Snapshot
Parker-Hannifin Corp reported $5.49B of revenue in Q3 2026, up 10.6% year over year, with diluted EPS of $7.06 and an operating margin of 20.7%.
- Revenue
- $5.49B
- YoY growth
- +10.6%
- Diluted EPS
- $7.06
- Operating margin
- 20.7%
What management said
- •I'd like to welcome everyone to Parker's fiscal year 2026 third quarter earnings release webcast.
- •Today's agenda has Jenny re-reviewing our record third quarter performance, then she will highlight two of our largest market verticals, that is aerospace and defense and transportation.
- •Q3 was a quarter of record performance enabled by the strength of our portfolio.
- •Our team delivered record Q3 sales of $5.5 billion, organic growth of 6.5% and 40 basis points of margin expansion, resulting in 26.7% adjusted segment operating margin.
- •Adjusted earnings per share grew 18%, year-to-date cash flow from operations was $2.6 billion.
- •Orders came in at 9% with a record backlog of $12.5 billion.
- •It is truly an extension of our engineering teams, providing solutions to all those small to midsize OEMs that are participating in capital spending and investment.
- •As a reminder, these six market verticals represent greater than 90% of the company's revenue.
- •2/3 of our revenue comes from customers who buy four or more technologies, and our growth is focused on faster-growing, longer-cycle markets and secular trends.
- •With the Meggitt acquisition, we increased our global footprint and are now very well equipped to serve current and future demand from OEM and aftermarket customers in the Americas, EMEA, and Asia.
- •Orders continue to outpace shipments, and we are on track to finish our fourth consecutive year of double-digit organic growth.
- •Lastly, we are seeing an increase in OEM orders for heavy-duty truck, our largest platform within transportation, and as a result, are increasing fiscal year 2026 sales guidance for this market.
What went well
- •Parker delivered record third-quarter sales of $5.5 billion with organic growth of 6.5% and 40 basis points of margin expansion, reaching a 26.7% adjusted segment operating margin.
- •Adjusted earnings per share grew 18% to a record $8.17, the first time quarterly adjusted EPS exceeded $8, and adjusted net income surpassed $1 billion for the first time at a 19.1% return on sales.
- •Aerospace had another strong quarter with sales up 15.5% to $1.8 billion, organic growth of 14.2%, margins up 80 basis points to 29.5%, order rates of +14%, and a record backlog of $8.4 billion.
- •Orders came in at 9% with positive order rates across all businesses and a record total backlog of $12.5 billion.
- •Year-to-date cash flow from operations reached an all-time record $2.6 billion (16.7% of sales, up 14%), and free cash flow rose 17% to $2.3 billion.
- •The board approved an 11% dividend increase to $2 per share, extending Parker's record of annual dividend increases to 70 years, alongside $275 million of share repurchases in the quarter ($825 million year-to-date).
What went wrong
- •Severe weather in Texas damaged Parker's Mineral Wells facility, which employs over 300 team members, and the company was still assessing the impact.
- •EMEA was flat and Latin America was down versus prior year in the international businesses.
- •Industrial incremental margins were softer than recent quarters, with North America and international organic growth coming in below forecast due to stronger lower-margin OEM mix; the quarter also required recovery from more weather-related disruptions than normal in North America.
- •Automotive demand challenges persist within the transportation vertical, agriculture remains under pressure within off-highway, and upstream oil and gas remains soft.
Guidance changes
| Metric | Period | Previous | Current | Change |
|---|---|---|---|---|
| Organic sales growth (full year) | FY2026 | 5% | 5.5% at midpoint | Raised |
| Reported sales growth (full year) | FY2026 | — | 7% | Increased |
| Aerospace organic growth | FY2026 | 11% | 12% | Raised |
| Transportation organic growth | FY2026 | Mid-single-digit decline | Low single-digit decline | Raised |
| Industrial growth (North America and international) | FY2026 | ~2% (international) | 2.5% | Raised |
| Adjusted segment operating margin | FY2026 | — | 27.2% (up 110 bps vs prior year) | Expansion |
| Adjusted EPS (full year) | FY2026 | — | $31.20 at midpoint (up 14.2%) | Raised by $0.50 |
| Free cash flow (full year) | FY2026 | — | $3.3B-$3.6B ($3.45B midpoint, ~100% conversion) | Raised |
| Full-year incremental margin | FY2026 | — | 40% | — |
| Q4 sales | Q4 FY2026 | — | Nearly $5.5 billion (up 5.5%) | — |
| Q4 organic growth | Q4 FY2026 | — | ~4% | — |
| Q4 adjusted segment operating margin | Q4 FY2026 | — | 27.4% | — |
| Q4 adjusted EPS | Q4 FY2026 | — | $8.16 | — |
| Q4 effective tax rate | Q4 FY2026 | — | 22% | — |
| Aerospace Q4 organic growth | Q4 FY2026 | 7.5% | ~9% | Raised |
| Commercial OEM (aerospace) | FY2026 | ~20% | Low-20s growth | Raised |
| Commercial MRO (aerospace) | FY2026 | Low-double-digit | Low-teens growth | Raised |
| Asia Pacific organic growth | FY2026 | Positive mid-single-digit | Positive high single-digit | Raised |
Performance breakdown
| Metric | YoY change | Reason |
|---|---|---|
| Total sales | Up nearly 11% | Organic growth of 6.5%, favorable currency of 2.5%, and acquisitions adding 1.5%. |
| Adjusted segment operating margin | Up 40 bps to 26.7% | Strong operating results and execution of The Win Strategy across the businesses. |
| Adjusted EPS | Up 18% to $8.17 | Higher segment operating income ($0.96), favorable income tax ($0.18 from discrete items), and favorable share count, partly offset by interest and corporate G&A. |
| North America sales | Organic growth nearly 3% | Strength in in-plant and industrial equipment, off-highway, and energy; margins up 10 bps to a Q3 record 25.3%. |
| International sales | Up 13% (3% organic) | Asia Pacific organic growth of +10%, while EMEA was flat and Latin America declined; margins up 20 bps to a record 25.3%. |
| Aerospace sales | Up 15.5% (14.2% organic) | Continued commercial strength in both OEM and aftermarket; margins up 80 bps to 29.5%. |
| Commercial OEM (aerospace) | Up 22% | Production rate increases in both narrow body and wide body. |
| Commercial aftermarket (aerospace) | Up 14% | Strong spares and repair shipments despite global air traffic growth beginning to normalize. |
| Defense OEM | Up 13% | Continuing demand for legacy programs. |
| Defense aftermarket | Up 8% | Fleet upgrades and service extensions. |
| Cash flow from operations (YTD) | Up 14% to $2.6 billion | Strong cash generation, an all-time record at this point in the year at 16.7% of sales. |
Earnings call themes & trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Aerospace and defense strength | — | Largest vertical at 35% of sales, on track for a fourth consecutive year of double-digit organic growth with record $8.4 billion backlog | rising |
| Industrial recovery (orders outpacing sales) | Order strength centered on longer-cycle verticals | Recovery broadening to both short and long cycle, six straight quarters of positive industrial orders | rising |
| Tariffs and price-cost management | Core element of The Win Strategy for over 25 years | Dynamic environment managed with no expected impact to earnings; tariff refunds treated as contingency gains | steady |
| Filtration Group acquisition | Announced November with six-to-12-month close window | Integration planning underway, still expected to close within 12 months; $220 million synergy target by year three | steady |
| Margin expansion confidence | — | Management repeatedly expressed confidence in continued margin expansion driven by lean and continuous improvement | rising |
| Distributor inventory behavior | Quoting activity strong, sentiment positive | Distributors ordering to demand for quick consumption with no signs of restocking | steady |
| Data center exposure | — | Approximately 1% of sales, growing fast via liquid cooling and subsystem components | rising |
Q&A summary
Mig Dobre (Baird) asked about any disruption from Middle East events and impact from the updated tariff framework.
Management said direct Middle East revenue is very small with no manufacturing, no material demand impact, and team members are safe. Tariffs remain dynamic but price-cost management is a strong 25-year muscle expected to have no earnings impact; tariff refunds will be treated as contingency gains, recognized only when received.
Mig Dobre (Baird) followed up on softer industrial incremental margins and any lag in implementing pricing.
Management said there were no delays or price-cost concerns. North America and international came in below forecast due to stronger OEM growth from off-highway and transportation, with distribution holding steady but not accelerating, plus more weather-related disruptions than normal; North America still set a Q3 margin record.
Jamie Cook (Truist) asked whether 40% incremental margins are sustainable longer term and about the cadence and confidence of strong industrial orders.
Management is focused on finishing FY2026 strong and holds teams to a 30%-35% incremental target while compounding EPS, deferring detailed FY2027 commentary. Orders were strong throughout the quarter with the industrial recovery continuing and more broad-based positivity across short and long cycle; nothing concerning was seen.
Jeffrey Sprague (Vertical Research) asked about the aerospace Q4 outlook and any OE-versus-aftermarket shift.
Management raised the aerospace Q4 forecast to approximately 9% (from 7.5%) with no slowdown baked in given record backlog. Q3 commercial OEM was up 22% and aftermarket up 14% (51% OEM / 49% aftermarket mix), with teams expanding margins despite higher OEM mix; backlog grew 5% sequentially to $8.4 billion.
Joe O'Dea (Wells Fargo) asked about the timing and integration priorities for the Filtration Group acquisition.
Management still expects to close within 12 months of the November announcement, subject to progressing regulatory clearances. Integration planning is underway with teams formed on both sides; $220 million of synergies (11%) are targeted by year three, mainly from lean supply chain and simplification. Todd added no pre-funding is required, leverage will not surpass three at close, and de-levering to around two will be faster than ever.
Joe Ritchie (Goldman Sachs) asked about the biggest levers for industrial margin expansion absent volume and whether FY2027 industrial growth could be a couple points better than FY2026.
Management said the key lever is commitment to lean and continuous improvement (Kaizen) across the organization, citing strong aerospace facility margins, and expressed high confidence in continued margin expansion. On FY2027, management declined to give a guide but noted Parker has been transformed into a less cyclical, faster-growing company with strong orders and is confident in guiding another record year.