パーカー・ハニフィン（PH）2027年度第1四半期決算説明会：過去最高業績とガイダンス引き上げ

パーカー・ハネフィン（NYSE: PH）は、産業用および航空宇宙事業全体で需要が堅調に推移したことを受け、2027年度第1四半期の売上高、利益率、調整後1株当たり利益（EPS）が過去最高を記録したと発表した。経営陣は、最近完了したフィルトレーション・グループの買収を反映させるとともに、通期のオーガニック成長率、利益率、調整後EPS、フリーキャッシュフローのガイダンスを引き上げた。

主なポイント

• 2027年度第1四半期の売上高は前年同期比18%増の過去最高となる60億ドルに達した。オーガニック成長率は11.5%へと加速し、四半期ベースのオーガニック成長率としては3年超ぶりに2桁台を記録した。
• セグメント調整後営業利益率は120ベーシスポイント（bp）拡大して過去最高の28.6%となり、調整後EPSは23%増の8.90ドルと過去最高を更新した。
• 直近12カ月間の受注は13%増となり、報告対象の全事業で2桁の伸びを示した。受注残高は過去最高の137億ドルに達した。
• 経営陣は、最大規模の市場分野全体での需要拡大を理由に、通期のオーガニック成長率ガイダンスの中央値を200bp引き上げて9%とした。
• 通期の調整後EPSガイダンスは36.85ドル（±0.40ドル）に引き上げられた。フリーキャッシュフローのガイダンスは35億〜40億ドルに上方修正された。
• フィルトレーション・グループは、約10.5カ月間の連結期間において、2027年度の売上高に18億5,000万ドル、調整後EPSに0.50ドルの押し上げ効果、および4,000万ドルのコストシナジーをもたらすと見込まれている。

主要財務データ

事業および業績の動向

多角化産業（北米）

北米の売上高は20%増の24億ドルと過去最高を記録した。オーガニック成長率は9.4%となり、流通向けを含めすべての市場分野でプラス成長を達成した。

営業利益率は60bp上昇して過去最高の27.6%となった。直近12カ月間の受注は200bp改善して11%増となり、幅広い需要と増産に伴う生産性の向上が寄与した。

多角化産業（海外）

海外の売上高は22%増の17億ドルと過去最高を記録し、これには11.6%のオーガニック成長が含まれる。エレクトロニクス、半導体、流通、鉱業、エネルギー向けの需要などに牽引され、アジア太平洋地域が23.4%のオーガニック成長率で同セグメントを牽引した。

EMEAのオーガニック成長率は約4%とプラスに転じた一方、中南米は約1%減少した。セグメント利益率は、事業再編効果、新規案件の獲得、「ウィン・ストラテジー（Win Strategy）」の実行を反映して270bp拡大し、過去最高の27.7%となった。

海外の直近12カ月間の受注は14%増へと拡大し、アジア太平洋地域およびEMEAで前四半期比の改善が見られた。

航空宇宙

航空宇宙の売上高はオーガニックベースで14%増の過去最高となる19億ドルに達した。OEMおよびアフターマーケット双方の活発な需要が成長を支えた。

販売数量の増加、生産性の向上、および予想を上回る民間航空機向けアフターマーケットの成長に支えられ、営業利益率は70bp拡大して過去最高の30.7%となった。受注は14%増加し、経営陣は民間航空機向けアフターマーケットの受注成長率が15%前後の水準を維持したと述べた。

2027年度について、経営陣は航空宇宙事業の売上構成比をOEM約53%、アフターマーケット約47%と見込んでいる。民間機OEMの成長率は15%前後、民間機MRO（保守・修理・点検）は1桁台後半、防衛向けOEMは1桁台後半、防衛向けMROは1桁台半ばと予測されている。

フィルトレーション・グループの統合

パーカー・ハネフィンは当四半期中にフィルトレーション・グループの買収を完了した。買収した企業は売上高の約60%を北米、40%を海外で計上しており、ライフサイエンス、HVAC（空調・換気）および冷凍冷蔵、工場内産業用途、輸送機器向けに事業を展開している。

この買収により、パーカー・ハネフィン全体のフィルトレーション事業におけるアフターマーケット比率は500bp上昇した。統合後のフィルトレーション事業の年間売上高は約50億ドル規模となる。

経営陣は累計で2億2,000万ドルのコストシナジーを見込んでおり、フィルトレーション・グループの調整後EBITDAマージンとして30%超を目標としている。2027年度のガイダンスには4,000万ドルのシナジーが含まれている。同社はクロスセルや生産能力の共有機会についても検討を進めているが、ガイダンスには売上シナジーを織り込んでいない。

業績ガイダンス

パーカー・ハネフィンは、第1四半期の業績、高水準の受注動向、およびフィルトレーション・グループの連結化を踏まえ、2027年度の通期見通しを引き上げた。

セグメント別のオーガニック成長率ガイダンス（いずれも中央値）は、航空宇宙が10%、多角化産業（北米）が8%、多角化産業（海外）が9.5%となっている。

経営陣は、約10.5カ月間の連結期間において、フィルトレーション・グループの2027年度売上高が約18億5,000万ドルになると予測している。本買収により、通期の調整後EPSは0.50ドル押し上げられる見込みである。

2027年度第2四半期について、経営陣は売上高を62億ドル弱、報告ベース成長率を19.5%、オーガニック成長率を約10%、セグメント調整後営業利益率を27.6%、調整後EPSを8.82ドルと見込んでいる。

リスク要因と注目点

• フィルトレーション・グループの足元の利益率はパーカー・ハネフィンの既存事業よりも低いため、計画されたシナジーが実現するまでは、短期的に利益率構成（マージンミックス）の重荷となる。
• 年間の支払利息ガイダンスは、買収関連債務を反映する前の3億4,000万ドルから6億9,000万ドルへと増加した。経営陣はまた、第2四半期を通じて計上される支払利息が第2四半期のEPSに影響を与える要因であると挙げた。
• 経営陣は買収統合を中核的能力（コアコンピタンス）とみなしているものの、フィルトレーション・グループの統合については「多大な労力を要する作業」と表現した。
• 一部の分野では原材料費や物流費の上昇が続いている。パーカー・ハネフィンは必要な分野で価格是正措置を講じたとしつつも、産業分野の価格環境は概ね平常であると説明した。
• 中南米では広範な軟調さが続いている一方、経営陣は2027年度の石油・ガス需要について横ばいで推移すると見込んでいる。
• 受注残高の約75%は通常12カ月以内に売上高へと転換されるが、経営陣はその時期が前後する可能性に触れ、この比率を主要な予測手法として依存してはいないと注記した。

アナリスト向け質疑応答の要点

産業分野の回復と持続性：経営陣は、市場全体で回復が広がっており、受注増が出荷に結びついていると述べた。エレクトロニクスおよび半導体分野が2桁成長を記録したほか、OEM向けおよび流通向けのショートサイクル受注も2桁増となった。同社は、ポートフォリオ変革を経て、長期的なオーガニック成長率目標である4%〜6%の達成に自信を維持していると表明した。

流通需要：パーカー・ハネフィンは、代理店からの受注増加は在庫補充ではなく最終市場の需要を反映したものだと述べた。流通パートナーは、設備投資、インフラ、自動化プロジェクトに参画している。

アジア太平洋地域の成長：経営陣は、エレクトロニクスおよび半導体需要、工場内向け受注・出荷の改善、鉱業およびエネルギー分野の好調さを理由に、アジア太平洋地域の通期オーガニック成長率見通しを1桁台後半から15%前後へと引き上げた。

民間航空機向けアフターマーケット：経営陣は、アフターマーケットの持続的な力強さの要因として、航空機フリートの高経年化、退役の少なさ、エンジンの定期修理（ショップビジット）、部品需要を挙げた。同社は2027年度の民間機MRO成長率見通しを1桁台後半へと引き上げた。

データセンター：前年度末時点で、データセンター関連の売上高はパーカー・ハネフィンの全社売上高の約1.5%を占めていた。経営陣は、液冷システムやサブシステム部品などを手掛ける中で、2桁成長ならびに堅調な受注と受注残高を報告した。

生産能力の要件：経営陣は、産業分野で大規模な追加生産能力投資が必要になるとは想定していない。過去の投資、カイゼン（改善）活動、パーカー・リーン・システムにより、生産量の増加と継続的な生産性向上が支えられるとしている。

資本配分：パーカー・ハネフィンは、買収パイプラインは引き続き活発であり、多様な規模の案件が含まれていると述べた。また経営陣は、フィルトレーション・グループおよびサーコア（CIRCOR）の買収完了後には年間売上高が250億ドルを超えると見込んでおり、2027年5月13日の投資家説明会で向こう5年間の方向性について説明する予定であることを示した。

決算説明会トランスクリプト全文

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決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good morning everyone. Welcome to Parker-Hannifin Corporation's Fiscal 2027 First Quarter Earnings Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to turn the call over to our host, Mr. Todd Leombruno, Chief Financial Officer. Please go ahead, sir.

Todd Leombruno

Thank you so much, Bo. Good morning, everyone, and welcome to Parker's Fiscal Year 2027 First Quarter Earnings Release Webcast. This is Todd Leombruno, Chief Financial Officer speaking. And as usual, with me today is Jenny Parmentier, our Chairman and Chief Executive Officer. As always, we appreciate your interest in Parker, and we thank you all for joining us today.

On Slide 2, we're going to address our disclosures on forward-looking projections on non-GAAP financial measures. The items we have listed here could cause actual results to vary from what we have forecasted. Our press release, this presentation and reconciliations for all the non-GAAP measures were released this morning and are available under the Investors section on our website at parker.com. Today, we have Jenny starting with an overview of our record FY '27 first quarter performance, and she's also going to provide some details on the recently completed acquisition of the Filtration Group Corporation.

Following Jenny, I will go a little bit more in depth on the details for our first quarter financial results. And then we're both going to give a little color on the increase to our FY '27 full year guide that we increased this morning. We will conclude the call with a normal question-and-answer session, and we will try to address as many calls as we possibly can.

So now if I could move your attention to Slide 3, Jenny.

Jennifer Parmentier

Thank you, Todd, and thank you to everyone for attending the call today. Our global teams delivered impressive first quarter performance. We achieved top quartile safety performance with a 9% reduction in our recordable incident rate. Safety is our top priority every day, and we remain focused on being the safest industrial company in the world. Q1 sales increased 18% to a record $6 billion. Organic growth accelerated to 11.5% and adjusted segment operating margin expanded 120 basis points to a record 28.6%.

Adjusted earnings per share increased 23% to a record $8.90. This marks the first quarter we've delivered double-digit organic sales growth in over 3 years. And in the quarter, we completed the acquisition of Filtration Group Corporation, continuing our track record of disciplined capital deployment to compound performance. I'd like to thank our team members around the world for a great start to fiscal year 2027.

Moving to Slide 4. We are experiencing increased demand across our key market verticals. Demand is broad-based and rolling 12-month order rates increased to 13% this quarter. This broad-based strength is evidenced by our backlog, which continues to climb higher, setting a new record of $13.7 billion in Q1. Aerospace, Industrial and Filtration group, all contributed to this increase in backlog. Parker's portfolio is profoundly different today than it was 10 years ago when we began our portfolio transformation.

Our portfolio has been shaped by our strategic positioning initiative in the Win Strategy and has been transformed by acquisitions. Acquisitions have more than doubled the size of our Aerospace and Engineered Materials businesses, and we have more than tripled the size of our filtration business. This is clearly a different Parker, one with greater visibility and backlog, resulting in more consistent growth.

Slide 5, please. We've been looking forward to welcoming the very talented Filtration Group team members to Parker ever since we announced the transaction nearly 1 year ago. We were thrilled to complete the transaction in Q1 and continue our long-standing practice for a partner leader to personally welcome the new team at every location. This slide shows pictures from just a few of our day 1 events held around the world, welcoming the Filtration Group team to Parker. This is a great day for all of us, and we are excited to have Filtration Group in the partner portfolio.

I'm on Slide 6. Filtration Group brings a diverse portfolio with strong brands, material science capabilities, highly engineered products, embedded application engineers and multiple R&D centers. Filtration Group has a global presence with sales split approximately 60% North America and 40% international. And they have a robust aftermarket business, increasing Parker's overall filtration aftermarket sales by 500 basis points. This acquisition enhances and expands our exposure in markets we know well, including life sciences, HVAC and refrigeration, in-plant and industrial and transportation.

Within life sciences, we have solutions for medical diagnostic and test applications that include consumable separation technologies, pharmaceutical protection, special chemistry and material science solutions. In HVAC refrigeration, we're adding complementary products and advanced media capabilities that ensure indoor air quality in places like hospitals, schools, museums and airports.

Moving to in-plant and industrial. We're adding proprietary media for liquid air and gas filtration, increasing safety and productivity. And within transportation, Filtration Group brings on vehicle filters and deficits, engineer to an application-specific form factor, increasing cleanliness and efficiency. With this acquisition, we are creating one of the largest industrial filtration businesses in the world with approximately $5 billion in annual revenue. Much like our previous acquisitions, this is highly complementary brings new capabilities in existing applications as well as new adjacencies, thus expanding our addressable market and opportunities to create value for customers globally.

Moving to Slide 7. Our dedicated integration team is leveraging the Parker integration playbook with Filtration Group. We have a proven process and one that we continuously improve with each acquisition. We know from experience that cultural alignment is key to a successful integration, and we see this once again with the combination of Parker and Filtration Group. Our integration teams are currently focused on the first pillar of the Win Strategy, engaged people.

In less than a quarter, our teams have already begun ties on events focused on safety improvements. This is the first step in building a culture of Kaizen that will later drive lead time reductions that drive customer experience and increase productivity. The chart on the right shows for the first time our expected cumulative cost synergies by year. Our fiscal year '27 guidance now includes Filtration Group and $40 million of synergies this fiscal year. Acquisition integration is a core competency here at Parker, and we are confident in delivering $220 million of cost synergies as we target taking Filtration Group's adjusted EBITDA margin to greater than 30%.

Now on Slide 9. Many of you on the call today have seen this slide before, why we win. First, the Win Strategy is our business system. We have a decentralized operating structure. Divisions run by general managers with full P&L responsibility, acting like owners, close to their customers and executing the Win Strategy every day. Next, we have innovative products to solve customer problems, 85% covered by intellectual property. Our application engineers provide the expertise that allows us to have a competitive advantage with our interconnected technologies that provide efficient solutions for our customers. 2/3 of our revenue comes from customers who buy 4 or more technologies. And finally, our distribution network is the best in the world. It is truly an extension of our engineering team. providing solutions to all those small to midsize OEMs that are participating in capital spending and investments. These partners are experts at applying our interconnected technologies.

I'll pass it over to you for some first quarter highlights.

Todd Leombruno

Thank you, Jenny. We always talk about finishing strong. Well, this is a quarter where we started the year strong. As Jenny said, I'm on Slide 10, and I'm just going to go through a real quick review of the first quarter results. It was a strong quarter, double-digit sales growth, resulting in strong margin expansion and 23% EPS growth. Sales were up 18% versus prior year. We reached $6 billion for the first time in the history of the company. Organic growth, as Jenny mentioned, was 11.5%. Acquisitions all in added 7%. Most of that was from the Filtration Group Corporation, but we do have one last partial quarter of Curtis sales in there that totaled the 7% for all acquisitions.

Segment operating margins were up 120 basis points from the prior year, finished at 28.6%. That obviously is a record. Adjusted EBITDA margin was also a record at 28.5%. That's also up 120 basis points from prior year. And adjusted net income was a little bit over $1 billion, $1.1 billion, which is 18.9% return on sales, and that's how we get to $8.90 million in adjusted earnings per share. That is up 23% versus prior. Like I said, it was just a really strong start. It's great to start the year with double-digit organic growth and 23% EPS growth. Really glad to see that.

On Slide 11, this is the walk. You can see it was just a really clean quarter. Essentially, all of our EPS growth came from strength across our operations. Segment operating income dollars are up by $327 million. That happens to also be 23%. That added nearly $2 of EPS to our EPS growth for the quarter. Lower shares outstanding was favorable by $0.04. Income tax was also slightly favorable, just $0.01. Interest expense, as expected, was higher. That is really related to the newly issued debt, that we took out to acquire the Filtration group. Corporate G&A and other was negative [ 8 ], and that was really driven by higher market-based benefits, nothing really out of the ordinary there. And that's really how we get the $8.90 in adjusted earnings per share. So really just a great quarter, thanks to our teams for converting 11.5% organic growth into 23% EPS growth. Just a great operating performance across the company.

Now if we move to Slide 12 and look at segment performance. Rolling orders on a 12-month basis accelerated for the company to plus [ 13 ] versus prior year. And as you can see, there's double-digit growth across all reported businesses on the 12/12 order report. Organic growth, like I said, was 11.5% that did exceed our guide. We were guiding 8%. Margins were up 120 basis points, and that is a new record. If we look at the North American businesses, sales are up 20%. That is a record $2.4 billion. Organic growth in North America was 9.4%. We saw positive growth across all market verticals and that includes distribution.

Margins were up 60 basis points versus prior. That finished at a record 27.6% for the North American businesses, and we continue to see margin expansion from executing the Win Strategy and really leveraging higher productivity on that sales volume. Orders in North America also increased 200 basis points to 11% compared to prior year, as Jenny said, strength across all market verticals in the North American business. It's just a great way to start the year for North America. If we slide into the Diversified Industrial International businesses quarter here. Sales were a record $1.7 billion, that's up 22% versus prior year.

Organic growth was 11.6% and that was really led by outstanding growth in our Asia Pacific businesses. Organic growth in Asia Pacific was 23.4%. It was also great to see the EMEA region go positive at plus [ 4 ]. And as you can see, Latin America, just a slight drag at minus [ 1 ]. Margins here are the standout 270 basis points of margin expansion versus prior year, the 27.7% is a record for the international businesses. really seeing results from a lot of restructuring activities over the past year or 2, some growth from new business wins and obviously executing the Win Strategy over and over and over again. On the order front, international orders increased 400 basis points to 14% with sequential increases in both Asia Pacific and EMEA. It was a record quarter across multiple metrics from our international team, and they did a great job starting the year. So thanks to all of our international team members.

Moving over to Aerospace, just another exceptional quarter of double-digit organic growth. Sales were a record at $1.9 billion. That's up 14% versus prior year. All 14% of that is organic and really strength across both the OEM and aftermarket businesses. You look at margins, they expanded margins 70 basis points versus prior year. They also achieved a new record of 30.7% that margin performance is really a result of great productivity with higher volumes and stronger-than-expected commercial aftermarket growth. Order rates continue to be elevated in Aerospace at plus 14%, and we could continue to see strong mid-teen commercial aftermarket order growth. Another great performance from our Aerospace team. Thank you.

Slide 13, we talk about cash flow. Cash flow from operations was $752 million, that's 12.6% of sales. Free cash flow came in at $643 million. That's 10.7% of sales. That is slightly lower than last year. All of it is related to just bringing in the Filtration Group acquisition. If you remember last week, our Board approved our quarterly dividend of $2 per share, that is the company's 306 consecutive quarterly dividend. And on cash flow, we are committed to achieving 100% conversion for the year. If you remember, our cash flow is second half weighted. We issued the new debt this quarter to acquire the Filtration Group. Those interest rates on average are just slightly over 4.5%. And and that pushed our net debt to adjusted EBITDA to just [ 2.7 ]. So those are details on Q1.

Jenny, I'll turn it over to you, and we could start [indiscernible].

Jennifer Parmentier

Thank you, Todd. I'm on Slide 15. Our fiscal year '27 organic growth forecast by key market verticals. As previously mentioned, with strong and broad-based demand, we are raising our midpoint organic growth guidance 200 basis points from 7% to 9%. For Aerospace and Defense [indiscernible] to approximately 10% organic growth. Commercial aftermarket orders accelerated and OEMs continued strong. We are also raising our growth outlook for implant and industrial to high single-digit growth. We continue to see demand broaden and strong orders from our distributors. For our transportation vertical, we now forecast high single-digit growth, led by continued strength in heavy-duty truck, which has been driven by production rate increases.

Moving to off-highway. We are guiding mid-single-digit growth. We see continued strong nonresidential growth driving construction. Mining strength continues as well, which is supported by commodity prices. We also expect mid-single-digit growth for energy. We see sustained growth from our businesses supporting gas turbine power generation, while we are still expecting oil and gas to be flat this year. Lastly, we are guiding mid-single-digit growth in HVAC and Refrigeration. This growth is led by commercial HVAC followed by refrigeration. So in summary, we are raising the organic growth forecast for our 3 largest market verticals and still expect positive sales growth across all market verticals, resulting in an organic growth forecast of 9% at the midpoint.

I'll hand it back to Todd to share more details on guidance.

Todd Leombruno

Well, thanks, Jenny. I'm on Slide 16, and as Jenny said, we are raising our full year guidance. That's obviously based off the strong performance we had in Q1, the robust order levels and then, of course, including the nutrition group in our numbers. On reported sales, we're increasing the range of growth to 16% to 19% or roughly 17.5% at the midpoint. Specifically for the Filtration Group, we are including $1.85 billion of sales to the guide for FY '27. That's obviously a stub year. It's roughly 10.5 months of ownership. If you take that $1.85 billion plus the little bit that's left over from Curtis acquisitions will account for roughly 9% of the sales change. Currency is really just a slight drag at 0.5% and that is based on September 30 spot rates.

Jenny mentioned this, but we are increasing organic growth to a range of 7.5% to 10.5%. That's 9% at the midpoint. Aerospace organic growth, we are increasing that 150 basis points to 10% at the midpoint. The Industrial North American business's organic growth is being raised by also 150 basis points to 8% at the midpoint, and the Industrial International businesses are being raised by 400 basis points to 9.5% organic growth at the midpoint. For the full year, adjusted segment margins are expected to increase by 20 basis points versus the prior guide that would go to 27.9% for the year, and that includes raises in all 3 reported businesses. That would be a 60 basis points increase versus prior year, all in, and that would include incorporating the Filtration Group into Parker-Hannifin numbers.

Just a few items to note. Corporate G&A is just up slightly by $10 million, it was $200 million, we now expect it to be $210 million. Other expense is down by $10 million. It was $100 million. Now we expect it to be $90 million. And interest expense has been increased. This is all really related to the Filtration Group debt. We now expect $690 million of interest for the year. Previously, that was $340 million without Filtration Group acquisition. And really no change to tax rate, 22.5% tax rate. Adjusted EPS has been raised at $36.85, which I will break down a little bit further in the next slide. The range on that is plus or minus $0.40. And the split is, as usual, 48% first half, 52% second half. And as I mentioned before, we are also raising our free cash flow guidance to a range of $3.5 billion to $4 billion, that is $3.75 billion at the midpoint and conversion will be approximately 100% for the year. If we look specifically at Q2, reported sales are forecasted to be nearly $6.2 billion. That is a 19.5% increase versus prior organic growth, we expect to be about 10% for Q2. For adjusted segment operating margins, we are forecasting 27.6%. That is all in and adjusted EPS is now expected to be $8.82 for the quarter.

On Slide 17, we provided this just to kind of show the increase just with a couple of moving pieces with Filtration group coming in. You can see our previous guidance here was 34.5% for the year. We are increasing that to $36.85. I just want to point out that $1.70 of that increase is coming from increased segment operating income dollars based on the higher organic growth and great incrementals in our legacy business. Just a great quarter to start the year, and we expect that to continue throughout the year. For Filtration group, in FY '27, we expect this to be adjusted EPS accretive of $0.50. That is for the first 10.5 months of ownership. There was really no impact in Q1. The segment operating margin was offset by the interest expense. But for the next 3 quarters, we're expecting $0.50 of accretion. That includes the $40 million of synergies that Jenny mentioned earlier. And then lastly, just corporate interest and others, just a slight bit higher $0.10 higher, and that brings the total raise for the year to $2.10 or 6% from what we just initiated 3 months ago. As usual, we've got additional guidance details in the appendix. Just in summary, FY '27 is off to a fantastic start. We're excited to welcome the Filtration Group team members to Parker-Hannifin.

And with that, Jenny, I'll hand it back to you. .

Jennifer Parmentier

Thanks, Todd. I'm on Slide 19. Today, we are excited to announce our 2027 Investor Meeting on May 13, 2027. Similar to our last investor meeting 3 years ago, this meeting will be in person and webcast from New York City. Please save the date, and we look forward to sharing more details as we get answers to the event. And moving to our final slide, a reminder of what drives Parker, safety, engagement and ownership are the foundation of our culture. It is our team members living up to our purpose every day that drives top quartile performance and allows us to be great generators and deployers of cash.

Todd Leombruno

Okay. Well, we are ready for the Q&A portion of the call.

Operator

[Operator Instructions] We'll go first this morning to Andrew Obin of Bank of America.

質疑応答

Andrew Obin

Just a question, Jenny, congratulations. We've been in meetings for, I think, what seems like Eternity where the team was hoping for the industrial recovery that sort of never seemed to come. It does seem -- finally seems to be here. What has changed that we've now seen to have like 2 quarters of recovery? And how much visibility and comfort do you have going forward? And obviously, you raised the guide, but maybe expand a little bit.

Jennifer Parmentier

Yes, and thank you. Yes, I feel like I've been saying positive sentiment and gradual recovery for quite some time. And obviously, in Q1, what we saw was a broadband recovery across all the markets. I would tell you that it's been robust electronics and semiconductors growth, double-digit growth. We've been able to raise in plant and transportation market verticals. Obviously, it's just really been great in all aspects of the markets that we raised. So I think that it's just been that the orders that we've seen and the positive sentiment has turned into some momentum here in shipments and increased orders as demonstrated through the quarter. I would tell you that there's nothing that we see right now that would cause us to be concerned about the outlook. Obviously, we've raised the guide here. We feel confident in this guide. And we're real pleased with the orders and how the team executed throughout the quarter. We've been talking about all the work we do, no matter what's going on and the volume really turned into some nice bottom line performance.

Andrew Obin

Yes. Great to hear. And maybe a follow-up. You highlighted that in aerospace, commercial aftermarket was a positive surprise. I know a lot of concerns about that starting in the summer maybe clearly, you talk to your customers, what's driving the upside there?

Jennifer Parmentier

Yes. I mean we saw double-digit growth. We saw plus 14% in both OEM and aftermarket. It was really the second highest quarter of order bookings for us ever. And we do expect the strong demand to continue. So we're not seeing a lot of retiring aircraft, right? So aftermarket continues to be strong.

Operator

We'll go next now to Mig Dobre with Baird.

Mircea Dobre

Appreciate all the commentary on growth in orders. Things seem to be going well, but just sort of acknowledging what's going on in the capital markets here, especially post election. There's obviously concerns about the AS who knows. But really, can you help us better understand what your exposure is as you kind of looking at your business because you obviously have some direct exposure but there's also probably some indirect exposure so as you sort of think about this vertical and the risk that, that poses on a go-forward basis, it'd be great to hear your thoughts and specifically, in your Asia business, where we've seen really very, very strong growth. How much of that do you think is related to this particular verdict?

Jennifer Parmentier

Just a couple of points, Mig. So data centers does continue to be a high growth driver for us with double-digit growth in the quarter. We're continuing to get business in this space and orders and backlog are strong. We have nice exposure in growth, but this is not yet large enough for its own vertical. We finished the fiscal year with data centers making up approximately 1.5% of Parker sales. So this is a great interconnected technology story from all the products that have been in the Parker portfolio for quite some time. And we are working with industry leaders. We have the ability to provide the liquid cooling systems and subsystem components, and the Asia Pacific orders are strong in electronics and semicon and that was just a really strong area for the quarter. So as I previously mentioned, we feel good about the orders that are out there. And we think this is going to continue to be a growth area. But again, that's quite a market vertical for us.

Mircea Dobre

That's helpful. And then my follow-up, just to maybe double click on your comments on commercial aftermarket. If you want to kind of think about it by region and think about the Middle East specifically, I'm wondering 2 things, how that specific region has progressed or gone? And is there potential for some sort of catch-up if maybe conditions in the Middle East change sometime in 2027?

Jennifer Parmentier

I think commercial aftermarket has been strong, and it continues to be strong. So I wouldn't know any dip related to anything that we saw with that conflict. Our -- we're raising our guide to high single-digit growth for fiscal year '27. So strong orders in Q1. As I mentioned before, we're just not seeing a lot of the aircraft retiring so that aging fleet is driving the growth. But I wouldn't -- I wouldn't say that it went down enough to say that was a reaction to anything going on. And obviously, orders in Q1 were strong.

Operator

Next now to David Raso with Evercore ISI.

David Raso

I was curious if we can dive into the international guide, the 400 bps increase which geographies drove that? And obviously, if you can help us a bit how you think about the geography guide within the total international organic? And also the margins, they're obviously very high in the first quarter. And while you raised the margin guide, they're still lower than the first quarter. Just curious how you're thinking about that, why the first quarter would be that much higher than the full year guide.

Jennifer Parmentier

All right. Well, I'll dive into what's going on with the international guidance for you. So full year organic growth is now 9.5%. As Todd said, that's a large increase to the initial guide. And Q2 guide is approximately 11%. So in EMEA, we have guidance at low single-digit to mid-single-digit growth for the year. That's really mixed market conditions. David, strong growth in energy, mining and defense and what we see as a gradual recovery in heavy-duty truck and construction. In Asia Pacific, this has been very strong. We're raising guidance to mid-teens organic growth. This was previously high single digits, and we're really seeing continued strong electronics and semicon demand. Implant orders and shipments progress. In Q1, we saw double-digit distribution growth. and we're seeing the orders and the shipments continue to progress. And then mining and energy strength continues in Asia Pacific. Latin America, guidance is at low single-digit organic growth and we're still seeing a broad-based softness across that region.

Todd Leombruno

David, this is Todd. I would just add a little bit. Q1 was stellar. Absolutely stellar. And if you look at what we're doing, we have increased the margins really for all businesses, North America, International and Aerospace for the remainder of the year. We did have Filtration Group for basically 1.5 months in Q1. We're obviously going to have it for 3 quarters in Q2. Those jumping off margins are lower than our existing businesses. So there's a little bit of a drag there until those synergies really start rolling in there. But if you look at incrementals outside of all of that, we are high 30s, low 40s on incrementals in the guide here. So we feel like we're being pretty aggressive here on the forward outlook. Just Q1 was just stellar.

David Raso

And a quick follow-up to the meeting. I know it's many months out. But can you give us a little framework of what prompted calling the meeting and how we should think about. Obviously, things are operating pretty well right now. Just curious the reason behind the meeting, we're always happy to meet with you. But just curious what we should expect broadly speaking and why we call the meeting?

Jennifer Parmentier

Well, we usually in the past have done a meeting every 2 years. This will be 3 years. And we expect that we're going to be able to share some some information with you and some news with you. But it is a way that I get, so we're really not in a position today to talk too much about the details of that meeting.

Operator

We'll go next now to Jamie Cook with Truist Securities.

Jamie Cook

Congratulations on another nice quarter. I guess just 2 questions. One, just given Filtration Group is closed and we understand what the implied guidance for 2027. But can you just give us an update on how that business had been performing in terms of organic growth margins and then, I guess, any incremental insights you have on potential upside to synergies? And then my second question, Jenny, just relates to, obviously, industrial demand is very strong. Everyone is very -- we're seeing that in your numbers. I think people are questioning sort of to the durability of the cycle. So in an environment where potentially industrial demand tempers, how do you think about your ability to -- in a less robust market achieved a 4% to 6% organic growth that you target just given some of the changes in your portfolio with M&A and the portfolio more positioned towards secular growth? Just your confidence in the 4% to 6%, assuming today in industrial demand tempers?

Jennifer Parmentier

Okay, Jamie. So starting out with Filtration Group. So their Q1 performance was what we had expected. Historically, they've performed at a positive mid-single-digit growth -- mid-single-digit growth CAGR. Life Science business is one of their fastest-growing markets right now. As Todd said, the guide includes $1.85 billion of sales and Q1 actual was $285 million. We expect this to be accretive, as Todd said, the 10.5 months an accretion of $0.50. So these -- this is a good business. It's a business with complementary technologies to what we have, markets that we know, and we expect that this is going to be a good growth business and fit nicely, especially with the additional 500 basis points of aftermarket.

We feel very confident in the $220 million in synergies, that's 11%, $40 million for this fiscal year. The integration team has been working very hard. They've been -- they were planning ahead of the close, and they've worked very closely with Filtration Group. And as I mentioned, Kaizen events are a full swing, and we really, really have had success in the past by focusing on that first pillar of the Win Strategy, and we're off and running there. Now as far as international demand and our confidence about targets that we put out there, 4% to 6% organic growth. We feel very confident about hitting those types. We have transformed this portfolio very, very much on purpose to be able to do that. I think when you look at the durability of the short-cycle businesses right now, there's clear signs of positive short-cycle demand through orders and shipments.

Both OEM and distribution short-cycle orders were positive double digits, and this deceleration is just continuing on a broadening recovery. And as I already mentioned, we raised our forecast on implant Industrial as well as transportation to high single digits. And the rest of the market verticals remain positive. It's very encouraging, as I mentioned, it's very beginning to see the distributor purchases to really increase and they're driven by strong end demand. And again, as I said for a long time, the sentiment is very positive and now it is really supported not only by the orders but by the shipments.

Operator

We'll go next now to Scott Davis with Melius Research.

Scott Davis

Congrats on the good -- great start -- not a good start, a great start. There's not a lot to pick on or ask or frankly, things are so clean. But I'm kind of curious to what extent you're willing to share with us where Filtration Group kind of stands today as it relates to on-time delivery, quality, kind of the key metrics that you guys obviously care about even if you're not willing to share the exact numbers, some sense of kind of where the opportunity lives, I think, would be helpful for us.

Jennifer Parmentier

Yes. So obviously, part of the integration is integrating everything into a lot of the partner metrics and indicators. But the thing that we've obviously been focused on is safety, right? What's very important to us is that people come to work every day and feel safe in their environment and that we have a culture where we're taking care of each other and making sure everyone is safe. That is the foundation for everything when it comes to high-performance teams, successful Kaizen events. And then obviously, as we know, leads to taking care of the customer and growing profitably. So [indiscernible] is a big focus. We're not ready to disclose any specific numbers. I don't know that we really ever do talk about those metrics with the acquisitions. But we will be putting them into our metrics that are really about making sure that we're on time to the customers request date and that we're continuously improving upon how we serve the customer. They have -- these are good businesses. They have a lot of evidence of having the basics of some of the visual management that Parker believes is key to run any operation. But again, we also see a lot of upside with the Parker Lane system and implementing all the tools for the Win Strategy.

Scott Davis

And thanks for that, Jenny. But my understanding of Filtration Group was kind of built over time with a bunch of acquisitions and bolt-ons itself. And so how heavy of a lift is it to integrate? I imagine there's a number of different ERP systems and obviously, you're going to want to integrate it to some extent, I would think, but I'll ask that as part of the question as well. But how heavy of a lift is it overall? And then to what extent do you plan to integrate, I guess, is my question? .

Jennifer Parmentier

Yes. I mean, obviously, you are correct. That's the way it was built over time. These are very decentralized, which is a positive, though, because the leaders of these businesses very used to being held accountable to their P&L statement. So that's a positive and that feeds right into the Parker culture. So we like that about it. But none of these integrations are "easy" right? I would say that there's a heavy lift component to each acquisition. And we obviously will want to bring those together and integrate them. And one thing to remember here, too, is that we've taken these filtration businesses and put them into existing Parker divisions, right? And within that was leadership team, you'll wind up with legacy Parker leaders and filtration group leaders. So that really does help with getting the Win Strategy ingrained into the division and bringing everybody on board with the work that needs to be done. So heavy lift, yes, but this is a core competency for us. And we feel very confident about being able to integrate all these locations and really make this a successful acquisition.

Operator

We'll go next now to Julian Mitchell with JPMorgan.

Julian Mitchell

Maybe just my first question around the Aerospace segment. Organic sales growth outlook for the balance of the year. Maybe just help us understand kind of how you're thinking about commercial aero, OE and aftermarket versus the same for defense and just flesh out sort of how Q1 started for those pieces, please?

Jennifer Parmentier

Yes. So if you want to just talk about the guidance for aerospace. So just starting out, the OE aftermarket split for the fiscal year is guided to 53% OE and 47% aftermarket. We did have a mix of 52-48 in Q1. So as we said, stronger commercial aftermarket than we expected. And I would tell you, too, one of the things that is really contributing to our Aerospace Group's ability to deliver is the team has worked very hard on demand and capacity planning in aerospace as well as partnering with the supply chain and really investing in the supply chain over the last several years. So this full year guide of approximately 10%. We're very confident about that with the initial guide being 8.5%. We are seeing commercial OEM guide remains at mid-teens growth for fiscal year '27. Commercial transport build rates are increasing. And as we all know, aircraft demand is still -- is greater than supply.

For commercial MRO, we are raising guide to positive high single-digit growth for fiscal year '27. So as I mentioned already, there's an aging fleet driving aftermarket growth. We're not seeing a lot of retirements. Engine repair shop visits and component demand continues, and we're clearly, again, seeing the benefits of our team really working closely with the customers, understanding what the demand is, seeing the increases come knowing about them before they come and making sure that we're able to help them achieve their production rates.

On defense OEM, we're raising the guide to high single-digit growth for fiscal year '27. We see strong demand for global fighter jet. The orders continued strong in the quarter, and we're rating this guide based on firm demand from our customers. And defense MRO, that remains at mid-single-digit growth for fiscal year '27. We're still seeing sleep upgrades and service extensions, a focus on retrofits and upgrades as the fleet ages. And again, I would say with both of these, this is a long-cycle business, but we're raising guidance on the demand we see today, and we're focused on making sure that we serve these customers.

Julian Mitchell

That's very helpful. And then maybe just a quick follow-up on the second quarter EPS guide, I think it implies a slight tiny decline sequentially on EPS. Normally, that number is up sequentially. I understand maybe some margin effect from Filtration Group. Is there anything else beyond that? And is there something with Filtration Group where the margins in international are particularly sort of dilutive to that segment?

Todd Leombruno

No, it's not so much, Julian, the mix between North America and international. I would say the -- a full quarter of interest has got a little bit of a drag on EPS there. But we look at our incrementals, the incrementals that we're guiding to for the total company is above [ 30. ] If you look at the legacy business, it's much higher. The math gets a little wonky because we don't have filtration group in the prior year. But I would say there's nothing out of the ordinary other than additional interest .

Operator

And we'll go next now to Joe O'Dea with Vertical Research.

Joseph O'Dea

You made a couple of references to seeing some improving demand out of the distribution channel. And so I was looking for a little bit more color there. I think you've talked for quite some time about the indications of interest being better, but actually now, it seems like you're seeing that materialize more. And so just any perspective on the growth rate you saw in North America and international out of that channel. How that compares to some of the recent quarters, just to get a better understanding of acceleration there?

Jennifer Parmentier

I would say that we started to see this in Q4. We talked about it during the last call about seeing increased orders from distribution. And what we saw in Q2 was positive double digits, right? So we saw stronger orders in Q2. Now I wouldn't call this a restock. That's not what we're hearing from the channel. But obviously, the orders have increased and they're increasing to demand. They're participating in a lot of capital investments, a lot of infrastructure automation. So I would say that it truly is a broadening recovery and distribution is playing very well in it.

Joseph O'Dea

And then on the inflationary side of things, when we think about the 200 basis point increase in organic growth guidance, any contribution to that from pricing that you've had to do? And then as you think about the full year, is the anticipation that price/cost is both dollar and margin positive?

Jennifer Parmentier

Yes. So on inflation, we definitely are still seeing increases across a range of material cost inputs as well as logistics. But this is a strong muscle for us. We're experts at managing this. Our Win Strategy supply chain tools. They're the best. We work closely with everybody in the organization is working closely with our pricing team. And we've taken some action where we needed to. We'll do that in the future if needed, but we are really, for the most part, back to a very normal pricing environment on the industrial side of the business.

Todd Leombruno

Joe, I would say the increase in the organic growth is really demand related. It's not a price related, it's demand related.

Operator

We'll go next now to Brett Linzey with Mizuho.

Brett Linzey

I wanted to come back to the industrial margins, obviously, move structurally higher here. as volume recovers and orders are picking up, you're generating these new project wins, is there any additional required capacity investment or reallocations in some of those divisions that would influence the path to those long-term targets?

Jennifer Parmentier

We have done a really nice job over the last couple of years of increasing capacity where we needed to. We have been able to generate additional capacity through use of Kaizen and the Parker Link system. That's a very strong muscle for us as well. So there is not what I would call any significant investment that will be need to be made. We will continue to increase our productivity. We'll continue to use all these tools. And on the higher volume in Q1, obviously, the teams were able to deliver that, and we see that, that will be the case for the rest of the fiscal year in the foreseeable future.

Brett Linzey

That's great. And then just one more on OE within Aerospace. So on Boeing and Airbus, just wanted to better understand how much of the production rate normalization is actually in the plan versus maybe upside to the guide, what are the build rate cadence that you're thinking about or effectively assuming in the framework?

Jennifer Parmentier

Well, as I mentioned before, listen, our teams are working very closely with these big customers. And the production rates that they're sharing with us and the demand and capacity planning we're doing, that's what's in our guidance. So we don't specifically talk about customer build rates, but we don't expect any surprises there. And we know what their plans are.

Operator

We'll go next now to Andy Kaplowitz with Citi Group.

Andrew Kaplowitz

Todd, maybe just focusing on the energy piece of your portfolio. It's one of the slower growing portions of your portfolio even with that power gen business in there. So maybe just do you see any signs of life in oil and gas, given the higher sustained energy prices and what seems like energy security type work? And could you talk about the underlying strength of your power gen business at this point?

Jennifer Parmentier

Well, it is positive mid-single-digit growth. And as you know, energy, the vertical is about 7% of our sales. So we see robust long-cycle power gen demand that's been very strong. But with oil and gas, the forecast is flat. Upstream remains constrained. There's some benefit in midstream from some infrastructure build-outs. But right now, the best view we have is that mid-single-digit growth.

Andrew Kaplowitz

That's helpful. And I think, Jenny, one of the main reasons why you bought Filtration Group was its aftermarket business, so it's obviously early days in terms of your ownership. But what do they do? Is that all differently than Parker that could help you? And then I think just you mentioned life sciences their biggest business. Are they seeing any improvements in that business? Or can you see above mid-single-digit growth in that business going forward?

Jennifer Parmentier

Yes. Well, there's many reasons why Filtration Group was very attractive to us and why we had watched this business for quite some time. And it's not just one thing. It's very nice to have higher aftermarket, right? That is something that plays right into Parker's success. But really the complementary and proprietary technologies is really one of those things that we look for in an acquisition. And it does expand our presence in life science. Life science is an area that is growing higher than the rest for them right now. but it also brings a lot of proprietary media for markets that we already play in. So this is -- this is just a good performing business that we're going to just improve upon, and we think that there's plenty to learn here. I would say it's still early days about learning all of how they go to market and how they handle their channels. But we think that we can learn from that, and we also think that there's some things that we do that might sit well within Filtration Group.

Operator

We'll go next now to Steve Tusa with Wells Fargo.

Charles Stephen Tusa

Just on this, I guess, any sort of color on -- I know you don't disclose price, but any directional color on how that may have impacted the incrementals? I mean is it the control to margin. So just any kind of high-level color on the price/cost situation?

Todd Leombruno

Yes, Steve, I'll start if Jenny's got anything to add there. Really no impact on the incrementals on price. This is something Jenny mentioned earlier, this is something we do all the time. We try to remain margin neutral. So there's no like levers that we're pulling to try to make it for the improving our incrementals on that. The result was based off great demand, great volumes and unbelievable execution across every single one of our businesses.

Charles Stephen Tusa

Yes. Yes. And then just on the meeting, Jenny, I think you said I mean you said expect some news, I know -- I don't know, it's kind of a...

Jennifer Parmentier

I changed my words around. I said we'll have some news.

Charles Stephen Tusa

Okay. But I mean, is that -- obviously, you guys seem like you're -- like the long-term targets can be reset. Is there any thought or consideration to like a more holistic portfolio evaluation from that perspective?

Todd Leombruno

Steve, I wouldn't go that deep. I would say, hey, it's a few months out from now. We obviously just closed the filtration group. We will have closed CIRCOR. By the time that comes, the company will be over $25 billion in total revenue. We're going to give you some color on what the company looks like today and what we're planning on doing over the next 5 years. .

Operator

Next now to Varun Govindaraj with Bernstein.

Varun Govindaraj

Linked a little bit -- linked a little bit to what we just talked about. I mean as you continue to get larger. Do you see a big enough pipeline of complementary M&A assets out there that can materially move the needle like Meggitt has in Filtration Group is expected to? Or should we think about this as more bolt-ons going into the future?

Jennifer Parmentier

So Varun, there are deals, assets of all sizes in the acquisition pipeline, right? And one of the things that we often talk about is making sure that, that pipeline stays active and healthy, and that's something that we've done for quite some time. So we think a lot of times, we're not -- most of the time, we're not in control of the timing on those, but we do believe that the pipeline is still robust and that there are assets out there that we are interested in, definitely.

Varun Govindaraj

Okay. I appreciate the color. And then just as a follow-up, could you remind us on backlog conversion in general, how much of that revenue tends to convert to revenue over the course of the next 12 months? And should we expect any changes there just given the shift in mix of the business?

Todd Leombruno

We don't expect any dramatic change to that conversion rate over the next year or so. It's roughly 75% of the backlog converts to sales in a 12-month period. But there's always a lot of move-ins and moves out of there. So that's not something that we really look at when we're looking at forecasting, but it's roughly 75%.

Phil, this is Todd. I think we maybe have time for one more today.

Operator

Understood. Mr. Leombruno. We'll take that final question today from Jeff Hammond of KeyBanc.

Jeffrey Hammond

Maybe just last one on Filtration Group. A lot of good color there, Jenny. And I know you don't include revenue synergies, but as you look at the portfolio early on, just any clear opportunities, whether it be distribution complements, market complement geographic, where there's some clear revenue synergies to think about?

Jennifer Parmentier

Jeff, you're right, we don't model any revenue synergies, but we are definitely seeing areas of opportunity, areas where we can leverage Parker technologies to Filtration Group customers and then leverage Filtration Group technologies to Parker customers. So we are -- the integration team, although they're focused on obviously integrating the businesses and achieving the synergies. Our sales and marketing teams are working closely together to identify those opportunities, and we definitely believe that there are some there.

Todd Leombruno

Yes. Jeff, we also have real early days here, but we've found some capacity opportunities where we've been able to utilize the existing filtration capacity within our legacy businesses to help some of those Filtration Group. .

Jennifer Parmentier

It was discovered early on, like 3 weeks then and a lot there.

Todd Leombruno

Super happy to get it closed. The team is working hard, and we're going to do it again, just like we've done it in the last couple of deals.

Excellent. Okay. So that concludes our FY '27 Q1 earnings release webcast. Thank you all for joining us today. As usual, our team of Investor Relations, Jeff Miller and Jen Stucki will be available for any follow-ups or clarifications if anyone has any. Thank you again, and have a wonderful day.

Operator

Thank you, Mr. Leombruno, and thank you, Ms. Parmentier here. Again, ladies and gentlemen, that will conclude Parker-Hannifin Corporation's earnings conference call. We'd like to thank you all so much for joining us today and wish you all a great remainder of your day. Goodbye.