Parker-Hannifin Corp (PH) Q4 2026 Earnings Call Transcript

Good morning, everyone. Welcome to Parker-Hannath Incorporation's fiscal 2026 fourth quarter and full year earnings conference call and webcast. At this time, all participants are in a listen-only mode. After the prepared remarks, there will be a question-and-answer session. To ask a question during this period, you will need to press star 1 on your telephone. If you would like to remove yourself from the queue, please press star 2. Please be advised that today's conference is being recorded, and if you should need operator assistance today, please press star zero at any time. I would now like to turn the call over to Mr. Todd Liam Bruno, Chief Financial Officer. Please go ahead, sir.

Thank you, Beau. I'd like to welcome everyone to Parker's Fiscal Year 2026 fourth quarter and full year earnings release webcast. As Beau said, this is Todd Liam Bruno, Chief Financial Officer speaking, and with me today, as usual, is Jenny Parmentier, Our chairman and chief executive officer. We have a number of exciting things to review with everyone today, and we appreciate your time this morning. Thanks for joining us. Let's move to slide two to address our disclosures on forward-looking projections and non-GAAP financial measures. Items listed here could cause actual results to vary from our forecast. Our press release, the presentation here, and reconciliations for all those non-GAAP measures were released this morning and are available under the Investors section on Parker.com. Today, Jenny's going to start with our record FY26 performance. She's going to share some highlights on what we did with capital deployment actions this year and introduce our new FY31 adjustment. She's also going to address an upcoming change to our order rate reporting. I'm going to follow with some details on our record fourth quarter financial results. We also initiated our FY27 guidance today, and we will review all the assumptions for what we expect to be a new record. We'll follow with our normal Q&A portion, and we'll try to address as many questions as we have time for. Now let's move to slide three, and Jenny, I will... ...for attending the call today.

Our global team deliver proven business systems to engineers and channel partners, Thank you. A rolling 12-month calculator today than it was 20 years ago when we began disclosing quarterly infiltration group corporation closes. We will have more than triple the size of our filter.

EBITDA margin, net income, and organic was the strongest quarter of the fiscal year when it comes to organic growth. Really finished the year strong. Currency was just slightly unfavorable at 0.3%, and the Curtis acquisition added 1.5%. Record margins. Adjusted segment operating margin for the quarter was 28.10 basis points from prior year. That's the first time the company has ever generated segment. Adjusted net income was $1.2 billion return on sales, and that actually drove $9.27 for the quarter. That's the first time the company has ever generated over $9 in a single quarter. Just an outstanding way to finish the year, 8% organic growth, record margins across the board, and 21%. Jenny said this already, but really, we can't thank our teams enough for their continued hard work and dedication throughout the quarter and really finishing the year strong. If we jump to slide 9, this just displays the WOC, the $1.58 increase in EPS versus prior year. According to this one, it was from the team. Over 80% of the EPS growth came from increased segment operating income dollars. That added $1.29, or 17% of the EPS growth for its prior year. Corporate G&A and other, really its other, contributed $0.25, and that was really the result of 4%. We've done a significant amount of share buybacks over the last year. That added $0.09 to the quarter, and lower interest expense added $0.02. Income tax was favorable to our guide, but compared to last year, it was unfavorable by just $0.07, and that was really due to just that's how we got the $9.27, $9.27 of adjusted EPS, just a great way to end the year. If we could go to slide 10, let's take a look at the segments. You know, in total, I already mentioned this, but organic growth was up 8%. The margins across the board, beginning in FY27, we will convert to order reporting for all businesses using a 12-month rolling. I've provided the 3-month and the 12-month here, but this will be the last quarter we do this going forward for FY27. In the appendix of this deck and in a press release, we provided eight quarters, but in total, orders were up 19% on the three-year comparison using the 12-month assist. Sales were $2.2 billion. Organic growth was just about $5 billion in recovery across all 70 basis points to a record 27.4. Also exceeded our expectations and really marked the highest quarter of margin performance for the North American businesses of the year. Orders in North America improved just plus 16% on a three-month comparison and 9% on a rolling 12. Just a great way to finish the year for those. International businesses, sales were a record $1.6 billion. Organic growth, really impressive, at 6.5%. Growth in Asia Pacific was 16%, but just 1% positive. And Latin America was down 3%. What's great here is that just the operating margin is a new record at 26.8 businesses. That is up our year, and orders amazingly strong here. 24% on a three-month comparison, 10% on the rolling 12. Just a nice way to. Continues to lead the way here. A record $1.9 billion in sales for the quarter. Unbelievably well generated. Margins are also up in aerospace, up 80 basis points versus the prior year and reached 29 points. Orders in aerospace, order rates unbelievably strong here. Again, 18%, double-digit growth in both 15% versus prior year, and reached a record. This highlights our cash flow performance, and we detail some of those capital deployment actions that Jenny mentioned. Cash flow from operations surpassed $4 billion for the first time ever in the history of the company. Really blew it away at 4.3% of sales, 3% versus the prior year. Increased by 17%. Also came in at a record at $3.9 billion. That's $18.2. That is 107%. In addition to delivering a record year of cash generation, we reached new highs. We returned nearly $2 billion to shareholders. That is $1 billion in share repurchases and nearly $1 billion in dividends paid. We invested $500 billion of CapEx into our operations to make them safer and more productive. We completed the $1 billion acquisition of Curtis Instruments, and as Jenny said, we announced acquisitions of Filtration Group Corporation, actions for the year, really underpinning our commitments to be great generators and great people. We still reduce debt by debt to adjusted EBITDA to 1.4 times. And hand it back to you.

We've had an organic growth forecast. We are guiding high single-digit organic growth, double-digit growth for commercial OEM, 7 and beyond. We expect mid-single-digit growth for in-plant and industrials. We see signs from distribution that the industrial recovery is broadening as customers' demand gradually accelerates. Customer spending on automation continues. Transportation vertical. Duty trucks driven by this is offset by lower growth assumptions for our automotive business. Continuation of the trends we saw in fiscal year 2020. Continued strong growth in construction and mining offset by continued And

I'm just going to say transactions, it's just the same, 5.5 to 8.5 or 7% at the midpoint, specifically for the North American businesses, we're expecting at the midpoint, and for the international industrial businesses, we expect 5% on our June 30th spot rates, unfavorable by 7.7 at the midpoint. That's 40 basis points above prior year, and there will be margin expansion across. As it comes to incrementals, we're forecasting that near the top end of our state at 30 to 30. A few additional guidance items, corporate G&A is expected to be about $200 million. And, again, it excludes any pending debt we take on when Filtration Group and CERCOR closes. And other expense tax rate, we are guiding to 22.5%. EPS, full-year adjusted EPS, is going to be $34.75 at the midpoint. That's an increase of 8% first prior year. The range on that is plus or minus 50 cents on EPS is 47%. First half, 50. By 27, it all has to be positive, approximately 9%. Organic growth is expected to be positive at approximately 8%. For the quarter, we're forecasting adjusted segment operating margins at 27.7, and adjusted EPS is expected It's expected to be just over a little, over $8 at $8, lots of additional guidance details in the appendix. On slide 15, if you look at the bridge, this just shows the growth versus prior year. We're forecasting an increase of 8.5% in segment operating income dollars. That is a little over $3 of additional EPS for the year. Lower interest rate resulting from what we've been able to pay down in the year adds about $0.38. Lower share count will At 7, that does not include any discrete items that are not yet known, and it is a bit of a headwind from what we've experienced in FY26. Nothing unusual there, just still. And other, it's really other is forecasted to be unfavorable, $0.14. All that will be in the other line, and that's really due to the non-repeatism currency exchange that we experienced in FY26. In summary, the adjusted EPS is $34.75. That's up 8%. And with that, Jenny, I will hand it back to you.

The foundation of our culture is our team members living up to our purpose every day. It drives top core child performance.

Let's start the Q&A portion of the call.

Certainly, sir. Thank you. Ladies and gentlemen, at this time, if you do have any questions, please press star 1 on your telephone. To withdraw your question at any time, please press star 2. And so others can hear your questions clearly, we ask that you please pick up your handset for best sound quality. We'll go first today to Scott Davis with Melius Research.

Hey, good morning, Jenny and Todd and Jeff. Congrats on a great year. It must sound like a broken record because you've had quite a few of them for the last few years anyways. Thank you. Just a cleanup item here, what are the final hurdles left to close the filtration group in CIRCOR? Any major hurdles?

No major hurdles. We still anticipate closing both of them during the second half of this calendar year, the first half of our fiscal year. As you know, closing remains subject to all the customary conditions pending regulatory clearances, but the process is ongoing and continuing to progress on both of them.

Okay, fair enough. And then just as a follow-up, when you look at your targets, your new targets on slide five, And can you give us a sense of, you know, maybe where you're most comfortable and least comfortable, if that's such a thing? I'm sure there's some minimum level of comfort, but just love to get a sense of where you feel are going to be the easier targets to hit versus the harder targets to hit.

Scott, I'll start with that, and I'll let Jenny jump in here. You know, none of these targets are easy by any stretch of imagination, but what gives me great confidence is the way our team embraces them. I've told you this many times before, I've never seen such alignment across the company. These are not easy to achieve by any stretch of the imagination. I look at our track record, and we are just so proud of what we've been able to accomplish here. Raising that margin target to 30, that's a big number, right? That is a big number. It's 300 basis point improvement. But, you know, if you look at what we've done in the past, I have great confidence. We've done a great job on the EPS CAGR. If you can get margin expansion and top-line growth, sprinkle in a little bit of capital allocation, that works as well. So I feel really good about this. I don't really have any concerns.

No, I mean, I echo Todd's comments. The win strategy has never been stronger, and the alignment has never been stronger. Obviously, in these targets, we've included the acquisitions that we've yet to close. We're going to use our integration playbooks and do a great job, as we have done in the past, And the team's going to continue to do what we've been doing.

Well, good to hear. I wish you guys the best. Have a great next year. I'll pass it on. Appreciate it.

We'll go next now to Jeff Sprague with Vertical Research.

Hey, thanks. Good morning, everyone. So where to start, you know, embarrassing our riches here. I guess the first thing is just on the strength of the orders on the rolling three basis here in the quarter, You're, you know, particularly in international, but can you just provide a little bit more color on what was going on there? Was there something that proved to be a real catalyst in a couple key end markets?

Yeah, I would tell you, for international, Jeff, it was really, you know, a nice, nice driven by electronics. I mean, there was really, you know, it was 24 percent with the 312 method, and last year it was zero. So it was an easy comp of zero, but it was really driven by electronics and implants, double-digit growth for Asia-Pacific, and did single-digit growth for EMEA. So positive orders across all the major market verticals, but really the strength is electric.

And then just thinking about the new framework here, you know, if we look at the rolling for exit for Q4 2025, right, it almost exactly called the 2026 organic growth, you know, for both NA and international. So I guess the question here is, you know, if we're exiting at 9 to 10 here in Q4 on the rolls, what's sort of the gap or the hedge between sort of the 5 to 8 or the 4 to 7 that you're giving us in North America and international? Anything else to be aware of in that equation?

You know, what I would say, Jeff, is that, you know, obviously the orders remain a leading indicator, but they're not an exact forecast. I think that the 12-12 gets us much closer, as you already pointed out, and the guidance is really in line with the progression. Coming out, half percent, and guidance is at the high end. We also have 10 percent of aerospace and defense in the industrial.

Even longer, yeah. Thanks for that, caller. I appreciate it.

Todd, I would just add, when you look at the industrial businesses, we are showing an increase from Q4 on an organic basis. So the second half gets a little bit tougher. So while the organic growth number is understood, thank you.

We'll go next now to Chris Snyder of Morgan Stanley.

Thank you. Maybe just following up on some of that commentary on the industrial business line. So you guys guided every vertical to mid-single-digit growth in industrial for next year. Can you just maybe talk about ones, you know, maybe that are exiting with more strength or the ones where you guys feel better about the prospects and the opportunity into 27?

Well, what I would say is, you know, again, I'll repeat, as a reminder, 10 percent of industrial sales are tied to aerospace and defense, growing high single digits, so that is very strong. While it's not large enough to be a vertical, we are expecting another year of strong electronics and data center business. When we look at the market vertical forecast and we look at in-plant and industrial equipment, you know, we've been saying for quite some time a gradual recovery here. And it's been very encouraging to see that the demand is improving, and we expect gradual acceleration on a broadening recovery. We've seen distribution orders be strong in the fourth quarter. We're not calling a full restock yet, but we have, you know, heard from some distributors that they are doing more stocking than they have done in the past. So we feel really good about what's going to happen in in-plant industrial. Transportation, strong heavy-duty truck orders. You know, build rates are increasing. When you look at off-highway, acceleration in construction has been driven by infrastructure spend, and as I commented earlier, we see strong power gen growth in the energy vertical. So a lot to be excited about here, and, you know, we feel good about the guy here at mid-single-digit growth.

Absolutely. Thank you for that, Jenny. And then maybe going over to the M&A side. So obviously, you have the two big deals that are closing over the next quarter or so. Can you just maybe talk about the appetite or bandwidth to do incremental deals in 27? Or is it going to be a year more about focusing on just integrating those two businesses? So anything you could just kind of talk about, the appetite, the willingness, and then even anything just on the pipeline of opportunities you guys see.

Yeah, so obviously we're very, very committed to, you know, continuing to actively deploy our capital. We're going to get these two acquisitions closed. The teams are going to work hard on integration, but the work on the pipeline never stops. We are always working on that pipeline, building relationships with targets. Many times we're not in control of the timing of when these targets become available. So, you know, we might touch three with our leverage with these two deals. It'll take us about six quarters to get that back down to two. So I would say we still have an appetite, but we're going to stay true to doing what makes sense for the company.

Thank you. We'll go next now to Steve Volkman of Jefferies.

Hi. Good morning, guys. I just echo the embarrassment of riches. I think you've tripled the margin since I started covering you guys. But in the spirit of what have you done for me lately, I'm curious. I think 27 might be – we might be on track for an analyst day, and I know we've had win 3.0 here doing well for the last few years. Is there a win 4.0, and sort of what's next for the win strategy? How do you progress from here?

So there will be a WIND 4.0. Definitely there will be. And, you know, we're talking about the next investor day now, so I would say stay tuned. But we definitely think that we'll have more things to share in the future.

Steve, I just checked the map. All right, we'll wait for that. I just checked the map, Steve. You are correct. We have triple margins.

Yeah, I got it right. So just a quick follow-up here. Are your orders getting a lot lumpier? Are you taking in some really chunky orders now, and the uncertainty around that, maybe that's behind the switch to the trailing 12 and maybe expecting that the fourth quarter might not be repeated going forward?

I wouldn't say sitting here today that I don't think the fourth quarter could be repeated. I will tell you that international orders have been very choppy in the past. We've also seen some quarters where we've had some high aerospace and defense orders that are very long-term that have hit some of our businesses, and then the next couple quarters we don't see that. So, you know, we do think that this method of 12-12 is a much better correlation to what we can see for near-term organic growth. The business is just so different than it was when we started reporting these quarterly order rate comparisons. You know, aerospace engineer materials infiltration used to be 35% of the company, and now it's 65% of the company. So we really think that this is going to give a more accurate view of what's to come for organic growth.

Steve, I would just add, when you think about, you know, orders that are lumpy, the aerospace business is the business that jumps off the page. You know, today, 10% of the industrial business is aerospace and defense and markets. So that does create some choppiness, whether that's in the industrial, international businesses or not. What Jerry said is we feel that this is just us.

Thanks. I'll pass it on. Thank you.

We'll go next now to Andy Kapowitz at Citigroup.

Hey, good morning, everyone. Next quarter.

Thanks, Andy.

Jenny, I think you prudently initially forecasting 7% to 10% growth for aero in FY27, but as you've said, you've now had four years in a row of double-digit growth in aero, and I think backlogs up mid-team. So maybe give us a little more lay of the land between what you're seeing, commercial aero and defense. Are you still forecasting strong commercial aero aftermarket growth in FY27, for instance, or do you expect to see much higher OE-related growth?

Yeah, so I'll give you the rundown of what we have built into the guidance. So for commercial OEM, well, first of all, the OE aftermarket split that we have in the guidance is 52% OE, 48% aftermarket. And we just ended the year at 51 OE, 49 aftermarket, so we're planning on higher OE mix here. Commercial OEM, we see mid-teams growth for the fiscal year, and that's really built on commercial aircraft, build rate increases. Aircraft demand is still greater than supply, and wide bodies are going to meet international traffic demand. Commercial MRO, we're saying plus mid-single-digit growth for fiscal year 27. There's still a lot of older aircraft flying. The fleet still relies on that. Engine repair shop visits and component restocking continues. And again, international traffic continues to grow faster than domestic. On defense OEM, mid-single-digit growth, demand for legacy and missile programs continues, increasing defense budgets in response to what's going on in the world, and F-35 deliveries are at peak. Defense MRO plus mid-single-digit growth, and that's really based on fleet upgrades and service extensions, increasing defense budgets, and a focus on retrofits and upgrades. So bringing that all together is how we've come up with the guidance for the whole year.

Very helpful, Jenny. And then, Todd, for the FY27 margin guide, it was nice to hear that you've gotten to the high end of your normal 30 to 35 percent incrementals. But obviously, you've been trending closer to 40. So how should we think about mix or any price costs, headwinds, and back to the businesses in FY27? I assume you do want to be somewhat conservative given those things.

Yeah, that's a great point. You know, when it comes to price, you know, we're obviously going to cover any increases that come across, whether that is tariffs, whether that is labor, whether that's logistics, commodities. So that will be in there. But, you know, we've said this constantly. We want to return to a normal pricing environment. And what better time to do that is when you're in an element of growth here. So, you know, when you look across the businesses, we are at the higher end of that 30% to 35% range. It feels good when we look at when we pressure tested it internally. And I would say there's nothing that looks abnormal when it comes to it.

Great. Thanks, Tom.

Thank you.

We'll go next now to Meg Dobre at Baird.

Hey, thank you. A couple of longer-term questions that I guess I'm just going to roll into one. You know, from a capacity standpoint, when we kind of look at your growth, right, you talk about higher growth than what you've had in the past, and I'm sort of curious as to where you are from a capacity standpoint in your Our facilities, manufacturing facilities to be able to deliver on that sustained higher growth over the next few years. So maybe it'd be helpful if you can comment on that. I'm thinking about the industrial business specifically. And related to all of this, you know, you guys have capex here, two and a half percent of sales, which is pretty much consistent with what you've done historically. A lot of other industrial companies that are talking about higher growth are also talking about higher capex and investing in capacity. So I'm curious if your circumstances are different and whether or not we should be planning for maybe a little more capex as we think about, you know, later in a decade or maybe early 2030. Thank you.

Yeah. So, you know, actually, Meg, the last, outside of the last couple of years, we were really more around 2% or a little bit under. And it's just, you know, within the last couple of years that we're We're higher at 2.5%. And we have definitely invested in capacity over the last couple of years, expansion built in to this year. So I think in some businesses, the capacity is already there. Others, we can see that we had to improve. But the thing, too, that I would tell you is just our ongoing continues. Everything that we do with Kaizen and our lean tools, you know, the whole working environment for the team member at a much lower rate, we'll continue to do so.

We'll go next now to Jamie Cook with Truist.

Good afternoon, and congrats on another fantastic order and guidance raise. I guess a couple questions. Just, Jenny, back to Sprague's question. I don't think you commented on the strength in North America orders. You're up 16%, so sort of what were the end market drivers there, and was there any lumpiness? And even within international, you commented specifically on electronics, just trying to get a feel for what's going on in the other end markets. And then I guess my second question is just congrats on raising the meeting term targets to 30 percent. How do we think about, you know, what's implied in that margin target in terms of international versus aerospace? Do you think over the next several years, we can get to a point where international closes the gap on aerospace, or does aerospace continue to move higher to get you to that 30 percent? Thank you.

Okay, well, I'll take the first half of that, and then I'll pass it over to Todd. So, first of all, for Q4 in North America, obviously, 16 percent on the 3-12 and 9 on the 12-12 that we're talking about. Strength in aerospace and defense, implant, and I mentioned that we saw distribution orders much stronger in Q4. Construction, again, on infrastructure spending, and heavy-duty truck and commercial HVAC. So really, we saw positive orders across all of the major market verticals. International, plus 24%. I did mention earlier that kind of that easy comp, but still 10 on a 12-12, and it was really driven by electronics and in plant. Double-digit growth for Asia Pacific and mid-single-digit growth for EMEA. And in EMEA, we do see some strength in construction and mining and some in plant. But again, positive orders across all. And with aerospace, you know, listen, double-digit growth in both commercial OEM and aftermarket and strength and defense OEM. So defense OEM was stronger than expected.

Yeah, Jimmy, I can speak about the FY31 walk. You know, the thing I love about these targets is that everyone has a part in these targets. It's just like the way we got to over 27%. Every single one of our businesses has generated higher margins than they did when we started those targets. So everyone's got a new target, and that's what I love about the company. Aerospace has been outsized when it comes to margin expansion. Four years of double-digit organic growth, great aftermarket exposure and growth has really helped that. But we expect every one of these businesses to be part of our walk to FY30, including aerospace. Our international teams have done an unbelievable job. They are constantly looking at growth opportunities, cost-up opportunities, and, you know, that's no different than North America. You know, my gut feel here would say that North America or the industrial businesses will expand more than aerospace, Just with what aerospace has on its plate with, you know, next-gen investments, and they still will expand margins, but I think the industrial businesses will.

Congrats again.

We'll go next now to Tim Thine with Raymond James.

Thank you. Good morning. I had a longer-term question on aerospace within the context of your 2031 target, the organic growth target. I'm just curious, I mean, they're obviously coming off what is, as Todd pointed out, a really long stretch of growth, but the demand backdrop for both commercial and defense seems to be getting a bit better. So, you obviously have a bit more visibility here, given the backlog. So, how would you think about that kind of growth algorithm for aerospace looking out beyond 27?

Well, we've forecasted long-term growth drivers for each of the areas in aerospace, and we see aerospace as high single digits through that time period. So we feel like it's going to be, it's going to continue at that rate until the time that we reach these targets.

You know, we'll also have a Circor Aerospace and Defense business. When that closes, that'll be another growth driver, obviously, from the equipment side. But once that becomes organic over the five-year period, that'll be another growth driver. And, again, I can't de-emphasize enough, 10 percent of the industrial business has aerospace and defense.

Yeah, I understood. And just on more near-term, on pricing with respect to aerospace, you know, Just given some of the LTA that I'm guessing may have been renegotiated coming out of COVID, may have provided a little bit of a bump. Are we kind of back to a setting where those are more, I guess, normal in terms of the, I guess, the spirit of the question is just the contribution to price, not asking for quantification, but just directionally, how that is trending in 27?

Yeah, so on the industrial side of the business, we are back to a what we would consider more of a normal pricing environment. And in aerospace, there's still pricing opportunity. There have been a lot of negotiations. There's some some negotiations that are that are still in play. So I would say that there's still some opportunity in aerospace.

Very good. Thank you.

We'll connect now to Ahmet Mehrotra at UBS.

Thanks. Thanks, operator. Hi, everybody. Thanks for taking my question. I guess the first one, just on the North American industrial inflection, the 16% growth of the orders, any color you could talk about between sort of the distribution channel and the direct OEM channel? I know the distributor channel has been maybe a little bit more stubborn, and I think you've talked about it a little bit more positively, but any more color around the activity you're seeing and the confidence coming back in that specific channel?

Yeah, well, you know, I've been saying for a lot of quarters here that distributors have been very positive, and the order growth, the strength that we saw in Q4 really supports that positive sentiment and what they've been telling us, so we definitely feel like, you know, that is a broadening recovery instead of what we've just been saying as a gradual recovery, so we feel good about that. Still not calling a restock, though. Some distributors are telling us that they are stocking for projects that they're working on for their customers or business that they see coming, but I wouldn't call the whole channel as an overall restock. On the OEM side, obviously we've seen production rates increase for heavy-duty trucks. That's been very encouraging. We've seen construction and mining get stronger, but we've also seen agriculture remain where it's been, pretty soft, and automotive pretty soft, but there's commercial HVAC and refrigeration that is growing. There's energy with PowerGen. So there's been some strong OEM orders and strong OEM growth along with what we've seen in distribution.

Okay, thanks. And just the sort of natural follow-up question to that is obviously Obviously, the mix dynamic, if there is one between distributors versus OEM, has – I know you've taken a lot of price in the distribution channel, and we're kind of waiting for the volume to recover. If I think about this guidance of reflection and growth, organic growth in North American industrial, is it all the incremental – is it all volume? Is there a little bit more price as maybe some of that distribution volume comes through? Just give us a little bit of a flavor, specifically with North American industrial.

Yeah, we're back to a normal pricing environment here, and this is all volume.

Okay. Okay, easy enough. Very good. Thank you. Congrats. Thanks, Matt.

We'll go next now to Andrew Buscaglia at B&T Paribas.

Hey, good morning, everyone. I know this is small, but can you comment on your data center exposure? I believe you have some interesting equipment, hoses and connectors that play into the space, and I'm wondering if we're seeing interesting order activity there, and then any comments you can make on, are you seeing any specification activity related to liquid cooling as an interesting growth driver?

Yeah, so we do have really nice exposure, and it grew nicely last year, and we think it's going to continue to grow. It's about 1.5% of our sales, and we've been previously saying 1%, so it is growing, but it's not quite large enough yet to have its own market vertical. This is a great story for our interconnected technologies because you mentioned a few of our products, but it's hoses, couplings, manifolds, fittings, engineered materials for thermal management, so really, really a good showcase of all of the Parker technologies. And we are working with industry leaders. We are seeing good orders here. We provide liquid cooling systems and subsystem components. So our teams are doing a really fantastic job in this space. We have a very highly skilled, high-performance team serving these data center customers. And as I mentioned, it's a nice growth area.

Okay, thank you. And, you know, maybe just on the longer-term outlook, I couldn't help but notice you call for about 200 basis point margin expansion 2027 and 2029, and the 300 basis point step-off from 2029 to 2031. I think I got that right. Why would you – what gives you that confidence? Do you see sort of an acceleration in your margins? And I wonder if it's pertaining to the recent acquisitions that you expect to close.

Yeah, I could take that. Just to clarify, what we are calling out is we're calling out 300 basis points of improvement from a 27.0 target that we just surpassed in FY26. That was originally our FY29 target. We're restating that to FY31, and the new target is 30 percent adjusted second. So, you know, as far as what's going to get us there, we have included the The Filtration Group Corporation Acquisition and the CIRCOR Aerospace and Defense business in those margin targets, but when you look at that, it's really coming from our existing business just because of the size of the existing business is so much greater than those two great additions we're going to have, and it's going to be everything that got us to 27.3 this year, just more of it. I feel really confident about the walk to get there, and it should be spread pretty equally

We're next now to Nicole DeBlaze with Deutsche Bank.

Yeah, thanks. Good morning, guys.

Good morning.

Echoing my congrats on a really great quarter. I guess maybe first, Jenny, if we could touch on how the orders progress throughout the quarter, and if you've observed continued strength in July, I would assume so, based on what you guys expect for 27, But we'd love to hear any perspective on that.

I would say that there's nothing that's happened that concerns me that would, you know, not support the guide that we put out.

Okay, understood. Thank you. And then with the electronic strength in international, was that like, are there big lumpy orders that are coming through in the quarter? What I'm trying to get at is, is that electronic strength sustainable? Or do you think that was kind of like a 4Q dynamic that might not last into 2027?

I think it's going to remain strong. I mean, obviously, it came in much stronger than we were expecting. I think we had about a 10% in for Asia Pacific, and it came in much stronger. So, you know, I would say, you know, the guide reflects what we expect out of international. But this is a strong area for us.

Thank you. I'll pass it on.

Thanks, Cole.

We'll go next now to Nathan Jones with Stiefel.

Good morning, everyone. Good morning, Dave. I guess I'll follow up a little bit on some of the international order strength here, kind of alerting that there's a good chance that that continues. If it does, would that maybe improve the outlook for the second half of fiscal 27? And in the guidance that you've given out today, do you assume that some of this order strength in international land in North America continues, or that it moderates a little bit from here?

What we have in the guide right now is what we see with the order progression that's out there. So, obviously, we did have a very strong Q4. We believe that we have the orders to support what we have in for Q1 and for the rest of the year. So, I would tell you that, obviously, as the year goes on, we hope that we can raise those, but this is the best picture we have right now.

Yeah, Nathan, our 48-52 split somehow works out every year, year after year. That's what we are guiding for here. I think it's more of a comp issue. Just the second half of FY26 was so good, the comps get a little bit tougher. But if you look at the dollars, the dollars are weighted like they normally are, you know, much heavier in the second half.

Thanks. Follow-up question on the Circle Aerospace business. Can you just talk a little bit more about what the strategy is with that? I think it already has extremely high margins after it got rid of all the build-to-print work several years ago. So is this a revenue synergy play? It doesn't seem like it would be a cost synergy play, even the margins are already high, but just any comments you can make around the strategy for that acquisition, please. Thanks for taking the question.

Sure, sure. So it is the highest growth, highest margin acquisition to date. You know, what we love about CERCOR is it brings complementary flight-critical motion and flow control capabilities to our portfolio. And as I mentioned before, you know, these are proprietary technologies. This is what we like to bring into our suite of projects. This is an 80% OEM business and 50-50 sales split across commercial and defense. We have not modeled any revenue synergies. We have said 10% synergies. That's approximately $26 million. They ended calendar year 26. Their estimate for calendar year 26 is $270 million with more than 40% adjusted EBITDA margin, and that's before synergy. So this is going to be a really nice addition to our portfolio, and like I said earlier, we'll get this hopefully

We'll go next now to Joe Giordano with TD Cowan.

Hey, Joe. How are you? Good, good. The growth by end market that you guys have for next year, like, how consistent is that with where order rates were for you by those end markets for 26?

Joe, I think it's pretty consistent. You know, we finished the year pretty strong on an order exit rate. We called out, you know, the longer cycle nature of some of those things, but what we're guiding for, you know, to give you an example for Q1 is, you know, it's a slight increase from where we exited Q4. So, you know, like Jenny said, I think we're giving you the best look that we can right now with the visibility that we have. And, you know, we feel pretty positive. This is the highest organic growth guide that we've had in modern history.

And that's consistent on, like, an end market basis as well? Like, yeah, it's not like a build-up of backlog anywhere in any of those particular end markets?

No, I mean, there might be a little bit more strength in a heavy-duty truck, but everything else is pretty consistent. That's why they're all, you know, mid-single-digit growth forecast.

And you don't feel like there's anything pulled forward or anything into the fourth quarter from anything that would have been 1Q orders?

No. You know, we've never really experienced that. I think our focus for years has been on delivering to customers when they need it. And, you know, we've been active on price and making sure that there's no slippage in when orders are placed.

Yeah, one of the things that we've worked really hard on the last several years is, you know, demanding capacity planning with our customers and with our suppliers. So, you know, that's something that's given us the ability to be much more efficient in our operations and make sure that the customers know that they can get the product from Parker in a stated lead time.

Thanks, Joe. Hey, Bo, I think we might have time for one more if we have anyone left in the queue.

We do. We'll take our final question today from Chigusa Katoku with J.P. Morgan.

Good morning. Thanks for taking my question. I just want to touch briefly on energy. I think it's a tale of two worlds, power strong and oil and gas softer. I think last quarter you expected 2026 was about low single-digit for this vertical, and you're expecting the single-digit this year. I'm just curious, is this more driven by power being stronger and oil and gas kind of unchanged? Is any color there would be great?

Yeah, we definitely see power gen growth, and we think that's going to continue to be strong and a little bit stronger. Oil and gas, we think it's going to be flat. But, you know, there could be an upcycle coming, but we don't have any signs of that yet. So this is, you know, flat oil and gas and stronger power gen growth.

Okay, great. Thanks. And then just trying to put a finer point on the orders acceleration in North America industrial. It really accelerated nicely. It sounded like it was broad-based. But you didn't – I didn't hear you call out power or data center, but what were kind of the trends there? Just if you could put any finer point on what really led to this acceleration versus the third quarter, that would be helpful.

Yeah, I mean, it was across, you know, many market verticals. We saw strong aerospace and defense in the industrial businesses, in plant and industrial demand, higher distribution. We saw transportation improvement with heavy truck. We saw construction growth. We saw PowerGen growth and commercial HVAC. So we just saw really, really nice growth across all the market verticals.

Okay, great. Thanks. Bye.

Thank you. Okay, I think that is all we have from a time standpoint. We appreciate everyone joining today. We appreciate your attention. FY26 was just a great year for Parker Hannafin. It was our safest year ever. It was another year of operational excellence. And obviously, as Jenny said, a very active year when it comes to capital deployment. We are looking forward to an even better FY27. We are confident in that path to our new 30% segment operating margin target by FY31. And really, none of this could be possible without a sincere thank you to our global team members around the world and to our investors for your interest in Parker Hannafin. So thank you all very much. Jeff and Jenna will be available today. If there's any follow-ups that are needed, thanks again for joining us, and have a great day, everyone.

Thank you very much, Mr. Leon Bruno, and thank you, Ms. Parmentier. Again, ladies and gentlemen, this will conclude today's Parker-Hannigan Corporation's fiscal 2026 fourth quarter and full-year earnings conference call and webcast. Again, thanks so much for joining us, everyone. We wish you all a great day.