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    PH
    Earnings call· Dec 2025(Q2 FY26)

    Parker-Hannifin Corp PH

    Jan 29, 2026 Source

    Executive summary

    Parker-Hannifin Q2 FY26 — Record Sales, Margin Expansion, and Filtration Group Acquisition Progress

    Parker-Hannifin delivered a strong Q2 FY26, achieving record sales and profitability driven by robust organic growth and significant margin expansion across all segments. The company is making progress on the Filtration Group acquisition, which is expected to further transform its portfolio and accelerate growth. Management remains confident in delivering another record fiscal year, raising full-year guidance across key metrics.

    Highlights

    5

    • Achieved record Q2 sales of $5.2 billion, representing a 9% increase versus the prior year.

    • Delivered organic growth of 6.6% with positive order rates across all reported businesses.

    • Expanded adjusted segment operating margin by 150 basis points to a record 27.1%.

    • Reported record adjusted earnings per share of $7.65, growing 17% year-over-year.

    • Generated strong cash flow from operations of $1.6 billion and free cash flow of $1.5 billion (14.2% of sales).

    Concerns

    3

    • Transportation market continues to face demand challenges in both truck and auto, leading to a mid-single-digit organic decline.

    • The Ag market within Off-Highway remains under pressure, offsetting growth in Construction and Mining.

    • Upstream Oil and Gas activity remains soft, partially offsetting robust Power Generation activity in the Energy market.

    Guidance & targets

    27
    CategoryTargetConfidence
    Full-year FY26 Organic Sales Growth
    4% to 6%
    high materiality
    High
    Full-year FY26 Reported Sales Growth
    5.5% to 7.5%
    high materiality
    High
    Full-year FY26 Currency Impact on Sales
    favorable 1.5%
    medium materiality
    High
    Full-year FY26 Aerospace Organic Growth
    11%
    high materiality
    High
    Full-year FY26 North America Diversified Industrial Organic Growth
    2.5%
    medium materiality
    High
    Full-year FY26 International Organic Growth
    2%
    medium materiality
    High
    Full-year FY26 Adjusted Segment Operating Margins
    27.2%
    high materiality
    High
    Full-year FY26 Incrementals
    40%
    medium materiality
    High
    Full-year FY26 Interest Expense
    $415 million
    low materiality
    High
    Full-year FY26 Other Expense
    $85 million
    low materiality
    High
    Full-year FY26 Tax Rate
    22.1%
    medium materiality
    High
    Full-year FY26 Adjusted EPS
    $30.70
    high materiality
    High
    Full-year FY26 Free Cash Flow
    $3.2 billion to $3.6 billion
    high materiality
    High
    Q3 FY26 Reported Sales
    nearly $5.4 billion
    medium materiality
    High
    Q3 FY26 Organic Sales Growth
    5%
    medium materiality
    High
    Q3 FY26 Segment Operating Margins
    27%
    medium materiality
    High
    Q3 FY26 Adjusted EPS
    $7.75
    medium materiality
    High
    Full-year FY26 Off-Highway Organic Growth
    positive low single digits
    medium materiality
    High
    Full-year FY26 Transportation Organic Growth
    mid-single-digit organic decline
    medium materiality
    High
    Full-year FY26 Energy Organic Growth
    positive low single-digit growth
    medium materiality
    High
    Full-year FY26 HVAC and Refrigeration Organic Growth
    positive mid-single-digit growth
    medium materiality
    High
    Full-year FY26 EMEA Organic Growth
    low-single digits
    low materiality
    High
    Full-year FY26 Asia Pacific Organic Growth
    positive mid single digit
    low materiality
    High
    Full-year FY26 Commercial OEM Growth (Aerospace)
    around 20%
    medium materiality
    High
    Full-year FY26 Commercial Aftermarket Growth (Aerospace)
    low double-digit growth
    medium materiality
    High
    Full-year FY26 Defense OEM Growth (Aerospace)
    around mid-single-digit growth
    medium materiality
    High
    Full-year FY26 Defense Aftermarket Growth (Aerospace)
    low single-digit growth
    medium materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    North America Diversified Industrial
    Sales slightly better than expectations, driven by strength in Off-Highway and Aerospace and Defense verticals. Achieved record adjusted operating margins with strong incrementals. Orders saw a big jump, notably from multiyear aerospace and defense orders.
    Adjusted operating margin: 25.4% (+80 bps YoY)Incrementals: 52%Orders: +7% YoY
    		$2.0 billion+2.5%—25.4%
    International Diversified Industrial
    Achieved record sales and margins. Organic growth was strong, with Asia Pac leading and Europe turning positive. Margin expansion came from great improvements in productivity and solid operational execution. Orders improved with positive contributions from Europe and Asia Pac.
    Organic growth: +4.6% YoYAsia Pac organic growth: +9% YoYEurope organic growth: +2% YoYLatin America organic growth: -3% YoYAdjusted operating margin: 26% (+190 bps YoY)Orders: +6% YoY
    		$1.5 billion+12%—26%
    Aerospace Systems
    Continued exceptional performance with record sales and margins. Organic growth driven by strong commercial markets (OEM and aftermarket). Higher volumes contributed to great productivity and margin expansion. Order rates and backlog remain impressive, with backlog reaching a record for the segment.
    Organic growth: +13.5% YoYAdjusted operating margin: 30.2% (+200 bps YoY)Order rates: +14% YoYBacklog: $8.0 billion (+14% YoY)
    		$1.7 billion+14.5%—30.2%

    Operational metrics

    22
    Recordable Incident Rate
    8%reduction
    Q2 FY26

    Achieved an 8% reduction in recordable incident rate, aligning with the goal to be the safest industrial company.

    Sales
    $5.2 billionup 9% versus prior
    Q2 FY26

    Record Q2 sales.

    Organic Growth
    6.6%
    Q2 FY26

    Positive organic growth.

    Currency Impact on Sales
    2%favorable
    Q2 FY26

    Favorable currency impact.

    Acquisitions Impact on Sales
    1.5%favorable
    Q2 FY26

    Favorable impact from acquisitions.

    Divestitures Impact on Sales
    1%headwind
    Q2 FY26

    Last quarter with a divestiture adjustment, 12 months since completion of divestitures.

    Adjusted Segment Operating Margin
    27.1%up 150 basis points
    Q2 FY26

    Record margin performance.

    Adjusted EBITDA Margin
    27.7%up 90 basis points
    Q2 FY26

    Increase from prior year.

    Net Income
    $980 million
    Q2 FY26

    Record net income with fantastic return on sales.

    Adjusted EPS
    $7.65up 17%
    Q2 FY26

    Record adjusted EPS, driven by strong growth and margin expansion.

    EPS Growth Driver: Segment Operating Margin
    $1.15up $190 million or 16%
    Q2 FY26

    Main driver of EPS growth.

    EPS Growth Driver: Share Count
    $0.16favorable
    Q2 FY26

    Driven by discretionary share repurchases over the last 4 quarters.

    EPS Growth Driver: Corporate G&A and Income Tax
    $0.01favorable
    Q2 FY26

    Favorable impact.

    EPS Growth Driver: Other
    $0.18unfavorable
    Q2 FY26

    Primarily due to foreign currency exchange in the prior year period that did not happen this year.

    EPS Growth Driver: Interest
    $0.03unfavorable
    Q2 FY26

    Driven by slightly higher average debt balance offset by lower interest rates.

    Free Cash Flow Conversion
    greater than 100%
    FY26

    Remains committed to this target for the full year.

    Distributor Organic Growth
    low single-digit
    Q2 FY26

    Positive organic growth in the Distribution channel.

    Corporate G&A
    $200 millionunchanged
    FY26

    Remains unchanged for the full year.

    Data Center Sales
    less than 1%
    Q2 FY26

    Small but very strong growth area.

    EPS Compounded Growth
    16%
    Over time period on Slide 8

    Compounded EPS growth over the period shown on Slide 8.

    EPS Growth from Win Strategy and Legacy Businesses
    approximately 60%
    Over time period on Slide 8

    Contribution to compounded EPS growth.

    EPS Growth from Acquisitions
    approximately 40%
    Over time period on Slide 8

    Contribution to compounded EPS growth.

    Industry KPIs

    8
    MetricValueDetails
    Capacity expansion—
    Tariff cost impact—
    Parts aftermarket business500basis points
    Data center prime power demandless than 1%% of sales
    Dealer inventory months of supplystable
    Incremental margin operating leverage52%%
    Order backlog order intake by segment$11.7 billionUSD
    Industry production market size forecastsmid-single-digit decline%

    Orderbook & backlog

    3
    Total Backlog$11.7 billionQ2 FY26

    increased

    Record backlog for the company. Orders were +9% versus prior year.

    Aerospace Backlog$8.0 billionQ2 FY26

    +14%

    Record backlog for the Aerospace Systems segment for the first time in company history.

    Industrial Backlogmid-20s (billions)Q2 FY26

    grew from Q1 to Q2

    Industrial backlog increased sequentially and is nicely up versus last year, reflecting the order versus sales gap.

    Deals & partnerships

    1
    Filtration Group CorporationAcquisition to add complementary and proprietary technologies for critical applications, expanding presence in Life Sciences, HVAC, Refrigeration, and In-plant and Industrial market verticals. Creates one of the largest global industrial filtration businesses.

    Leveraging Parker's proven integration playbook. Building relationships with the Filtration Group team. No revenue synergies modeled, but opportunities to utilize customer relationships for value delivery are expected.

    Risks & headwinds

    6
    Transportation Market Demand ChallengesFY26

    mid-single-digit organic decline

    Mitigation: Partially offset by strength in aftermarket.

    Agricultural Market PressureFY26

    Ag remains under pressure

    Mitigation: Offset by growth in Construction and Mining within Off-Highway.

    Upstream Oil and Gas SoftnessFY26

    Upstream Oil and Gas remains soft

    Mitigation: Offset by robust Power Gen activity and Midstream capital spending.

    Selective Customer Capital ExpenditureOngoing

    CapEx remains selective

    Mitigation: Customers prioritizing productivity and automation projects versus large capacity expansion. Parker participates in both scenarios.

    Tariff UncertaintyOngoing

    continued uncertainty from tariffs

    Mitigation: Management states they 'have it covered' and have not called out any negative impact from tariffs, managing it as it happens with transparency to customers.

    Geopolitical Noise and Interest RatesOngoing

    noise that really doesn't have anything to do with the business, some of the geopolitical noise, tariffs and maybe possibly interest rates as well

    Mitigation: Management believes removing these external factors would help short-cycle business.

    What to watch in Q3 FY26

    5

    Filtration Group Acquisition Closing

    next quarter (Q3 FY26) or beyond
    CurrentIntegration planning underway, expected close 6-12 months from November announcement
    TargetAcquisition closed or updated timeline/status

    Why it matters

    The acquisition is a significant portfolio transformation, expected to be accretive to growth, margins, EPS, and cash flow, with substantial cost synergies.

    We expect to close in 6 to 12 months from our November announcement date.

    Q&A highlights

    5

    Jamie Cook noted positive organic growth across all three Diversified Industrial technology platforms (Motion Systems, Flow Process Control, Filtration & Engineered Materials) for the first time since June 2023, asking if this was specific to Parker or a cycle function. She also inquired if the positive growth in Parker's Filtration business implied the Filtration Group acquisition was timed at a cyclical bottom.

    Jennifer Parmentier confirmed that the positive growth in Diversified Industrial was a combination of Parker-specific performance and a return in some short-cycle businesses, including low single-digit organic growth in Distribution. She agreed that the Filtration Group acquisition was well-timed, expecting its sales to also improve organically, given its historical mid-single-digit CAGR and complementary technologies in known markets.

    “Yes, we do believe that, that will be the case. Now historically, Filtration Group's organic growth from pre-COVID to now has been mid-single-digit CAGR. So this is higher than Parker's Filtration Group.”

    asked by Jamie Cook · answered by Jennifer Parmentier

    2 min read5 chapters

    Detailed Narrative

    01

    Record Q2 Performance and Strategic Transformation

    Parker-Hannifin achieved record Q2 FY26 sales of $5.2 billion, driven by 6.6% organic growth and strong operational execution. The company also set new records for adjusted segment operating margin (27.1%, up 150 bps), adjusted EBITDA margin (27.7%, up 90 bps), net income ($980 million), and adjusted EPS ($7.65, up 17%). This performance underscores the effectiveness of the Win Strategy and the company's focus on compounding results, with approximately 60% of EPS growth over time⏳ coming from legacy businesses and 40% from strategic acquisitions.

    02

    Filtration Group Acquisition Progress and Synergies

    Integration planning for the Filtration Group acquisition is underway, utilizing Parker's proven playbook. The transaction is expected to close within 6 to 12 months from its November announcement. This acquisition will add complementary and proprietary technologies, expanding Parker's presence in Life Sciences, HVAC, Refrigeration, and In-plant/Industrial markets. Management anticipates approximately $220 million in cost synergies by the end of year three and expects the deal to be accretive to organic growth, synergized EBITDA margin, adjusted EPS, and cash flow, while also increasing Parker Filtration's aftermarket sales by 500 basis points.

    03

    Market Vertical Performance and Outlook

    The company raised its full-year organic growth forecast for Aerospace to 11% (from 9.5%) due to continued strength in commercial OEM and aftermarket. Off-Highway outlook was raised to positive low single digits (from neutral) driven by Construction and Mining, despite Ag market pressure🌐. Transportation remains challenged with a mid-single-digit organic decline in truck and auto. In-plant and Industrial is experiencing a gradual recovery, with customers prioritizing productivity and automation projects over large capacity expansion. Energy and HVAC/Refrigeration forecasts were maintained at positive low and mid-single-digit growth, respectively.

    04

    Regional Dynamics and Order Strength

    North America saw organic growth of 2.5%, slightly better than expected, driven by strength in Off-Highway and Aerospace & Defense. International businesses achieved 4.6% organic growth, with Europe turning positive (2%) and Asia Pacific showing strong growth (9%) in electronics and semicon demand. Company-wide orders were up 9%, with positive rates in all businesses, contributing to a record backlog of $11.7 billion. Aerospace orders were particularly strong at +14%, leading to a record $8 billion backlog for the segment.

    05

    Cash Flow Generation and Capital Allocation

    Parker-Hannifin generated $1.6 billion in cash flow from operations and $1.5 billion in free cash flow year-to-date, representing 16% and 14.2% of sales, respectively. Despite a slight drag from working capital and tax payments in the first half, free cash flow is expected to be second-half weighted⚖️, with a full-year guide of $3.2 billion to $3.6 billion and conversion greater than 100%. The company is investing in its businesses through CapEx for automation, productivity, and capacity expansion.

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