Industrial machinery company Parker-Hannifin (NYSE: PH) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 2.2% year on year to $4.96 billion. Its non-GAAP profit of $6.94 per share was 3.2% above analysts’ consensus estimates.
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Parker-Hannifin (PH) Q1 CY2025 Highlights:
- Revenue: $4.96 billion vs analyst estimates of $4.98 billion (2.2% year-on-year decline, in line)
- Adjusted EPS: $6.94 vs analyst estimates of $6.72 (3.2% beat)
- Adjusted EBITDA: $1.29 billion vs analyst estimates of $1.29 billion (26% margin, in line)
- Management slightly raised its full-year Adjusted EPS guidance to $26.70 at the midpoint
- Operating Margin: 21.1%, up from 19.3% in the same quarter last year
- Free Cash Flow Margin: 10.9%, down from 14.1% in the same quarter last year
- Organic Revenue was flat year on year, in line with the same quarter last year
- Market Capitalization: $86.23 billion
StockStory’s Take
Parker-Hannifin’s first quarter results were marked by flat organic sales and a year-on-year revenue decline, but management pointed to continued margin expansion as a key driver of performance. CEO Jennifer Parmentier attributed the strong profitability primarily to disciplined cost controls, operational improvements, and the company’s focus on higher-margin businesses, particularly in Aerospace, which saw robust aftermarket demand and backlog growth. Parmentier also highlighted the impact of recent divestitures and ongoing softness in transportation and industrial end markets as weighing on top-line results.
Looking ahead, management slightly raised its full-year adjusted EPS guidance, citing confidence in mitigating tariff-related cost pressures and continued strength in long-cycle order intake. Parmentier emphasized, “We expect to fully offset announced tariffs through a mix of pricing, supply chain actions, and ongoing cost reductions,” and pointed to the company’s backlog and positive order momentum as reasons to expect improved industrial growth next year. However, management remained cautious about the timing of recovery in certain end markets, noting ongoing delays in industrial project activity.
Key Insights from Management’s Remarks
Parker-Hannifin’s leadership focused on the resilience of its business model, margin expansion through operational improvements, and the outsized contribution from aerospace, while acknowledging persistent headwinds in industrial segments.
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Aerospace Aftermarket Drives Margins: The company’s Aerospace segment delivered double-digit organic growth, fueled by strong aftermarket demand in both defense and commercial markets. Parmentier noted a record $7.3 billion backlog and emphasized that aftermarket now comprises about 50% of segment sales, supporting margin expansion.
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Operational Improvements and Cost Controls: Management credited its “Win Strategy” business system and decentralized structure for enabling continuous cost reductions and efficiency gains, even as volumes in industrial businesses remain pressured. CFO Todd Leombruno highlighted the company’s ability to grow adjusted EPS by 7% despite a 2% revenue decline.
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Order Growth and Backlog Visibility: Total company orders grew by 9%, with particularly strong momentum in international and long-cycle businesses. Parmentier cited improved distribution sentiment in North America and a third consecutive quarter of positive order growth internationally, signaling potential for future revenue conversion.
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Tariff Mitigation Actions: Announced tariffs, representing roughly 3% of cost of goods sold, are being fully offset through a combination of pricing actions, supply chain adjustments, and further operational efficiencies. Management stated these measures are already in place and factored into full-year guidance.
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M&A Pipeline Remains Active: While no major acquisitions were completed during the quarter, management described its M&A pipeline as robust, with opportunities of various sizes under evaluation. The company’s recent share repurchases were characterized as capital allocation while awaiting strategic deals.
Drivers of Future Performance
Management’s outlook for the rest of the year centers on continued margin resilience, strong aerospace demand, and the company’s ability to navigate tariffs and industrial market uncertainty.
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Aerospace Momentum: Ongoing strength in aftermarket and commercial aerospace is expected to support margin expansion and offset slower industrial segments, with management raising organic growth targets for this business.
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Industrial Recovery Uncertainty: While order growth suggests a potential upturn, management acknowledged that the timing of an industrial recovery remains unclear, as project delays persist and customer sentiment is cautious.
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Tariff and Cost Management: The company’s ability to fully mitigate tariff-related costs through pricing, supply chain flexibility, and operational discipline is seen as critical to maintaining profitability and supporting raised earnings guidance.
Top Analyst Questions
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Mig Dobre (Baird): Asked about the timing for conversion of long-cycle orders to revenues and expectations for industrial growth in the next year. Management indicated visibility for positive growth in industrial segments next year, citing strong order intake and minimal cancellations.
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Jamie Cook (Truist Securities): Questioned whether current aerospace margins are sustainable or driven by aftermarket mix, and if margin targets were conservative. Parmentier explained that strong aftermarket is structural due to acquisitions, and margin expansion is expected to continue even as OEM business recovers.
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Julian Mitchell (Barclays): Probed the divergence between rising orders and flat sales in industrials, asking about backlog trends. Management clarified that longer-cycle business has extended the link between orders and shipments, with industrial backlog up 5% sequentially.
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David Raso (Evercore ISI): Sought clarity on the annualized impact of tariffs and whether the run rate would change in the coming quarters. CFO Leombruno confirmed the 3% of cost of goods number is the current run rate, with no ramp or additional actions planned.
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Stephen Volkmann (Jefferies): Asked if Parker-Hannifin’s local-for-local supply chain model could drive market share gains amid trade disruptions. Management acknowledged potential opportunities for share gains as customers seek more resilient supply partners.
Catalysts in Upcoming Quarters
In upcoming quarters, the StockStory team will focus on (1) conversion of long-cycle orders to revenue, particularly in the industrial segment, (2) the sustainability of aerospace aftermarket demand and its contribution to margins, and (3) the effectiveness of tariff mitigation strategies on earnings. Progress in industrial project activity and visible wins in share gains due to supply chain strength will also be important markers to track.
Parker-Hannifin currently trades at a forward P/E ratio of 23.8×. Is the company at an inflection point that warrants a buy or sell? The answer lies in our free research report.
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