are you able to drive price kind of in time? I know with, in some of your product, it runs through distribution, that's less of a challenge sometimes, but perhaps for a lot of the product goes through OE, it could be a little bit more of a challenge. Is there some risk mitigation there that's going on at present? Are we being a little too paranoid or are you guys have any color? That would be helpful. Thanks.
Scott Davis: I know you guys don't love to talk about price, but given inflation, like recent commodity prices and some of your input costs, I'm sure even in things that may be derived from things like natural gas and obviously metals. But is it an increasing? Are you able to drive price kind of in time? I know with, in some of your product, it runs through distribution, that's less of a challenge sometimes, but perhaps for a lot of the product goes through OE, it could be a little bit more of a challenge. Is there some risk mitigation there that's going on at present? Are we being a little too paranoid or are you guys have any color? That would be helpful. Thanks.
Speaker #7: to talk about price, but given inflation like recent commodity prices and some of your input costs, I'm sure even in things that may be derived from things like natural gas and obviously metals, but is it an increasing—are you able to drive price kind of in time?
Speaker #7: I know in some of your product, it runs through distribution. That's less of a challenge sometimes. But perhaps for a lot of the product, it goes through OE.
Speaker #7: It could be a little bit more of a challenge. Is there some risk mitigation there that's going on at present? Are we being a little too paranoid, or are you guys having to color that?
Speaker #7: That'd be helpful. Thanks.
Speaker #2: Yeah. With some of these commodity prices, Scott, we're handling this like we have any other inflation or issues that come about. That pricing muscle is strong.
Jennifer Parmentier: Yeah, you know, with some of these commodity prices, Scott, we're handling this like we have any other inflation or issues that come about. You know, that pricing muscle is strong and, you know, we've had a long, long history here of being able to handle these things, but it's ongoing, and I would say that it's, you know, nonstop, right? We have to respond to these things and make sure that they don't impact our EPS, and they haven't, and they won't.
Jennifer Parmentier: Yeah, you know, with some of these commodity prices, Scott, we're handling this like we have any other inflation or issues that come about. You know, that pricing muscle is strong and, you know, we've had a long, long history here of being able to handle these things, but it's ongoing, and I would say that it's, you know, nonstop, right? We have to respond to these things and make sure that they don't impact our EPS, and they haven't, and they won't.
Speaker #2: And we've had a long, long history here of being able to handle these things. But it's ongoing. And I would say that it's nonstop, right?
Speaker #2: We have to respond to these things and make sure that they don't impact our EPS. And they haven't. And they—
Speaker #2: won't. Yeah.
Speaker #3: Scott, I would just—you obviously are a follower of our margins. You can see our margins. Every one of the businesses posted a record margin number for the quarter.
Todd Leombruno: Yeah, Scott, I would just, you know, you obviously are a follower of our margins. You can see our margins, every one of the businesses, posted a record margin number for the quarter. I would tell you, the eyes on cost and the eyes on price, you know, that's a muscle that never goes out of style here at Parker, so, we're all over it.
Todd Leombruno: Yeah, Scott, I would just, you know, you obviously are a follower of our margins. You can see our margins, every one of the businesses, posted a record margin number for the quarter. I would tell you, the eyes on cost and the eyes on price, you know, that's a muscle that never goes out of style here at Parker, so, we're all over it.
Speaker #3: And I would tell you, the eyes on cost and the eyes on price—that's a muscle that never goes out of style here at Parker.
Speaker #3: So we're all over it.
Speaker #7: Fair enough. And then just a quick follow-up: the timeline you give for Closed Filtration Group, kind of six to twelve months, you could drive a bus through that.
[Analyst] (Melius Research): Fair, fair enough. Then just a quick follow-up. The timeline you give the Filtration Group, kind of 6 to 12 months, I'd say you could drive a bus through that. But what are the major gating factors, just kind of standard antitrust issues that could get pushed or pulled one direction or another? Are there other hurdles?
Scott Davis: Fair, fair enough. Then just a quick follow-up. The timeline you give the Filtration Group, kind of 6 to 12 months, I'd say you could drive a bus through that. But what are the major gating factors, just kind of standard antitrust issues that could get pushed or pulled one direction or another? Are there other hurdles?
Speaker #7: But what are the major—are the major gating factors just kind of standard antitrust issues that could get pushed or pulled one direction or another?
Speaker #7: Are there other hurdles?
Speaker #2: Yeah, no, just the standard regulatory filings and the process that we have to go through.
Jennifer Parmentier: Yeah, no, just the standard, you know, regulatory filings and the process that we have to go through.
Jennifer Parmentier: Yeah, no, just the standard, you know, regulatory filings and the process that we have to go through.
Speaker #7: Okay. Fair enough. Best of luck. Thank you.
[Analyst] (Melius Research): Okay, fair enough. Best of luck. Thank you, guys.
Scott Davis: Okay, fair enough. Best of luck. Thank you, guys.
Speaker #7: guys. Thank you.
Jennifer Parmentier: Thank you.
Jennifer Parmentier: Thank you.
Speaker #3: Thanks. Thank you.
Todd Leombruno: Thanks.
Todd Leombruno: Thanks.
Operator: Thank you. Our next question will come from Stephen Tusa with J.P. Morgan. Your line is open. Steve, please make sure your phone is not on mute. We are hearing no response. We'll move to our next.
Operator: Thank you. Our next question will come from Stephen Tusa with J.P. Morgan. Your line is open. Steve, please make sure your phone is not on mute. We are hearing no response. We'll move to our next.
Speaker #4: Our next question will come from Steve Tusa with JP Morgan. Your line is open. Steve, please make sure your phone is not on mute.
Speaker #4: We are hearing no response. We'll move to our next question.
Speaker #4: next. Our next Okay.
Speaker #3: Thank you.
[Analyst] (Melius Research): Okay, thank you.
Okay, thank you.
Speaker #4: will come from Amit Mehrotra with UBS. Your line is open.
Operator: Our next will come from Amit Mehrotra with UBS. Your line is open.
Operator: Our next will come from Amit Mehrotra with UBS. Your line is open.
Speaker #4: open.
Speaker #8: Buddy, I
[Analyst] (UBS): Buddy, I guess I just wanted to ask. I joined a little bit late, so forgive me if this has already been asked, but if I want to talk about the Q2 performance, which obviously was better, and then how that corresponds to the full year guidance increase. It doesn't seem like you assume much of the Q2 goodness into the second half. And then also, I'm sure you addressed this, so I apologize again, but talk about the North American margin decline a little bit for the full year and what the reason for that is.
Amit Mehrotra: Buddy, I guess I just wanted to ask. I joined a little bit late, so forgive me if this has already been asked, but if I want to talk about the Q2 performance, which obviously was better, and then how that corresponds to the full year guidance increase. It doesn't seem like you assume much of the Q2 goodness into the second half. And then also, I'm sure you addressed this, so I apologize again, but talk about the North American margin decline a little bit for the full year and what the reason for that is.
Speaker #8: Guess I just wanted to ask—I joined a little bit late, so forgive me if this is body burden asked. But if I want to talk about the Q2 performance, which obviously was better, and then how that corresponds with the full-year guidance increase, it doesn't seem like you assume much of the Q2 goodness into the second half.
Speaker #8: And then also, I'm sure you addressed this, so I apologize again. But talk about the North American margin decline a little bit for the full year, and what the reason for that is.
Speaker #8: I'll answer that question for you.
Jennifer Parmentier: I'll answer that question for you, and then Todd will follow up. So there's nothing about the North American margin other than Q2 mix was not as favorable as Q1. That's all that's there. Listen, Q2 is a record for us, 80 basis points of margin expansion, 52% incrementals. The team is performing very well. And for Q3, we increased the margin to 26%, so we took that up. And for the second half, you know, we're not reducing the North America margin.
Jennifer Parmentier: I'll answer that question for you, and then Todd will follow up. So there's nothing about the North American margin other than Q2 mix was not as favorable as Q1. That's all that's there. Listen, Q2 is a record for us, 80 basis points of margin expansion, 52% incrementals. The team is performing very well. And for Q3, we increased the margin to 26%, so we took that up. And for the second half, you know, we're not reducing the North America margin.
Speaker #2: You. And then Todd will follow up. So there's nothing about the North American margin, other than Q2 mix was not as favorable as Q1.
Speaker #2: That's all that's there. Listen, Q2 is a record for us: 80 basis points of margin expansion, 52% incrementals. The team is performing very well.
Speaker #2: And for Q3, we increased the margin to 26%. So we took that up. And for the second half, we're not reducing the North America margin.
Speaker #3: Yeah. If you look at the second half, as Jenny said, we're basically 26.5 for the second half. For North America, that would be an all-time record for North America.
Todd Leombruno: Yeah, if you look at the second half, as Jenny said, you know, we're basically 26.5 for the second half for North America. That would be an all-time record for North America, and that would put the full year up by 80 basis points. So, you know, I just reiterate what Jenny said. Q1 was exceptional. Q2 was a record, right?
Todd Leombruno: Yeah, if you look at the second half, as Jenny said, you know, we're basically 26.5 for the second half for North America. That would be an all-time record for North America, and that would put the full year up by 80 basis points. So, you know, I just reiterate what Jenny said. Q1 was exceptional. Q2 was a record, right?
Speaker #3: And that would put the full year up by 80 basis points. So, I just reiterate what Jenny said: Q1 was exceptional. Q2 was a record.
Speaker #3: Right?
Speaker #8: Yeah, fair. Okay, totally get it. And then just maybe one other kind of bigger-picture question, Jenny, related to that—the pricing commentary, I think, to Scott's question.
[Analyst] (UBS): Yeah. Fair. Okay, totally get it. And then just maybe one other kind of bigger picture question, Jenny, related to that, the pricing commentary, I think, to Scott's question. You know, if I just look at Parker's organic growth over the last decade, it's basically averaged-
Amit Mehrotra: Yeah. Fair. Okay, totally get it. And then just maybe one other kind of bigger picture question, Jenny, related to that, the pricing commentary, I think, to Scott's question. You know, if I just look at Parker's organic growth over the last decade, it's basically averaged-
Speaker #8: If I just look at Parker's organic growth over the last decade, it's basically averaged a couple of percent per year for the entire company.
[Analyst] (Barclays): ... a couple percent per year for the entire company. In fact, North American industrial has been a point and a half. When you incorporate price, it's just the implied volumes are actually down over the last decade. I guess my first question is, do you agree with that observation? Is that a fair observation? And the second, maybe what explains that lack of volume? But maybe we've been in an industrial recession for a decade. I don't know. But at some point, you know, price and margin get incrementally harder, and we just need to see some through-cycle volume growth. So I'd love to get your perspective on that.
... a couple percent per year for the entire company. In fact, North American industrial has been a point and a half. When you incorporate price, it's just the implied volumes are actually down over the last decade. I guess my first question is, do you agree with that observation? Is that a fair observation? And the second, maybe what explains that lack of volume? But maybe we've been in an industrial recession for a decade. I don't know. But at some point, you know, price and margin get incrementally harder, and we just need to see some through-cycle volume growth. So I'd love to get your perspective on that.
Speaker #8: In fact, North American Industrial has been a point and a half, and when you incorporate price, it's just—the implied volumes are actually down over the last decade.
Speaker #8: I guess my first question is, do you agree with that observation? Is that a fair observation? And then second, maybe what explains that lack of volume?
Speaker #8: But maybe we've been in an industrial recession for a decade—I don't know. But at some point, price and margin get incrementally harder, and we just need to see some through-cycle volume growth.
Speaker #8: So, I'd love to get your perspective on that.
Speaker #3: Amit, hey, this is Todd. I'll jump in at Jenny. You could add any color if you like. When we look at what we are doing in North America, first of all, it's hard to look at the company over the last decade because the portfolio has changed.
Todd Leombruno: I mean, hey, this is Todd. I'll jump in, and Jenny, you could add any color if you like. You know, when we look at what we are doing in North America, first of all, it's hard to look at the company over the last decade because the portfolio has changed tremendously. When you look at the three acquisitions, when you look at where our growth has been, way more engineered materials, way more filtration, and a heck of a lot more aerospace and defense within those industrial businesses, both in North America and international. You know, the company's never been more focused on organic growth. You know, we have a long-term target of 4 to 6. We are guiding 4 to 6 this year, so we were right at our target.
Todd Leombruno: I mean, hey, this is Todd. I'll jump in, and Jenny, you could add any color if you like. You know, when we look at what we are doing in North America, first of all, it's hard to look at the company over the last decade because the portfolio has changed tremendously. When you look at the three acquisitions, when you look at where our growth has been, way more engineered materials, way more filtration, and a heck of a lot more aerospace and defense within those industrial businesses, both in North America and international. You know, the company's never been more focused on organic growth. You know, we have a long-term target of 4 to 6. We are guiding 4 to 6 this year, so we were right at our target.
Speaker #3: Tremendously. When you look at the three acquisitions, when you look at where our growth has been—way more engineered materials, way more filtration, and a heck of a lot more aerospace and defense within those industrial businesses.
Speaker #3: Both in North America and internationally, the company’s never been more focused on organic growth. We have a long-term target of 4 to 6. We are guiding 4 to 6 this year.
Speaker #3: So we were right at our target. It has been two-plus years of choppiness in the industrial markets. So I would tell you the company's never been more aligned on organic growth.
Todd Leombruno: It has been, you know, two-plus years of choppiness in the industrial markets. So, you know, I would tell you the company's never been more aligned on organic growth, and I'm really proud that we're able to generate these record margins in a not-so-great organic growth environment. So, I don't think there's too much to read in there. When you look at what we are doing from a margin and a conversion standpoint, you know, the team is really much driving great performance here.
It has been, you know, two-plus years of choppiness in the industrial markets. So, you know, I would tell you the company's never been more aligned on organic growth, and I'm really proud that we're able to generate these record margins in a not-so-great organic growth environment. So, I don't think there's too much to read in there. When you look at what we are doing from a margin and a conversion standpoint, you know, the team is really much driving great performance here.
Speaker #3: And I'm really proud that we're able to generate these record margins in a not-so-great organic growth environment. So I don't think there's too much to read in there.
Speaker #3: When you look at what we are doing from a margin and a conversion standpoint, the team is really very much driving great performance.
Speaker #3: here. Got
Speaker #8: It—yep. Agreed. Thank you very much. Appreciate it.
[Analyst] (Barclays): Got it. Yep, agreed. Thank you very much. Appreciate it.
Amit Mehrotra: Got it. Yep, agreed. Thank you very much. Appreciate it.
Speaker #4: Our next question will be from Steve Tusa with JP Morgan. Your line is open.
Operator: Our next question will be from Stephen Tusa with J.P. Morgan. Your line is open.
Operator: Our next question will be from Stephen Tusa with J.P. Morgan. Your line is open.
Speaker #4: open. Hey, good morning.
Speaker #8: Can you hear me
Speaker #8: now?
[Analyst] (J.P. Morgan): Hey, good morning. Can you hear me now?
Stephen Tusa: Hey, good morning. Can you hear me now?
Speaker #3: We got you, Steve. Yes.
Speaker #2: Hi,
Speaker #2: Steve. Great.
Todd Leombruno: Yes, we got you, Steve.
Todd Leombruno: Yes, we got you, Steve.
Jennifer Parmentier: Hi, Steve.
Jennifer Parmentier: Hi, Steve.
Speaker #8: Thanks a lot. A lot of questions have been answered, and there's a lot of good detail in the materials. Just curious on the construction side.
[Analyst] (J.P. Morgan): Great. Thanks a lot. A lot of questions have been answered, and there's a lot of good detail in the materials. Just curious on the construction side, you guys are, like, a little more positive than others. Is that just, like, the data center stuff, or are there other things you guys are seeing out there?
Stephen Tusa: Great. Thanks a lot. A lot of questions have been answered, and there's a lot of good detail in the materials. Just curious on the construction side, you guys are, like, a little more positive than others. Is that just, like, the data center stuff, or are there other things you guys are seeing out there?
Speaker #8: You guys are a little more positive than others. Is that just the data center stuff, or are there other things you guys are seeing out there?
Speaker #2: I would say that's a small part of it. But we're actually seeing an increase in the construction equipment.
Jennifer Parmentier: I would say that's a small part of it, but we're, you know, we're actually seeing, you know, an increase in the construction equipment.
Jennifer Parmentier: I would say that's a small part of it, but we're, you know, we're actually seeing, you know, an increase in the construction equipment.
Speaker #8: Okay, and then just lastly, on the fourth quarter—being a bit below consensus—is there anything to call out there mechanically as to why the fourth quarter is, I guess, just a little bit weaker than what we would have thought?
[Analyst] (J.P. Morgan): Okay. And then, just lastly on the Q4, being a bit below consensus, and anything to call out there mechanically as to why, you know, the Q4 is, I guess, just a little bit weaker than what we would have thought?
Stephen Tusa: Okay. And then, just lastly on the Q4, being a bit below consensus, and anything to call out there mechanically as to why, you know, the Q4 is, I guess, just a little bit weaker than what we would have thought?
Speaker #3: I don't think there's anything, Steve—this is Todd. I don't think there's anything specific that we called out there. When I look at what we have laid out here for the fourth quarter, every single number is an all-time record.
Todd Leombruno: You know, I don't think there's anything. Steve, this is Todd. I don't think there's anything specific that we called out there. You know, when I look at what we have laid out here for the fourth quarter, every single number is an all-time record. The fourth quarter is normally our strongest quarter of the year. We are forecasting fourth quarter to be the strongest quarter of the year again. And, you know, I would tell you right now, we're focused on Q3 and making sure we deliver our commitments for Q3, but there's nothing that has us concerned about Q4.
Todd Leombruno: You know, I don't think there's anything. Steve, this is Todd. I don't think there's anything specific that we called out there. You know, when I look at what we have laid out here for the fourth quarter, every single number is an all-time record. The fourth quarter is normally our strongest quarter of the year. We are forecasting fourth quarter to be the strongest quarter of the year again. And, you know, I would tell you right now, we're focused on Q3 and making sure we deliver our commitments for Q3, but there's nothing that has us concerned about Q4.
Speaker #3: The fourth quarter is normally our strongest quarter of the year. We are forecasting fourth quarter to be the strongest quarter of the year again, and I would tell you right now we're focused on Q3 and making sure we deliver our commitments for Q3.
Speaker #3: But there's nothing that has us concerned about Q4.
Speaker #2: No. No
Speaker #2: concerns. Yeah.
Jennifer Parmentier: No, no concerns.
Jennifer Parmentier: No, no concerns.
Speaker #8: Okay. Thanks a lot.
[Analyst] (J.P. Morgan): Yeah. Okay. Thanks a lot.
Stephen Tusa: Yeah. Okay. Thanks a lot.
Speaker #3: Yep.
Todd Leombruno: Yep.
Todd Leombruno: Yep.
Speaker #4: Thank you. Once again, that is Star One. If you would like to ask a question, our next question will come from Julian Mitchell with Barclays. Your line is open.
Operator: Thank you. Once again, that is star one if you would like to ask a question. Our next question will come from Julian Mitchell with Barclays. Your line is open.
Operator: Thank you. Once again, that is star one if you would like to ask a question. Our next question will come from Julian Mitchell with Barclays. Your line is open.
Speaker #4: open. Hi.
Speaker #9: Good morning. Maybe just to focus on some of the end market trends. So, looking at slide 15, I just wanted to understand, perhaps, when we look at the far right-hand side column of the full-year growth rates, when we look at Q4, sort of which of those growth rates you see as most different from the full-year numbers. Just trying to understand kind of inflections or changes, or if it's easier to explain, any color on how the first half trended for those respective markets beyond A and D.
[Analyst] (Barclays): Hi, good morning. Maybe just to focus on some of the end market trends. So looking at slide 15, just wanted to understand perhaps, you know, when we look at the far right-hand side column of the full year growth rates, when we look at Q4, sort of which of those growth rates, as you see it, are most different from the full year numbers? Just trying to understand kind of inflections or changes, or if it's easier to explain, you know, any color on how the first half trended for those respective markets beyond A and D.
Julian Mitchell: Hi, good morning. Maybe just to focus on some of the end market trends. So looking at slide 15, just wanted to understand perhaps, you know, when we look at the far right-hand side column of the full year growth rates, when we look at Q4, sort of which of those growth rates, as you see it, are most different from the full year numbers? Just trying to understand kind of inflections or changes, or if it's easier to explain, you know, any color on how the first half trended for those respective markets beyond A and D.
Speaker #2: Well, I mean, when you look at—let's just look at off-highway, for example. We started off with negative low single digits on our initial guidance back in August.
Jennifer Parmentier: Well, I mean, when you look at - let's just look at off-highway, for example. You know, we started off with negative low single digits on our initial guidance back in August, and then we moved it to neutral in Q1, and then we moved it, just moved it now to positive low single digits. So that just keeps, you know, just keeps going up. So that's, that's one that I would, that I would highlight. And when you look at, obviously, you pointed out aerospace, we're continuing to increase that. But when you look at the rest of the markets, the industrial markets, you know, they've remained the same. We've seen some bright spots within them that we've pointed out. But in-plant and industrial, still saying a positive low single digits.
Jennifer Parmentier: Well, I mean, when you look at - let's just look at off-highway, for example. You know, we started off with negative low single digits on our initial guidance back in August, and then we moved it to neutral in Q1, and then we moved it, just moved it now to positive low single digits. So that just keeps, you know, just keeps going up. So that's, that's one that I would, that I would highlight. And when you look at, obviously, you pointed out aerospace, we're continuing to increase that. But when you look at the rest of the markets, the industrial markets, you know, they've remained the same. We've seen some bright spots within them that we've pointed out. But in-plant and industrial, still saying a positive low single digits.
Speaker #2: And then we moved it to neutral in Q1. And then we just moved it now to positive low single digits. So that just keeps going up.
Speaker #2: So that's one that I would highlight. And when you look at—obviously, you pointed out aerospace—we're continuing to increase that. But when you look at the rest of the markets, the industrial markets, they've remained the same.
Speaker #2: We've seen some bright spots within them that we've pointed out. But in plant and industrial, still staying at positive low single digits. When you look at transportation, negative mid-single digits.
Jennifer Parmentier: When you look at transportation, negative mixed single digit, like we said, we're not seeing anything right now that would change our mind about that through this fiscal year. And then the same for energy and HVAC and refrigeration. We're maintaining those from initial guidance.
When you look at transportation, negative mixed single digit, like we said, we're not seeing anything right now that would change our mind about that through this fiscal year. And then the same for energy and HVAC and refrigeration. We're maintaining those from initial guidance.
Speaker #2: Like we said, we're not seeing anything right now that would change our mind about that through this fiscal year. And then the same for Energy, and HVAC and Refrigeration.
Speaker #2: We're maintaining those from initial
Speaker #2: guidance.
Speaker #9: Got it. Thank you.
[Analyst] (Barclays): Got it. Thank you. Maybe within A and D, if you could just refresh us perhaps on the end market outlooks for the various pieces for fiscal 2026.
Julian Mitchell: Got it. Thank you. Maybe within A and D, if you could just refresh us perhaps on the end market outlooks for the various pieces for fiscal 2026.
Speaker #9: Within A and D, if you could maybe just refresh us, perhaps, on the end market outlooks for the various pieces for fiscal '26. Another company talks about sort of normalization of outsized commercial aero aftermarket growth.
Jennifer Parmentier: Sure.
Jennifer Parmentier: Sure.
[Analyst] (Barclays): You know, another company talked about sort of normalization of outsized commercial aero aftermarket growth, but I feel people have been guiding for that for sort of three years running now. So, yeah, just any thoughts around the market pieces of A&D?
Julian Mitchell: You know, another company talked about sort of normalization of outsized commercial aero aftermarket growth, but I feel people have been guiding for that for sort of three years running now. So, yeah, just any thoughts around the market pieces of A&D?
Speaker #9: But I feel people have been guiding for that for, sort of, three years running now. So, yeah, just any thoughts around the market?
Speaker #9: pieces of A and D. You
Speaker #2: Bet. So we expect commercial OEM to be around 20% growth. We previously had that at mid-teens. We expect commercial aftermarket to be at low double-digit growth.
Jennifer Parmentier: ... You bet. So we expect commercial OEM to be around 20% growth. We previously had that at mid-teens. We expect commercial aftermarket to be at low double-digit growth. So we previously had that at high single digit. So we just had 17% in Q2, and in Q1, that was 13%. So we still see strong commercial aftermarket. We expect defense OEM to be around mid-single digit growth, which is the same as last quarter. And defense aftermarket is at low single-digit growth, that was previously at mid-single digit growth, but still, you know, in a good spot, just a small change there.
Jennifer Parmentier: ... You bet. So we expect commercial OEM to be around 20% growth. We previously had that at mid-teens. We expect commercial aftermarket to be at low double-digit growth. So we previously had that at high single digit. So we just had 17% in Q2, and in Q1, that was 13%. So we still see strong commercial aftermarket. We expect defense OEM to be around mid-single digit growth, which is the same as last quarter. And defense aftermarket is at low single-digit growth, that was previously at mid-single digit growth, but still, you know, in a good spot, just a small change there.
Speaker #2: So we previously had that at high single digits. So we just had 17% in Q2, and in Q1 that was 13%. So we still see strong commercial aftermarket.
Speaker #2: We expect defense OEM to be around mid-single-digit growth, which is the same as last quarter. And defense aftermarket is at low-single-digit growth.
Speaker #2: That was previously at mid-single-digit growth. But still, in a good spot—just a small change there.
Speaker #9: Great. Thank you.
[Analyst] (Barclays): Great. Thank you.
Julian Mitchell: Great. Thank you.
Speaker #4: Thank you. Our next question will come from Jeff Sprake with Vertical Research Partners. Your line is open.
Jennifer Parmentier: Thanks.
Jennifer Parmentier: Thanks.
Operator: Thank you. Our next question will come from Jeff Sprague, with Vertical Research Partners. Your line is open.
Operator: Thank you. Our next question will come from Jeff Sprague, with Vertical Research Partners. Your line is open.
Speaker #4: open. Hey, thank you.
Speaker #10: Good morning, everyone. Hey, hi, Jenny. I just wanted to come back to just kind of orders and sales. Obviously, in the industrial businesses, we've got more long-cycle, and we've talked about that a lot, including on the call here today.
[Analyst] (Vertical Research Partners): Hey, thank you. Good morning, everyone.
Jeff Sprague: Hey, thank you. Good morning, everyone.
Jennifer Parmentier: Good morning.
Jennifer Parmentier: Good morning.
[Analyst] (Vertical Research Partners): Hey, hi, Jenny. Just wanted to come back to just kind of orders and sales. Obviously, kind of in the industrial businesses, we've got more long cycle, and we've talked about that a lot, including on the call here today. But I'm also just observing that, you know, orders have outpaced sales now for 8 quarters, which I've never seen that long of a run. So maybe you could just speak to, you know, is it, is it reasonable to think that those do reconnect at some point in time, or there's just that much more long cycle stuff in the, in the backlog? And obviously, at some point, things will cycle, and they'll cross over. But in terms of kind of, you know, them coming together during an upcycle, would you think we continue to see kind of a persistent gap there?
Jeff Sprague: Hey, hi, Jenny. Just wanted to come back to just kind of orders and sales. Obviously, kind of in the industrial businesses, we've got more long cycle, and we've talked about that a lot, including on the call here today. But I'm also just observing that, you know, orders have outpaced sales now for 8 quarters, which I've never seen that long of a run. So maybe you could just speak to, you know, is it, is it reasonable to think that those do reconnect at some point in time, or there's just that much more long cycle stuff in the, in the backlog? And obviously, at some point, things will cycle, and they'll cross over. But in terms of kind of, you know, them coming together during an upcycle, would you think we continue to see kind of a persistent gap there?
Speaker #10: But I'm also just observing that orders have outpaced sales now for eight quarters, which I've never seen that long of a run. So, maybe you could just speak to, is it reasonable to think that those do reconnect at some point in time? Or is there just that much more long-cycle stuff in the backlog?
Speaker #10: And obviously, at some point, things will cycle and they'll cross over. But in terms of kind of them coming together during an upcycle, do you think we can continue to see kind of a persistent gap?
Speaker #10: there? Yeah.
Speaker #2: Jeff, it's a good question. I mean, we're clearly a longer-cycle business today than we have been in the past. But it is hard to put a figure on conversion timing, as it really is determined by the customer delivery schedule.
Jennifer Parmentier: Yeah. You know, Jeff, that's a good question. I mean, we're clearly a longer cycle business today than we have been in the past. But it is hard to put a figure on conversion timing, as, you know, it really is determined by the customer delivery schedule. We obviously, with higher aerospace and defense in the aerospace segment, as well as in our industrial businesses, we do have, you know, a lot of multiyear orders that fall into those buckets, so that definitely has, has an impact. You know, and, and what we see from a short cycle standpoint is that, you know, I've mentioned a couple of times is, you know, it's a gradual short cycle recovery, some markets sooner than others. You know, in plant, our distribution business, we think they're going to benefit from both CapEx and OpEx.
Jennifer Parmentier: Yeah. You know, Jeff, that's a good question. I mean, we're clearly a longer cycle business today than we have been in the past. But it is hard to put a figure on conversion timing, as, you know, it really is determined by the customer delivery schedule. We obviously, with higher aerospace and defense in the aerospace segment, as well as in our industrial businesses, we do have, you know, a lot of multiyear orders that fall into those buckets, so that definitely has, has an impact. You know, and, and what we see from a short cycle standpoint is that, you know, I've mentioned a couple of times is, you know, it's a gradual short cycle recovery, some markets sooner than others. You know, in plant, our distribution business, we think they're going to benefit from both CapEx and OpEx.
Speaker #2: We obviously, with higher aerospace and defense, in the Aerospace segment as well as in our Industrial businesses, we do have a lot of multi-year orders that fall into those buckets.
Speaker #2: So that definitely has an impact. And what we see from a short-cycle standpoint, as I've mentioned a couple of times, is it's a gradual short-cycle recovery.
Speaker #2: Some markets sooner than others. In Plant, our distribution business, we think they're going to benefit from both CapEx and OpEx. So again, I pointed out we saw low single-digit positive growth in the quarter.
Jennifer Parmentier: So again, I pointed out we saw low single digit positive growth in the quarter, and those long cycle and secular trend businesses, you know, HVAC, energy, they're continuing to really, you know, be strong. So, you know, record backlog, orders are in a good position, but hard to, to connect the dots there.
So again, I pointed out we saw low single digit positive growth in the quarter, and those long cycle and secular trend businesses, you know, HVAC, energy, they're continuing to really, you know, be strong. So, you know, record backlog, orders are in a good position, but hard to, to connect the dots there.
Speaker #2: And those long-cycle and secular trend businesses—HVAC, energy—they're continuing to really be strong. So, record backlog, orders are in a good position. But hard to connect the dots there.
Speaker #10: Yeah, Jeff, on the good side, it is giving us better visibility. It is allowing us to level-load our operations. It is part of what's driving the consistency in our performance across all of the operating businesses.
Todd Leombruno: You know, Jeff, on the good side, it is giving us better visibility. It is allowing us to level load our operations. It is part of what's driving the consistency in our performance across all of the operating businesses. And again, I think not as much credit is given to the transformation of the portfolio. And you know, like I said, we are a different company than we were two, three, five, 10 years ago. So it's still an important metric. We watch it every day, as a matter of fact. And we're really happy that the orders have turned positive across every business, and it's a positive outlook for the future.
Todd Leombruno: You know, Jeff, on the good side, it is giving us better visibility. It is allowing us to level load our operations. It is part of what's driving the consistency in our performance across all of the operating businesses. And again, I think not as much credit is given to the transformation of the portfolio. And you know, like I said, we are a different company than we were two, three, five, 10 years ago. So it's still an important metric. We watch it every day, as a matter of fact. And we're really happy that the orders have turned positive across every business, and it's a positive outlook for the future.
Speaker #10: And again, I think not as much credit is given to the transformation of the portfolio. And like I said, we are a different company than we were two, three, five, ten years ago.
Speaker #10: So, it's still an important metric. We watch it every day, as a matter of fact. And we're really happy that the orders have turned positive across every business.
Speaker #10: And it's a positive outlook for the future. Yeah.
Speaker #10: And we don't have, yeah, the industrial backlog. I don't think—if you could share it, that'd be interesting. But yeah, industrial backlog was down in Q1, right?
[Analyst] (Vertical Research Partners): Yeah, and we don't have the industrial backlog. I don't think if you could share it, that'd be interesting. But yeah, industrial backlog was down in Q1, right? But it looks to me if it was even flat sequentially here in Q2, then we're starting to get to backlog in industrial, also inflecting higher. Is that sort of what you see in the business?
Jeff Sprague: Yeah, and we don't have the industrial backlog. I don't think if you could share it, that'd be interesting. But yeah, industrial backlog was down in Q1, right? But it looks to me if it was even flat sequentially here in Q2, then we're starting to get to backlog in industrial, also inflecting higher. Is that sort of what you see in the business?
Speaker #10: But it looks to me, if it was even flat sequentially here in Q2, then we're starting to get to backlog in Industrial also inflecting higher.
Speaker #10: Is that sort of what you—
Speaker #10: See in the business? Yeah, I believe.
Todd Leombruno: Yeah, I believe that's exactly what we're seeing here.
Todd Leombruno: Yeah, I believe that's exactly what we're seeing here.
Speaker #2: The industrial—that's exactly what we're seeing here. Backlog has gone up in Q2. Yeah, industrial backlog went up. It remains in the mid-20s. And it grew from Q1 to—
Jennifer Parmentier: Industrial backlog has gone up-
Jennifer Parmentier: Industrial backlog has gone up-
Todd Leombruno: Yeah
Todd Leombruno: Yeah
Jennifer Parmentier: - in Q2. Yeah, industrial backlog-
Jennifer Parmentier: - in Q2. Yeah, industrial backlog-
Todd Leombruno: Yeah
Todd Leombruno: Yeah
Jennifer Parmentier: went up. It remains in the mid-twenties, and it grew from Q1 to Q2.
Jennifer Parmentier: went up. It remains in the mid-twenties, and it grew from Q1 to Q2.
Speaker #2: Q2. Right.
Todd Leombruno: Right.
Todd Leombruno: Right.
Speaker #10: Okay, yeah, which means then it's nicely up versus last year, which reflects the order versus sales gap. Great. No, I appreciate that color. Thanks a lot.
[Analyst] (Vertical Research Partners): Okay. Yeah, which means then it's nicely up versus last year, which reflects the order versus sales gap. Great. No, I appreciate that color. Thanks a lot.
Jeff Sprague: Okay. Yeah, which means then it's nicely up versus last year, which reflects the order versus sales gap. Great. No, I appreciate that color. Thanks a lot.
Speaker #2: Yep. Yep.
Speaker #3: Good questions,
Jennifer Parmentier: Yeah. Yep.
Jennifer Parmentier: Yeah. Yep.
Todd Leombruno: Good questions, Jeff.
Todd Leombruno: Good questions, Jeff.
Speaker #4: Thank you, Jeff. Our next question will come from Joe O'Day with Wells Fargo. Your line is open.
Operator: Thank you. Our next question will come from Joe O'Dea with Wells Fargo. Your line is open.
Operator: Thank you. Our next question will come from Joe O'Dea with Wells Fargo. Your line is open.
Speaker #11: Hi, good morning. I wanted to circle back to the
[Analyst] (Wells Fargo): Hi, good morning.
Joe O'Dea: Hi, good morning.
Speaker #2: morning.
Jennifer Parmentier: Good morning.
Jennifer Parmentier: Good morning.
[Analyst] (Wells Fargo): I wanted to circle back to the implant comments and just customer kind of prioritization of spend around productivity and automation over some of the capacity expansion. I think we've been in that kind of environment for some time at this point. Maybe just spend a little bit of time on what that means for, you know, their spend, like, the wallet that goes to Parker, and when we think about it on the productivity and automation side versus the capacity expansion side, and if we were to see a pivot toward capacity expansion, what that would mean for you?
Joe O'Dea: I wanted to circle back to the implant comments and just customer kind of prioritization of spend around productivity and automation over some of the capacity expansion. I think we've been in that kind of environment for some time at this point. Maybe just spend a little bit of time on what that means for, you know, their spend, like, the wallet that goes to Parker, and when we think about it on the productivity and automation side versus the capacity expansion side, and if we were to see a pivot toward capacity expansion, what that would mean for you?
Speaker #11: In-plant comments and just customer kind of prioritization of spend around productivity and automation over some of the capacity expansion. I think we've been in that kind of environment for some time at this point.
Speaker #11: Maybe just spend a little bit of time on what that means for their spend, the wallet that goes to Parker, and when we think about it on the productivity and automation side versus the capacity expansion side.
Speaker #11: And if we were to see a pivot toward capacity expansion, what that would mean for—
Speaker #11: you? Well, the good news is we
Jennifer Parmentier: Well, you know, the good news is, is we participate in both scenarios, right? I mean, when, you know, when there's any, any type of, you know, retooling done or, or upgrading done or retrofitting done, our distribution channel and sometimes many of our divisions participate in that directly. And then, you know, some of the examples we've given in the past is when there is, you know, capacity expansion that is, actually, you know, new factory, new building, you know, we're participating from the time that they start, clearing the land, and all the way through the, you know, putting the walls up, putting the infrastructure in. So, Parker gets a nice share of the wallet in both, both situations. It is just still a gradual recovery, though.
Jennifer Parmentier: Well, you know, the good news is, is we participate in both scenarios, right? I mean, when, you know, when there's any, any type of, you know, retooling done or, or upgrading done or retrofitting done, our distribution channel and sometimes many of our divisions participate in that directly. And then, you know, some of the examples we've given in the past is when there is, you know, capacity expansion that is, actually, you know, new factory, new building, you know, we're participating from the time that they start, clearing the land, and all the way through the, you know, putting the walls up, putting the infrastructure in. So, Parker gets a nice share of the wallet in both, both situations. It is just still a gradual recovery, though.
Speaker #2: Participate in both scenarios, right? I mean, when there's any type of retooling done or upgrading done or retrofitting done, our distribution channel—and sometimes many of our divisions—participate in that directly.
Speaker #2: And then some of the examples we've given in the past are when there is capacity expansion that is actually a new factory, a new building—we're participating from the time that they start clearing the land.
Speaker #2: And all the way through putting the walls up, putting the infrastructure in. So Parker gets a nice share of the wall in both situations.
Speaker #2: It is still just a gradual recovery, though. And our distributors—again, positive sentiment—are working with a lot of those small and mid-sized OEMs. They're participating in these things.
Jennifer Parmentier: You know, and our distributors, again sentiment, working with a lot of those small and mid-sized OEMs. They're participating in these things. They're ready, they're ready to participate at a higher level. But right now, what we have for them is, you know, we see for industrial growth, it's about 2 to 2.5%.
You know, and our distributors, again sentiment, working with a lot of those small and mid-sized OEMs. They're participating in these things. They're ready, they're ready to participate at a higher level. But right now, what we have for them is, you know, we see for industrial growth, it's about 2 to 2.5%.
Speaker #2: They're ready. They're ready to participate at a higher level. But right now, what we have for them, as we see for industrial growth, is about 2% to 2.5%.
Speaker #11: Got it. And then just on your own CapEx plans—you'd raised the guide a little bit last quarter, and maintained it this quarter. It's up about $100 million.
[Analyst] (Wells Fargo): Got it. And then, just on, on your own CapEx plans, you, you'd raised the guide a little bit last quarter, maintained it this quarter. It's up about $100 million, year-over-year, so some nice growth there. You know, maybe just elaborate on that and whether there's anything on the capacity expansion side. Is any of that targeted around, as you're starting to highlight off-highway a little bit, and then some of the activity you're seeing there, just to understand where that higher spend is going?
Joe O'Dea: Got it. And then, just on, on your own CapEx plans, you, you'd raised the guide a little bit last quarter, maintained it this quarter. It's up about $100 million, year-over-year, so some nice growth there. You know, maybe just elaborate on that and whether there's anything on the capacity expansion side. Is any of that targeted around, as you're starting to highlight off-highway a little bit, and then some of the activity you're seeing there, just to understand where that higher spend is going?
Speaker #11: Year over year, so some nice growth there. Maybe just elaborate on that, and whether there's anything on the capacity expansion side—is any of that targeted around, as you're starting to highlight off-highway a little bit, and then some of the activity you're seeing there?
Speaker #11: Just understand where that higher spend is going.
Speaker #2: Yeah, we are definitely investing in our businesses, with investment around automation and productivity. And we do have capacity expansion on both sides of the business.
Jennifer Parmentier: Yeah, we are definitely investing in our businesses. We have investment around automation and productivity, and we do have capacity expansion on both sides of the business. So, it's important to us to be able to, you know, keep up the level of service and world-class manufacturing. And, you know, as our team use Kaizen tools to improve the processes that we have, we're always looking to make those processes better. So a lot of investment in our factories.
Jennifer Parmentier: Yeah, we are definitely investing in our businesses. We have investment around automation and productivity, and we do have capacity expansion on both sides of the business. So, it's important to us to be able to, you know, keep up the level of service and world-class manufacturing. And, you know, as our team use Kaizen tools to improve the processes that we have, we're always looking to make those processes better. So a lot of investment in our factories.
Speaker #2: So it's important to us to be able to keep up the level of service and world-class manufacturing, and as our teams use Kaizen tools to improve the processes that we have, we're always looking to make those processes better.
Speaker #2: So a lot of investment in our
Speaker #2: factories. Got it.
Speaker #11: Thank you.
[Analyst] (Wells Fargo): Got it. Thank you.
Joe O'Dea: Got it. Thank you.
Speaker #4: Thank you. Our next question will come from Chris Snyder with Morgan Stanley. Your line is open.
Operator: Thank you. Our next question will come from Chris Snyder with Morgan Stanley. Your line is open.
Operator: Thank you. Our next question will come from Chris Snyder with Morgan Stanley. Your line is open.
Speaker #4: open. Thank you.
Speaker #10: So, I kind of want to follow up on some of the earlier conversation around cycle trends. You guys have as broad exposure as anybody, both on an end market but also a geographic basis.
[Analyst] (Morgan Stanley): Thank you. So I kind of want to follow up on some of the earlier conversation around cycle trends. You know, you guys have as broad exposure as anybody, both on an end market, but also a geographic basis. So just kind of maybe simply, when you look across all this exposure, is there anything that you think will be worse a year from now, or, you know, where you're seeing signs that there's pointing to next twelve months deterioration? Thank you.
Chris Snyder: Thank you. So I kind of want to follow up on some of the earlier conversation around cycle trends. You know, you guys have as broad exposure as anybody, both on an end market, but also a geographic basis. So just kind of maybe simply, when you look across all this exposure, is there anything that you think will be worse a year from now, or, you know, where you're seeing signs that there's pointing to next twelve months deterioration? Thank you.
Speaker #10: So just kind of, maybe simply, when you look across all this exposure, is there anything that you think will be worse a year from now, where you're seeing signs that are pointing to next 12 months' deterioration?
Speaker #10: Thank you.
Speaker #2: I don't see anything now. I'm not hearing anything. I don't see any indicators that would cause us to think that the forecast we have out there now for these market verticals is going to get worse.
Jennifer Parmentier: I don't see anything now, or I'm not hearing anything, or I don't see any indicators that would cause us to think that the forecast we have out there now for these market verticals is, is going to get worse. You know, I don't, I don't see anything.
Jennifer Parmentier: I don't see anything now, or I'm not hearing anything, or I don't see any indicators that would cause us to think that the forecast we have out there now for these market verticals is, is going to get worse. You know, I don't, I don't see anything.
Speaker #2: I don't see
Speaker #2: anything. Yeah,
Speaker #3: Chris, we called out backlog in total backlog as a record. Orders have been positive for some time now. Historically, that has been a positive sign for future growth for Parker-Hannifin.
Speaker #3: Chris, we called out backlog in total backlog as a record. Orders have been positive for some time now. Historically, that has been a positive sign for future growth for Parker Hannifin.
Todd Leombruno: Yeah, Chris, you know, we called out backlog in total. Backlog is a record. Orders have been positive for some time now. Historically, that has been a positive sign for future growth for Parker Hannifin.
Todd Leombruno: Yeah, Chris, you know, we called out backlog in total. Backlog is a record. Orders have been positive for some time now. Historically, that has been a positive sign for future growth for Parker Hannifin.
Speaker #10: Yeah, no, no, absolutely. We're just wondering if there was anything that wasn't stable to improving. And then I guess maybe just following up on that—it seemed like at least a good chunk of the North America order pickup was some of the longer cycle businesses.
[Analyst] (Morgan Stanley): Yeah. No, no, absolutely. Just wondering if there was anything that wasn't, like, stable to improving. And then I guess maybe just following up on that, it seemed like at least a good chunk of the North America order pickup was some of the longer cycle businesses. But did the shorter cycle businesses also see positive rate of change on orders, and any color on the specific end markets? I would imagine, you know, you know, construction and some of them were seeing momentum. Thank you.
Chris Snyder: Yeah. No, no, absolutely. Just wondering if there was anything that wasn't, like, stable to improving. And then I guess maybe just following up on that, it seemed like at least a good chunk of the North America order pickup was some of the longer cycle businesses. But did the shorter cycle businesses also see positive rate of change on orders, and any color on the specific end markets? I would imagine, you know, you know, construction and some of them were seeing momentum. Thank you.
Speaker #10: But did the shorter-cycle businesses also see positive rate of change on orders in any color on the specific end markets? I would imagine construction and some of them were seeing momentum.
Speaker #10: Thank
Speaker #10: you. Yeah.
Speaker #2: Yeah, we definitely saw some positive orders in plant and off-highway and energy. So, definitely, it wasn't all aerospace and defense, but there were some multi-year aerospace and defense orders that hit our industrial businesses that really caused that jump from 3% to 7%.
Jennifer Parmentier: Yeah. Yeah, we definitely saw some positive orders in in-plant, off-highway, and energy. So definitely, it wasn't all aerospace and defense, but there were some multiyear aerospace and defense orders that hit our industrial businesses that, you know, really caused that jump from 3% to 7%. But positive orders in in-plant, off-highway, and energy.
Jennifer Parmentier: Yeah. Yeah, we definitely saw some positive orders in in-plant, off-highway, and energy. So definitely, it wasn't all aerospace and defense, but there were some multiyear aerospace and defense orders that hit our industrial businesses that, you know, really caused that jump from 3% to 7%. But positive orders in in-plant, off-highway, and energy.
Speaker #2: But positive orders in in-plant, off-highway, and
Speaker #2: energy. Thank you.
Speaker #10: I
[Analyst] (Morgan Stanley): Thank you. I appreciate that.
Chris Snyder: Thank you. I appreciate that.
Speaker #3: Hey, Katie, this is Todd. I think we have time for maybe one more question before we wrap it up.
Todd Leombruno: Hey, Katie, this is Todd. I think we have time for maybe one more question before we wrap it up at twelve.
Todd Leombruno: Hey, Katie, this is Todd. I think we have time for maybe one more question before we wrap it up at twelve.
Speaker #3: at 12:00. Thank you.
Speaker #4: Our last question will come from Brett Lindsey with Mizuho. Your line is open.
Operator: Thank you. Our last question will come from Brett Linzey with Mizuho. Your line is open.
Operator: Thank you. Our last question will come from Brett Linzey with Mizuho. Your line is open.
Speaker #4: open. Hey, good morning,
Speaker #6: One of the—yeah, one of the follow-up on filtration group, I imagine the teams are already getting a running start on some of the integration and pre-planning.
[Analyst] (Mizuho): Hey, good morning, all. One of the, yeah, wanted to follow up on Filtration Group. I imagine the teams are already getting a running start on some of the integration and pre-planning. Any early observations on confidence around cost synergies? And then as you've been mapping the combination, any early view on the sales synergy side?
Brett Linzey: Hey, good morning, all. One of the, yeah, wanted to follow up on Filtration Group. I imagine the teams are already getting a running start on some of the integration and pre-planning. Any early observations on confidence around cost synergies? And then as you've been mapping the combination, any early view on the sales synergy side?
Speaker #6: Any early observations on confidence around cost synergies? And then, as you've been mapping the combination, any early view on the sales synergy side?
Speaker #2: Thanks for the question, Brett. As I said, we're just really excited about the Filtration Group. We are very confident in our ability to deliver that $220 million in synergies by the end of year three.
Jennifer Parmentier: Thanks for the question, Brett. As I said, we're just really excited about the Filtration Group. So we are very confident in our ability to deliver that $220 million in synergies by the end of year three. You know, part of our diligence process was, you know, several plant visits, and that's what gives us that confidence. We are working with the team. You know, we don't own them yet, so, you know, we're building relationships. We're getting that integration playbook going. We have the integration team assembled here on the Parker side and will shortly with the Filtration Group side. But really, feel very confident about the synergies.
Jennifer Parmentier: Thanks for the question, Brett. As I said, we're just really excited about the Filtration Group. So we are very confident in our ability to deliver that $220 million in synergies by the end of year three. You know, part of our diligence process was, you know, several plant visits, and that's what gives us that confidence. We are working with the team. You know, we don't own them yet, so, you know, we're building relationships. We're getting that integration playbook going. We have the integration team assembled here on the Parker side and will shortly with the Filtration Group side. But really, feel very confident about the synergies.
Speaker #2: Part of our diligence process was several plant visits, and that's what gives us that confidence. We are working with the team. We don't own them yet, so we're building relationships.
Speaker #2: We're getting that integration playbook going. We have the integration team assembled here on the Parker side, and we'll be shortly with the Filtration Group side.
Speaker #2: But really, I feel very confident about the synergies. We didn't model any revenue synergies, but we feel that there are opportunities to utilize the customer relationships that we both have to deliver value to customers.
Jennifer Parmentier: We didn't model any revenue synergies, but we feel that there's opportunities to utilize the customer relationships that we both have to deliver value to customers. So we think that that is, you know, gonna give us some upside. And then, you know, we'll look at the distribution networks and see, you know, what makes sense and learn and, you know, be focused on our organic growth with this acquisition, just like we have the last.
We didn't model any revenue synergies, but we feel that there's opportunities to utilize the customer relationships that we both have to deliver value to customers. So we think that that is, you know, gonna give us some upside. And then, you know, we'll look at the distribution networks and see, you know, what makes sense and learn and, you know, be focused on our organic growth with this acquisition, just like we have the last.
Speaker #2: So, we think that that is going to give us some upside. And then we'll look at the distribution networks and see what makes sense.
Speaker #2: And learn and be focused on our organic growth with this acquisition, just like we have the.
Speaker #2: last.
Speaker #6: That's great. And
Speaker #6: Then, just a quick follow-up—so just to close the loop on tariffs. So, calendar '25 is in the books. Can you update us on what the annualized tariff expense was that you absorbed?
[Analyst] (Mizuho): That's great. And then just as a quick follow-up, so just close the loop on, on tariffs, so calendar 2025 in the books. Can you update us on what the annualized tariff expense that you absorbed? And as you've progressed through the mitigation measures, is it fair to think that as you get into the, the second half of calendar 2026, that you do have the potential to drive better than normal incrementals as you're lapping some of that expense pain?
Brett Linzey: That's great. And then just as a quick follow-up, so just close the loop on, on tariffs, so calendar 2025 in the books. Can you update us on what the annualized tariff expense that you absorbed? And as you've progressed through the mitigation measures, is it fair to think that as you get into the, the second half of calendar 2026, that you do have the potential to drive better than normal incrementals as you're lapping some of that expense pain?
Speaker #6: And as you've progressed through the mitigation measures, is it fair to think that as you get into the second half of calendar '26, that you do have the potential to drive better-than-normal incrementals as you're lapping some of that expense pain?
Speaker #3: Hey Brett, this is Todd. The tariffs obviously have been pretty volatile. I don't want to make any predictions on what's going to happen with tariffs or what has happened with tariffs.
Todd Leombruno: Hey, hey, Brett, this is Todd. You know, the tariffs obviously have been pretty volatile. I don't want to make any predictions on what's gonna happen with tariffs or what has happened with tariffs. I would just tell you, rest assured, that we have it covered. You have not heard us call out any negative impact from tariffs. You look at these margins. These margins are all-time records. We're really positive now that a majority of the company has returned to positive organic growth, and we're gonna manage whatever happens as it happens, and just be as clear and as transparent with our customers as we possibly can be. So, that's the way we're running it.
Todd Leombruno: Hey, hey, Brett, this is Todd. You know, the tariffs obviously have been pretty volatile. I don't want to make any predictions on what's gonna happen with tariffs or what has happened with tariffs. I would just tell you, rest assured, that we have it covered. You have not heard us call out any negative impact from tariffs. You look at these margins. These margins are all-time records. We're really positive now that a majority of the company has returned to positive organic growth, and we're gonna manage whatever happens as it happens, and just be as clear and as transparent with our customers as we possibly can be. So, that's the way we're running it.
Speaker #3: I would just tell you, rest assured that we haven't— you have not heard us call out any negative impact from tariffs. You look at these margins; these margins are all-time records.
Speaker #3: We're really positive now that a majority of the company has returned to positive organic growth. And we're going to manage whatever happens as it happens, and just be as clear and transparent with our customers as we possibly can be.
Speaker #3: So that's the way we're running it.
Speaker #2: That's right.
Jennifer Parmentier: That's right.
Jennifer Parmentier: That's right.
Speaker #6: All right. Congrats on the quarter.
[Analyst] (Mizuho): All right. Congrats on the quarter.
Brett Linzey: All right. Congrats on the quarter.
Speaker #3: Thanks. Thank
Speaker #3: Thanks. All right, Katie, I think this wraps up our time here. This concludes our FY ’26 Q2 earnings release webcast. We do appreciate everyone’s time and attention.
Todd Leombruno: Thanks.
Todd Leombruno: Thanks.
Jennifer Parmentier: Thank you.
Jennifer Parmentier: Thank you.
Todd Leombruno: All right, Katie, I think this, this wraps up our time here. This concludes our FY26 Q2 earnings release web-webcast. We do appreciate everyone's time and attention. We thank you for joining us today. If there are any needs for follow-ups or clarifications, our investor relations team will be available as usual, as usual. Jeff Miller and Jenna Stuckey will be available for any kind of follow-up that's needed. Thank you, everyone, and have a wonderful day.
Todd Leombruno: All right, Katie, I think this, this wraps up our time here. This concludes our FY26 Q2 earnings release web-webcast. We do appreciate everyone's time and attention. We thank you for joining us today. If there are any needs for follow-ups or clarifications, our investor relations team will be available as usual, as usual. Jeff Miller and Jenna Stuckey will be available for any kind of follow-up that's needed. Thank you, everyone, and have a wonderful day.
Speaker #3: We thank you for joining us today. If there are any needs for follow-ups or clarifications, our Investor Relations team will be available as usual.
Speaker #3: Jeff Miller and Jenna Stuckey will be available for any kind of follow-up that's needed. Thank you, everyone, and have a wonderful
Speaker #3: day. Thank you.
Operator: Thank you. This concludes today's call. We appreciate your time and participation. You may now disconnect.
Operator: Thank you. This concludes today's call. We appreciate your time and participation. You may now disconnect.
