Parker-Hannifin Reports Record Sales

Source Motley_fool

Parker-Hannifin(NYSE:PH) reported results for the fiscal fourth quarter and fiscal year ended June 30, 2025, on August 7, 2025, posting record sales of $19.9 billion and 7% year-over-year growth in adjusted EPS.

The company achieved a record adjusted segment operating margin of 26.1%, ended the year with an $11 billion backlog, and issued guidance for 6% adjusted EPS growth and 3% organic sales growth at the midpoint for fiscal 2026. The following insights highlight Parker-Hannifin's strategic portfolio transformation, margin expansion, and disciplined capital deployment.

Portfolio transformation increases secular exposure

Acquisitions in aerospace and industrial, combined with distribution expansion, have shifted the company's revenue mix toward longer-cycle, secular, and aftermarket streams, now projected to reach 85% of total revenue in fiscal 2026. Aerospace sales are approximately 2.5 times higher than in fiscal 2019, reflecting the impact of both organic growth and successful integration of prior acquisitions.

"We see this transformation continuing and expect 85% of our portfolio to be longer cycle, secular, and aftermarket by fiscal year 2026."
— Jennifer Parmentier, Chairman and Chief Executive Officer

This transformation reduces exposure to cyclical volatility, supporting more stable revenue and a structurally higher margin profile, which strengthens the long-term investment case for Parker-Hannifin.

Parker-Hannifin expands margins amid slow industrial growth

Despite a 1% year-over-year decline in North America sales and only 1% organic growth internationally in the fiscal fourth quarter, both regions delivered sequential improvement and record margins. North America adjusted segment margin reached 26.7%, while International achieved 24.7%, with every business segment setting a new high in adjusted segment operating margin due to cost controls, favorable sales mix, and process discipline across 85 decentralized divisions.

"Adjusted operating margins increased 170 basis points to a record 26.7% in the fourth quarter, driven by excellent operating execution, cost controls, and some favorable mix."
— Todd Leombruno, Executive Vice President and Chief Financial Officer

This margin expansion, achieved even during periods of flat or negative revenue growth, demonstrates management's ability to extract operating leverage and maintain profitability regardless of macroeconomic conditions.

Capital deployment balances repurchases and M&A for growth

Free cash flow reached a record $3.3 billion (16.8% of sales), up 12% year-over-year, while Parker-Hannifin repurchased $1.6 billion in shares and ended the year with net gross debt to adjusted EBITDA at 1.7x, below its 2.0x comfort level. The announced acquisition of Curtis Instruments will add electrification capabilities, and management confirmed the deal will be accretive to EPS in its first year, with an active pipeline for additional deals of various sizes.

"You saw us be active with the share repurchase this year. And we'll constantly balance what the best use of our capital is, and that's what we expect to do throughout fiscal 2026."
— Todd Leombruno, Executive Vice President and Chief Financial Officer

This disciplined approach to capital allocation enables Parker-Hannifin to sustain growth, enhance strategic capabilities, and maintain financial flexibility for both shareholder returns and future acquisitions.

Looking ahead

Management guides to $28.90 adjusted EPS at the midpoint (up 6% year-over-year, non-GAAP) for fiscal 2026, 3% organic sales growth at the midpoint, and a 26.5% adjusted segment operating margin, excluding the impact from Curtis Instruments until closing.

Aerospace is expected to grow 8% organically, with Industrial North America and International each guided to 1% organic growth. Free cash flow is projected at $3 billion to $4 billion (conversion approximately 100%), and share repurchases and targeted acquisitions remain core elements of capital deployment.

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This article was created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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