Parker-Hannifin Corporation Q1 FY2026 earnings call

• Q1 was great start, record sales $5.1B, organic growth 5%, 170 basis points margin expansion, adjusted segment operating margin 27.4%, adjusted EPS grew 16%, cash flow from operations $782M, completed acquisition of Curtis Instruments.
• Win Strategy is business system with decentralized structure, innovative products with 85% IP, great distribution network. #1 in $145B motion and control industry, 6 market verticals >90% of revenue, interconnected technologies give competitive advantage.
• Focus on energy market vertical, significant supplier to heavy-duty gas turbines for power generation, long life cycle, multiyear backlog, durable aftermarket.

Orders were strong at +8% vs prior year, with organic growth at +5%. Diversified Industrial North America: sales over $2B, organic growth +2%, first positive in 7 quarters, 170 basis points margin expansion, record 27.0% segment operating margin. Diversified Industrial International: sales record $1.4B, up 3%, organic growth +1%, Asia Pac +6%, EMEA -3%, Latin America flat, adjusted segment operating margin record 25.0%, 90 basis points improvement. Aerospace Systems: sales record $1.6B, up 13%, organic growth 13%, commercial OEM +24%, adjusted segment operating margins increased 210 basis points, reached 30% for first time, orders +15%, backlog record.

• Organic sales growth forecast updated: Aerospace from 8% to 9.5%, Implant and Industrial unchanged, Transportation mid-single-digit organic decline, off-highway from negative low single digits to neutral, energy positive low single-digit growth, HVAC/refrigeration from positive low single digits to positive mid-single digits. Raised organic sales growth guidance from 3% to 4% midpoint.
• Reported sales range 4%-7%, midpoint 5.5%, currency favorable 1.5 points. Included Curtis sales and income in guide, added $235M to guide, divestitures 1% unfavorable.
• Raised adjusted segment operating margins 50 basis points to 27.0%, adjusted EPS to $30 midpoint, +10% vs prior year. Full year free cash flow range $3.1B-$3.5B, >100% conversion. Q2 reported sales expected 6.5%, organic growth 4%, adjusted segment operating margins 26.6%, EPS $7.10 adjusted.

Q: Julian Mitchell on DI North America organic sales picture and cadence of demand.

A: North America performed better than expected, Q2 expected same as Q1, 2% growth.

Q: Mircea Dobre on Industrial International orders and flow through to organic growth.

A: EMEA flat to slightly positive, Asia Pacific positive low single-digit, uncertainty remains.

Q: David Raso on organic guide raise volume vs price and margin improvement.

A: Don't disclose pricing, seeing impact of slightly stronger volume.

Q: Scott Davis on M&A pipeline.

A: Committed to active capital deployment, pipeline active, looking for strategic accretive deals.

Q: Amit Mehrotra on broad basis of order improvement and aero margins.

A: Longer-cycle pockets and some verticals improving, aero margins strong, mix of OEM and aftermarket.

Q: Jeffrey Sprague on aero defense vs commercial mix and Curtis integration.

A: Defense and commercial mid-single-digit growth same, Curtis integration well underway, slightly dilutive but EPS accretive.

Q: Joseph Ritchie on sizing opportunity on Slide 7 and tariffs impact.

A: No specific sizing, teams adjust pricing as needed.

Q: Joseph O'Dea on North America implant and HVAC filtration.

A: Gradual recovery in North America, filtration wins in energy and mobile.

Q: Christopher Snyder on North America industrial cycle and implant international.

A: Q1 evidence of cycle improvement, EMEA uncertainty, Asia Pacific mixed.

Q: Jeffrey Hammond on liquid cooling.

A: Nice exposure, rapid growth but <1% of sales.

Q: Andrew Obin on capacity ramp and labor.

A: Rely on Parker Lean System and Kaizen, CapEx forecast higher for automation.

Q: Nicole DeBlase on Aerospace margin step-down.

A: Spare shipments impact, Q2 margin 29.1%.

Q: Brett Linzey on construction recovery and FY '29 targets.

A: Both MRO and OEM, FY '29 target still in focus.

Q: Nigel Coe on power gen break out and exposure.

A: No plan to break out, continue to evaluate.

Q: Nathan Jones on gas turbine margins and International orders.

A: Mix of OEM and aftermarket, longer-cycle orders 6-12 months.

Q: Jose on mega projects.

A: Still see large amount, delays but some starting, focused on productivity and efficiency