Ladies and gentlemen, thank you for standing by. And welcome to the Parker-Hannifin Corporation First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference to your speaker today, Cathy Suever, Chief Financial Officer. Please go ahead.

Thank you, Joule. Good morning, everyone. Welcome to Parker-Hannifin’s first quarter fiscal year 2020 earnings release teleconference. Joining me today are Chairman and Chief Executive Officer, Tom Williams; and President and Chief Operating Officer, Lee Banks. Today’s presentation slides, together with the audio webcast replay, will be accessible on the company’s investor information website at phstock.com for one year following today’s call. On slide number two, you will find the company’s Safe Harbor disclosure statement, addressing forward-looking statements, as well as non-GAAP financial measures. Reconciliations for any reference to non-GAAP financial measures are included in this morning’s materials and are also posted on Parker’s website at phstock.com. Today’s agenda appears on slide number three. We will begin with our Chairman and Chief Executive Officer, Tom Williams, providing highlights from the first quarter. Following Tom’s comments, I will provide a review of the company’s first quarter performance, together with the revised guidance for the full year fiscal 2020. Tom will then provide a few summary comments and we will open the call for a question-and-answer session. Please refer now to slide number four and Tom will get us started.

Thank you, Cathy, and good morning, everybody, and welcome to the call. We appreciate your interest in Parker. So let me start with the first quarter highlights and I will start like I normally do on safety. We had a 25% reduction in recordable safety incidents year-over-year, which is a great start to the year. When you look at it from a safety incident rate, so for those who aren’t familiar with this, this is the number of safety incidents per 100 people. We came in at 0.46, which is the top quartile number; top quartile happens to be 0.5. So this is the first time in the history of our company that we came in on the top quartile for incident rates. So we are very proud of that. Safety for us is a core value and zero accidents is not an aspirational goal. It’s really an expectation that we are going to operate the business and lead the business in such a way that we are going to drive a zero accident culture. And if you have seen, there’s a linkage between safety and business performance, and you can see that if you look at our numbers over the last several years and plot its safety and our financial improvement, you will see they went hand in hand. So switching to financial results, Q1 was a strong quarter on margins and on cash against a challenging macro environment for sales. Sales declined 4% and that composition was a minus 3 organic, minus 1.5 on currency and a plus 0.5 on acquisitions. Total segment operating margin remained level at 17.0% reported. Adjusted segment operating margins increased 10 basis points to 17.3%. On a reported basis, EBITDA margin increased to 70 basis points to 18.4%, and adjusted EBITDA margin increased 110 basis points and reached 19.1%. So really, when you look at operating margin or EBITDA margin, it was really excellent performance at this part of the cycle. EPS reported was $2.60 and on an adjusted basis, it was $2.76. We had a very strong quarter on cash flow. Cash flow from operations came in at 13.5% of sales. We had a record in terms of cash flow from operations at $449 million and free cash flow was 12.0%, and when you look at free cash flow conversion that was 118%. So, really, really strong quarter on cash. We had a number of exciting announcements in the quarter. We launched Win Strategy 3.0. So that’s the third revision of the Win Strategy. This follows the second revision we did in 2015 and we closed the LORD and Exotic acquisitions. So we have been busy in the quarter. And we are excited to welcome the LORD and Exotic team members to the Parker team. The joint integration teams have been working hard in preparation for the closings and they are hitting the ground running as we speak. And you heard me talk about the acquisitions being transformational to Parker’s portfolio, really strengthening engineered materials and aerospace with high growth, high margin businesses that will definitely be more resilient over the business cycle. Our global Parker teams are very energized by all these announcements. So we are excited about the future. Now switching to the outlook, we advised guidance for FY ‘20, we have seen a market shift within the last 90 days as reflected in weekend order entry, primarily driven by macro conditions and trade certainties. So when you look at total sales for Parker in FY ‘20, they are expected to be flat year-over-year at the midpoint. With guidance now, these midpoint numbers at minus 6 organic, minus 1 for currency and plus 7 on acquisitions. Segment operating margin guidance is now at 15.2% as reported at the midpoint, and the adjusted midpoint is now 16.3%. I would just call your attention that there are two important impacts there. When you look at it from a partial year standpoint for FY 2020, the amortization of the two deals impacts us by 70 basis points. When you look at it on a full 12 months, there’s 100 basis points of deal amortization as a headwind on margins. Business realignment expenses are expected to increase to $40 million. This reflects the current macro conditions. This was $20 million in the prior guide, and, of course, our guidance now includes LORD and Exotic forming for the balance of the year. We will discuss markets and the guidance assumptions in more detail during the Q&A. So let’s switch to cash flow and margin resilience. So, hopefully, you saw on the cash numbers in my comments just a moment ago, cash flow was very strong, record numbers. When you look at the operating and EBITDA margin performance and I am going to compare it to 2015 and 2016, the last downturn we experienced, and we will look at this legacy Parker without acquisitions to do an apples-to-apples comparison. So FY ‘16 would have been the worst year in that downturn, adjusted operating margin was 14.8% and then FY ‘20 guidance is 16.6% the midpoint. So when you look at that delta, that’s an improvement of 180 basis points. On adjusted EBITDA FY ‘16 it was 14.7%. Our current guidance at the midpoint is 18.2%. That’s a 350 basis point improvement. Clearly, raising the floor on margins when you compare the 15%, 16% downturns to what we are experiencing now. We fully anticipate to do double-digit cash flow from operations for the full fiscal year like we have been doing for the last 18 years. This performance is driven by a combination of factors, particularly the new Win Strategy, which we introduced in 2015 is propelling our performance. All the previous restructuring activities we have done, have positioned us to be a more agile and lean operating company. So let’s move to slide five and talk about the future. We are very positive about the future and we think we are absolutely poised to generate nice earnings growth after we clear these near-term macro conditions. A couple of things influencing our confidence on the earnings potential are Win Strategy 3.0 and the purpose statement, which represent some important changes for the company. Plus, we have added two great businesses via these acquisitions. Actually, in my view, the timing of these acquisitions couldn’t be any better during the soft part of the cycle; there are clear advantages here. We have the capacity to digest these much easier than when we were digesting CLARCOR while trying to ramp-up the base business. When you look at the timing, the integration teams hitting their stride, it’s about the same time the markets will start to turn for us in approximately nine months and both of those factors will drive earnings growth as we look into the future. We will be hosting an Investor Day March 12, 2020 in New York City and during that event, we are going to showcase Win Strategy 3.0 and the purpose statement. We will provide a lot more insights into the key strategic changes for the future. We will highlight all six operating groups and in the past we have highlighted one group, last time we highlighted three groups. So for the first time, we will give you insights into all six. You will see the entire company and we will go through the three last acquisitions, CLARCOR, LORD, and Exotic. On this page, as you see the winning format for Parker, our competitive differentiators the Win Strategy now 3.0, which is our business system, you couple that with our decentralized divisional structure. That’s really the best of both worlds. You have a certainly led business system that’s deployed locally with that closeness to the P&L. The breadth of our portfolio and technology is very interconnected, strong intellectual property, long product life cycles, very balanced between OEM and aftermarket with the best distribution channel in the motion control space, low CapEx requirements to actually generate growth and productivity. All this ultimately culminates in generating a lot of cash and being able to deploy on the best we can for shareholders. We have a lot of confidence in our ability to achieve the FY ‘20 financial targets. I just want to thank all the global teams listening in for their hard work and dedicated efforts. And I will hand it back to Cathy for more details on the quarter and the guidance.

Thanks, Tom. I’d like you to now refer to slide number six. This slide presents as reported and adjusted earnings per share for the first quarter. Adjusted earnings per share for the quarter were $2.76, compared to $2.84 for the same quarter a year ago. Adjustments from the fiscal year 2020 as reported results totaled $0.16, including before tax amounts of business realignment charges of $0.04, acquisition costs to achieve of $0.04 and acquisition transaction related expenses of $0.14, offset by the tax effect of these adjustments of $0.06. Prior year first quarter earnings per share had been adjusted by $0.05. The details of which are included in the reconciliation tables for non-GAAP financial measures. On slide seven, you will find the significant components of the walk from adjusted earnings per share of $2.84 for the first quarter of fiscal ‘19 to $2.76 for the first quarter of this year. We have benefited $0.02 per share in operating income from Exotic Metals Forming Company since closing on that acquisition September 16th. For Legacy Parker, a $166-million decline in sales contributed to a $0.15 reduction in operating income. The teams did a great job of controlling costs with lower volume, sustaining a 15% decremental margin for the quarter. Incremental interest expense on the debt borrowed for the two acquisitions resulted in a $0.15 decline in the current earnings per share. Interest income from the pre-acquisition investments benefited the current quarter by $0.09. Lower other expense of $0.13 came from several one-time gains in the current year and by not repeating several one-time losses from last year. Lower corporate G&A contributed $0.01, while fewer favorable discrete tax benefits in the current quarter resulted in a higher tax rate causing $0.12 of incremental tax expense. Finally, our lower share count benefited the quarter by $0.09. Slide eight shows total Parker sales and segment operating margin for the first quarter. Organic sales decreased year-over-year by negative 3.3%. Currency had a negative impact of minus 1.5%. These declines were partially offset by a positive impact of 0.6% from the September acquisition of Exotic. Despite declining sales, total adjusted segment operating margin improved to 17.3% versus 17.2% last year. This 10-basis-point improvement reflects the operating costs improvements teams have been working hard on, combined with additional positive impacts from our Win Strategy initiatives. On slide nine, we are showing the small benefit Exotic had on the first quarter FY ‘20 results post-close on September 16th. You can see they contributed $21 million in sales and $3 million in operating income on an adjusted basis during this brief stub period. Exotic results are included in the Aerospace Systems segment. Moving to slide 10, I will discuss the business segments, starting with Diversified Industrial North America. For the first quarter, North American organic sales were down 3.2%. Currency had a small impact on sales of negative 0.2%. Even with lower sales, operating margin for the first quarter on an adjusted basis was an impressive 17.3% of sales versus 16.6% in the prior year. North America continued to deliver improved margins, which reflects the hard work dedicated to productivity improvements, as well as synergies from CLARCOR and the impact of our Win Strategy initiatives. Moving to Diversified Industrial International segment on slide 11, organic sales for the first quarter in the Industrial International segment decreased by 8.7%, currency had a negative impact of minus 3.9%. Operating income for the first quarter on an adjusted basis was 15.9% of sales versus 17.0% in the prior year, a decremental margin of 25%. The teams continue to work on controlling costs during the more difficult drops in volume by utilizing tools of our Win Strategy initiatives. I will now move to slide 12 to review the Aerospace Systems segment. Organic revenues increased 8.2% for the first quarter, as a result of growth in all of the platforms, with the strongest growth in Military OEM and the Commercial Aftermarket. In addition, the Aerospace segment sales increased $21 million or 3.7% from the addition of the Exotic acquisition. Operating margin for the first quarter was 20% of sales versus 19.5% in the prior year, reflecting the impact of higher volume in all the platforms, lowered development costs and good progress on the Win Strategy initiatives. On slide 13, we report cash flow from operating activities. Cash flow from operating activities was a first quarter record of $449 million or 13.5% of sales. This compares to 10.3% of sales for the same period last year after last year’s number is adjusted for a $200 million discretionary pension contribution. That’s a year-over-year increase of 25%. Free cash flow for the current quarter was 12% of sales and the conversion rate to net income was 118%. Moving to slide 14, we show the details of order rates by segment. The Diversified Industrial segments report on a three-month rolling average, while Aerospace Systems are based on a 12-month rolling average. Continued declines in the industrial markets drove total orders to drop 2% for the quarter-end. This year-over-year decline is made up of a 6% decline from Diversified Industrial North America, 10% decline from Diversified Industrial International orders, offset by a very positive 22% increase from Aerospace Systems orders. The full year earnings guidance for fiscal year 2020 is outlined on slide number 15. This guidance has been revised to align to current macro conditions and now includes the impact of the LORD and Exotic acquisitions. Guidance is being provided on both an as-reported and an adjusted basis. Total sales for the year, with the help from acquisitions, are now expected to remain flat compared to the prior year. Anticipated full year organic change at the midpoint is a decline of 6%. Currency is expected to have a negative 1.1% impact on sales and acquisitions will add 7.4% to the current year. We have calculated the impact of currency to spot rates as of the quarter ended September 30, and we have held those rates steady as we estimate the resulting year-over-year impact for the remaining quarters of this fiscal year. For Total Parker, as reported, segment operating margins are forecasted to be between 15.0% and 15.5%, while adjusted segment operating margins are forecasted to be between 16.0% and 16.25%. We have not adjusted for the incremental amortization of approximately $100 million that we will incur for the remainder of this year as a result of the two acquisitions. The full year effective tax rate is projected to be 23%. The first quarter tax rate was favorably impacted by discrete items which we don’t forecast. We are anticipating a tax rate from continuing operations of 23.3% for quarters two through four. For the full year, the guidance range for earnings per share on an as-reported basis is now $8.53 to $9.33 or $8.93 at the midpoint. On an adjusted earnings per share basis, the guidance range is now $10.10 to $10.90 or $10.50 at the midpoint. The adjustments to the as-reported forecast made in this guidance include business realignment expenses of approximately $40 million for the full year fiscal 2020, with the associated savings projected to be $15 million. Synergy savings from CLARCOR are still estimated to achieve a run rate of $160 million by the end of fiscal 2020, which represents an incremental $35 million of year end savings. In addition, guidance on an adjusted basis excludes $27 million of integrated costs to achieve for LORD and Exotic and $200 million of one-time acquisition-related expenses. LORD and Exotic are expected to achieve synergy savings of $15 million this fiscal year. A reconciliation and further details of these adjustments can be found in the Appendix to this morning’s slides. Savings from all business realignment and acquisition costs to achieve are fully reflected in both the as reported and the adjusted operating margin guidance ranges. We ask that you continue to publish your estimates using adjusted guidance for representing a more consistent year-over-year comparison. Some additional key assumptions for full year 2020 guidance at the midpoint are a split first half, second half of 47%, 53% for all sales, adjusted segment operating income, and adjusted EPS. All three we expect to be split 47%, 53%. Second quarter fiscal 2020 adjusted earnings per share is projected to be $2.22 per share at the midpoint. This excludes $15 million of projected business realignment expenses and $167 million of acquisition-related expenses and costs to achieve for both LORD and Exotic. On slide 16, you will find a reconciliation of the major components of revised fiscal year ‘20 adjusted EPS guidance of $10.50 per share at the midpoint, compared to the prior guidance of $11.90 per share.

Thank you, Cathy. So we are very pleased with our progress. We are going to perform well with this downturn, as demonstrated by our cash flow performance and raising the floor on operating margins. We are well on our way to being that top-quartile company we want to achieve and being best-in-class. As a reminder, we want to transform the company to achieve targets we have set out in FY ‘23 of growing organically 150 basis points greater than global industrial production growth, segment operating margins of 19%, EBITDA margins of 20%, free cash flow conversion greater than 100% and EPS CAGR over that time period of over 10%. So again thanks to everybody, all the global team members around the world for your hard work. And with that, I will hand it over to Joule to start the Q&A portion of the call.

Thank you. Our first question comes from Nathan Jones with Stifel. Your line is now open.

Good morning, everyone.

Good morning, Nathan.

Tom, it seems like you guys have a bit more negative outlook going forward over the next three quarters here than some of your peers have. I think you mentioned you were planning on three more quarters of downturn here. Can you just maybe talk a little bit about what’s going on in the end markets and your expectations around why you are thinking this downturn is as long as you have built into guidance here?

Yeah. Nathan, it’s Tom. I’m sure this is a question on everyone’s mind. I’ll start by going through what was behind the guide and finish with a summary of end markets. It starts first with our Q1 orders; you’ve seen that minus 2 total company, but in particular, minus 6 North America and minus 10 internationally. Then you have to look at other external indicators that typically flow through our orders, three to six months out, like the ISMs and the PMIs. The U.S. ISM had 47.8 for September, that was a 10-year low, as everybody knows. Europe’s PMI of 45.7 for September, and of course, Germany, our third largest country at 41.7, obviously feeling the impact of the trade-related uncertainties. Asia PMIs are weak. So when you look at October, while it’s not over yet, we are seeing softening from that August and September rate. So those factors influenced our forecast. Organic at the midpoint is minus 6; that composition is North America at minus 6, International at minus 11.5 and Aerospace at plus 4.5. Given that organic growth was minus 3 in Q1, that implies that our low point, or the bottoming out of Parker, is somewhere between Q2 and Q3 in this guidance. Many factors are signaling some kind of a bottom forming for us about the midpoint of our fiscal year.

I appreciate the transparency and the color there. Just moving away from things that are happening in the short-term here, can you talk a little bit about what’s changed in the Win Strategy 3.0 from Win Strategy 2.0?

Yeah, I’d be happy to do that because that’s going be very exciting for the company. Underneath engagement, we will continue to expand the whole ownership concept, emphasizing that the more people we have thinking and acting like owners, the better the company’s going to perform. A significant change on people is Kaizen, we will take you through all the things we are doing on Kaizen, our approach, who we are working with and the results we are seeing. There’s more emphasis on digital leadership under customer experiences, and we will expand what we mean by that with a new metric called composite likelihood to recommend, which will be a mixture of on-time delivery and feedback from customers and distributors. We have a new strategic initiative called strategic positioning under earnings and profitable growth that we will give you more color on. New product blueprinting will support our innovation, along with new metrics for innovation, product vitality and mix and gross margin for the product vitality. Lastly, we are introducing the powerful new concept of simplified design, where we focus on simplifying product design to reduce complexity, inventory and scheduling chaos.

I appreciate all the color and transparency there. I will pass it on. Thanks very much.

Thanks, Nathan.

Thank you. Our next question comes from Ann Duignan with JPMorgan. Your line is now open.

Hi. Good morning. I’m not sure if there were any questions left after all that color. You gave us global end markets, industrial versus mobile, would you mind breaking those up by region, please, or any notable differences across the major markets that have declined like ag, construction, heavy-duty, material handling?

Yeah. Ann, this is Tom. I will give you the high points by region. North America was about a 3% organic decline; on the positive side was machine tools, heavy-duty truck, forestry, and lawn and turf, flat was distribution on automotive. On the negative side, we had low single-digit declines in mining, telecom, and life sciences; mid-single-digit decline in refrigeration, mills and foundries, and tires. In mobile markets, we saw mid-single-digit declines in construction and marine, and mid-teen declines in ag, material handling, and rail. In Europe, we had about a minus 7 for the quarter; positive side was refrigeration, power, semicon, life science and oil and gas; negative side, mills and foundries, machine tools were greater than 20%. Mid-teen declines were mining, tire and rubber. Distribution came in around minus 4.5, and mobile saw low single-digit declines in construction and ag, but about 10% in heavy-duty truck and auto. In Asia, on the positive side, Asia came in at a 12% decline for Q1; positives were oil and gas, mining, and marine. Declines in distribution were about 5.5%. In the industrial space, mid-teen declines out of mills, refrigeration, and telecom had greater than 20%. Mobile side experienced the steepest declines greater than 20 in construction, ag, material handling, and rail.

Okay. And then just as a follow-up, are you seeing any signs of, I hate to use the word we use every time coming up, but any green shoots anywhere?

Well, it has been nice that distribution got a little bit better. I like that fact that’s moving into Phase 4 and we had a number of other things moving into Phase 4; automotive and life sciences and oil and gas. Even though they are down, mid-teens for us, the fact they went into Phase 4, suggests some potential for recovery. We still have strong indicators like aerospace and lawn and turf holding steady, with positive seasonal help there.

Okay. I will leave it there in the interest of time. I will get back in queue. Thank you. Appreciate it.

Thanks, Ann.

Thank you. Our next question comes from Joel Tiss of BMO Capital Markets. Your line is now open.

Hi. How’s it going?

Hi, Joel.

I just wonder on the last discussion and the color there. Can you just give us any sense of how you take? It feels like things are a little worse now because of inventory reductions. How do you take the amplification of that in the near term out of your forward guidance? I’m just curious how to think about that.

Yeah, Joel, it’s Tom again. The destocking is always a tough question; we do have good data on it. North America distribution has been improving by about 100 bps, that’s what happened again. In Q3 of 2019, it was down 300 bps; Q4 was 200 bps, and now Q1 was 100 bps. We had guided that we felt distribution would reach equilibrium at the end of the calendar year, so the end of Q2. But clearly, we are seeing destocking at the OEMs, especially the mobile OEMs, and how long that takes to play out is difficult to predict. We don’t have that visibility into that like we do with the U.S. distribution. What we guided was very hard to split end-market demand versus destocking; what we provided is our view overall.

And then just like a strategic question and not so much thinking about a forecast, just thinking about how do we think about Parker’s earnings resiliency going forward?

That’s a good question, I’m glad you asked. We have been working hard at this for some time. The portfolio moves we have made over the last number of years, CLARCOR, LORD, Exotic, have positioned us well. When we look at our order entry, our filtration platform is holding up much better than the rest of the industrial platform, which was by design. LORD is coming in at about 4% organic growth compared to the minus 6% for Parker, and Exotic’s growth is around 11%. We are also growing international distribution, which enhances margins and resilience because that channel is mostly servicing the aftermarket. Our innovation growth is faster than the base business. We are focused on customer experience because a good experience drives growth. Our operational improvements ensure we can reduce complexity in our supply chain, and kaizen offers us agility that helps us meet FY ‘23 targets.

Great. Thank you very much.

Okay. Thanks, Joel.

Thank you. Our next question comes from Jamie Cook with Credit Suisse. Your line is now open.

Hi. Good morning. I guess just a couple of questions. The implied international adjusted margins fall off a little more than I expected in the remaining nine months of the year. Can you help me understand the puts and takes there besides increasing amort? Cash flow in the quarter was very strong, and as we are in a slowdown here, leverage becomes more topical. How should we think about cash flow for 2020?

Let me start. I’ll have Cathy add on as far as debt and maybe comment on cash flow. One thing I want to ensure everyone understands is that this new guide still has very good decremental margins. We have always noted that a minus 30 decremental is best-in-class. We reported total decrementals at various intervals. If you look at Q2 through the rest of the year, Q2 is at 27%, Q3 at 28%, and Q4 at 23%. So a full year is about 25%. These are excellent figures considering the industrial market decline.

Jamie, we finished quarter end at a leveraged gross debt-to-EBITDA of 3.6. We did bring in a small amount of additional debt in the form of a term loan when we closed LORD this past week. If you look historically, we manage our working capital very well during a down cycle. Both LORD and Exotic have a history of strong cash flow, stronger than Parker, so they will be great contributors. We expect to return to a level we had with CLARCOR when we closed that deal.

Okay. Thank you. I appreciate the color.

Thank you.

Thank you. Our next question comes from David Raso with Evercore ISI. Your line is now open.

Hi. Thank you. Just looking at the organic growth first half, second half, obviously, the second half, a big change from up 1 to negative 6. Can you take us through your thoughts on how you see orders playing out underneath that decline?

Yeah, David, it’s Tom. The forecast gets more challenging as we look further out. We are using macro indicators such as U.S. ISM and others that typically lag and impact our orders three to six months out. We saw a decline in orders organic growth in October, which will influence Q2 and the other macro indicators will then start to impact the second half. That was the thought process behind that. Additionally, our historical data shows that order growth typically follows order entry growth within a month or two.

Yeah. I’m just trying to think how you thought about managing your own inventory through the end of the year and that interplay between the second half being weaker than we thought but also potentially seeing some bottoming process?

Orders going down typically require inventory management updates in all our systems. We continuously optimize inventory whether we have volume going up or down for our lean operations. We’ll be looking at forecasts for SKU to maintain this lean model and to avoid waste. Pricing will remain neutral as we’ve consistently indicated, across our segments.

All right. That’s helpful. I appreciate it. Thank you.

Yeah. Thanks, David.

Thank you. Our next question comes from Andrew Obin with Bank of America. Your line is now open.

Yeah. Hi. Good morning.

Good morning, Andrew.

Just a question on cash flow. A lot of companies that do deals have shifted to reporting cash earnings. Have you guys considered moving to reporting cash numbers and what has the feedback been from your investors?

It’s a good question. We have thought about it and reached out to shareholders about this. The uniform feedback has been to stick to reporting on GAAP basis, continuing to adjust for one-time costs as necessary. The shareholders indicated a preference for integrating those challenges into how we run the company more effectively.

Thank you. And then just a question, as your numbers have decelerated, what has the feedback been from LORD and Exotic, what have they experienced relative to expectations when you announced the deals?

Actually, they have held up really nicely. LORD is coming in at about 4% organic growth, while we had modeled around 5.5%. Exotic is approximately around 11.5%, which has outperformed Parker and also better than the expectations modeled. However, we’ve monitored F-35 sales positively and conservatively estimated the 737 Max impact, but EO saw numbers yielding higher than anticipated. This reflects dynamic integration adjustments managing those supply chains effectively.

And if I may squeeze just one in, was that referring to the old Parker exposure or was that referring to LORD’s exposure as well?

That was total Parker; we didn’t have LORD in Q1, but their auto exposure has held up better than our core auto exposure.

Okay. Thank you.

Thank you. Our next question comes from Andy Casey with Wells Fargo Securities. Your line is now open.

Thanks a lot. I just wanted to go back to the decrementals that you talked about. Were those all in including the acquisitions over those Parker Legacy?

Parker legacy without the acquisitions; those are challenging to compare, considering the acquisitions are not in previous period compare samples. We detail our MROS analysis separately to clarify.

Okay. Appreciate that. Would the downside over the long term relative to the mid to high 20s decremental you gave shrink further?

Yes, there is potential as LORD and Exotic being more resilient and higher margin should positively enhance that dynamic. Our focus remains on executing better integration strategies to improve overall performance.

Okay. Thank you very much.

Okay. Thanks, Andy. Joule, I think we have time for one more question.

Thank you. Our final question comes from Jeff Sprague with Vertical Research Partners. Your line is now open.

Thank you. Good morning. Just asking about the acquisitions. At the time they were announced, I thought LORD’s run rate sales were about $1.1 billion and Exotic was about $450 million. It looks like they are both tracking flattish; is there timing involved or do I have this number incorrect?

Your reference was based on calendar vs. FY ratios; these numbers are from our FY 20 model, not comparable to the previous periods.

Okay. Great. Thank you for that color.

Okay. Thank you. This concludes our Q&A and our earnings call. Thanks everyone for joining us today. Robin and Jeff will be available throughout the day to take your calls should you have any further questions. Everyone have a great day. Thank you.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.