2. Parker-Hannifin Corporation (NYSE:PH)
Number of Hedge Fund Investors In Q1 2024: 63
Parker-Hannifin Corporation (NYSE:PH) is one of the largest industrial equipment companies in the world. It has a hedged and diversified business model which caters to industrial demand and the aerospace industry. While the latter is strained in the current economic environment, the latter is a stable sector due to sizeable government contracts. Defense companies continue to spend even in a tough economy as national security concerns and project delivery timelines force them to keep up the pace. Consequently, Parker-Hannifin Corporation (NYSE:PH)’s shares are up by 11% year to date, leading the S&P industrial sector’s 7.48% in gains. These trends were also visible in the firm’s latest financial results. These saw Parker-Hannifin Corporation (NYSE:PH) deliver a 20% annual growth year to date operating cash flows to $2.1 billion. At the same time, its North American industrial segment sales dropped by 5% annually lagging international industrial sales drop by one percentage point. However, the Aerospace segment marked a whopping 18% annual growth. The quarterly results also marked five consecutive quarters of order drops in the North American industrial segment.
Parker-Hannifin Corporation (NYSE:PH)’s management also shared key details for the future of its North American industrial orders during its Q3 2024 earnings call where it outlined:
Obviously, we know aerospace is very strong, and we’ve raised our guidance because of that. If you take a look at energy, oil and gas, that remains positive. Implant industrial equipment, low single-digit negative, more negative in Europe, less in North America. Transportation, mid mid-single-digit negative, Automotive is down globally. And I would again say that Europe is more negative there. Off-highway, high single-digit negative, primarily construction and Ag and both of them are equally negative, Andrew. Again, Europe a little more negative. When we take a look at HVAC refrigeration, it is still double-digit negative, but it’s some pretty tough comps to prior it was quite positive this time last year, mainly driven by the residential business.
It is improving. There’s an improvement in commercial and as you were just mentioning, destocking, distribution is slightly negative, and we saw that destocking lingering through the quarter. So when we take a look at where we’re at today, Industrial North America orders have been negative for five quarters now. And we’re still very proud of it, still guiding to 1.5% organic growth for the company. And historically, you would see that orders go negative for an average of six core years. And both portfolio, total Parker went negative same quarter as industrial North America. So a big difference here. What I would also say is the backlog remains strong. Backlog dollars are at near record levels. And as we spoke about in quarters past, consistent coverage really holding in there, as we’ve talked about before, pretty much double what they’ve been historically.
And while we have Q3 order conditions reflected in the guide, I would have to say that April orders are off to a better start, and we might be seeing the end of destocking here.
