Snapshot
Parker-Hannifin Corp reported $5.24B of revenue in Q4 2025, up 1.1% year over year, with diluted EPS of $7.15 and an operating margin of 21.3%.
- Revenue
- $5.24B
- YoY growth
- +1.1%
- Diluted EPS
- $7.15
- Operating margin
- 21.3%
What management said
- •I'd like to welcome everyone to Parker's fiscal year 2025 fourth quarter and full year earnings release webcast.
- •The agenda for today has Jenny starting out with the highlights of our record fiscal year 2025 performance.
- •She'll provide some color on our recently announced acquisition of Curtis Instruments.
- •We did release our initial FY 2026 guidance this morning, and we will discuss the assumptions and provide some color on what we expect to be another record year for Parker.
- •The Win Strategy and our culture of high performance delivered another record year.
- •We had a 17% reduction in recordable incident rate, once again achieving top quartile safety performance and record engagement survey results.
- •We generated record cash flow from operations of $3.8 billion and delivered 7% adjusted EPS growth.
- •We finished the year with a record $11 billion in backlog, and we remain committed to a disciplined, active, and balanced capital deployment strategy.
- •Another year of outstanding performance from aerospace with record sales of $6.2 billion.
- •That's 13% organic growth and 190 basis points of adjusted segment operating margin expansion.
- •Orders continued to outpace sales growth as we finished the year at a record backlog of $7.4 billion.
- •Sales are approximately two and a half times higher, and we are on track to expand adjusted segment operating margin by 940 basis points from fiscal year 2019 through our fiscal year 2026 guide.
What went well
- •Parker delivered a record fiscal 2025, with top-line sales of $19.9 billion, record adjusted segment operating margin of 26.1% (up 120 basis points), and record adjusted EBITDA margin of 26.4%.
- •Every number in the fourth quarter was a record, including adjusted segment operating margin of 26.9% (up 160 basis points) and adjusted EPS of $7.69, up 14%, despite sales up just 1%.
- •Aerospace had an outstanding year with record sales of $6.2 billion, 13% organic growth, 190 basis points of margin expansion, and a record $7.4 billion backlog, with Q4 orders up 12%.
- •The company generated record full-year cash flow from operations of $3.8 billion and record free cash flow of $3.3 billion, with both up 12% versus prior year.
- •North America delivered record Q4 adjusted operating margins of 26.7% (up 170 basis points) and a third consecutive quarter of positive order growth, while distributor sentiment remained positive.
- •Parker announced the intent to acquire Curtis Instruments to expand its electrification offering, expected to be EPS accretive in the first year despite being initially margin dilutive.
What went wrong
- •Transportation is the company's most challenged market, forecast for a mid-single-digit organic decline amid near-term pressure in auto and truck as end users delay purchases.
- •Industrial North America organic growth was down 1% in Q4 and total industrial is still expected to be slightly negative in Q1 2026 with only a gradual recovery assumed.
- •International orders were flat in Q4 against tough comps, as strong long-cycle Q3 orders in HVAC/refrigeration, power gen, and aerospace/defense did not repeat, and EMEA remained -3% organic.
- •Off-highway is forecast to decline low single digits in 2026, with the ag market past trough but still needing time to return to positive.
Guidance changes
| Metric | Period | Previous | Current | Change |
|---|---|---|---|---|
| Reported sales growth | FY2026 | — | 2%-5% (3.5% midpoint), ~$20.6 billion | Initiated |
| Organic sales growth | FY2026 | — | 1.5%-4.5% (3% midpoint) | Initiated |
| Adjusted segment operating margin | FY2026 | 26.1% (FY2025 actual) | 26.5% midpoint | +40 bps |
| Adjusted EPS | FY2026 | — | $28.90 midpoint (+/- $0.50), up 6% | Initiated |
| Free cash flow | FY2026 | — | $3 billion-$4 billion, ~100% conversion | Initiated |
| Aerospace organic growth | FY2026 | — | ~8% (high single digit) | Initiated |
| Tax rate | FY2026 | — | 22.5% | Initiated |
| Adjusted EPS | Q1 2026 | — | $6.51 | Initiated |
| Incremental margins | FY2026 | — | ~35% for the full year | Initiated |
Performance breakdown
| Metric | YoY change | Reason |
|---|---|---|
| Q4 adjusted EPS | +14% to $7.69 | 60% from strong operating execution (segment income up $96 million), plus favorable income tax discretes, lower interest expense, and share repurchases. |
| Q4 aerospace sales | +10% to record $1.7 billion | 9% organic growth driven by strong aftermarket channel strength, with margins up 190 bps to a record 29%. |
| Q4 North America organic growth | -1% | Sequential improvement that beat expectations, with margins up 170 bps to 26.7% on operating execution, cost controls, and favorable mix in engineered materials and filtration. |
| Q4 international sales | +4% to $1.5 billion | Positive 1% organic growth (Asia-Pac +6%, Latin America +4%) while EMEA remained -3%. |
| Q4 international orders | Flat | Tough comps as significant long-cycle Q3 orders did not repeat, though order dollars were flat sequentially to Q3. |
Earnings call themes & trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Aerospace momentum | Three years of double-digit organic growth; record backlog building | Forecast ~8% organic growth in 2026 on MRO strength and gradual OEM recovery, with every quarter expected to be a record | strong but moderating growth rate |
| Industrial recovery | Negative organic growth environment | Poised for return to growth with ~1% organic guided, gradual recovery assumed and positive distributor sentiment | improving |
| Margin expansion / Win Strategy | Consistent through-cycle margin expansion | Continued expansion guided (40 bps) even with modest top-line growth, supported by slightly higher restructuring | improving |
| Portfolio transformation | Two-thirds longer cycle, secular, and aftermarket | Targeting 85% longer cycle, secular, and aftermarket by FY2029, aided by Curtis acquisition | advancing |
| Tariffs | Not a big deal last quarter | Managed with no impact to EPS via pricing, local-for-local footprint, and dual sourcing | stable / contained |
| Capital deployment | Disciplined and balanced | $1.6 billion repurchased in FY2025, leverage at 1.7x, capacity for further M&A of all sizes | active |
Q&A summary
What explains the sequential step down in EPS from Q4 to the Q1 2026 guide?
Q1 has very little sales growth and the year starts with recognition of significant stock compensation; even so, the $6.51 Q1 guide is up about 4%-5% year-over-year with 40 bps of margin expansion and would be a Q1 record.
What is Curtis Instruments' margin and growth profile and accretion path?
Margins were not disclosed and will be initially dilutive, but there is a clear path to accretion via the Win Strategy and synergies within three years (similar scale to Meggitt); Curtis has grown mid-to-high single digit historically and is expected to be EPS accretive in year one.
Why did international orders soften in Q4?
Q3 had very strong long-cycle orders in HVAC/refrigeration, power gen, and aerospace/defense that did not repeat; EMEA was slightly positive with strong energy, Asia slightly negative on tough comps, and order dollars were flat sequentially to Q3.
Why is 35% the right incremental margin assumption for 2026?
It reflects a gradual move to positive with only 1% organic growth on the industrial side (70% of the company); management views 35% as appropriate versus a typical 30% and wants to see how the year plays out rather than calling it conservative.
How is aerospace and defense growth composed for 2026?
Full-year aerospace organic growth is ~8% on MRO strength and gradual OEM recovery: commercial OEM low double digit, commercial MRO high single digit, and defense OEM and MRO both mid-single digit.
Why not annualize the strong $7.69 Q4 EPS into a higher full-year number?
The business runs 48% first half and 52% second half, with Q4 carrying the strong weighting; early-year compensation costs and still-challenged industrial top line mean the ~5% Q1 EPS growth and full-year guide better reflect normal seasonality.