Parker Hannifin Earnings Call Insights: Decline in Margins and Current Guidance

Parker Hannifin Corporation (NYSE:PH) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Decline in Margins

Jamie Cook – Credit Suisse: I guess two questions. One, if we look at your guidance for North America and for international, you’ve taken your revenues up a little relative to your previous forecast the margins are down a little. I’m assuming the decline in margins is a result of acquisitions. Can you confirm that and tell us how much the acquisitions are hurting and then, I guess, can you just talk about your comfort level with improving margins on a sequential basis, is it just based on volumes or other potential tail winds that you have to make us feel comfortable, I don’t know if material costs are more of a benefit, I don’t know what your assumptions are on FX or mix, if you could just sort of walk me through that.

Pamela J. Huggins – VP and Treasurer: Just to clarify, at the midpoint, last guidance to this guidance we did take North America up in revenue, but on International we did take revenue down, and then you’re exactly right, Jamie, to your point, we did take segment operating income down in North America and International. Jon, do you want to…?

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Jon P. Marten – EVP, Finance & Administration and CFO: Yeah, I mean Jamie, just to the point of your first – in terms of the headwinds and the tail winds from a pricing in a supplier standpoint here, we are staying about even, so nothing really different to report there at this point. It’s a tough pricing environment out there and it’s a very important transitional time frame here for us in the second half as we start to see sequential improvement in our margins going forward here, which we’ll be looking for our suppliers to help us with as time goes on. Now, in North America, that is also being impacted by the acquisitions and as Don alluded to earlier, the margins are being impacted by the reduced organic sales being replaced by acquisition sales are coming in at lower margins than we were seeing on the organic business that is moderating as time goes on. And then the restructuring that Pam was talking about that we are going to be doing in the second half is also going to be impacting our margins going forward here including the integration costs too. So, that’s I think in summary the way that we are looking at margins going forward here for the second half.