PH
Earnings call · Dec 2025 (Q2 FY26)

Parker-Hannifin Q2 FY26 earnings call 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

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

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

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 billion up 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
$7.65 up 17%
Q2 FY26

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

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

Main driver of EPS growth.

EPS Growth Driver: Share Count
$0.16 favorable
Q2 FY26

Driven by discretionary share repurchases over the last 4 quarters.

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

Favorable impact.

EPS Growth Driver: Other
$0.18 unfavorable
Q2 FY26

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

EPS Growth Driver: Interest
$0.03 unfavorable
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 million unchanged
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

MetricValueDetails
Capacity expansion—
Tariff cost impact—
Parts aftermarket business500 basis 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 billion USD
Industry production market size forecastsmid-single-digit decline %

Orderbook & backlog

Total Backlog $11.7 billion Q2 FY26

increased

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

Aerospace Backlog $8.0 billion Q2 FY26

+14%

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

Industrial Backlog mid-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

Filtration Group Corporation Acquisition 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

Transportation Market Demand Challenges FY26

mid-single-digit organic decline

Mitigation:Partially offset by strength in aftermarket.

Agricultural Market Pressure FY26

Ag remains under pressure

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

Upstream Oil and Gas Softness FY26

Upstream Oil and Gas remains soft

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

Selective Customer Capital Expenditure Ongoing

CapEx remains selective

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

Tariff Uncertainty Ongoing

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 Rates Ongoing

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

Filtration Group Acquisition Closing

next quarter (Q3 FY26) or beyond
Current Integration planning underway, expected close 6-12 months from November announcement
Target Acquisition 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

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 read 5 chapters

Detailed narrative

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.

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.

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.

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.

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.