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    PH
    Earnings call· Sep 2025(Q1 FY26)

    Parker-Hannifin Corp PH

    Nov 6, 2025 Source

    Executive summary

    Parker-Hannifin Q1 FY26 — Record Sales, Margin Expansion, and EPS Growth

    Parker-Hannifin delivered a strong start to FY26, achieving record Q1 sales, significant margin expansion, and double-digit EPS growth, driven by operational excellence and the Win Strategy. The company raised its full-year guidance across sales, margin, EPS, and free cash flow, reflecting confidence in continued strength in Aerospace and gradual recovery in some industrial markets, despite ongoing challenges in transportation and persistent ag market headwinds.

    Highlights

    5

    • Achieved record Q1 sales of $5.1 billion.

    • Delivered 5% organic growth, marking the first time in two years with positive organic growth across all businesses.

    • Expanded adjusted segment operating margin by 170 basis points to a record 27.4%.

    • Reported record adjusted earnings per share of $7.22, up 16% year-over-year.

    • Generated record cash flow from operations of $782 million.

    Concerns

    4

    • The transportation market is forecast to decline mid-single digits organically for FY26, with no truck recovery expected this fiscal year.

    • Ag challenges persist within the off-highway market, despite gradual recovery in construction.

    • The EMEA region experienced a -3% organic growth in Q1, reflecting continued uncertainty.

    • Interest expense for FY26 was increased by $30 million to $420 million, primarily due to the funding of the Curtis acquisition.

    Guidance & targets

    27
    CategoryTargetConfidence
    FY26 Organic Sales Growth
    4% at the midpoint
    high materiality
    High
    FY26 Aerospace Organic Growth
    9.5%
    high materiality
    High
    FY26 Implant and Industrial Organic Growth
    Positive low single-digit
    medium materiality
    Medium
    FY26 Transportation Organic Growth
    Mid-single-digit organic decline
    medium materiality
    High
    FY26 Off-Highway Organic Growth
    Neutral
    medium materiality
    Medium
    FY26 Energy Organic Growth
    Positive low single-digit growth
    medium materiality
    Medium
    FY26 HVAC/Refrigeration Organic Growth
    Positive mid-single digits
    medium materiality
    High
    FY26 Reported Sales
    4% to 7% (5.5% at midpoint)
    high materiality
    High
    FY26 Currency Impact on Sales
    Favorable 1.5 points
    low materiality
    High
    FY26 Curtis Acquisition Sales Contribution
    $235 million
    medium materiality
    High
    FY26 Divestitures Impact on Sales
    1% unfavorable
    low materiality
    High
    FY26 Organic Growth
    2.5% to 5.5% (4% at midpoint)
    high materiality
    High
    FY26 Diversified Industrial North America Organic Growth
    +2%
    medium materiality
    High
    FY26 Diversified Industrial International Organic Growth
    1% at the midpoint
    medium materiality
    Medium
    FY26 Adjusted Segment Operating Margins
    27.0%
    high materiality
    High
    FY26 Incrementals
    Approximately 40%
    medium materiality
    High
    FY26 Corporate G&A
    $200 million
    low materiality
    High
    FY26 Interest Expense
    $420 million
    medium materiality
    High
    FY26 Other Expenses
    $90 million
    low materiality
    High
    FY26 Full Year Tax Rate
    22.5%
    low materiality
    High
    FY26 Adjusted Earnings Per Share
    $30.00 at the midpoint
    high materiality
    High
    FY26 Adjusted EPS Split (H1/H2)
    48-52 first half, second half
    low materiality
    High
    FY26 Free Cash Flow
    $3.1 billion to $3.5 billion
    high materiality
    High
    Q2 FY26 Reported Sales
    6.5%
    medium materiality
    High
    Q2 FY26 Organic Growth
    4%
    medium materiality
    High
    Q2 FY26 Adjusted Segment Operating Margins
    26.6%
    medium materiality
    High
    Q2 FY26 Adjusted EPS
    $7.10
    medium materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Diversified Industrial North America
    First time in 7 quarters North America posted positive organic growth, better than expectations. Growth driven by aerospace and defense businesses, implant and industrial equipment, and off-highway. Margin expansion driven by higher productivity, new business wins, and strong aftermarket mix.
    Orders: +3% vs prior year
    		$2 billion+2% organic—27.0% adjusted segment operating margin
    Diversified Industrial International
    Record sales and margins. Asia Pacific drove outperformance in growth. Teams continue to show resilience, driving margin expansion and executing the Win Strategy with great cost controls.
    Organic growth: +1%Orders: +6% vs prior yearAsia Pacific organic growth: +6%EMEA organic growth: -3%Latin America organic growth: flat
    		$1.4 billion+3% reported—25.0% adjusted segment operating margin
    Aerospace Systems
    Exceptional quarter with 11th consecutive quarter of double-digit organic growth. Record top line, productivity, and continued aftermarket strength drove margin expansion to a record 30% for the first time ever. Robust demand across all aero and defense markets.
    Reported sales growth: +13%Orders: +15%Commercial OEM growth: 24%Backlog: record level
    		$1.6 billion+13% organic—30.0% adjusted segment operating margin

    Operational metrics

    20
    Reportable incident rate
    20% reduction
    Q1 FY26

    Achieved top quartile safety performance.

    Adjusted EBITDA margin
    27.3%up 240 basis points
    Q1 FY26

    Strong margin expansion.

    Adjusted Net Income
    $927 million
    Q1 FY26

    Strong profitability.

    Adjusted EPS growth
    16%
    Q1 FY26

    Drove record adjusted EPS.

    Segment operating income dollars increase
    $132 million10%
    Q1 FY26

    Majority of EPS growth came from continued strength across operations.

    Corporate G&A and other impact on EPS
    $0.18favorable
    Q1 FY26

    Primarily due to foreign currency exchange in the prior period.

    Interest expense impact on EPS
    $0.07favorable
    Q1 FY26

    Driven by lower average debt balances and lower interest rates.

    Share count impact on EPS
    $0.13favorable
    Q1 FY26

    Driven by discretionary share repurchases over the last 3 quarters.

    Income tax impact on EPS
    $0.16unfavorable
    Q1 FY26

    Due to a few favorable discrete items in the prior period that did not repeat.

    Cash flow conversion
    86%
    Q1 FY26

    Historically second-half weighted, committed to greater than 100% for the year.

    Share repurchases
    $475 million
    Q1 FY26

    Discretionary share repurchases within the quarter.

    Net debt to adjusted EBITDA
    1.8x
    Q1 FY26

    Well below target of 2x, even after funding the Curtis transaction.

    Diversified Industrial North America full year margin guide increase
    70 basis points
    FY26

    Increased versus previous guide, reflecting confidence in conversion.

    Diversified Industrial North America Q2 margin
    150 basis pointshigher than prior year
    Q2 FY26

    Expected margin performance for the upcoming quarter.

    Aerospace OEM/Aftermarket mix
    51% OEM / 49% aftermarket
    Q1 FY26

    Mix for the quarter, anticipated to be similar for the rest of the year.

    Aerospace full year margin guide
    29.5%100 basis points higher than prior year
    FY26

    Reflects strong performance and confidence in maintaining high margins.

    Aerospace Q2 margin forecast
    29.1%90 basis points higher than previous year
    Q2 FY26

    Expected margin performance for the upcoming quarter.

    Ag market sales as percent of total
    4%
    Q1 FY26

    Ag market represents a smaller piece of the total company sales.

    Curtis acquisition margin
    High teens, low 20sslightly dilutive
    FY26

    Expected margin rate for the acquired business.

    Capital expenditure forecast
    Higher than historicallybumped up for the year
    FY26

    Preparing for growth and investing in key areas.

    Industry KPIs

    8
    MetricValueDetails
    Capacity expansionbumped up
    Tariff cost impact—
    Parts aftermarket businessresilient
    Data center prime power demandrapid growth
    Dealer inventory months of supplytrough level
    Incremental margin operating leverage40%%
    Order backlog order intake by segment—
    Industry production market size forecasts4%%

    Orderbook & backlog

    2
    Aerospace Backlogrecord levelQ1 FY26
    Energy Market Vertical Backlogmultiyear backlogQ1 FY26

    Deals & partnerships

    1
    Curtis InstrumentsAcquisition of Curtis Instruments, welcoming the team to Parker and integrating them into the portfolio.

    Day 1 celebrations were held globally to welcome the Curtis team members to Parker. The integration process is well underway with a dedicated leader and team.

    Risks & headwinds

    5
    Transportation Market DeclineFY26

    Mid-single-digit organic decline for FY26

    Mitigation: Expect some benefit from the aftermarket, but no truck recovery this fiscal year.

    Persistent Ag ChallengesFY26

    Ag challenges persist

    Mitigation: Gradual recovery progress in construction is noted, but ag market remains challenged.

    EMEA Market UncertaintyFY26

    EMEA remained down at -3% organic growth in Q1

    Mitigation: Expecting a slow in-plant industrial recovery, with some growth in energy and mining recovery underway. Potential future benefit from stimulus in defense spending.

    China Delays in Implant IndustrialOngoing

    Delays continue in China

    Mitigation: Some slight growth seen in India and Japan, and mining/transportation improvements in China, but continued uncertainty from tariffs.

    Selective Customer CapEx SpendingOngoing

    Customers are being very selective on their projects and their CapEx spending

    Mitigation: Positive sentiment and quoting activity continue, with some projects starting to move forward, mainly focused on productivity and efficiency.

    What to watch in Q2 FY26

    5

    Industrial North America Organic Growth

    next quarter
    Current+2% in Q1 FY26
    TargetContinued positive growth

    Why it matters

    To confirm if the positive organic growth in DI North America is sustainable and broad-based, indicating a stronger industrial recovery.

    So you are right, we do expect Q2 to be much like Q1 coming in at 2%. So that was prior, as Todd stated, for the year, we were looking at a total of 1%.

    Q&A highlights

    6

    Asked about the demand cadence in DI North America, noting the full-year guide doesn't embed acceleration from Q1, and sought clarification on the underlying trends.

    Management confirmed Q1's positive surprise in DI North America (2% organic growth vs. -1.5% guided) was driven by aerospace & defense, construction, and off-highway. They noted gradual Implant Industrial recovery, positive distribution sentiment, and selective CapEx. Transportation challenges persist, and Q2 is expected to be similar to Q1, but the full-year DI North America margin guide was raised 70 bps.

    “So you are right, we do expect Q2 to be much like Q1 coming in at 2%. So that was prior, as Todd stated, for the year, we were looking at a total of 1%.”

    asked by Julian Mitchell · answered by Jennifer Parmentier

    2 min read5 chapters

    Detailed Narrative

    01

    Operational Excellence and Win Strategy Driving Performance

    Parker's Q1 FY26 performance was significantly bolstered by its Win Strategy, leading to top quartile safety performance with a 20% reduction in its reportable incident rate. The company's decentralized operating structure, comprising 85 divisions, empowers general managers with full P&L responsibility, fostering a close relationship with customers and efficient execution of the Win Strategy. This operational discipline is a key factor in achieving strong financial results.

    02

    Interconnected Technologies and Market Leadership

    Parker maintains its #1 position in the $145 billion motion and control industry, leveraging innovative products where 85% are covered by intellectual property. The company's application engineers provide expertise that enables a competitive advantage through interconnected technologies, with two-thirds of revenue derived from customers purchasing four or more technologies. A robust global distribution network, built over 60 years, extends engineering capabilities to small and mid-sized OEMs, further solidifying market leadership.

    03

    Significant Growth in Energy Market Vertical

    Parker is a key supplier of products for heavy-duty gas turbines used in electrical power generation, offering proprietary designs and world-class manufacturing. This segment, which constitutes approximately 3.5% of total company sales (half of the 7% energy market vertical), is experiencing substantial growth, characterized by a long life cycle, multi-year backlog, and durable aftermarket demand. This highlights a successful application of Parker's technology across both aerospace and industrial markets.

    04

    Industrial North America Shows Signs of Recovery

    The Diversified Industrial North America segment achieved positive organic growth of 2% in Q1 FY26, marking its first positive growth in seven quarters and exceeding internal expectations. This recovery was driven by strong performance in aerospace and defense businesses within the industrial segment, implant and industrial equipment, and better-than-anticipated off-highway results. The segment's adjusted operating margin reached a record 27.0%, benefiting from higher productivity, new business wins, and a favorable margin mix from resilient aftermarket sales.

    05

    Aerospace Systems Delivers Exceptional Performance

    Aerospace Systems continued its strong trajectory, reporting 13% organic growth for the 11th consecutive quarter of double-digit expansion. Commercial OEM was a standout, growing 24% year-over-year. The segment achieved a record 30% adjusted operating margin for the first time ever, an increase of 210 basis points, fueled by robust demand across all aerospace and defense markets, strong aftermarket activity, and operational productivity.

    AI-generated summary of the company’s earnings call. Not investment advice.