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Date

Thursday, August 7, 2025, at 11 a.m. ET

Call participants

  • Chairman and Chief Executive Officer — Jennifer Parmentier
  • Chief Financial Officer — Todd Leombruno

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Takeaways

  • Revenue-- $19.9 billion in sales for fiscal 2025 (ended June 30, 2025), reflecting a 1% increase in fourth quarter sales compared to the prior year, with 2% organic growth and a 1% favorable currency impact, partially offset by a 2% negative impact from divestitures in the fourth quarter of fiscal 2025.
  • Adjusted segment operating margin-- 26.1% adjusted segment operating margin for fiscal 2025 and 26.9% in the fourth quarter of fiscal 2025, increasing 120 and 160 basis points, respectively, compared to the prior year.
  • Adjusted EBITDA margin-- 26.4% adjusted EBITDA margin for fiscal 2025 (up 80 basis points) and 26.8% in the fourth quarter of fiscal 2025 (up 50 basis points).
  • Adjusted EPS growth-- 7% adjusted EPS growth for fiscal 2025, with fourth quarter adjusted EPS up 14% to $7.69.
  • Cash flow from operations (CFOA)-- $3.8 billion for fiscal 2025 (19% of sales), a record level, while free cash flow reached $3.3 billion (16.8% of sales) with a 109% conversion rate, both up 12% year-over-year.
  • Backlog-- $11 billion total backlog for fiscal 2025, with aerospace at $7.4 billion—both record levels.
  • Aerospace sales-- $6.2 billion in aerospace sales for fiscal 2025, representing 13% organic growth and 190 basis points of adjusted segment operating margin expansion, with orders up 12% in the fourth quarter of fiscal 2025 and sales at $1.7 billion in the fourth quarter (up 10%, with 9% organic growth).
  • Aerospace sales mix-- 51% aftermarket and 49% OEM for fiscal 2025.
  • Industrial segment margin-- 25.1% adjusted segment operating margin for fiscal 2025 (up 90 basis points); international industrial sales were $1.5 billion in the fourth quarter of fiscal 2025 (up 4%), with organic growth guidance at 1% for fiscal 2026 and adjusted operating margin at a record 24.7% (up 80 basis points) in the fourth quarter of fiscal 2025.
  • North American industrial-- Fourth quarter fiscal 2025 North America sales were $2.1 billion (organic down 1%); adjusted operating margin reached 26.7% (170 basis point expansion) in the fourth quarter of fiscal 2025, with positive order growth for the third consecutive quarter in North America through the fourth quarter of fiscal 2025.
  • Share repurchases-- $850 million in share repurchases in the fourth quarter of fiscal 2025; $1.6 billion for fiscal 2025.
  • Fiscal 2026 guidance: Reported and organic growth-- Reported sales growth for fiscal 2026 is forecasted at 2%-5% (midpoint $20.6 billion), organic growth at 1%-4.5% (midpoint 3%).
  • Fiscal 2026 guidance: Aerospace and industrials-- Aerospace organic growth expected at 8% (midpoint) for fiscal 2026; Industrial North America and International each at 1% organic growth.
  • Fiscal 2026 adjusted segment margin-- 26.5% adjusted segment operating margin at the midpoint for fiscal 2026 (up 40 basis points versus prior year).
  • Fiscal 2026 adjusted EPS guidance-- $28.90 adjusted EPS at the midpoint for fiscal 2026, representing a 6% year-over-year increase, with a $0.50 range in either direction.
  • Fiscal 2026 free cash flow guidance-- $3-$4 billion, with approximately 100% conversion.
  • First quarter fiscal 2026 guidance-- Reported sales up approximately 0.5% for the first quarter of fiscal 2026, organic growth of 2% in the fourth quarter of fiscal 2025, adjusted segment operating margin of 26.1% for fiscal 2025, and adjusted EPS of $6.51 for the first quarter of fiscal 2026, with EPS expected to increase 5% year-over-year.
  • Acquisition of Curtis Instruments-- Intent to acquire Curtis announced June 30, targeting closure by the end of the calendar year; initial margin dilutive but expected to be EPS accretive in the first year, with synergy targets similar to previous transactions and expected realization within three years, as stated for the Curtis Instruments acquisition; Curtis's historic sales growth was mid- to high single digits over the past five to ten years.
  • Remaining Meggitt synergies-- $50 million of Meggitt synergies left to achieve, expected to ramp through fiscal 2026.

Summary

Parker-Hannifin(PH 3.58%) reported record results across revenue, margins, cash flows, and backlog for fiscal 2025 (ended June 30, 2025), driven by significant strength in aerospace and industrial margin expansion. Guidance for fiscal 2026 points to continued margin growth and a balanced capital allocation approach, supported by expectations for further aerospace momentum and improving industrial markets. The pending acquisition of Curtis Instruments is positioned to further diversify the electrification portfolio and add secular growth, though margins from the deal will be initially dilutive, with first-year EPS accretion anticipated. Productivity, disciplined cost management, robust capital deployment, and incremental synergies from prior integrations were emphasized as key levers supporting fiscal 2026 guidance. Share repurchases and higher non-recurring CapEx signal a commitment to flexibility and long-term investment amid gradually recovering end markets.

  • Leombruno noted, "Sixty percent of the improvement in adjusted EPS in [the fourth quarter of fiscal 2025] came from strong operating execution." with margin expansion and tax favorability as material contributors.
  • Parmentier said, "We expect 85% of our portfolio to be longer cycle, secular, and aftermarket by [fiscal 2026]." enhancing resilience to cyclical downturns.
  • The decentralized "Win Strategy" and 85 divisions with full P&L control were cited as driving cost reductions and operating margin expansion across diverging end markets.
  • Restructuring costs are projected to rise by $20 million to $70 million in fiscal 2026.
  • No evidence of demand pull-forward related to tariffs was reported; pricing action and a localized supply chain model have contained tariff impacts to margins and EPS.
  • Orders in North America showed positive momentum for the third consecutive quarter in the fourth quarter of fiscal 2025, while international orders remained flat in the fourth quarter of fiscal 2025 following notable long-cycle wins in the prior quarter.
  • Aerospace backlog provides over 100% coverage as of fiscal 2025, which, together with record incoming orders in the fourth quarter of fiscal 2025, signals multi-quarter visibility for growth in the segment.

Industry glossary

  • Aftermarket: Sales of replacement parts and services for equipment already in operation, distinct from OEM (original equipment manufacturer) product sales.
  • The Win Strategy: Parker-Hannifin's proprietary operating business system focused on decentralized decision making, continuous process improvement, and margin expansion across business cycles.
  • CFOA: Cash flow from operations; net cash generated from regular business operations, excluding investing and financing activities.
  • OEM: Original equipment manufacturer; refers to customers who purchase parts or systems for integration into new equipment or vehicles.
  • Incrementals: Operating leverage measured as the percentage of additional profit generated by each additional dollar of revenue.

Full Conference Call Transcript

Todd Leombruno: Thank you so much, Bo. I would like to welcome everyone to Parker's fiscal year 2025 fourth quarter and full year earnings release webcast. As Bo said, this is Todd Leombruno, Chief Financial Officer speaking. And with me today as usual, is Jennifer Parmentier, our Chairman and Chief Executive Officer. We appreciate your interest in Parker, and we thank everyone for joining us today. On slide two, we address our disclosures on forward-looking projections and non-GAAP financial measures. Items listed here could cause actual results to vary from our forecast. Our press release, this presentation, and reconciliations for all non-GAAP measures were released this morning and are available under the Investors section on Parker-Hannifin's website.

The agenda for today has Jennifer starting out with the highlights of our record fiscal year 2025 performance. She will then reiterate the strengths of our transformed portfolio, the power of the Win Strategy, which is our business system that drives performance in all economic climates, and then she'll provide some color on our recently announced acquisition of Curtis Instruments. I am going to follow with a few details on our strong fourth quarter financial results. We did release our initial FY 2026 guidance this morning, and we will discuss the assumptions and provide some color on what we expect to be another record year for Parker. We'll conclude the call with a normal question and answer session.

We will do our best to take as many questions as possible. Now I would ask everyone to call your attention to slide three, and, Jennifer, the floor is yours.

Jennifer Parmentier: Thank you, Todd, and thank you to everyone for joining the call today. The Win Strategy and our culture of high performance delivered another record year. We had a 17% reduction in recordable incident rate, once again achieving top quartile safety performance and record engagement survey results. Top line sales finished at $19.9 billion, and this team achieved record adjusted segment operating margin of 26.1%. An increase of 120 basis points to prior year and record adjusted EBITDA margin of 26.4%, an increase of 80 basis points to prior year. We generated record cash flow from operations of $3.8 billion and delivered 7% adjusted EPS growth.

We finished the year with a record $11 billion in backlog, and we remain committed to a disciplined, active, and balanced capital deployment strategy. Next slide, please. Another year of outstanding performance from aerospace with record sales of $6.2 billion. That's 13% organic growth and 190 basis points of adjusted segment operating margin expansion. Orders continued to outpace sales growth as we finished the year at a record backlog of $7.4 billion. Today, we enjoy a balanced and diverse aerospace portfolio. We finished FY 2025 with 51% of our sales from serving the aftermarket and 49% from serving our OEM customers.

Looking back to FY 2019, I'd like to recognize our aerospace team for navigating and managing through numerous industry challenges, successfully integrating the Parker and Meggitt Aerospace businesses together, and staying focused every day on the safety of our team members and improving the experience for all of our customers. The performance is impressive. Sales are approximately 2.5 times higher, and we are on track to expand adjusted segment operating margin by 940 basis points from fiscal year 2019 through our fiscal year 2026 guide. We're not done yet. Our comprehensive offering of proprietary designs on premier programs and our global footprint that supports a diverse customer base well positions us for sustained growth and operating performance. Next slide, please.

The Industrial segment of our business has been a large part of our transformation and margin expansion story. Fiscal year 2025 delivered record adjusted segment operating margin of 25.1%, a 90 basis point increase over prior year. Using the Win Strategy, our teams are on track to deliver 700 basis points margin expansion from fiscal year 2019 through our FY 2026 guide. This is a testament of our ability to expand margins through the cycle, even in periods of negative organic growth. Our powerhouse of interconnected technologies, global distribution network, and global manufacturing footprint are competitive advantages that will drive growth from secular trends across the market verticals. Our portfolio today is well balanced.

Two-thirds is now longer cycle, secular trend, and aftermarket. We are poised for a return to growth. Next slide, please. Once again, the transformation of our portfolio further expanded longer cycle and secular revenue mix. In fiscal year 2025, acquisitions in both aerospace and industrial, along with international distribution growth, have greatly contributed to this transformation. We see this transformation continuing and expect 85% of our portfolio to be longer cycle, secular, and aftermarket by fiscal year 2026. Next slide, please. And on June 30, we announced our intent to acquire Curtis Instruments, further expanding our electrification offering and secular revenue mix. Curtis is the leader in low voltage motor control solutions for zero emission and hybrid mobile equipment.

This acquisition will add a complementary suite of control solutions to pair with Parker's electric motor and motion control portfolio. This will further enhance our capabilities for in-plant and off-highway applications. Curtis has a strong market position across diverse and growing end markets. These are markets that we know, customers we have relationships with, and products that will be a great addition to our portfolio. We expect to close by the end of the calendar year, and we look forward to welcoming the Curtis team to Parker. Next slide, please. And a reminder on why we win. First, the Win Strategy is our business system. We have a decentralized operating structure.

85 divisions run by general managers with full P&L responsibility, acting like owners close to their customers and executing the Win Strategy every day. We have innovative products that solve customer problems, 85% covered by intellectual property. Our application engineers provide the expertise that allows us to have a competitive advantage with our technologies to provide efficient solutions for our customers. And finally, our distribution network, the envy of the competition and the best in the world. It took us over sixty years to build it, and it is truly an extension of our engineering teams providing solutions to small and midsized OEMs. These partners are experts at applying our interconnected technologies.

I'll now turn it back over to Todd to go through our fiscal year 2025 highlights.

Todd Leombruno: Thank you, Jennifer. FY 2025 was really a strong year. I'm going to try and quickly wrap up FY 2025 with Q4 results, and I'm on Slide 10. Fourth quarter was another record-setting quarter. In fact, every number on the page is once again a record. It was another quarter of continued margin expansion and a quarter of double-digit EPS growth. Really impressive considering that sales were up just 1% versus prior year. Organic growth was positive at 2%, that's the highest we've been all fiscal year. Currency did turn favorable at 1%, and the divestitures that we previously announced throughout the year were 2% unfavorable to total sales.

Adjusted segment operating margin was 26.9%, that's up 160 basis points from prior year, and adjusted EBITDA margin was 26.8%, that's an increase of 50 basis points from prior year. Adjusted net income was almost $1 billion, was $992 million in the quarter, that was an 18.9% return on sales. And adjusted earnings per share were up 14%, and they reached $7.69 per share. Just a fantastic quarter really from all the businesses resulting in the best performance that we've had this fiscal year. For sales, for organic growth, for adjusted segment margins, and for adjusted EPS. We'd really like to thank our global team for a strong finish to the fiscal year.

We talk about this a lot internally, finishing strong, and everyone certainly delivered. If you move to slide 11, this just highlights the components in the year-over-year improvements. And adjusted EPS, what I'm proud to say here is 60% of the improvement in EPS in the quarter came from strong operating execution. Segment operating income dollars are up $96 million or 7%. That was 56¢ of our improvement. Tax was a big favorable in the quarter, that's $0.47 favorable. That was really a result of a few discrete tax benefits that result in the quarter. Also, I'd just like to call attention that Q4 last year was our highest tax rate of the year.

So comps helped a little bit there. Interest expense continues to be favorable. That was $0.02 favorable. That's really just based on our efforts to pay down debt throughout the year. And discretionary share repurchases drove a $0.09 favorable impact. You can see that on share count par there. Corporate G&A and other were unfavorable, really combined $0.32, that's a combination of less favorable pension expense versus prior year, but really a result of foreign currency exchange volatility year over year. The EPS growth story has been really consistent throughout the year, just strong operating execution, very tight cost controls driving margin expansion, and as Jennifer mentioned, disciplined capital allocation. So, a great way to finish the year.

If we can go to slide 12, this just details performance across our businesses. First, I'll start with orders. Orders continue to be positive. It's plus five versus prior year. Aerospace strength continues to drive backlog higher. Jennifer mentioned that's a record. We did see gradual improvement in sales growth across our major market verticals. And once again this quarter, every business delivered record segment operating margin. Very nice to see that, and I already mentioned it, but in total, we were up 160 basis points from prior year. Looking specifically in the North America businesses, sales were $2.1 billion. Organic growth was just down 1% versus prior.

But we did continue to see a sequential improvement in organic growth, quite honestly, that was better than our expectations coming into the quarter. We did see improvement across the market verticals in North America. Adjusted operating margins did increase 170 basis points to a record 26.7%, and that was just again driven by excellent operating execution, cost controls, and a little bit of favorable mix. Gradual improvement in distribution kept orders in North America positive at plus two versus prior year. And just want to note that this is the third consecutive quarter of positive order growth for North America. Moving to the Diversified Industrial International businesses, sales were up to $1.5 billion, that's up 4%.

Organic growth was positive at one. It was really nice to see that turn positive. In Asia Pac, organic growth was plus six. In Latin America, it was plus four. While EMEA did improve, it did remain negative 3% from an organic growth standpoint. Our international teams are really committed to using the tools of The Win Strategy to reduce cost, improve efficiency, and drive margin expansion, no matter what's happening with the top line. And that resulted in adjusted operating margins achieving a record of 24.7%, which is an 80 basis point expansion from prior year. On the order front, international orders were flat versus prior year, really against some tough comps.

And just a reminder that orders in Q3 did benefit from a number of significant long cycle orders that remain in the backlog. Lastly, if I look at Aerospace Systems, the momentum continues in aerospace. Sales were a record $1.7 billion, that's up 10% versus prior year. That did exceed our expectations for the quarter. Organic growth was most of that, 9% of that growth is organic, really driven by strong strength in the aftermarket channels. Adjusted segment operating margins up huge 190 basis points versus prior, and reached a record 29%. And aerospace orders continue to be positive at plus twelve.

Really want to commend our aerospace team members for another outstanding quarter and a strong finish to a stellar year. Right. On slide 13, this is my last slide for the year. This is cash flow. We finished FY 2025 by achieving record cash flow generation. Cash flow from operations is a record at $3.8 billion, that's 19% of sales. Free cash flow is also a record at $3.3 billion or 16.8% of sales with conversion at 109 after adjusting for some non-operating items. Both CFOA and free cash flow increased by 12% versus prior year. And in addition, we did repurchase an additional $850 million in shares during the quarter.

And that brought our year-to-date share repurchases amount to $1.6 billion. So, I know everyone's interested in guidance. We'll move on to FY '26 guidance, and Jennifer, I'm going to hand it back to you on slide 15.

Jennifer Parmentier: Thanks, Todd. This slide shows our fiscal year 2026 organic sales growth forecast by key market vertical. So, in Aerospace, we are forecasting high single-digit growth, with higher growth in commercial OEM than commercial aftermarket. We are forecasting low single-digit growth in plant and industrial, and this is assuming a gradual industrial recovery. Transportation, our most challenged market this year, we are forecasting a mid-single-digit organic decline. In Off Highway, we are forecasting a low single-digit decline. The ag market has moved past trough, but needs a little more time before returning to positive. Construction is stronger than ag with recovery underway. And we expect positive low single-digit growth in energy, as well as HVAC and refrigeration.

At the midpoint, this results in 8% organic growth for Aerospace, approximately 1% organic growth for both Industrial North America and Industrial International, and approximately 3% total Parker organic growth.

Todd Leombruno: Reported sales growth for the year is expected to be in the range of two to five, that's 3.5% at the midpoint. That will be approximately $20.6 billion in annual sales. We have modeled those sales 48% in the first half, 52% in the second half, and consistent with our practice, this guidance does not include any impact from the Curtis Instruments acquisition. We will add Curtis to our guide once it closes. If you look at organic growth, Jennifer mentioned this, but the forecast is in the range of 1.0 to 4.5 or 3% at the midpoint. Aerospace is again 8% at the midpoint, and both North America and international we expect 1%.

Organic growth is modeled February and April. Currency as usual is based on the June 30 spot rates, and based on our math here, it shows that's expected to be favorable by 1.5%, roughly $260 million. On margins, adjusted segment operating margin guidance is 26.5 at the midpoint, that is an increase of 40 basis points versus the FY '25 finish. And in respect to incrementals, we have modeled roughly 35% for the full year on incrementals. Just a few things to note. Below segment operating income, corporate G&A is approximately $200 million, interest expense approximately $390 million, and other expenses approximately $80 million, all of those are at the midpoint. Tax rate, we are modeling a 22.5% tax rate.

As usual, we are not including any unknown discretes in that number, 22.5% is what we have modeled. And EPS for the full year is expected to be 28.9 on an adjusted basis at the midpoint, that is an increase of 6% versus prior year. We have a range of 50¢ on both sides of that 28.9. And the split on EPS is forty-six percent first half, fifty-four percent second half. Lastly, in respect to cash flow, full year free cash flow is expected to be in the range of $3 billion to $4 billion with conversion at approximately 100%. And lastly, on the far right column here, you could see what we have highlighted for Q1.

FY '26 all of these numbers are at the midpoint. Reported sales are roughly 0.5% positive. Organic growth is 2% positive, and we are forecasting 26.1% for adjusted segment margins and an adjusted EPS of 6.51. As usual, we have some further details in the appendix if those are helpful for your model. Lastly, on slide 17, this is just the bridge. I'll just highlight as we walk through this. We are forecasting a 5% increase in adjusted segment operating income dollars, which translates to $1.68 in additional EPS. Share count based off of that year-to-date repurchase amount is roughly $0.37 of improvement in EPS for FY 2026. Corporate G&A are forecasted to be $0.18 favorable.

And again, interest rate will give a little bit of a tailwind, 0.011 for the year. The forecasted tax rate of '22 is a headwind of $0.77 compared to the effective tax rate that we realized in FY '25. Once again, does not include any discrete items. So, in summary, we are guiding FY '26 at 28.9 adjusted EPS, that is up 6%. And with that, I'm going to ask you to move to slide 18, and Jennifer, I will hand it back to you.

Jennifer Parmentier: Thank you, Todd. So I'll close with a reminder on what drives Parker. And again, a thank you to all the Parker team members for a fantastic fiscal year 2025 and a very, very promising FY 2026. Safety and engagement and ownership are the foundation of our culture. It's our people and our purpose that drives top quartile performance, and we remain committed to being great generators and deployers of cash.

Todd Leombruno: Okay. Bo, we are ready to start the Q&A session.

Operator: Certainly, Mr. Leombruno. Sound quality. Additionally, please limit yourself to one question and one follow-up. We'll go first today to Joe Ritchie of Goldman Sachs.

Joe Ritchie: Hey, good morning, everybody, and congrats on another great year.

Jennifer Parmentier: Thanks, Joe. Can we just maybe talk about the Q1 guide? Take a look at that relative to the last few years. It's a pretty meaningful sequential step down in the EPS relative to what you've seen even just like the last three years. So can you guys maybe just talk about, like, the bridge between Q4 to Q1 and what's really changing on the margin embedded in your guide?

Jennifer Parmentier: Well, I'll start, Joe, and then I'll let Todd follow-up if he has any more comments. So, first of all, we have very little sales growth in Q1. And this EPS guidance for Q1, you know, is a 5% increase year over year. This margin, at twenty-six point one, does have 40 basis points of margin expansion and is a Q1 record, will be a Q1 record. So, I think this is a good starting point for the year for us.

Todd Leombruno: Yeah, Joe, I would add we do have sequentially it's hard to go from Q4 to Q1. Q1 being obviously the start of our fiscal year, we do have to recognize some of the stock comp that is a big hit in Q1. If you look at that versus prior year, Jennifer mentioned this, but we're forecasting 80 basis points of margin expansion Q1 twenty-six versus '25, and EPS is a little over 4% of an increase.

Jennifer Parmentier: 40 basis points.

Todd Leombruno: Oh, I'm sorry, 40. Yes, 40 basis points.

Joe Ritchie: Yeah. Okay. Alright. Yeah. No, it looks a tad conservative, but a full that's okay. I guess maybe just a broader question. It sounded like you were seeing some green shoots across your businesses. Maybe just kind of talk through especially the industrial short cycle businesses, what you're seeing there. And then also, you know, can you just touch on the self-help opportunity for this year as well? Clearly, you've been doing a great job from a margin perspective. Can you just touch on those two points, that'd be great.

Jennifer Parmentier: Sure. So it's, you know, taking a look at in-plant and industrial equipment guidance. So, we have that at a positive low single digit for the year. And as I mentioned, that does assume a gradual industrial recovery. I mean, I would say Todd mentioned this already, but distributor sentiment does remain positive. You know, and I think we're in a good position to benefit from some of the customer supply chain action. So we'll benefit from increased MRO activity, any factory retooling or spending that's going on, and our distributors will participate in that. They continue to tell us, I was on a distributor visit just in the last month.

They continue to tell us that they're quoting, and the activity is there. Just fill some of those delays that we've been talking about now for a few quarters. When you look at transportation, I mentioned that is going to be our most challenged market this year. There's some near-term pressure in both auto and truck markets. We think their end users, they're delaying their purchase decisions due to the uncertainty on cost, timing of new emission requirements, and current interest rate levels. We think that's all buying into that. So, again, it will be a challenged market for us. Off highway, our guidance is at negative low single digits, but there's improvement here.

It turned out to be a little bit better. Construction was a little bit better in Q4 than we thought it would be, and we see that continuing. We see that recovery underway. A lot of the ongoing and announced infrastructure here is going to be a plus. But the ag market, while we do believe that it's moved past a trough, we think that it's going to be a little bit of time before it returns to positive. Again, cost uncertainty, interest rates, crop prices, all factors here. So, we see improvement, and that's why we have the guide where it is, but obviously there's some opportunity here.

Todd Leombruno: Joe, I would just add your question on self-help. Obviously, everything we have on The Win Strategy is a self-help margin-enhancing process of tools, but we are forecasting slightly higher restructuring this year versus what we did last year, just in some of those regions or some of those end markets that may need attention.

Jennifer Parmentier: Yeah. We still, you heard me say before, we're very confident in our ability to expand margins with tools. It's obviously shown what we've done in all of the business in this past fiscal year and the ones before, but we have great teams that are using these tools on a regular basis and really delivering great results. It will continue.

Joe Ritchie: Great. Thank you.

Operator: Thank you. We go next now to Jeffrey Sprague of Vertical Research Partners.

Jeffrey Sprague: Hey, thanks. Good morning, everyone.

Jennifer Parmentier: Good morning, Jeff.

Jeffrey Sprague: Jennifer or Todd, maybe you could just speak a little bit more to Curtis, kind of where the margin profile is on a Parker comparable basis? What kind of improvement you can get in the business from a synergy standpoint relative to the deal plan that you must have internally? And what's the growth been like in that business recently? How's it performing in 2025?

Jennifer Parmentier: Yes. Sure, Jeff. Be happy to. We're really excited about bringing Curtis into the Parker team. So we chose not to disclose their margins more about the size of this deal, but initially, the margins will be dilutive, but we see a clear path to accretion with the Win Strategy tools we were just talking about and with synergies. So, we expect, like you've seen with our past deals, both synergies within three years. Relative size would be similar to the Lord and Meggitt deals. That's what we're looking at right now. Historically, Curtis sales have grown mid-single digit to high single over the past five to ten years. So really nice growth profile with them.

Todd Leombruno: Yes, Jeff, the only thing I would add is if you look at what we were forecasting for twenty-six, you know, the segment operating income dollars roughly $5.5 billion worth of segment operating income that does not include Curtis. So to Jennifer's point, this will be slightly dilutive, but it is the small scale compared to where it fits in the total company.

Jeffrey Sprague: Right. It would be margin dilutive. I know you don't want to give an EPS number yet, but it looks like it's EPS accretive, right? Margin dilutive, EPS accretive?

Jennifer Parmentier: Correct. Yes.

Todd Leombruno: Right. Right. Yes. Expect EPS accretion in the first year.

Jeffrey Sprague: Yeah. Absolutely. Okay. And then just on international orders, I guess, Todd, your comment alluded to the fact that maybe the softness here in Q4 was because you got some chunky orders in Q3. Maybe you could just elaborate a little bit more on that and what's going on in the international order pipeline?

Jennifer Parmentier: Sure. Jeff, I'll take that one. So yes, Todd did mention that, that we in Q3 we had very strong long cycle orders in international. We saw that in HVAC refrigeration, power gen, and aerospace and defense. They didn't repeat in Q4. But we did see EMEA slightly positive with energy remaining really strong. And then in Asia, orders were slightly negative and was really more about a challenging comp to the prior year. But if you look at the order dollars, they were flat sequentially to Q3. So that really explains the difference between Q3 and Q4 and the drop that we saw.

Operator: Great. Thank you.

Jennifer Parmentier: Thank you.

Operator: Thank you. We go next now to Scott Davis with Melius Research.

Scott Davis: Hey, good morning, Jennifer and Todd, and congrats on a good year.

Jennifer Parmentier: Thanks, Scott.

Scott Davis: Just wanted to follow on just Curtis and then combine that with the big buyback or the $1.6 billion that you've done. Is that an indication that you expect M&A to continue to be more of kind of the smaller bolt-on type stuff, or am I reading too much into that?

Jennifer Parmentier: Well, like you've heard me say many times in the past, Scott, we have deals of all sizes in our pipeline. It can be small and bolt-on, or there could be something larger out there. You know, as we've said, timing is hard to predict. But obviously, our strategy remains the same. You know, we want to acquire companies. We're the clear best owner. Fits in with our interconnected technologies, follows the secular trends we've talked about here for a while. So, I mean, they won't all be this size, but we're going to continue to work that pipeline.

Todd Leombruno: It's building those strong relationships and making sure that we're ready when they're ready.

Scott Davis: Yes, Scott, I would just add, you know, you've heard us talk, you know, we want to operate with net gross debt to adjusted EBITDA around two. We finished the year at roughly 1.7. So we do have obviously capacity to do something even below two. But the cash flow generation profile that the company has really gives us lots of optionality. 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 FY 2026.

Scott Davis: Yeah, makes sense. Guys, I don't think you mentioned tariffs. I know it wasn't a big deal even last quarter. But just curious, is the lack of kind of mention of tariffs an indication that you've just been able to capture price to offset any impacts? I'm trying to kind of picture how 85 different P&Ls kind of manage something that's such a big complex global issue. But maybe you can address both of those in some way in your answer if you can.

Jennifer Parmentier: Thanks. Sure, Scott. So, first, I would just say our teams are doing a fantastic job managing tariffs and making sure that there's no impact to earnings per share. But you probably heard us say, pricing is something that is a strong muscle for us. I mean, it is a function within Parker-Hannifin, and these divisions have pricing leaders, and there's a lot of coordination within the groups and across the enterprise, obviously, because a lot of our businesses share the same customers. So, you know, it's a lot of work. I'm not going to say that it's not. It's been a whole lot of work for them. But they have this down pat.

They've done really a great job with it, and we have the analytics, we have these robust processes, and we've been able to navigate and act very quickly. So, we didn't talk about it because we feel like we have it covered and it's going to continue to evolve and change. But we're going to make sure that it doesn't impact EPS.

Todd Leombruno: You know us pretty well. I would just say, Scott, you know us pretty well. Pricing is one of the levers we're able to flex, but it's also our global footprint. It's our local-for-local model that we've had for years. It's really our supply chain team being pretty creative with dual sourcing and the ability to ship from multiple regions. So pricing is a big piece of it, but it's not the only tool.

Jennifer Parmentier: Yeah. Our global capacity has been a really good thing for us.

Scott Davis: Thank you. Appreciate it.

Todd Leombruno: Thanks, Scott.

Operator: Thank you. We'll go next now to Amit Mehrotra of UBS.

Amit Mehrotra: Just a follow-up to that earlier comment. I just wanted to see if you can help us sort of bifurcate the exceptional margin performance in resilience between price and lower costs. I know each of the 85 divisions has its own pricing management. So obviously, pricing is a focus. But one thing I noticed is the absolute cost base of the company also went down in fiscal twenty-five, which is pretty amazing. Just given, you know, just inflation has been a little bit higher.

So can you help us kind of think about those two things and is there an opportunity for, you know, the OpEx base or the cost base to actually move down on an absolute basis after the huge performance in '25, or are we just entering a more maybe normalized period where the cost base will mirror kind of normal inflation?

Jennifer Parmentier: Well, thanks for the question, Amit. You know, it gives me the opportunity again to just talk about the power of the Win Strategy. And, you know, our teams are focused on reducing cost and expanding margin, like I said earlier, even when we have a negative organic growth environment. So this is our continuous improvement culture. It's our culture of Kaizen. It's not, we've never been waiting for something to happen. This is just our ongoing way of running our operations and running our businesses. So yes, there is an opportunity to further reduce cost, and our teams are working on that all the time.

We just have a great lean system and a very nice suite of tools that helps each one of those general managers do what they need to do in their business. And they're not all the same. So that's the nice thing about the Win Strategy is you can pull from that toolbox, as I like to say, and improve your business in many ways. And obviously, the teams are doing a great job of that.

Todd Leombruno: Yeah. It's a testament to the decentralization of the organization. Those 85 P&Ls have business leaders that are making decisions constantly. Been taking costs out of the business for over a decade, and you saw that on the charts that Jennifer has shown. Talk about this a lot, we've changed our compensation structure to reward and be flexible with the flexes of business, and I think that's been a nice plus to the profile of cost as well.

Amit Mehrotra: So just a follow-up to that. If that's all true, then why is 35% incrementals the right number for '26? Because you're in the forties in aero and international, I mean, the decremental margins are, I think, in North America were, like, 2% or something like that. It just would strike me as maybe an opportunity to overachieve when the volumes move up just given what the pricing base is and all that stuff that you just talked about in cost. Is that just conservatism, good placeholder? Or is there something happening that, you know, maybe needs the incrementals?

Jennifer Parmentier: Well, it is a gradual movement to positive. A 1% organic growth in the industrial side of the business that is 70% of the company. So, you know, I don't look at this as being conservative. Normally, we say model 30, we're at 35%, that's north of 35, so yeah, I think we just need to see how it plays out.

Amit Mehrotra: Okay. Alright. Thank you very much. Appreciate it.

Operator: We'll go next now to Andrew Kaplowitz of Citi.

Andrew Kaplowitz: Good morning, everyone.

Jennifer Parmentier: Good morning.

Andrew Kaplowitz: Jennifer or Todd, could you give us a little more color on how you're thinking about A&D for '26? Orders were obviously still strong in Q4, were they stronger on the defense side versus commercial? When you look at that 8% growth for '26, is the growth pretty balanced between defense and commercial? And aftermarket and OE? How are you thinking about that?

Jennifer Parmentier: Yes. So I'll take that, Andy. So again, full-year organic growth at 8%, and we see that on continued MRO strength and gradual OEM recovery. We have commercial OEM to be low double-digit growth. Commercial MRO of high single-digit growth, defense OEM we have at mid-single-digit growth, and defense MRO we have at mid-single-digit growth. So again, it's going to be another great year for aerospace. We're coming off of three years of double-digit organic growth. We ended Q4 at about 9%. And we have Q1 at 8%, and I said, have the year modeled at about eight. So, again, it's going to be another good year.

Andrew Kaplowitz: Very helpful. And then Todd, you're guiding to call it mid-single-digit plus EPS growth at the midpoint for 26%, but free cash flow at the midpoint is slightly lower. I would have thought that you get a little bit of cash tax help from the big beautiful bill. So maybe just reconcile the forecast.

Todd Leombruno: Yeah. We are digesting the one big beautiful bill for sure. And that will be a benefit, to be honest with you, that's more of an FY 2027 benefit for us versus an FY '26 benefit. But on cash flow, there's a few things. Obviously, when you're looking at net income, we had a few one-time items. We had some divestitures, we had some discrete tax items. Had some facility sales that helped build up the as-reported net income. This year we do expect industrial to grow. So in the previous years, we were getting a benefit from working capital. We do think there'll be some investment there to support growth there.

I think you saw we called out 2.5% CapEx. That's higher than what we've historically done. This is really all making sure we have capacity and businesses that need it. And that we are investing appropriately in automation and robotics and productivity. I did mention we do have a little bit more restructuring that we expect to do in FY 2026 versus 2025. And then Jennifer mentioned Curtis, you know, we're going to have some one-time costs associated with the acquisition and the integration and the cost to achieve the synergies that we've had laid out there. So we still feel really good about the number. We still think it's very much top quartile from a cash flow standpoint.

And we're going to obviously try to outshoot that number.

Andrew Kaplowitz: Appreciate all the color.

Todd Leombruno: Thank you.

Operator: Thank you. We go next now to Andrew Obin of Bank of America.

Andrew Obin: Hi, guys. Good morning. Just a question on aerospace. You had a reacceleration in aerospace orders in the past couple of quarters. I think from high single-digit to 14% in the third quarter, 12% in the fourth quarter. Can you just talk about this reacceleration, what's driving this?

Jennifer Parmentier: You know, I think Andrew, for the most part, you know, what we've seen here is, you know, the commercial transport rate is increasing. And wide-body rates are growing to meet international traffic. So, I think that's been some of it. And as air traffic growth overall continues, you know, the aftermarket is continuing to grow. And then we have everything that's going on in defense as well. So, there's been a continued demand for all of the legacy programs. There's continued growth in the Department of Defense budget. So we've seen some nice orders come in. As you know, those are all longer cycle orders.

Andrew Obin: And I appreciate you gave some detail here, but last year you had 7% organic aerospace orders and you delivered 13% organic growth. This year you had 12% organic air orders and guiding to 8% at the midpoint. Can you just help us understand the dynamic between orders and forecast a little bit better versus last year? Thank you.

Jennifer Parmentier: Well, like I was just saying, Andrew, these orders come in and they're longer cycle, right? We have backlog coverage of over 100% right now in aerospace, and we have a record backlog, right? So the orders are coming in higher. There's only so much that can be built at a time. And as rates increase, we'll enjoy more of that. But we stay really close to our customers, all of our customers, but in aerospace, we know what they're planning on building. We know what those rates are. And we have really good visibility to the demand and their capacity. So, we think aerospace at 8% Q1 '8 percent versus Q4 at 9%.

We think it's really right in line.

Todd Leombruno: Andrew, don't think that we're expecting that to be pretty consistent throughout the year. There's no real ramp on what we're forecasting here. And every one of those numbers will be a quarterly record for aerospace. So the momentum continues.

Operator: We'll go next now to Julian Mitchell of Barclays.

Julian Mitchell: Hi, good morning. Maybe just wanted to start with the industrial growth outlook. So it sounds like aerospace is sort of pegged at 8% growth in the first quarter and through the balance of the year. Maybe help us understand within industrial what's dialed in for sort of the first quarter and then the slope of that acceleration on organic sales? And anything you've seen around pull forward of demand by distributors or OEM? Customers because of tariffs?

Jennifer Parmentier: Yes. I would first just start off saying, Julian, that we're not seeing any evidence of pull forward. There's nothing that I could point to that would show that. You know, for industrial, you know, for Q1 in North America, we're forecasting negative 1.5% organic growth and positive 0.5% for international. So total industrials, we're still showing it slightly negative here at approximately 1%. When we look at North America in particular, I talked about what we're seeing across the market verticals. But in North America, we're seeing gradual in-plant industrial recovery, as I mentioned, positive sentiment from the distribution channel, a lot of increased quoting activity. But as I mentioned, transportation is challenged.

In auto and trucks, construction getting better. Ag is still weak. Power gen is strong in our energy vertical. Oil and gas still a little weak. And HVAC, it's really coming off of a strong fiscal year 2025 with a lot of the refrigerant changes. We expect it to be low single-digit growth in fiscal year 'twenty-six. And that'll be more around commercial and refrigeration than it was residential in fiscal year 'twenty-five. When we look at international, industrial international, again, have that full year expected to be at about 1%. Q1 again adds about 0.5%. Again, same assumption on a gradual industrial recovery. EMEA flat to slightly positive organic growth for the fiscal year. Uncertainty remains.

We expect continued weakness in transportation, auto, and EMEA as well. But we also see that continued strength in energy. Boy, both oil and gas and power gen. And we think that a lot of the proposed stimulus that we hear about in future defense spending is really going to be a long-term positive. Asia Pacific low single-digit positive organic growth for fiscal year 2026. We'll continue to see strong demand from electronics and semicon. In-plant is mixed. There's project delays that are continuing in China, but we do see some growth in India and Japan. Off highway is still soft, but both in construction and mining. I would just say just overall continued uncertainty from tariffs across those markets.

In Latin America, Todd mentioned we see low single-digit organic growth for fiscal year twenty-six, and that's pretty much balanced growth across the verticals for them.

Julian Mitchell: That's very helpful. Thank you. And just maybe circling back to the operating margin expansion guide. So it's up, I think, 40 bps in the first quarter and up 40 bps for the year as a whole. And as you said, that's sort of despite volume leverage accelerating through the year. I just wondered maybe on that point, maybe is there some sort of mix effect in aerospace perhaps that weighs later in the year, maybe to do with, I don't make it synergies being front half loaded or the outgrowth of aero OE versus commercial aero aftermarket anything like that sort of moving around in aero? Or it's just pretty steady through the year?

Jennifer Parmentier: It's just steady through the year. Especially in commercial OEM. To be low double-digit growth and MRO of high single-digit growth. So they're kind of changing this year, but we see it pretty much the same throughout the whole year.

Julian Mitchell: Great. Thank you.

Todd Leombruno: Thanks, Julian.

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

Jamie Cook: Hi, good morning. Nice quarter and nice year. My first question, just the North American margins in the quarter struck me like the strength of the margins. I think it's like one of your highest margin quarters despite a decline in sales in organic growth. So was there anything unusual in that mix pricing or something which drove the margins high with organic sales down? And then I guess just my second question, just on the guide, Todd or Jennifer, if we think about the past couple of years, the story with Parker's been while industrial has been weaker, aerospace is making up for any delay in recovery in Industrial.

I guess, you think about 2026, do you think there's greater risk that if industrial doesn't that aero can't make up for it? Or perhaps you're just more bullish on industrial just given at least we're seeing some resurgence in orders? Thank you.

Jennifer Parmentier: Okay. So first question, Q4 North America was just great, expanded margins 170 basis points year over year. So really, a nice quarter for them. We really had a favorable sales mix specifically in our engineered materials group and our filtration group, so just exceptional performance with those two groups. And with strategy execution across the other groups as well. Not to take away from them, but we had a nice favorable mix in those two areas. As far as a risk in the future with industrial, I would say we have 1% organic growth in industrial.

And I think our guide accurately reflects what we see in orders, what we see in backlog, what we know about what's going on in these market verticals. But all in all, I would say that all of us want to be bullish on industrial. It's time. Right? And as I said, we're poised for growth here. We won't be able to continue to expand margins and deliver this guide. I think that what we have here and what we've been able to do in a negative organic growth environment in Industrial and even with aerospace at an 8%, we're going to be okay. We can make this happen.

Jamie Cook: Great, thank you very much.

Operator: Thank you. We'll go next now to Mig Dobre of Baird.

Mig Dobre: Thank you. Good morning. I only have one, and it's about the guide too. So I don't know. Maybe it's for you, Todd. If I look at the rate here, dollars 7.69, we had a good fourth quarter. If we annualize that, we end up with something just under $31 of EPS. And what's interesting, my observation here is that going back over the past decade, you were able to do that or better, so you're able to do better than your annualized exit run rate on every single year with the exception of fiscal twenty-one you had to deal with COVID.

So I guess my question to you is, why this year, fiscal twenty-six, be any different than the norm? Thank you.

Todd Leombruno: Mig, this is Todd. Yeah. We would love to take Q4 and annualize that. The math on that looks great. The reality is that's not the way the business operates. Right? If you look back over decades, our sales mix is forty-eight percent first half, fifty-two percent second half. Obviously, 52% is fully weighted by that strong Q4 result. We also have those things that we talked about that we recognize that early in the year as far as compensation and whatnot goes. I feel really good about what we're guiding here for Q1. Jennifer mentioned this, we still expect the industrial businesses to be challenged from the top line. Aerospace is performing extremely well.

We are calling for roughly 5% EPS growth year over year in Q1. And I think the team is really focused on it. Got to remember every number we put up Q4 was an all-time record. And when you look at what we are guiding here for Q1, every one of these numbers will be a Q1 record. So there is improvement across every one of the businesses, and that's with not a lot of help from the top line. So I think the team is executing unbelievably well, and I'd be really happy if they're able to post these numbers.

Mig Dobre: That's it for me. Thank you.

Todd Leombruno: Thanks, Mig.

Operator: We'll go next now to Joe O'Dea of Wells Fargo.

Joe O'Dea: Hi, good morning.

Jennifer Parmentier: Good morning, Joe.

Joe O'Dea: Can you talk about the sort of complexion of the call it 8% organic aero growth over the course of the year and how that shifts between commercial OE and aftermarket and really getting at kind of the margin mix considerations within that. I think for a while now that's been a focus topic. Clearly, with Aero margins up again this year, that's pretty good. And maybe I'll weave into the question just any color on Meggitt's synergy contributions for the year?

Jennifer Parmentier: Well, first of all, we don't go into that much detail and disclose all of that mix within the year. I would tell you, as I said with my slides earlier, we ended the year at 51% aftermarket, 49% OEM. We're showing OEM to be low double-digit this year and aftermarket to be high single-digit. But we again have confidence in continuing to expand our margins. So we think that what we have here for the Aerospace guide at 8% for the whole year is appropriate for what we see now.

Todd Leombruno: Joe, I would just add to that. In respect to the synergies, you had a question about synergies for Meggitt. We still believe there's $50 million of synergies left to achieve on Meggitt. We would expect that to be ramped throughout the year just like we've seen it for the last three years. So all is going unbelievably well with Meggitt, and that's in the mix as well.

Joe O'Dea: And then just a I think that the sentiment from North America distributor partners has been a little bit better over the last few quarters. Anything that you're observing in terms of kind of developments there getting areas where it's a little bit better. But then in particular, what you think the gating factor is to seeing quoting really accelerate into orders and the degree to which that's tariffs or it's other factors?

Jennifer Parmentier: Yes. So I mentioned that I had been on some distributor visits recently, and again, it's a common theme. Quoting activity is high. No project cancellations, delays, but then there's other pockets where some of them are participating in some retooling in automotive and just some refurbishments that are happening. So you hear about those pockets of where they're really having some wins. So I think they were overall very bullish on the future. That's what we continue to hear. And the second part of your question again, I'm sorry.

Joe O'Dea: It was just what gets some of the encouraging signs on quoting the orders.

Jennifer Parmentier: Yes. I think one of the things, a couple of the things, I think it's uncertainty, right, on tariffs and interest rates, right? I think those two things are what may be holding up projects, holding up purchasing decisions. But as I mentioned before, distribution is bullish. We're ready, and it's time for an industrial return.

Joe O'Dea: Thank you.

Todd Leombruno: Thanks, Joe. Hey, Bo, I think we've got time for one more. Can we take one more question here?

Operator: Certainly, Mr. Leombruno. We'll take that final question today from Nigel Coe of Wolfe Research.

Nigel Coe: Thanks for fitting me in here. That's great. And Jennifer, I agree. It is time for this recovery. So I just want to dig into the free cash flow. So, Todd, you mentioned CapEx to not percent. That's about half a billion dollars of CapEx. So about $100 million higher, no big deal. But I'm just wondering, do you think that's sort of a medium-term shift in CapEx? And the reason why is because, you know, we have heard this from some others. I'm curious if, you know, you're sort of reinvesting in the US and if that's what's driving it. Maybe just put a finer point as well on the cash restructuring you expect for FY '26.

Todd Leombruno: Yeah. I think the CapEx, I don't think that's going to be a go-forward rate. We do have a few projects this year that we're investing in. Most of those are in North America, in the North American region. But I think that's more of a one-off type of thing versus a run rate going forward. On restructuring, we did about $50 million in '25. Right now, we're forecasting about $70 million in '26, so it's $20 million more. But, again, really, I don't want you to read too much into this. This is just working capital investments for growth. This is making sure we integrate Curtis according to our schedule.

And, obviously, paying all those fees with it and making sure that we continue our multi-decade year of free cash flow conversion.

Nigel Coe: Great. And then just a quick one on the profile of the recovery you've seen in FY 2026. It seems like you've done in flat to maybe slightly down in the first half of the year and then obviously 2%, 3% in the back half. Would that be directionally consistent?

Todd Leombruno: That is exactly what we have, roughly flat first half to second half. That's total industrial.

Nigel Coe: Great. Okay. Thanks, guys.

Jennifer Parmentier: Thank you.

Todd Leombruno: Okay. That concludes our FY 2025 earnings release. We appreciate your time and attention, and thanks again for joining us today. Our IR team will be available. That's Jeff Miller, Jenna Stuckey, and Chantel O'Kelly. If there's any need for any follow-ups or clarifications, and you all again. Have a fantastic day.

Operator: Thank you, Mr. Leombruno, and thank you, Ms. Parmentier. Again, ladies and gentlemen, thank you for joining Parker-Hannifin Corporation's fiscal 2025 fourth quarter and full year earnings conference call and webcast. Again, that will conclude our call. Thank you all so much for joining us, and we wish you all a great day. Goodbye.