Parker Hannifin FY 4Q15 Earnings Call Notes

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Three big headwind themes

“I think there is just three big headwind themes. One is the translational effect currency is having. That is the biggest impact to the top line, no doubt. We have mentioned a couple of times natural resource driven markets. And then lastly, I think there is this — the third drag would be the continued regional/country weakness in Europe, China and Brazil”

Probably 6 more months of destocking in the distribution channel

“distribution did grow organically, but there was absolutely a noticeable slowdown in Q3 and a contraction in Q4 sequentially and year over year. The slowdown was largely attributed to those distributors with significant oil and gas exposure. And as Tom mentioned earlier, we expect another six months of destocking in that channel before it has worked itself out”

Power Gen markets have been strong in North America

“Agriculture, I think we know that is soft. Power generation has been a positive for us, almost completely globally, definitely in North America. Through FY ’15 and Q4, there has been a shift from coal to gas-fired plants and that has really played well for us in terms of opportunities. And then the whole renewable energy has been positive for us.”

Not really seeing green shoots in Europe. Exports have been down, probably because of China

“Switching now to Europe, a lot of news about — a lot of questions around green shoots, PMI, etc. We have not really seen a significant uptick with our customers with some exceptions. The export activity out of Germany hasn’t been what it was. I suspect that is largely due from the historic pull from China which I will get to in a minute. Oil and gas activity has been slow. Many major capital projects that we have been involved with have been pushed out. Distribution performance I would categorize as flat to moderately down throughout Europe. We have seen some positive in construction, although modestly.”

Modest contraction in China

“in China we saw modest contraction in Q4 and year over year. We see continued weakness in construction of machinery. I mean that is down probably 10% year over year off of very depressed FY ’14 levels. ”

Brazil is significantly weak

“Latin America, I will touch on this quickly. The story really is around Brazil. I just returned from there a week ago. Significant GDP contraction and weakness really across almost all sectors with the exception of power generation.”

Commercial aerospace cycle leveling off?

“We’re also seeing some move in our commercial OEM business down slightly. But again, that is from a very high ordering pattern this time last year and really throughout the beginning of the cycle which is now starting to level off to more numbers that are more representative of how we see ourselves going forward which is indicated in our guidance.”

Forecast mining and Ag to be bottoming in 2Q

“as you know, any forecast is usually wrong the day after we send it out. But I think we have some fair assumptions. We have done this through visibility to customer demand, distribution inventory, our own economic modeling and then our bottoms up from our divisions was all basically coalesced along the same thing. So the key assumptions will be that we’re assuming bottoming of some of those end markets that were giving us the most trouble. So mining in the second quarter and Ag in the second quarter and then oil and gas and construction in Q4. So if those were to slip at all that would be a potential risk. But that is our best assumption right now.”

Buying back 2-3B of shares

“we’re still committed to the $2 billion to $3 billion of share repurchase over the timeframe that we communicated.”