Parker-Hannifin Corporation Q3 FY2026 earnings call

• Q3 was a quarter of record performance with $5.5 billion sales, 6.5% organic growth, 40 basis points margin expansion, 26.7% adjusted segment operating margin, 18% adjusted EPS growth, $2.6 billion year-to-date cash flow from operations, and record backlog of $12.5 billion. • WIN strategy includes decentralized operating structure, innovative products with 85% IP coverage, and best distribution network. • Highlighted aerospace and defense (35% of sales) and transportation (15% of sales) market verticals. • Aerospace has well-balanced portfolio with two-thirds from commercial programs and one-third from defense, and robust demand. • Transportation has differentiated components and systems for various vehicles, with increase in heavy-duty truck OEM orders leading to increased fiscal year 26 sales guidance. • Team achieved top quartile safety performance with 12% reduction in recordable incident rate. • Moving to integrate filtration group acquisition with proven playbook.

North America: Sales $2.1 billion, organic growth nearly 3%, adjusted operating margins up 10 basis points to 25.3%, orders 7% vs prior year. International: Sales record $1.5 billion, up 13% vs prior year, organic growth 3%, Asia-Pac organic growth +10%, EMEA flat, Latin America down, margins up 20 basis points to 25.3%, international orders +6% vs prior year's +11%. Aerospace: Sales $1.8 billion, up 15.5% vs prior year, organic growth 14.2% driven by commercial strength, margins up 80 basis points to 29.5%, order rates +14, backlog increased 15% to $8.4 billion.

• Organic sales growth guidance increased from 5% to 5.5% at midpoint. • Aerospace organic growth forecast increased from 11% to 12%. • Transportation outlook raised from mid-single-digit organic decline to low single-digit organic decline. • Reported sales growth forecast increased to 7%, currency expected favorable 1.5%, acquisitions 1%, divestitures 1%. • Adjusted segment operating margins expected to be 27.2 for the year, forecasted increase of 110 basis points. • Full-year adjusted EPS raised by 50 cents to 31.20 at midpoint. • Full-year free cash flow forecast raised to $3.3 to $3.6 billion at midpoint. • Q4 reported sales guided nearly $5.5 billion, 5.5% increase vs prior year, organic growth approx. 4%, adjusted segment operating margins 27.4, effective tax rate 22%, adjusted EPS expected $8.16.

• Severe weather events in Texas damaged a facility with over 300 team members, still assessing damage. • Tariffs and Middle East situation are dynamic and require ongoing management to minimize impact on earnings. • Impact of energy price fluctuations on business is uncertain and difficult to forecast in the short term.

Q: Concern about Middle East disruption and tariffs impact.

A: Direct revenue in Middle East is small, no material impact to demand, teams managing tariffs to minimize earnings impact.

Q: Incremental margins on industrial side.

A: No delays in price-cost management, North America and international below forecast due to weather-related disruptions but teams delivered.

Q: Full-year incremental margin expectation.

A: Expecting 40% incremental margin, focused on growing segment operating income dollars.

Q: Industrial orders cadence and confidence.

A: Orders strong throughout quarter, industrial recovery continues with broad-based positivity.

Q: Aerospace Q4 guidance and sub-segment assumptions.

A: Aerospace Q4 forecast approx. 9%, raised from previous guidance, commercial OEM expected low 20s growth, commercial MRO low teens growth, defense OEM mid-single-digit growth, defense MRO low single-digit growth.

Q: Industrial orders and sales relationship.

A: Orders outpacing sales, both industrial and aerospace backlogs improved.

Q: Aerospace supply chain and margin growth.

A: Supply chain in better shape, invested in supply chain, confident in expanding margins.

Q: Industrial international performance.

A: Increasing full-year organic growth to 2.5% for international, EMEA maintaining slightly positive low single digit, Asia Pacific increasing to positive high single digit.

Q: Filtration group acquisition.

A: Anticipate closing within 12 months of announcement date, integration planning underway, $220 million synergies by end of year three.

Q: Energy prices impact.

A: Diversified portfolio, impact difficult to forecast currently.

Q: Margins in industrial business.

A: Leveraging lean and continuous improvement, Kaizen across organization to expand margins.

Q: Industrial end markets and next year outlook.

A: Confident in guiding fiscal year 27 to another record year.

Q: Industrial backlog and Texas facility impact.

A: Industrial backlog $4.1 billion, Texas facility disruption not expected to have material impact, data center business growing nicely but small.