PH - Parker-Hannifin Corporation

Operator: Good morning, and welcome to Parker-Hannifin Corporation's Fiscal 2026 First Quarter Earnings Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to turn the call over to Todd Leombruno, Chief Financial Officer. Please go ahead. Todd Leombruno: Thank you, Chloe. Good morning, everyone, and welcome to Parker's fiscal year 2026 First Quarter Earnings Release webcast. This is Todd Leombruno, Chief Financial Officer, speaking. And with me today is Jenny Parmentier, our Chairman and Chief Executive Officer. And always, we appreciate your interest in Parker, and thank you for joining us today. We address our disclosures on forward-looking projections and non-GAAP financial measures on Slide 2. Items listed here could cause actual results to vary from our forecast. Our press release was released this morning, along with this presentation and reconciliations for all non-GAAP financial measures. Those are available on our website under the Investors section on parker.com. The agenda for today has Jenny starting with an overview of our record FY '26 first quarter performance. She will share some highlights from our day 1 celebrations, welcoming the Curtis team members to Parker. Jenny will also then reiterate the strengths of our interconnected portfolio and share an example from our energy market vertical. I will follow Jenny with more details on our strong first quarter results, and then we'll both provide some color on our increase to our FY '26 guidance. After that, we will move to the Q&A portion of the call and address as many questions as possible within the hour. I now call your attention to Slide 3. And Jenny, I will hand it over to you. Jennifer Parmentier: Thank you, Todd, and thank you to everyone for attending the call today. Q1 was a great start to the fiscal year. Operational excellence was on full display, powered by the Win Strategy. We achieved top quartile safety performance with a 20% reduction in our reportable incident rate. This performance is aligned with our goal to be the safest industrial company in the world. Our team delivered record Q1 sales of $5.1 billion, organic growth of 5% and 170 basis points of margin expansion, resulting in 27.4% adjusted segment operating margin. Adjusted earnings per share grew 16% and cash flow from operations was $782 million. And we completed the acquisition of Curtis Instruments. Next slide, please. A long-standing practice within Parker is for a Parker leader to personally welcome the new team at every location. This slide shows pictures from our day 1 events held around the world, welcoming the Curtis team to Parker. This was a great day for all of us, and we are thrilled to have Curtis in the Parker portfolio. Next slide, please. Obviously, we are very proud of the Q1 results delivered by our team and equally excited about our future. So just a reminder on why we win. First, the Win Strategy is our business system. We have a decentralized operating structure, 85 divisions run by general managers with full P&L responsibility, acting like owners, close to their customers and executing the Win Strategy every day. Next, we have innovative products that solve customer problems, 85% covered by intellectual property. Our application engineers provide the expertise that allows us to have a competitive advantage with our interconnected technologies that provide efficient solutions for our customers. And finally, our distribution network is the envy of the competition and the best in the world. It took us over 60 years to build it, and it is truly an extension of our engineering teams, providing solutions to all of those small to midsized OEMs that are participating in capital spending and investments. These partners are experts at applying our interconnected technology. Next slide, please. We have the #1 position in the $145 billion motion and control industry, a growing space where we continue to gain share. These 6 market verticals represent greater than 90% of the company's revenue. Our interconnected technologies cut across these market verticals and give us a clear competitive advantage. 2/3 of our revenue comes from customers who buy 4 or more technologies, and our growth is focused on faster-growing, longer-cycle markets and secular trends. Next slide, please. This slide focuses on our presence in the energy market vertical. Parker is a significant supplier of products into heavy-duty gas turbines used for electrical power generation. We bring both proprietary designs and world-class manufacturing capabilities to offer a comprehensive suite of interconnected technologies. Parker supports multiple global industry-leading customers, and we are seeing significant growth in this space. This business is long life cycle with multiyear backlog and durable aftermarket. This is a great example of products and technology that are shared across aerospace and industrial markets. I'll hand it back to Todd to go through our first quarter highlights. Todd Leombruno: Thank you, Jenny. This was a great start to the fiscal year. I'm on Slide 9, and I will start with a summary of our Q1 results. Once again, and I love saying this, every number in the gold column on this slide is a record. It was just a fantastic quarter where mid-single-digit sales growth, combined with strong margin expansion, resulting in mid-teens EPS growth. Sales were up 4% versus prior. Organic growth was positive at plus 5%. Currency was favorable at 1%. And divestitures were 2% unfavorable. Those are the divestitures that we've previously completed. And I would just note, this is the last full quarter that we will have a full quarter of a divestiture impact. Moving to adjusted segment operating margins. As Jenny said, we did 27.4%, that's an increase of 170 basis points versus prior year. Adjusted EBITDA margin was 27.3%, that was up 240 basis points. And adjusted net income was $927 million or 18.2% return on sales. All of this drove adjusted earnings per share up 16% to reach a record $7.22 per share. It was a really nice start to the fiscal year with a strong quarter across the board, and it gives us confidence for the remainder of the fiscal year. Our global team members really continue to drive results enabled by the power of the Win Strategy. If we could jump to Slide 10, you'll see a bridge on the year-over-year improvement in adjusted EPS. The majority of our EPS growth came from continued strength across our operations as segment operating income dollars increased by $132 million or 10%. That contributed $0.80 to our EPS growth this quarter. Corporate G&A and other were favorable $0.18. That was primarily due to foreign currency exchange in the prior period quarter last year, that was unfavorable last year, that created a favorable for this year. Interest expense was also favorable by $0.07, and that's driven by lower average debt balances across the quarter and lower interest rates across the quarter. Share count was $0.13 favorable, and that was driven by the discretionary share repurchases that we completed over the last 3 quarters. Income tax was unfavorable by $0.16, and that was really simply due to a few favorable discrete items in the prior period that did not repeat. And that is basically it, a really clean bridge to the 16% increase in adjusted EPS. This record was really achieved by strong sales growth across the board, margin expansion and great adherence to cost controls across the company. If we move to Slide 11, we'll just talk about the segment performance. Orders were strong at plus 8% versus prior year, with order rates increasing across all reported segments. Organic growth came in at plus 5%. This was the first time in 2 years we've had positive organic growth across all of our businesses as diversified industrial organic growth turned positive. Every business delivered record adjusted segment operating margins, resulting in great incrementals and that 170 basis points of margin expansion. Looking specifically at the Diversified Industrial North America businesses. Sales were over $2 billion with organic growth positive at 2%. That's the first time in 7 quarters North America posted a positive organic growth number, that was better than our expectations going into the quarter. We continue to see gradual improvement across market verticals with positive growth driven by the aerospace and defense businesses in Industrial North America, in the implant and industrial equipment vertical and also improvement in off-highway that exceeded expectations. If you look at North America, they also had 170 basis points of margin expansion and reached a record 27.0% segment operating margin. That was really driven by higher productivity, some new business wins at great margins and margin mix with strong aftermarket across all those businesses in North America. And North American orders increased sequentially to plus 3% versus prior year. Looking at the Diversified Industrial International businesses. Sales were up. They were a record at $1.4 billion, up 3% versus prior. Organic growth remained positive at plus 1%. Looking at Asia Pacific, that was our strongest region with a plus 6%. EMEA remained down at minus 3% and Latin America was flat versus the prior year. So Asia Pac really drove the outperformance of growth in the international businesses. Adjusted segment operating margins were also a record at 25.0%, that is a 90 basis point improvement from prior year. And I can't say this enough, our international teams continue to show great resilience, they're driving margin expansion and its really great cost controls, and they're really executing the Win Strategy to great success. International orders rebounded, they improved to plus 6% after a flat Q4. Both EMEA and Asia Pac had positive orders this quarter. And lastly, Aerospace Systems, just another exceptional quarter from this group. Sales were a record $1.6 billion. That's an increase of 13% versus prior. Organic growth of 13%. That's the 11th quarter in a row that we've had double-digit organic growth rate in Aerospace. Commercial OEM is the strongest market segment growing 24% versus prior year. Adjusted segment operating margins increased by 210 basis points and, I'm proud to say, reached 30% for the first time ever. Record top line, productivity, continued aftermarket strength all drove the margin expansion. And Aerospace orders continue to be impressive, increasing plus 15%, and backlog also reached a new level -- record level for Aerospace. There's just robust demand, and that continues across all of our aero and defense markets. It's great to be in the Aerospace business right now. If we move to Slide 12, let's look at our cash flow performance. Cash flow from operations, a record $782 million, that's 15.4% of sales. That's up 5% versus prior year. Free cash flow is $693 million, that is 13.6% of sales. That is up 7% versus prior year. Cash flow conversion for the quarter is at 86%. I just want to remind everybody, I think everyone knows this, but our cash flow is historically second-half weighted. We remain committed to free cash flow conversion of greater than 100% for the year. And lastly, on this slide, we did repurchase $475 million of shares on a discretionary basis within the quarter. That is a wrap on Q1. And Jenny, I'm going to turn it back to you on Slide 14, and we'll move on to our updated fiscal year guidance. Jennifer Parmentier: Thank you, Todd. This slide shows our updated fiscal year '26 organic sales growth forecast by key market verticals. In Aerospace, we are increasing our forecast from 8% to 9.5% organic growth. We continue to see strength in commercial OEM and aftermarket. Implant and Industrial remains the same as our initial guidance at positive low single-digit organic growth. The sentiment does remain positive with continued quoting activity, while customer CapEx spending remains selective. Transportation is our most challenged market this year. Forecast stays the same at mid-single-digit organic decline. We are increasing the off-highway forecast from negative low single digits to neutral. We see gradual recovery progress in construction, while the ag challenges do persist. We are maintaining energy at positive low single-digit growth, with robust power gen activity offset by oil and gas. And we are increasing HVAC/refrigeration from positive low single digits to positive mid-single digits. We see strength in commercial refrigeration and filtration with some nice new business wins with our filtration technology. As a result of these changes, we are increasing our organic sales growth guidance from 3% to 4% at the midpoint. I'll give it back to Todd for some more guidance details. Todd Leombruno: Thanks, Jenny. I'm on 15, Slide 15, with just some of those details. In respect to reported sales, we are increasing the range to 4% to 7% or 5.5% at the midpoint. Currency is expected to be a favorable 1.5 points, and that is based on September 30 spot rates. Now that we have the acquisition of Curtis closed, we are including sales and segment operating income from Curtis in our guide. We have added $235 million to our guide for the remainder of the year, that is approximately 1% of sales. And divestitures that we've already previously completed are 1% unfavorable. If you move to organic growth, the forecast has now increased to a range of 2.5% to 5.5% or 4% at the midpoint. We have increased Aerospace organic growth to 9.5% at the midpoint. And for the Diversified Industrial segment, we have increased North America organic growth for the year to plus 2%. And for international, we still expect organic growth to be 1% at the midpoint. We are raising adjusted segment operating margins. We're raising that 50 basis points to 27.0% for the year. That is now a forecasted increase of 90 basis points versus prior year, and incrementals are now forecasted to be approximately 40% for the full year. Just a few additional items. Corporate G&A is unchanged at $200 million. Interest expense has been increased by $30 million, we now expect $420 million for the full year. And that is driven solely by the funding of the Curtis acquisition. And other expenses just slightly up to $90 million from $80 million last quarter. Our full year tax rate, we expect 22.5%. And we are raising adjusted earnings per share to an even $30 at the midpoint. That would be a 10% increase versus prior year. The range on that EPS is plus or minus $0.40 on either side, and the split is 48-52 first half, second half. In respect to full year free cash flow, we're also raising our guidance there to a range of $3.1 billion to $3.5 billion, with conversion, like I said, greater than 100%. And finally, looking specifically at Q2 for FY '26, we expect organic growth to be -- or excuse me, reported sales are expected to be 6.5%. Organic growth is expected to be 4%. Adjusted segment operating margins, 26.6%, and EPS for the second quarter on an adjusted basis is $7.10. As usual, we have the -- some additional details in the appendix. And really just in summary, FY '26 is off to a great start. That gives us confidence to raise full year guidance for sales margin, EPS and free cash flow. With that, I ask you to move to Slide 16, and Jenny, I'll turn it back to you. Jennifer Parmentier: Thanks, Todd. And a reminder on what drives Parker. Safety, engagement and ownership are the foundation of our culture. It's our people and living up to our purpose that drives top-quartile performance, that allows us to be great generators and deployers of cash. Thank you. Todd Leombruno: All right. Chloe, we are ready to begin the Q&A session. So we'll take the first question. Operator: [Operator Instructions] We'll take our first question from Julian Mitchell with Barclays. Julian Mitchell: Just wanted to start off perhaps with the organic sales picture in the DI North America business. Maybe help us understand a little bit better the cadence of demand. It did seem to surprise you positively, I think, in the quarter. How has demand moved there in recent months? And then when we're looking at the full year guide, I think your midpoint for DI North America doesn't embed any acceleration from the September quarter growth rate. Just wondered the thinking there. Jennifer Parmentier: Okay. Julian, so yes, we're very pleased with the performance. We had guided to a negative 1.5% and came in at a positive 2%. So North America performed better than expected with the Aerospace and Defense business it sits inside of our Industrial businesses, distribution, HVAC and electronics. Construction continued to outperform versus our expectations. And margin expansion from a higher productivity on slightly stronger volume really helped us. We had some project wins at attractive margins, and we're getting a margin mix benefit with the lower industrial OE and a very resilient aftermarket. So you are right, we do expect Q2 to be much like Q1 coming in at 2%. So that was prior, as Todd stated, for the year, we were looking at a total of 1%. So as I was just talking about, what we saw in Q1, we do believe that industrial aerospace and defense world remains strong. We're still talking about a gradual Implant Industrial recovery. Certainly positive sentiment from our distribution channel continues. Quoting activity is good. But as I commented earlier, still customers are being very selective on their projects and their CapEx spending. We still see transportation challenges in automotive and trucks. So we don't expect a truck recovery this fiscal year, but we will see some benefit from the aftermarket. In off-highway, gradual recovery progress in construction, but ag challenges still persist. Energy, power gen, robust. But oil and gas upstream still weak. And we're -- HVAC and refrigeration, we're coming off a very strong fiscal year, and we have increased that for the rest of the year. So while some markets are increasing, not all of them are, and that's why we see Q2 pretty much the same as Q1, but an increase for the total year. Todd Leombruno: Julian, I would just add, Jenny covered the organic growth piece perfectly, but I would just add, on a margin standpoint, we did increase Diversified Industrial North America margins 70 basis points for the full year versus our previous guide. So the teams are converting on that, and I have great confidence that we'll be able to do that. Jennifer Parmentier: Yes. And Q2 margin is 150 basis points higher than the prior year. Todd Leombruno: Correct. Julian Mitchell: That's helpful. And just following up on that last point perhaps, so I understand that you've had a higher margin performance year-on-year for the total company than is guided for the full year. I assume that's just sort of natural conservatism given we're early in the year. I wonder if there was any other factors to think about. And allied to that, your Q2 EPS guide is a decline sequentially, which is quite unusual in Q2. Any color on that, please? Jennifer Parmentier: So I think we left the second half pretty much alone. So based on what we see today, we feel really good about Q2. And I think we'll have a better line of sight here after the first of the year. Todd Leombruno: Yes, Julian, Q2, sequentially, it usually is our softest top line. I think the EPS is just pulling off of that. Nothing out of the normal that we see. Operator: We'll move next to Mig Dobre with Baird. Mircea Dobre: I would like to talk a little bit about Industrial International. The orders there were quite good and, frankly, better than what I would guess. A little bit of update in terms of what you're seeing in various geographies. And related to this, if I look at the past 4 quarters, I think your order intake averaged about 5%. So it's quite a bit better than what you have embedded in your forward outlook for organic growth. So I'm kind of curious at what point in time do you start to see these higher orders really flow through organic growth in the segment. Jennifer Parmentier: So with Industrial International orders, they've been really choppy as we often say. If you go back to our Q3, we had a plus 11%, and then Q4, we went flat. And that was because we had some onetime long-cycle orders that didn't repeat in Q4. So it's really not an average of about 5%. So what we're seeing in the region is, if we look at EMEA, we're showing flat to slightly positive organic growth for the fiscal year. There's uncertainty that's remaining, and we're expecting a slow in-plant industrial recovery. We do expect to see some growth in energy. We are seeing some mining recovery underway. And we do think that there'll be some pickup from the stimulus in future defense spending, but that's not something that we think we're going to benefit from this year. So what we see in EMEA is really to remain flat to slightly positive with what we see on the orders right now. In Asia Pacific, we have positive low single-digit organic growth for the fiscal year. We continue to see strong electronics and semicon demand. Implant is mixed as delays continue in China, but we do see some slight growth in India and Japan. Seeing some mining and transportation improvements in China, but I think there's still some continued uncertainty from tariffs across this market. So this is what we're seeing today on Industrial International. I mean we look forward to the time when this will be a higher organic growth. Mircea Dobre: Understood. My follow-up, and I don't know if you can answer this question, Jenny, it's kind of in the weeds. You talked about the ag market where challenges persist. But I do wonder, in terms of your exposure, if you sort of separate out the large ag equipment, so high-horsepower tractors combines versus midsize and in lower horsepower, I'm just wondering kind of what your exposure looks like there because I am starting to see a bit of a divergence forming where, large ag, as you say, it's challenged, but some of these smaller tractors are starting to grow in terms of volumes, and the volumes are actually much higher in lower horsepower equipment than large ag. So I'm wondering if this end market might turn a little bit sooner than maybe we're thinking about when we're thinking about large ag. Jennifer Parmentier: When we talked about last quarter, I made the comment that we thought that, that market had kind of hit trough. And I would say it's broad-based when we look at ag between that equipment. But you can certainly follow up with Jeff on maybe for more details in one of the follow-up calls. Todd Leombruno: Yes. Mig, I would just add, when we look at ag, it's 4% of total company sales. So it's just become a smaller piece of the total pie. It is broad-based. There's aftermarket, there's the OEM side of it. So I don't know if I'd read too much into movements there. Operator: We'll take our next question from David Raso with Evercore ISI. David Raso: Of the organic guide raise, how much was volume versus a change in price? And of the 50 bps margin improvement, can you give us a sense of how much of that may be related to the answer to the first question, volume improvement versus maybe price/cost different than you originally expected for the year? Jennifer Parmentier: David, well, as you know, we don't disclose pricing. Regardless of pricing or volume, I think that we've shown that we can expand margins pretty much in any climate. We have had 2 years of negative industrial growth and we're seeing the gradual industrial recovery playing out with industrial organic growth now positive in Q1. So we're definitely seeing the impact of slightly stronger volume. Operator: We'll move next to Scott Davis with Melius Research. Scott Davis: I've got to ask about M&A. I probably do a lot of quarters, but I'm going to lead with it anyways because it's been a few years since you closed Meggitt and, obviously, that's such a great deal for you guys. But Curtis seems like an interesting deal too, it's just not as big as maybe some of those others. So can you just update us on your pipeline and such? Jennifer Parmentier: You bet. So obviously, we're committed to actively deploying our capital. And as you mentioned, we did close Curtis Instruments in September, and we're really excited about that. And moving forward, the strategy remains the same with plenty of optionality. So when it comes to capital deployment, obviously, we prefer acquisitions, but it has to be strategic and disciplined. You've heard me talk about this criteria before. And I would tell you that the pipeline, the relationships and the analysis continues to be very active. While sometimes timing is hard to predict, we are working it. And we want to continue to acquire companies where we're the clear best owner. And we feel like we have a strong competitive advantage with our interconnected technologies, and that's what we want to add to the portfolio. So still looking for those deals that are accretive to growth, resiliency, margins, cash flow and EPS. And as I've said many times before, the pipeline has deals of all sizes. Operator: We'll take our next question from Amit Mehrotra with UBS. Amit Mehrotra: So obviously, it was, I guess, nice to see the order improvement. Jenny, a quick question about just the broad basis of that. I mean are we seeing a broader activity in pickup? You also won -- I think I saw that somewhere you guys won a large contract to supply components for aero-derivative gas turbines. I'm just trying to get a sense of are we seeing broad-based green shoots here? Or is it mostly explained by the longer cycle pockets that kind of have been working for a while? Jennifer Parmentier: We have the longer-cycle pockets, but then we're also seeing some improvement in some of our other key verticals. So when you look at the change that we had in the guide this month, we took -- obviously, we took aerospace and defense up. We also moved off-highway from negative low single digits to neutral, and we increased HVAC and refrigeration from low single digit to positive mid-single digits. So we are seeing some pockets within those industrial businesses where we're seeing some growth. Amit Mehrotra: Okay. And the other question I have is on Aerospace margins, obviously just really good. One thing I noticed is obviously the incremental margins being so high despite OE revenue up 20%, which I would imagine would be a little bit mix-dilutive. As the OE build cycles continues to improve, can we talk about what the mix impact is on aero margins going forward? Because it seems to like defy gravity in the quarter. Jennifer Parmentier: Yes. Well, we did have 51% OEM and 49% after margin in the quarter, and we do anticipate that that's going to be the mix for the rest of the year. Aero margins are very strong in Q1, and we had a nice bit of spares in Q1, which is really nice margin for us. So that helped us reach that record 30%, hit 30% for the first time. Going forward, we're very confident in our ability to maintain the margins where we've been and go forward with strong margins. If you look at what we did with the guide, we have full year at 29.5% now. That's 100 basis points higher than prior year, and that was raised 60 basis points from the initial guide. Q2, we're forecasting 29.1%, and that's 90 basis points higher than previous year. So we're in a good spot with aerospace. Our teams are doing an excellent job executing the Win Strategy and really benefiting from this volume. Operator: We'll move next to Jeff Sprague with Vertical Research Partners. Jeffrey Sprague: Can we just cut a little further in the aerospace? And also, Jenny, maybe just a little bit of color on kind of how you see the defense side playing out in 2026 versus the commercial side? Any change of thinking there? Jennifer Parmentier: So Jeff, I'm sorry, what was -- so you wanted dig deeper into aero, especially defense, right? Jeffrey Sprague: Yes, I want to kind of get a sense of defense versus commercial mix and how that's playing and if that's changed versus your initial view. Jennifer Parmentier: Yes. We came out with mid-single-digit growth for both defense OEM and MRO, and that's the same. We haven't -- we're not forecasting any change there. Jeffrey Sprague: Great. And then just on Curtis, I think it comes in a bit margin dilutive, it's not apparent given kind of all the other execution and everything that's going on. But can you just kind of give us a little color on at the margin rate it comes in at the work you're doing to integrate it? And any thoughts on kind of how it might be positioned into next year after you've got it kind of fully digested? Todd Leombruno: Yes, Jeff, this is Todd. I can take that. I mentioned earlier, we added about $235 million of sales into the guide. You're right, it is slightly dilutive. But it's smaller, so it doesn't really have an impact. You can see we did raise both North America and International margins for the full year, even after including Curtis into the mix. If you're looking for a number, I would say, high teens, low 20s would be a good number to use. It does add -- it is EPS accretive in a stub year even. You saw that we added $30 million for interest there. And it's only been a little over a month. The team is super excited about it. Jenny mentioned the welcoming day, and I can tell you they're working really hard to integrate and make this part of Parker, just like we have on the last deals. Jennifer Parmentier: I would just add to that, as Todd said, the integration is well underway. Very similar. We've assembled a dedicated integration leader and a team of high-talent team members, and this is how we ensure a very smooth integration. Operator: We'll move next to Joe Ritchie with Goldman Sachs. Joseph Ritchie: Jenny and/or Todd, is there a way that you could maybe size the opportunity on Slide 7 or give some color just around like what the growth rates have looked like? I'm just curious how to think about this business for you guys going forward. Jennifer Parmentier: Well, I don't think we're in a position to go over the growth rates. But what's great about this power gen business is that we do have this suite of interconnected technologies for power gen applications. And you can see on that slide all the different examples of the products that we have. And it's just a very robust order book, like I commented multiyear. We expect solid growth for years to come. And we're working with all of the leading industry customers. So while this market vertical makes up about 7% of our sales and power gen is about half of that, it's a small percent overall, but a very nice growth area for us. And we expect to, not only continue to win in this market, but really benefit from it. Joseph Ritchie: Yes. No, that's great to see, and glad that you guys highlighted it. Other quick question, I know that we won't be talking specifically around pricing. But in an environment, let's say, where you do see some of these tariffs potentially getting rolled back. Like how does that impact the pricing that you've already put through? And then ultimately, is that another potential boost to margins if we do see some pullback on tariffs? Jennifer Parmentier: Well, obviously, as we've talked about tariffs, we have the analytics and the processes to navigate and act quickly up or down. And we had to do a lot of that over the last several months. And the teams have just done a fantastic job. So we're -- we have a strong muscle when it comes to pricing and to price/cost, and we'll adjust as we need to. But as I've stated time and time again, we can't use tariff as a margin expansion device. This is something that we have to recover from a cost standpoint, and we'll adjust as we need to, going forward. Operator: We will take our next question from Joe O'Dea with Wells Fargo. Joseph O'Dea: Wanted to start on the North America implant side of things and what you're seeing from customer activity or what you're hearing from dealers with respect to greenfield and brownfield investment in the U.S. And then around that, whether you're getting any color on the nature of those investments and kind of local for local or you're seeing more kind of foreign participants looking to invest in the U.S. Jennifer Parmentier: Yes. I don't have the detail too much for local for local versus foreign investment. But I would tell you, my comment earlier about the CapEx being selective, I do believe it's still selective. But in the past, we were just talking about delays and delays. And obviously, we saw a stronger area there through distribution and implant in Q1. So we're seeing some things get across the line and projects get started. But I don't have a specific breakdown for you at this time. Joseph O'Dea: And then on the HVAC side of things and seeing some strength in commercial refrigeration and filtration, I think you talked about some nice new wins in filtration. Can you just expand on that a little bit in terms of verticals you're serving there, where you're seeing some of that strength? Jennifer Parmentier: Yes. We've had some nice filtration wins when it comes to gas turbines. We have some proprietary technologies, really nice filtration products in the energy market. And then we've also had some night filtration wins on the -- actually on the mobile side of the business as well. So it's been a growth area for our filtration group this past year. Operator: We'll move next to Christopher Snyder with Morgan Stanley. Christopher Snyder: So obviously, North America Industrial turned organic positive in the quarter. I'd imagine there's some benefit of incremental price, and it does sound like some of the longer-cycle verticals kind of helped that. But I guess my question is, when you look at North America industrial, the more cyclical pieces, do you feel like the cycle is starting to get better? Jennifer Parmentier: Yes, I would definitely say that Q1 is evidence of that, right, and especially those key market variables where we've increased our outlook for the year. So yes, I would definitely say we're starting to see that. Todd Leombruno: Yes, Chris, I would just add -- I was just going to add, Chris, that we've talked about inventory across the channel, and we feel that it's kind of at a trough level. I can't say that we've seen a restocking yet, but it feels like we're closer to that than going the other direction. Christopher Snyder: Yes. No, happy to hear that. You've talked about implant as being one of the industrial verticals doing well showing momentum. Do you have any color to provide on how that business did in the U.S. versus the international markets? Just to get a sense if some of the policy is driving activity into the U.S. Jennifer Parmentier: In North America, as I commented before, it's a gradual Implant Industrial recovery. But as Todd was just saying, although we don't see restocking yet, we still have that very positive sentiment from our distribution channel and a lot of quoting activity. When we talk about EMEA, it's still some uncertainty that remains. So we're expecting a slow Implant Industrial recovery. When we look to Asia Pacific, it's kind of mixed. Delays continue in China, but there's been some growth in India and Japan. Operator: We'll take our next question from Jeff Hammond with KeyBanc Capital Markets. Jeffrey Hammond: Maybe just at the Analyst Day, you called out data center, and I know, clearly, power gen probably benefiting from that. But maybe just update us on what you're seeing on the liquid cooling side. Clearly, we're seeing some pretty mind-boggling order rates from certainly peers, et cetera. Jennifer Parmentier: Yes. So we do have a nice exposure, and we are seeing rapid growth. But this is not yet large enough for us to call it its own market vertical. It still makes up less than 1% of our sales. But again, this is something what I feel is unique about Parker, and it's these interconnected technologies and its competitive advantage. We can provide great value to our customers in this space. We have the products that they need for the data center cooling, and we have been working with all the industries there. So our ability to provide liquid cooling systems and subsystem components has really given us, I think, a nice position here. Jeffrey Hammond: Okay. And just a couple of housekeeping. One, on the Curtis revenue, can you give us a split between North America and International, kind of how that flows through the 2 segments? And then just you've been more active on buyback. I'm assuming the guide doesn't build in any more buyback, but correct me if I'm wrong. Todd Leombruno: Yes, Jeff, I'll take those. The sales is split almost 50-50 North America and International. I think we'll refine that as we get further on in the integration process. But right now, it's kind of how we're modeling it. And then you're right, over the last 3 quarters, we have done some share buyback. I think we finished the quarter with a net debt to adjusted EBITDA of 1.8. So we're well below our target of 2. That's even after funding the Curtis transaction. We haven't forecasted any additional. You heard Jenny talk about the pipeline. So we're -- that's always a balance of actionability and timing on that. But I would just restate what Jenny said, we're going to be active when it comes to deploying the balance sheet. Operator: We'll move next to Andrew Obin with Bank of America. Andrew Obin: Just a follow-up on all these exciting new verticals, power, AI, just any thoughts, how do you think about, a, available capacity at your technology portfolio to ramp and expand your presence in these markets over the next several years? How much room is there to sort of grow organically or for bolt-ons targeting these specific high-growth verticals that are seemingly new versus where we were for the past decade? Jennifer Parmentier: Yes. Good question, Andrew. So we -- obviously, as I was saying, we've been working with some of the names everybody would recognize when it comes to data centers. And we've been working very closely with them globally to understand the capacity that is needed for our products. And it's another good example of how having this global footprint really helps us because we can partner with these customers in the regions where they need us. In some cases, we can add shifts and add capacity. And in other cases, there's some other capacity increases that we'll have to do. But nothing significant expense or nothing that doesn't have a real nice return to it. So constantly evaluating it and making sure that we're staying a bit ahead of it as we always do. So we can really give them a good delivery and quality experience. Andrew Obin: As we're sort of sitting at the bottom of the cycle, how do you think about the ramp over the next several years? And specifically labor availability, the need to train the labor and any sort of inefficiency as we go from multiple years of limited no growth to actually growing, how do we make sure that the ramp is smooth. Jennifer Parmentier: Yes. We rely heavily on our tools sitting inside of the Parker Lean System and on our culture of Kaizen. That's where we really do get a lot of our efficiency improvement. And the way that we work with Kaizen and the way that we work with our teams, we established how our production line, power assembly cells can operate at different volumes and what that takes from a labor standpoint or flexing at other areas of the factory. So in many cases, we've been able to do that without adding team members. And in other cases, we will add team members as needed. But we put a lot of energy into onboarding and training new team members, and I think we have some really robust programs when it comes to that. So I think we're in a good position. Todd Leombruno: Andrew, this is Todd. I would just add, we did bump up our CapEx forecast for the year. It's higher than we've been historically. A lot of that is going towards automation, safety-related items, capacity in certain regions where needed. So we are -- I think we're being thoughtful about it, and I think we are, obviously, we're preparing for growth. Operator: We'll take our next question from Nicole DeBlase with Deutsche Bank. Nicole DeBlase: Just maybe circling back to the really impressive Aerospace margin performance this quarter. If we kind of look at what you guys are forecasting for the rest of the year, there is a bit of a step-down versus the 30%, and I know that's a really robust result. But is that just because of the mix within the mix with what you said, Jenny, around spare shipments? Jennifer Parmentier: Yes. Spares are hard to forecast. So yes, that would be the biggest part of it, Nicole. For Q2, we have margins at 29.1% for Aerospace, which is a 90 basis point increase year-over-year, and obviously an increase from our initial guide. Nicole DeBlase: Okay. Perfect. That makes sense. And the incremental stepping up to 40% also really good to see. I know kind of the previous long-term target or what's baked into the longer-term 2029 target is closer to 35%. Could this possibly be a new norm for Parker given how strong margin performance is? Or do you still think it's best for us to kind of anchor to the 35% or so in forward years? Todd Leombruno: Yes, Nicole, this is Todd. I'm glad to see those incrementals, they are very much impressive. As you know, they're not easy to get. There's a lot of work around the globe that happens to turn out these great results. Sometimes it's a little easier when the sales are -- the math works a little funny when the sales growth is not enormous. But you've seen our margin expand. You've seen our EBITDA expand. But as far as what we hold our team to, we modeled that 30% to 35%. Of course, it varies depending on where you're at in the cycle. But I don't think we're ready to change that guidance yet. Operator: We'll take our next question from Brett Linzey with Mizuho. Brett Linzey: First question just on construction. So you noted the gradual recoveries. Is this predominantly the MRO piece of that business? Or are you beginning to see a little bit of load-in from OEMs as they're seeing some dealer increases? Jennifer Parmentier: I think it's both. Brett Linzey: A little bit of both? Okay. And then just to follow up on that last question regarding the fiscal '29 targets. So the adjusted op target was 27%. The top end of the guide this year is 27%. So basically got there 3 years early. Should we think of this year as the new bouncing-off point and you're comfortably marching above that? Or is there something about mix or discretionary costs that might need to come back? Jennifer Parmentier: Well, listen, we're really pleased to see what the team was able to accomplish in Q1 and very happy to be able to increase our organic growth forecast outlook from 3% to 4%. We do still have some markets that need to recover. And we think that what we have out there in the guide right now reflects what we see today. Obviously, we could not have achieved this 27% adjusted operating margin without the hard work and dedication of our team. But just a reminder, with the FY '29 target, adjusted operating margin is not the only target, and we're focused on achieving all 5 of those targets. There's still work to do there, but we're confident we're going to get there. Operator: We will take our next question from Nigel Coe with Wolfe Research. Nigel Coe: We've got a lot of grounds, but I did want to go back to the Aero margins. And I'm actually wondering, is there a way to think about legacy Parker Aero margins and Meggitt? And through other question is I'm trying to judge how much more runway there might be to operationalize the Meggitt margins. Todd Leombruno: Nigel, this is Todd. That integration has gone unbelievably well. We have certainly made that part of the Parker operating strategy. It is really hard to tell the difference between the legacy margins now and the Meggitt margins now. A lot of the synergies really came from across the group. And quite honestly, that's not the way we're really running the company now. It's not Parker Meggitt and Parker Aerospace, it's Parker Aerospace. I would tell you they're both stellar, hitting 30% for the first time. It was equal parts of both. And we've got a very great future there. Nigel Coe: Yes. I think that's the right answer, by the way. And then on -- going back to power gen. I think, Jenny, you mentioned, or maybe it's you, Todd, that roughly half of that 7% is power gen. So I'm actually curious, when would you think about breaking it out as a separate reportable subsegment. It seems to be getting to the same sort of size of HVAC. So just curious on that. And then any more color you can provide on the exposures in there? I'm curious the heavy-duty exposure versus the aeros and maybe some of the smaller gas turbines? Sorry for the detail, but it would be interesting to know that. Jennifer Parmentier: Yes. So -- what was the first part of your question? Todd Leombruno: Breaking down the difference. Jennifer Parmentier: The difference. We don't look at the percentage on the market verticals as to where we can break out some subsegments. We haven't gotten that far yet. So I really don't have a number in mind where it would become its own market vertical. Obviously, we're very bullish about the future of power gen. So it's something we continue to evaluate. But energy is an area -- all types of energy we think belongs together. So no real plans to break that out yet. And I would say maybe in a follow-up with Jeff, you could look at some of the other details that you were asking for. But I don't have that available for you right now. Operator: We'll move next to Nathan Jones with Stifel. Nathan Jones: I got a quick follow-up on the gas turbine business. If I remember correctly, many years ago, probably up to nearly a decade ago, the OEM margins on at least some of the components that went into the gas turbine business were pretty low and the aftermarket margins were pretty high. Just wondering if that's still the case and there might be a little bit of a drag as the OE side of that ramps up? Or if that dynamic has changed over the last decade? Todd Leombruno: Yes, Nathan, this is Todd. When you go back and try to compare Parker to a decade ago, it's very difficult. It's a totally different company. The margin expansion is significant. You see that. Every one of these business has been part of that margin expansion. We still have the mix between aftermarket and OEM margins. I would say that that's probably always going to be like that. There's nothing here in power gen that dramatically sticks out that it's lower than the rest of the OEM aftermarket mix. Nathan Jones: Fair enough. And then I had one follow-up on Mig's question earlier on the longer-cycle Industrial International orders. Any color you can give us around what drove those? I know they were maybe 4Q last year that they came in. And Jenny was giving us some cadence on how that doesn't phase in, I guess, to revenue this year, but any color you can give us on when that starts to contribute to growth in International? Jennifer Parmentier: So the longer-cycle orders that we had in Q3, I believe that were in our Engineered Materials business. And that longer cycle could be anywhere from 6 to 12 months. I don't have the details committed to memory on exactly what those were. But they did not repeat in Q4. So longer cycle, longer demand sense, anywhere between 6 and 12 months, I would say. Todd Leombruno: Chloe, this is Todd. I think we've got time for maybe one quick, positive last question, if you could put whoever's next in the queue. Operator: Absolutely. We'll take our last question from Andy Kaplowitz with Citi. Unknown Analyst: This is actually Jose on for Andy. Maybe to wrap it up. You've talked in the past about mega projects and how they could potentially impact Parker. Curious if you could talk about how customers are moving forward with the mega projects? What are you guys listening from your distributors? And how are you approaching that trade-off between there's still a lot of larger projects out there versus a somewhat still uncertain macro environment? Jennifer Parmentier: Yes. And when I was talking about our distribution channel and how they serve all those small to midsize OEMs on capital investments and CapEx, those definitely are those megaprojects. So we still see a very large amount of them out there. We still do hear that there are delays. But there's obviously some of these that are starting to kick off and they're mainly focused on customers looking for productivity and efficiency. And that's what we're hearing from our channel that supports those customers, and that's where we believe most of that is happening today. Todd Leombruno: Chloe, I think we're running out of time. So this concludes our FY '26 Q1 earnings release webcast. Like I said earlier, we appreciate everyone's attention and their time. We thank you for joining us today. Our Investor Relations team of Jeff Miller and Jen Specky will be available for the rest of the day if anyone has any follow-ups or needs clarification. So thank you all, and have a great day. Operator: This concludes today's call. We appreciate your participation. You may disconnect at any time, and have a wonderful afternoon.

Operator: Good morning, everyone. Welcome to the Parker Hannifin Corporation's Fiscal 2025 Fourth Quarter and Full Year Earnings Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to turn the call over to Mr. Todd Leombruno, Executive Vice President and Chief Financial Officer. Please go ahead, sir. Todd M. Leombruno: Thank you so much, Bo. I'd like to welcome everyone to Parker's fiscal year 2025 Fourth Quarter and Full Year Earnings Release Webcast. As Bo said, this is Todd Leombruno, Chief Financial Officer speaking, and with me today, as usual, is Jenny Parmentier, our Chairman and Chief Executive Officer. We appreciate your interest in Parker, and we thank everyone for joining us today. On Slide 2, we 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, this presentation and reconciliations for all non-GAAP measures were released this morning and are available under the Investors section on our website at parker.com. The agenda for today has Jenny starting out with the highlights to our record fiscal year 2025 performance. She will then reiterate the strength of our transformed portfolio, the power of The Win Strategy, which is our business system, that drives performance in all economic climates, and then she'll provide some color on our recently announced acquisition of Curtis Instruments. I'm going to follow with a few details on our strong fourth quarter financial results. We did release our initial FY '26 guidance this morning, and we will discuss the assumptions, and provide some color on what we expect to be another record year for Parker. We'll conclude the call with a normal question-and-answer session, and we will do our best to take as many questions as possible. Now I would ask everyone to call your attention to Slide 3, and Jenny, the floor is yours. Jennifer A. Parmentier: Thank you, Todd, and thank you to everyone for joining the call today. 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. Top line sales finished at $19.9 billion, and this team achieved record adjusted segment operating margin of 26.1%, an increase of 120 basis points to prior year, and record adjusted EBITDA margin of 26.4%, an increase of 80 basis points to prior year. 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. Next slide, please. 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. Today, we enjoy a balanced and diverse Aerospace portfolio. We finished FY '25 with 51% of our sales from serving the aftermarket, and 49% from serving our OEM customers. Looking back to FY '19. I'd like to recognize our Aerospace team for navigating and managing through numerous industry challenges, successfully integrating the Parker and Meggitt Aerospace businesses together, and staying focused every day on the safety of our team members and improving the experience for all of our customers. The performance is impressive. Sales are approximately 2.5x higher, and we are on track to expand adjusted segment operating margin by 940 basis points from fiscal year '19 through our fiscal year '26 guidance, and we're not done yet. Our comprehensive offering of proprietary designs on premier programs, and our global footprint that supports a diverse customer base, well positions us for sustained growth and operating performance. Next slide, please. The Industrial segment of our business has been a large part of our transformation and margin expansion story. Fiscal year '25 delivered record adjusted segment operating margin of 25.1%, a 90 basis point increase over prior year. Using The Win Strategy, our teams are on track to deliver 700 basis points margin expansion from fiscal year '19 through our FY '26 guide. This is a testament of our ability to expand margins through the cycle, even in periods of negative organic growth. Our powerhouse of interconnected technologies, global distribution network, and global manufacturing footprint, our competitive advantages that will drive growth from secular trends across the market verticals. Our portfolio today is well balanced. Two-third is now longer cycle, secular trend and aftermarket. We are poised for a return to growth. Next slide, please. Once again, the transformation of our portfolio further expanded longer cycle and secular revenue mix in fiscal year '25. Acquisitions in both Aerospace and Industrial, along with international distribution growth, have greatly contributed to this transformation. We see this transformation continuing and expect 85% of our portfolio to be longer cycle, secular and aftermarket by fiscal year '29. Next slide, please. And on June 30, we announced our intent to acquire Curtis Instruments, further expanding our electrification offering and secular revenue mix. Curtis is the leader in low-voltage motor control solutions for zero emission and hybrid mobile equipment. This acquisition will add a complementary suite of control solutions to pair with Parker's electric motor and motion control portfolio. This will further enhance our capabilities for in-plant and off-highway applications. Curtis has a strong market position across diverse and growing end markets. These are markets that we know, customers we have relationships with, and products that will be a great addition to our portfolio. We expect to close by end of the calendar year, and we look forward to welcoming the Curtis team to Parker. Next slide please. And a reminder on why we win. First, The Win Strategy is our business system. We have a decentralized operating structure, 85 divisions run by general managers with full P&L responsibility, acting like owners, close to their customers, and executing the Win strategy every day. We have innovative products that solve customer problems. 85% covered by intellectual property. Our application engineers provide the expertise that allows us to have a competitive advantage with our technologies to provide efficient solutions for our customers. And finally, our distribution network is the envy of the competition and the best in the world. It took us over 60 years to build it, and it is truly an extension of our engineering teams, providing solutions to small and mid- sized OEMs. These partners are experts at applying our interconnected technologies. I'll now turn it back over to Todd to go through our fiscal year 2025 highlights. Todd M. Leombruno: Thank you, Jenny. FY '25 was really a strong year. I'm going to try and quickly wrap up FY '25 with the Q4 results, and I'm on Slide 10. Fourth quarter was another record-setting quarter. In fact, every number on this page is once again a record. It was another quarter of continued margin expansion and a quarter of double-digit EPS growth. Really impressive considering that sales were up just 1% versus prior year. Organic growth was positive at 2%. That's the highest we've been all fiscal year. Currency did turn favorable at 1%, and the divestitures that we previously announced throughout the year were 2% unfavorable to total sales. Adjusted segment operating margin was 26.9%. That's up 160 basis points from prior year, and adjusted EBITDA margin was 26.8%. That's an increase of 50 basis points from prior year. Adjusted net income was almost $1 billion, was $992 million in the quarter. That was an 18.9% return on sales. And adjusted earnings per share were up 14%, and they reached $7.69 per share. Just a fantastic quarter, really from all the businesses, resulting in the best performance that we've had this fiscal year for sales, for organic growth, for adjusted segment margins and for adjusted EPS. We'd really like to thank our global team for a strong finish to the fiscal year. We talk about this a lot internally, finishing strong and everyone certainly delivered. If you could move to Slide 11. This just highlights the components in the year-over-year improvements and adjusted EPS, what I'm proud to say here is 60% of the improvement in EPS in the quarter came from strong operating execution. Segment operating income dollars are up $96 million, or 7%. That was $0.56 of our improvement. Income tax was a bit favorable in the quarter. That's $0.47 favorable. That was really a result of a few discrete tax benefits that were resolved in the quarter. Also, I'd just like to call attention that Q4 last year was our highest tax rate of the year. So comps off a little bit there. Interest expense continues to be favorable. That was $0.12 favorable. That's really just based on our efforts to pay down debt throughout the year and discretionary share repurchases drove a $0.09 favorable impact. You can see that share count par there. Corporate G&A and other were unfavorable, really combined $0.32. That's a combination of less favorable pension expense versus prior year, but really a result of foreign currency exchange volatility year-over-year. The EPS growth story has been really consistent throughout the year, just strong operating execution, very tight cost controls, driving margin expansion, and as Jenny mentioned, disciplined capital allocation. So just a great way to finish the year. If we can go to Slide 12, this just details the performance across our businesses. First, I'll start with orders. Orders continue to be positive. It's plus 5% versus prior year. Aerospace strength continues to drive backlog higher. Jenny mentioned, that's a record. We did see gradual improvement in sales growth across our major market verticals. And once again, this quarter, every business delivered record segment operating margins. Very nice to see that. And I already mentioned it, but in total, we were up 160 basis points from prior year. Looking specifically in the North America businesses, sales were $2.1 billion. Organic growth was just down 1% versus prior, but we did continue to see a sequential improvement in organic growth. And quite honestly, that was better than our expectations coming into the quarter. We did see improvement across the market verticals in North America. So that was a positive, and distribution sentiment continues to be positive across the channel. Adjusted operating margins did increase 170 basis points to a record 26.7%, and that was just again driven by excellent, excellent operating execution, cost controls and a little bit of favorable mix. Gradual improvement in distribution kept orders in North America positive at plus 2% versus prior year. And I just want to note that this is the third consecutive quarter of positive order growth for North America. Moving to the Diversified Industrial International businesses. Sales were up to $1.5 billion. That's up 4%. Organic growth was positive at 1%. It was really nice to see that turn positive. In Asia Pac, organic growth was plus 6%. In Latin America, it was plus 4%, while EMEA did improve, it did remain negative 3% from an organic growth standpoint. Our international teams are really committed to using the tools of the Win Strategy to reduce cost, improve efficiency and drive margin expansion, no matter what's happening with the top line. And that resulted in adjusted operating margins achieving a record of 24.7%, which is an 80 basis point expansion from prior year. On the order front. International orders were flat versus prior year, really against some tough comps. And just a reminder that orders in Q3 did benefit from a number of significant long-cycle orders that remain in the backlog. Lastly, if I look at Aerospace Systems, the momentum continues in Aerospace. Sales were a record $1.7 billion. That's up 10% versus prior year. That did exceed our expectations for the quarter. Organic growth was most of that, 9% of that growth is organic, really driven by strong strength in the aftermarket channels. Adjusted segment operating margins up huge 190 basis points versus prior, and reached a record 29%. And Aerospace orders continue to be positive at plus 12%. Really want to commend our aerospace team members for another outstanding quarter and a strong finish to a stellar year. All right. On Slide 13, this is my last slide for the year. This is cash flow. We finished FY '25 by achieving record cash flow generation. Cash flow from operations is a record at $3.8 billion, that's 19% of sales. Free cash flow was also a record at $3.3 billion, or 16.8% of sales, with conversion at 109% after adjusting for some nonoperating items. Both CFOA and free cash flow increased by 12% versus prior year. And in addition, we did repurchase an additional $850 million in shares during the quarter, and that brought our year-to-date share repurchases amount to $1.6 billion. And that is a wrap on our record FY '25 performance. So I know everyone is interested in guidance. We'll move on to FY '26 guidance. And Jenny, I'm going to hand it back to you on Slide 15. Jennifer A. Parmentier: Thanks, Todd. This slide shows our fiscal year '26 organic sales growth forecast by key market verticals. So in Aerospace we are forecasting high single-digit growth. With higher growth in commercial OEM than commercial aftermarket. We are forecasting low single-digit growth in in-plant and industrial, and this is assuming a gradual industrial recovery. Transportation, our most challenged market this year, we are forecasting a mid-single-digit organic decline. In off-highway, we are forecasting a low single-digit decline. The ag market has moved past trough but needs a little more time before returning to positive. Construction is stronger than ag with recovery underway. And we expect positive low single-digit growth in energy, as well as HVAC and refrigeration. At the midpoint, this results in 8% organic growth for Aerospace, approximately 1% organic growth for both Industrial North America and Industrial International, and approximately 3% total Parker organic growth. I'll give it back to Todd to go through more details of the guidance. Todd M. Leombruno: Okay. Thank you, Jenny. I'm on Slide 16. We'll just go over a few items. Reported sales growth for the year is expected to be in the range of 2% to 5%. That's 3.5% at the midpoint. That will be approximately $20.6 billion in annual sales. And we have modeled those sales 48% in the first half, 52% in the second half. And consistent with our practice, this guidance does not include any impact from the Curtis Instruments acquisition. We will add Curtis to our guide once it closes. If you look at organic growth, Jenny mentioned this, but the forecast is in the range of 1.5% to 4.5%, or 3% at the midpoint. Aerospace is again 8% at the midpoint and both North America and International, we expect 1%. Organic growth is modeled 2% first half, and 4% in second half. Currency, as usual is based on the June 30 spot rates, and based on our math here, it shows that, that's expected to be favorable by 1.5%, or roughly $260 million. On margins, adjusted segment operating margin guidance is 26.5% at the midpoint. That is an increase of 40 basis points versus the FY '25 finish. And in respect to incrementals, we have modeled roughly 35% for the full year on incrementals. Just a few things to note. Below segment operating income. Corporate G&A is approximately $200 million. Interest expense, approximately $390 million. And other expenses, approximately $80 million. All of those are at the midpoint. Tax rate, we are modeling a 22.5% tax rate. As usual, we are not including any unknown discretes in that number. 22.5% is what we have modeled. And EPS for the full year is expected to be $28.90 on an adjusted basis at the midpoint. That is an increase of 6% versus prior year. We have a range of $0.50 on both sides of that $28.90. And the split on EPS is 46% first half, 54% second half. Lastly with respect to cash flow. Full year free cash flow is expected to be in the range of $3 billion to $4 billion, with conversion at approximately 100%. And lastly, on the far right column here, you could see what we have highlighted for Q1, FY '26. All of these numbers are at the midpoint. Reported sales are roughly 0.5% positive. Organic growth is 2% positive, and we are forecasting 26.1% for adjusted segment margins, and an adjusted EPS of $6.51. As usual, we have some further details in the appendix, if those are helpful for your model. Lastly on Slide 17, this is just a bridge, and I'll just highlight as we walk through this. We are forecasting a 5% increase in adjusted segment operating income dollars which translates to $1.68 in additional EPS. Share count, based off of that year-to-date repurchase amount is roughly $0.37 of improvement in EPS for FY '26. Corporate G&A are forecasted to be $0.18 favorable. And again, interest rate will give a little bit of a tailwind, $0.11 for the year. The forecasted tax rate of 22% is a headwind of $0.77 compared to our -- the effective tax rate that we realized in FY '25. And once again, that does not include any discrete items. So in summary, we are guiding FY '26 at $28.90 and adjusted EPS, that is up 6%. And with that, I'm going to ask you to move to Slide 18. And Jenny, I will hand it back to you. Jennifer A. Parmentier: Thank you, Todd. So I'll close with a reminder on what drives Parker. And again, thank you to all the Parker's team members for a fantastic fiscal year '25 and a very, very promising FY '26. Safety and engagement and ownership are the foundation of our culture. It's our people and our purpose that drives top quartile performance, and we remain committed to being great generators and deployers of cash. Todd M. Leombruno: Okay. Bo, we are ready to start the Q&A session. Operator: [Operator Instructions] We'll go first today to Joe Ritchie of Goldman Sachs. Joseph Alfred Ritchie: Congrats on another great year. Can we just maybe talk about the Q1 guide. Take a look at that relative to the last few years, it's a pretty meaningful sequential step down in EPS relative to what you've seen even just like the last 3 years. So can you guys maybe just talk about like the bridge between 4Q to 1Q, and what's really changing on the margin embedded in your guide? Jennifer A. Parmentier: I'll start, Joe, and then I'll let Todd follow up if he has any more comments. So first of all, we have very little sales growth in Q1, and this EPS guidance for Q1 is a 5% increase year-over-year. And this margin at 26.1% does have 40 basis points of margin expansion and is a Q1 record -- will be a Q1 record. So I think this is a good starting point for the year for us. Todd M. Leombruno: Yes, Joe, I would add, we do have -- sequentially, it's hard to go from Q4 to Q1. Q1 being obviously the start of our fiscal year, we do have to recognize some of the stock comp that is a big hit in Q1. If you look at that versus prior year, Jenny mentioned this, but we're forecasting 80 basis points of margin expansion, Q1 '26 versus '25, and EPS is a little over 4% of an increase. Jennifer A. Parmentier: 40 basis points. Todd M. Leombruno: I'm sorry, 40 basis points, yes. Joseph Alfred Ritchie: Okay. All right. Yes. No, it looks a tad, it looks a touch conservative, but that's okay. I guess maybe just a broader question. It seems -- sounded like you were seeing some green shoots across your businesses. Maybe just kind of talk through, especially the Industrial short cycle business is what you're seeing there? And then also, can you just touch on like the self-help opportunity for this year as well? Clearly, you did a great job from a margin perspective. If you can just touch on those two points, that would be great. Jennifer A. Parmentier: Sure. So taking a look at In-plant & Industrial Equipment guidance. So we have that at a positive low single digit for the year. And as I mentioned, that does assume a gradual industrial recovery. I mean, I would say, Todd mentioned this already, but distributor sentiment does remain positive. And I think we're in a good position to benefit from some of the customer supply chain actions. So we'll benefit from increased MRO activity. Any factory retooling or spending that's going on and our distributors will participate in that. They continue to tell us -- I was on a distributor visit just in the last month. They continue to tell us that they're quoting. And the activity is there. Just fill some of those delays that we've been talking about now for a few quarters. When you look at transportation, I mentioned that, that is going to be our most challenged market this year. There's some near- term pressure in both auto and truck markets. We think they're -- end users, they're delaying their purchasing decisions due to the uncertainty on cost, timing of new emission requirements, and current interest rate levels. We think that's all buying into that. So again, it will be a challenged market for us. Off-highway, our guidance is at negative low single digit. But there's improvement here. It turned out to be a little bit better. Construction was a little bit better in Q4 than we thought it would be, and we see that continuing. We see that recovery underway. A lot of the ongoing and announced infrastructure here is going to be a plus. But the ag market, while we do believe that it's moved past a trough, we think that it's going to be a little bit of time before it returns to positive. Again, cost uncertainty, interest rates, crop prices, all factors here. So we see improvement, and that's why we have the guide where it is. But obviously, there's some opportunity here. Todd M. Leombruno: No, Joe, I would just add, your question on self-help. Obviously, everything we have on The Win Strategy is a self-help margin enhancing process of tools. But we are forecasting slightly higher restructuring this year versus what we did last year, just in some of those regions or some of those end markets that may need attention. Jennifer A. Parmentier: Yes. We still -- you've heard me say before, we're very confident in our ability to expand margins with these tools. It's obviously showed in what we've done in all of the business in this past fiscal year and the ones before. But we have great teams that are using these tools on a regular basis and really delivering great results. It will continue. Operator: We go next now to Jeff Sprague of Vertical Research Partners. Jeffrey Todd Sprague: Jenny or Todd, maybe you could just speak a little bit more to Curtis, kind of where the margin profile is on a Parker comparable basis, what kind of improvement you can get in the business from a synergy standpoint relative to the deal plan that you must have internally? And what's the growth been like in that business recently? How is it performing in 2025? Jennifer A. Parmentier: Yes. Sure, Jeff, I'd be happy to. We're really excited about bringing Curtis into the Parker team. So we chose not to disclose their margins, more about the size of this deal. But initially, the margins will be dilutive, but we see a clear path to accretion with The Win Strategy. The tools we were just talking about and with synergies. We expect, like you've seen with our past deals, full synergies within 3 years, and relative size would be similar to the LORD and Meggitt deals. That's what we're looking at right now. Historically, Curtis sales have grown mid-single digit to high single digit over the past 5 to 10 years. So really nice growth profile with them. Todd M. Leombruno: Yes, Jeff, the only thing I would add is if you look at what we were forecasting for '26, the segment operating income dollars roughly $5.5 billion worth of segment operating income. That does not include Curtis. So to Jenny's point, this will be slightly dilutive, but it's small in scale compared to where it fits in the total company. Jeffrey Todd Sprague: Right. It would be margin dilutive. I know you don't want to give an EPS number yet, but it looks like it's EPS accretive, right? Margin dilutive EPS accretive? Todd M. Leombruno: Correct. Jennifer A. Parmentier: Yes. We expect EPS accretion in the first year. Jeffrey Todd Sprague: Yes, absolutely. Okay. And then just on international orders. I guess, Todd, your comment alluded to the fact that maybe the softness here in Q4 was because you got some chunky orders in Q3. Maybe you could just elaborate a little bit more on that and what's going on sort of in the international order pipeline? Jennifer A. Parmentier: Sure. And Jeff, I'll take that one. So yes, Todd did mention that, that we -- in Q3, we had a very strong long-cycle orders in International. We saw that in HVAC refrigeration, power gen and Aerospace and Defense. They didn't repeat in Q4, but we did see EMEA slightly positive with energy remaining really strong. And then in Asia, orders were slightly negative, and that was really more about a challenging comp to the prior year. But if you look at the order dollars, they were flat sequentially to Q3. So that really explains the difference between Q3 and Q4 and that drop that we saw. Operator: We'll go next now to Scott Davis with Melius Research. Scott Reed Davis: Jenny and Todd, congrats on a good year. Just want to follow-on on just Curtis and then combine that with the big buyback, or the $1.6 billion that you've done. Is that an indication that you expect M&A to continue to be more of kind of the smaller bolt-on type stuff? Or am I reading too much into that? Jennifer A. Parmentier: Well, like you've heard me say many times in the past, Scott. We have deals of all sizes in our pipeline. It's -- it can be small and bolt- on, or there could be something larger out there. As we said, timing is hard to predict. But obviously, our strategy remains the same. We want to acquire companies. We're the clear best owner. Fits in with our interconnected technologies and follows the secular trends that we've talked about here for a while. So it doesn't mean that they'll all be this size, but we're going to continue to work that pipeline. It's building those strong relationships and making sure that we're ready when they're ready. Todd M. Leombruno: Yes, Scott, I would just add, you've heard us talk. We want to operate with net gross debt to adjusted EBITDA around 2. We finished the year at roughly 1.7. So we do have, obviously, capacity to do something even below 2. But the cash flow generation profile that the company has really gives us lots of optionality. You saw us be active with the share repurchase this year. And we'll constantly balance what the best use of our capital is, and that's what we expect to do throughout FY '26. Scott Reed Davis: Yes. Makes sense. I don't think you mentioned tariffs. I know it's not -- it wasn't a big deal even last quarter. But just curious, is the lack of kind of mention of tariffs and indication that you've just been able to capture price to offset any impacts? I'm trying to kind of picture how 85 different P&Ls kind of manage something that's such a big, complex global issue, but maybe you can address both of those in some way in your answer, if you can? Jennifer A. Parmentier: Sure. Sure, Scott. So first, I would just say our teams are doing a fantastic job managing tariffs and making sure that there's no impact to earnings per share. But you probably heard us say pricing is something that is a strong muscle for us. I mean this is a function within Parker-Hannifin. And these divisions have pricing leaders. And there's a lot of coordination within the groups and across the enterprise. Obviously, because a lot of our businesses share the same customers. So it's a lot of work. I'm not going to say that it's not. It's been a whole lot of work for them. But they had this down path. They've done really a great job with it, and we have the analytics. We have these robust processes, and we've been able to navigate and act very quickly. So we didn't talk about it because we feel like we have it covered and it is going to continue to evolve and change, but we are going to make sure that it doesn't impact EPS. Todd M. Leombruno: I would just add, you know us pretty well. Pricing is one of the levers we're able to flex, but it's also our global footprint. It's our local- for-local model that we've had for years. It's really our supply chain team being creative with dual sourcing and the ability to ship from multiple regions. So pricing is a big piece of it, but it's not the only tool. Jennifer A. Parmentier: Yes. Our global capacity has been really a good thing for us. Operator: We go next now to Amit Mehrotra of UBS. Amit Singh Mehrotra: Just a follow-up to that earlier comment. I just wondered if you can help us sort of bifurcate the exceptional margin performance and resilience between price and lower costs. I know each of the 85 divisions has its own pricing managers. So obviously, pricing is a focus. But one thing I noticed is the absolute cost base of the company also went down in fiscal '25, which was pretty amazing, just given just inflation has been a little bit higher. So can you help us kind of think about those two things? And is there an opportunity for the OpEx space, or the cost base, to actually move down on absolute basis after the huge performance in '25? Or are we just entering a more maybe normalized period where the cost base will mirror kind of normal inflation? Jennifer A. Parmentier: Well, we -- thanks for the question, Amit. It gives you the opportunity again to just talk about the power of The Win Strategy. And our teams are focused on reducing cost and expanding margin like I said earlier, even when we have a negative organic growth environment. So this is our continuous improvement culture. It's our culture of Kaizen. It's not -- we've never been waiting for something to happen. This is just our ongoing way of running our operations and running our businesses. So yes, there is opportunity to further reduce cost, and our teams are working on that all the time. We just had a great lean system and a very nice suite of tools that helps each one of those general managers do what they need to do in their business. And they're not all the same. So that's the nice thing about The Win Strategy is. You can pull from that toolbox, as I like to say, and improve your business in many ways. And obviously, the teams are doing a great job of that. Todd M. Leombruno: It is a testament to the decentralization of the organization. Those 85 P&Ls have business leaders that are making decisions constantly. We've been taking costs out of the business for over a decade. And you saw that on the charts that Jenny has shown. We've talked about this a lot. We've changed our compensation structure to reward and be flexible with the flexes of business. And I think that's been a nice plus to the profile and cost as well. Amit Singh Mehrotra: So just a follow-up to that. If that's all true, then why is 35% incrementals the right number for '26? Because you're in the 40s in Aero and International -- I mean, the decremental margins are, I think, in North America, were like 2% or something like that. It just would strike me as maybe an opportunity to overachieve when the volumes move up, just given what the pricing base is and all that stuff that you just talked about on costs. Is that just conservatism, good placeholder? Or is there something happening that maybe meets the incrementals? Todd M. Leombruno: Well, it is a gradual movement to positive. It's a 1% organic growth in the Industrial side of the business that is 70% of the company. So I don't look at this as being conservative. Normally, we say model 30. We're 35% that's... Jennifer A. Parmentier: North of 35%... Todd M. Leombruno: We have -- I think we just need to see how it plays out. Operator: We'll go next to now to Andy Kaplowitz of Citi. Andrew Alec Kaplowitz: Jenny or Todd, could you give us a little more color on how you're thinking about A&D for '26? Or is there obviously so strong in Q4? Were they stronger on the defense side versus commercial? When you look at that 8% growth for '26, is the growth pretty balanced between defense and commercial and aftermarket and OE? How are you thinking about that? Jennifer A. Parmentier: Yes. So I'll take that, Andy. So again, full year organic growth at 8% and we see that on continued MRO strength and gradual OEM recovery. We have commercial OEM to be low double-digit growth, commercial MRO of high single-digit growth, defense OEM, we have at mid-single-digit growth, and defense MRO, we have at mid-single-digit growth. So again, it's going to be another great year for Aerospace. We're coming off of 3 years of double-digit organic growth. We ended Q4 at about 9%, and we have Q1 at 8%. And as I said, we have the year modeled at about 8%. So again, it's going to be another good year. Andrew Alec Kaplowitz: Very helpful. And then, Todd, you're guiding to call it mid-single-digit plus EPS growth at the midpoint for '26, but free cash flow at the midpoint is slightly lower. I would have thought that you get a little bit of cash tax help from The Big Beautiful Bill. So maybe just reconcile the forecast? Todd M. Leombruno: Yes, we are digesting The One Big Beautiful Bill, for sure. And that will be a benefit, to be honest with you, that's more of an FY '27 benefit for us versus an FY '26 benefit. But on cash flow, there's a few things. Obviously, when you're looking at net income, we had a few onetime items. We had some divestitures. We had some discrete tax items. We had some facility sales that helped build up the as reported net income. This year, we do expect Industrial to grow. So in the previous years, we were getting a benefit from working capital. We do think there'll be some investment there to support growth there. I think you saw we called out 2.5% CapEx. That's higher than what we've historically done. This is really all making sure we have capacity in the businesses that need it, and that we are investing appropriately in automation and robotics and productivity. I did mention we do have a little bit more restructuring that we expect to do in FY '26 versus '25. And then Jenny mentioned Curtis, we're going to have some onetime costs associated with the acquisition and the integration, and the cost to achieve the synergies that we've had laid out there. So we still feel really good about the number. We still think it's very much top quartile from a cash flow standpoint, and we're going to obviously try to outshoot that number. Operator: We go next now to Andrew Obin of Bank of America. Andrew Burris Obin: Just a question on Aerospace. You had a re-acceleration in Aerospace orders in the past couple of quarters. I think, from high single digit to 14% in the third quarter, 12% in fourth quarter. Can you just talk about this re-acceleration what's driving this? Jennifer A. Parmentier: I think, Andrew, for the most part, what we've seen here is the commercial transport rate is increasing and wide-body rates are growing to meet international traffic. So I think that's been some of it. And as air traffic growth overall continues, the aftermarket is continuing to grow. And then we have everything that's going on in defense as well. So there's been a continued demand for all of the legacy programs. There's continued growth in the Department of Defense budget. So we've seen some nice orders come in. And as you know, those are all longer cycle orders. Andrew Burris Obin: And I appreciate you gave some detail here. But last year, you had 7% organic Aerospace orders, and you delivered 13% organic growth. This year, you had 12% organic aero orders and guiding to 8% at the midpoint. Can you just help us understand the dynamic between orders and forecast a little bit better versus last year? Jennifer A. Parmentier: Well, like I was just saying, Andrew, these orders come in and they're longer cycle, right? We have backlog coverage of over 100% right now in Aerospace, and we have a record backlog, right? So the orders are coming in higher. There's only so much that can be built at a time. And as rates increase, we'll enjoy more of that. But we stay really close to our customers, all of our customers, but in Aerospace, we know what they're planning on building. We know what those rates are. And we have really good visibility to the demand and their capacity. So we think Aerospace at 8% -- Q1, 8% versus Q4 at 9%. We think it's really right in line. Todd M. Leombruno: Andrew, we're expecting that to be pretty consistent throughout the year. There's no real ramp on what we're forecasting here. And every one of those numbers will be a quarterly record for Aerospace. So the momentum continues. Operator: We'll go next now to Julian Mitchell of Barclays. Julian C.H. Mitchell: Maybe just wanted to start with the industrial growth outlook. So it sounds like Aerospace is sort of pegged at 8% growth in the first quarter and through the balance of the year. Maybe help us understand within Industrial, what's dialed in for sort of the first quarter, and then the slope of that acceleration on organic sales? And anything you've seen around pull forward of demand by distributors, or OEM customers because of tariffs? Jennifer A. Parmentier: Yes. I would first just start off saying, Julian, that we're not seeing any evidence of a pull forward. There's nothing that I could point to that would show that. For industrial, for Q1 in North America, we're forecasting negative 1.5% organic growth and positive 0.5% for International. So total Industrial, we're still showing it slightly negative here at approximately 1%. When we look at North America, in particular, I talked about what we're seeing across the market verticals. But in North America, we're seeing gradual in-plant industrial recovery. And as I mentioned, positive sentiment from the distribution channel, a lot of increased quoting activity. But as I mentioned, transportation is challenged. So -- in auto and trucks. Construction getting better. Ag is still weak. Power gen is strong, in our energy vertical, oil and gas still a little weak. In HVAC, it's really coming off of a strong fiscal year '25 with a lot of the refrigerant changes. We expect it to be low single-digit growth in fiscal year '26, and that will be more around commercial and refrigeration than it was residential in fiscal year '25. When we look at International, Industrial International, again, we had that full year expected to be at about 1%. Q1, again, at about 0.5%. Again, same assumption on a gradual industrial recovery. EMEA, flat to slightly positive organic growth for the fiscal year. Uncertainty remains. We expect continued weakness in transportation, especially auto and EMEA as well. But we also see that continued strength in energy, both oil and gas and power gen. And we think that this -- a lot of the proposed stimulus that we hear about in future defense spending is really going to be a long-term positive. Asia Pacific, low single-digit positive organic growth for fiscal year '26. We'll continue to see strong demand from electronics and semicon. In-plant is mixed. There's project delays that are continuing in China, but we do see some growth in India and Japan. Off- highway still soft, but both in construction and mining. I would just say just overall continued uncertainty from tariffs across those markets. In Latin America, Todd mentioned, we see low single-digit organic growth for fiscal year '26, and that's pretty much balanced growth across the verticals for them. Julian C.H. Mitchell: That's very helpful. And just my follow-up, maybe circling back to the operating margin expansion guide. So it's up, I think, 40 bps in first quarter, and up 40 for the year as a whole. And as you said, that's sort of despite volume leverage accelerating through the year. I just wondered maybe on that point, maybe is there some sort of mix effect in Aerospace, perhaps, that weighs later in the year maybe to do with Meggitt synergies being front half loaded, or the outgrowth of commercial aero OE versus commercial aero aftermarket? Anything like that sort of moving around in aero, or it's just pretty steady through the year? Jennifer A. Parmentier: That's just -- it's steady through the year. We are expecting commercial OEM to be low double-digit growth and MRO of high single- digit growth. So they're kind of changing this year. But we see it pretty much the same throughout the whole year. Operator: We'll go next now to Jamie Cook with Truist. Jamie Lyn Cook: Nice quarter and nice year. The first question. Just the North American margins in the quarter struck me like the strength of the margins. I think it's like one of your highest margin quarters despite a decline in sales and in organic growth. So was there anything unusual in that mix, pricing or something, which drove the margins high with organic sales down? And then, I guess, just my second question, just on the guide, Todd or Jenny. If we think about the past couple of years, the story of Parker has been while Industrial has been weaker, aerospace is making up for any delay in recovery in industrial. I guess as you think about 2026, do you think there's greater risk that if industrial doesn't inflect that aero can't make up for it? Or perhaps you're just more bullish on Industrial, just given at least we're seeing some resurgence in orders? Jennifer A. Parmentier: Okay. So first question, yes. Q4 North America was just -- was great, expanded margins, 170 basis points year-over-year. So really a nice quarter for them. We really had a favorable sales mix, specifically in our engineered materials group and our filtration group. So just exceptional performance with those two groups. And with strategy execution across the other groups as well, not to take anything away from them, but we had a nice favorable mix in those two areas. As far as a risk in the future with industrial, I would say we have 1% organic growth in Industrial. And I think our guide accurately reflects what we see in orders, what we see in backlog, what we know about what's going on in these market verticals. But all in all, I would say that all of us want to be bullish on Industrial. It's time, right? And as I said, we're poised for growth here. I'm not concerned that we won't be able to continue to expand margins and deliver this guide. I think that what we have here, and what we've been able to do in a negative organic growth environment in Industrial, and even with Aerospace at an 8%, we're going to be okay. We can make this happen. Operator: We'll go next now to Mig Dobre of Baird. Mircea Dobre: I only have one question, and it's about the guide, too. So I don't know, maybe just for you Todd. If I look at the exit rate here, $7.69, really a good fourth quarter. If we annualize that, we end up with something just under $31 of EPS. And what's interesting in my observation here is that going back over the past decade, you're able to do that or better. So you're able to do better than your annualized exit run rate. On every single year with the exception of fiscal '21, when you had to deal with COVID. So I guess my question to you is, why this year, fiscal '26 be any different than the norm? Todd M. Leombruno: Mig, this is Todd. Yes, we would love to take Q4 and annualize that. The math on that looks great. The reality is that's not the way the business operates, right? If you look back over decades, our sales mix is 48% first half, 52% second half. Obviously, that 52% is fully weighted by that strong Q4 result. We also have those things that we talked about that we recognized early in the fiscal year as far as compensation and whatnot goes. I feel really good about what we're guiding here for Q1. Jenny mentioned this, we still expect the industrial businesses to be challenged from the top line. Aerospace is performing extremely well. We are calling for roughly 5% EPS growth year-over-year in Q1. And I think the team is really focused on it. If you remember, every number that we put up in Q4 was an all-time record. And when you look at what we are guiding here for Q1, every one of these numbers will be a Q1 record. So there is improvement across every one of the businesses, and that's with not a lot of help from the top line. So I think the team is executing unbelievably well, and I'd be really happy if they're able to post these numbers. Operator: We'll go next now to Joe O'Dea of Wells Fargo. Joseph John O'Dea: Can you talk about the sort of complexion of, call it, 8% organic aero growth over the course of the year? And how that shifts between commercial OE and aftermarket? And really getting at kind of the margin mix considerations within that, I think, for a while now, that's been a focus topic clearly, with Aero margins up again this year. That's pretty good. And maybe I'll weave into the question, just any color on Meggitt synergy contributions for the year? Jennifer A. Parmentier: Well, first of all, we don't go into that much detail and disclose all that mix within the year. I would tell you, as I said with my slides earlier, we ended the year at 51% aftermarket, 49% OEM. We're showing OEM to be low double digit this year and aftermarket to be high single digits. But we, again, have confidence in continuing to expand our margins. So we think that what we have here for the Aerospace guide at 8% for the whole year is appropriate for what we see now. Todd M. Leombruno: Joe, I would just add to that. In respect to the synergies, you had a question about synergies for Meggitt. We still believe there's $50 million of synergies left to achieve on Meggitt. We would expect that to be ramped throughout the year, just like we've seen it for the last 3 years. So all is going unbelievably well with Meggitt, and that's in the mix as well. Joseph John O'Dea: And then just -- and I think that the sentiment from North America distributor partners has been a little bit better over the last few quarters. Anything that you're observing in terms of kind of developments there, getting areas where it's a little bit better. But then in particular, what you think the gating factor is to seeing, quoting really accelerate into orders and the degree to which -- that's tariffs or it's other factors? Jennifer A. Parmentier: Yes. So I mentioned that I had been on some distributor visits recently. And again, it's a common theme. Quoting activity is high. No project cancellations, delays. But then there's other pockets where some of them are participating in some retooling in automotive and just some refurbishments that are happening. So you hear about those pockets of where they're really having some wins. So I think they were overall very bullish on the future. That's what we continue to hear. And the second part of your question again, sorry. Joseph John O'Dea: It was just what gets some of the encouraging signs on quoting to orders? Jennifer A. Parmentier: Yes. I think one of the things -- a couple of things, I think it's uncertainty, right, on tariffs and interest rates, right? I think those two things are what may be holding up projects, holding up purchasing decisions. But as I mentioned before, distribution's bullish. We're ready, and it's time for an industrial return. Todd M. Leombruno: Bo, I think we've got time for one more. Can we take one more question here. Operator: We'll take that final question today from Nigel Coe of Wolfe Research. Nigel Edward Coe: Jenny, I agree, it is time for this recovery. Bring it on. So I just want to dig into the free cash flow. So Todd, you mentioned CapEx 2.5%. That's about $0.5 billion of CapEx. So that's about $100 million higher, and not a big deal. But I'm just wondering, do you think that's sort of medium-term shift in CapEx? And the reason I am asking is because we have heard this from some others. I'm curious if you're sort of reinvesting in the U.S. and if that's what's driving it? Maybe just put a finer point as well on the cash restructuring you expect for FY '26? Todd M. Leombruno: Yes. I think the CapEx, I don't -- I can't say that that's going to be a go-forward rate. We do have a few projects this year that we're investing in. Most of those are in North America, in the North American region. But I think that's more of a one-off type of thing versus a run rate going forward. On restructuring, we did about $50 million in '25. Right now, we're forecasting about $70 million in '26. So it's $20 million more. But again, really, I don't want you to read too much into this. This is just working capital investments for growth. This is making sure we integrate Curtis according to our schedule, and obviously paying all those fees with it. And making sure that we continue our multi- decade year of free cash flow conversion. Nigel Edward Coe: Great. And then just a quick one on the profile of the industrial recovery you're seeing in FY '26. It seems like you've down and flat to maybe slightly down in the first half of the year and then obviously 2%, 3% in the back half. Would that be directionally consistent? Todd M. Leombruno: That is exactly what we have, roughly flat first half to second half. That's total Industrial. Okay. That concludes our FY '25 earnings release webcast. We appreciate your time and attention, and thanks again for joining us today. Our IR team will be available. That's Jeff Miller, Jenna Stuckey and Chantelle O'Kelly. If there's any need for any follow-ups or clarifications. And thank you all again. Have a fantastic day. Operator: Thank you, Mr. Leombruno, and thank you, Ms. Parmentier. Again, ladies and gentlemen, thank you for joining Parker Hannifin's Corporation's Fiscal 2025 Fourth Quarter and Full Year Earnings Conference Call and webcast. Again, that will conclude our call. Thank you all so much for joining us, and we wish you all a great day. Goodbye.

Operator: Greetings. Welcome to Parker-Hannifin Corporation Fiscal 2025 Third Quarter Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Todd Leombruno, Chief Financial Officer. Thank you. You may begin. Todd Leombruno: Thank you, Diego. I'd like to welcome everyone to Parker's fiscal year 2025 third quarter earnings release webcast. As Diego said, this is Todd Leombruno, Chief Financial Officer, speaking. And as usual with me today is Jenny Parmentier, our Chairman and Chief Executive Officer. We really do appreciate your interest in Parker, and thank you for joining us today. If we could move to Slide 2, this slide addresses all of our disclosures on forward-looking projections and non-GAAP financial measures. Obviously the items listed here could cause actual results to vary from our forecasts. The press release, this presentation, all reconciliations for all non-GAAP measures were released this morning and are available under the Investor section on our website at parker.com. The agenda for today has Jenny starting with the highlights to our record third quarter performance. She is also going to reiterate the strengths of our transformed portfolio and how the tools of our win strategy allow us to drive performance in all economic climates. I am going to follow Jenny with some more details on our third quarter financial results, and then we are going to provide an update to our FY2025 outlook including market verticals and, of course, updated financial guidance. We are going to conclude the session with the normal question-and-answer portion of our call. And we are going to do our best to address as many questions as possible. We know it is a busy day out there. So with that, I would ask everyone to move to Slide 3. And Jenny, the floor is yours. Jennifer Parmentier: Thank you, Todd, and thank you to everyone for attending our call today. Our third quarter performance demonstrates the strength of our business and our global team's ability to continue to deliver record results. We produced top quartile safety performance again this quarter, aligned with our goal to be the safest industrial company in the world. Record adjusted segment operating margin of 26.3%. This is our first quarter surpassing 26%. Record adjusted EBITDA margin of 27% and year-to-date cash flow from operations of $2.3 billion. Parker order rates increased to 9%, reflecting our transformed portfolio and long-cycle strength. This team is continuing to expand margins and EPS in a most dynamic environment. Next slide, please. And this is how we do it. Our business system, the win strategy has enabled us to consistently deliver strong results through business cycles. Safety, engagement and ownership are the foundation of our culture. With our decentralized structure and the agility of our global teams, we are confident in our ability to manage through macroeconomic uncertainty, including tariffs. Every tool in this business system expands margins. Next slide, please. And our portfolio is more resilient than ever. We have the number one position in the motion and control industry with interconnected technologies and solutions across our key market verticals. The acquisitions of CLARCOR, LORD, Exotic and Meggitt have doubled the size of our filtration, engineered materials and aerospace businesses, giving us greater exposure to longer cycle and secular growth trends. Next slide, please. Dedicated use of our simplification tools drives margin expansion across cycles. Today, we have a more agile operating structure than we have ever had before. Through use of Kaizen and the Parker Lean System, we evaluate and adjust our structure and footprint to ensure continuous improvement and optimization of our resources. Disciplined use of our 80/20 tools has made us successful in reducing revenue complexity. Leveraging our distribution channel and rationalizing product allows us to serve our customers better, and our simplified design tools further reduce product and related manufacturing complexity that enables growth and efficiency in our operations. We are using all of these tools to expand margins no matter what phase of the business cycle we are in. Next slide, please. Supply chain leadership is a competitive differentiator for Parker. The addition of enhanced demand and capacity tools as well as dual sourcing strategies, has increased visibility and resilience, reduce lead times and improve the customer experience. We have always had a local-for-local model, driven by our desire to be close to our customers. This has also allowed us to leverage global capacity to better serve all of our customers. We have dealt with tariffs before and are extremely grateful for our excellent pricing and supply chain teams. Tariffs are a lot of noise and work that our teams are leveraging analytics and robust processes to navigate and act quickly through these dynamic and challenging times. Announced tariffs are approximately 3% of cost of goods sold were $375 million on an annualized basis, fully offset by mitigation actions and designed to protect earnings per share. I'll now turn it back over to Todd to review the third quarter highlights. Todd Leombruno: Thank you, Jenny. I am on Slide 9, and I'm going to just run through the financial results very quickly. As Jenny said, this was a strong quarter. Record-setting quarter, in fact, it was another quarter of continued margin expansion and EPS growth. Sales were down 2% versus prior. Organic growth was positive at 1%. Currency remained unfavorable at negative 1, the main driver really of the overall decline is the result of those previously announced divestitures that we've made this year. That accounted for 2% of the decline, which is essentially the entire decline. As Jenny mentioned, adjusted segment operating margins were up 160 basis points to 26.3%. That is a record, and adjusted EBITDA margins were up 150 basis points to 27%. Obviously the first time we've ever done that, that is a record. Net income is $904 million. That's 18.2% return on sales, both of those numbers are records, and adjusted earnings per share is up 7% to $6.94. Being able to grow earnings per share 7%, with the topline down 2% is just another indicator of just how different Parker is today. This was another quarter of strong performance that was consistent across all the businesses, each contributed to the margin expansion and cash flow performance that Jenny mentioned, and this performance that we had in Q3 continues to support the expectations we have for another record year. If we go to the next slide, Slide 10. This just shows the walk of the $0.43 increase in adjusted earnings per share. Q3 really the same story that we had in the first half of the year. Unbelievably disciplined operating performance. Segment operating income dollars are up $53 million, that's $0.32 of the increase in earnings per share. Aerospace continues to be the primary driver of our segment operating margin dollar growth. But the industrial businesses also delivered record segment operating margin percentages despite the pressures on the topline in those businesses. Interest expense continues to be down. That is a $0.17 favorable result this year. That is really the result of our commitment to reducing debt. Corporate G&A is favorable $0.08, that really is related to lower market-based benefits and just great discretionary cost controls across the businesses. Other expense was a drag of $0.13, that really is a combination of just less favorable pension expense versus prior year and obviously, some currency translation just based on FX rates and volatility. And then lastly, share count and income tax basically offset each other, and that's how we got to the $6.94 adjusted EPS for the quarter. Really, I just want to commend our teams around the world for just great cost diligence and unbelievable operating performance that drove the strong results. Okay. If we go to 11, we'll just dive into the segments a little bit. Order trend continues to be positive for the company. Orders are plus 9% versus prior year. Really, this is driven by longer cycle strength, that continues to drive order rates and backlog higher. And once again, every business delivered record segment operating margins. The total company is up 160 basis points. Specifically in the diversified North American businesses, sales were $2 billion. Organic growth was down 3% versus prior. That did improve sequentially from Q2, but the result was lower than we expected going into the quarter. We continue to see softness in the transportation, off-highway and energy markets. Distribution sentiment remains positive. But what's really nice here is adjusted segment operating margins are up 110 basis points to a record 25.2%, really just driven by great operating performance and like I said before, cost controls. Gradual improvement in distribution kept orders at North America positive at plus 3% versus prior, we were happy to see that. And this is the second quarter in a row of positive order entry results for North America. If we look at the international businesses, order rates improved really to a double-digit positive 11 here. That is really driven by a nice recovery and the long-cycle exposure there. Sales were $1.4 billion. Organically, that was also down 3%. Asia Pacific, specifically was up 2%. Organically, Latin America continues to be very robust at plus 8%, while the EMEA region remains challenged at negative 7%. Our international teams really are remaining agile and focused on cost controls and reductions and really efficiency improvements. The evidence is clear in their margin performance. Adjusted segment operating margins here were 25.1% and expanded by 160 basis points versus prior year. Aerospace continues to be the standout unbelievable and inspiring results here. Sales were a record $1.6 billion in Aerospace. That's up 12% versus prior year. Once again, this quarter, they exceeded our expectations on the topline. All of that growth was organic. Organic growth was 12%, really continue to be driven by the aftermarket strength in both defense and commercial end markets. This is the ninth consecutive quarter of double-digit organic growth for aerospace, just unbelievably stellar performance. Margins are up 200 basis points and reached a record 28.7. We are certainly pleased that Aerospace is now a third of the company and aerospace orders continue to be positive at plus 14%. If we go to the next slide, Slide 12, is just some comments on cash flow, strong cash flow performance from the corporation. Cash flow from operations on a year-to-date basis is 15.8%. That equates to $2.3 billion. That is up 8% versus prior year, and the $2.3 billion is a year-to-date record. Year-to-date free cash flow was also up 8% versus prior. That's about $2 billion or 13.7% of sales. So just great cash flow performance across the company. You may have noticed last Wednesday, our Board approved a 10% increase to our quarterly dividend as a result of their confidence in the company's ability to continue to generate strong cash flows, no matter what the business cycle brings us. And our dividend per share on a quarterly basis is now $1.80. The action will extend our record of increasing annual dividends paid per share to an amazing 69 years. Lastly, during the quarter, we purchased $600 million of shares in addition to the usual $50 million that we purchased as part of our 10b5-1 program. Total repurchases in the quarter equated to $650 million. And on a year-to-date basis, repurchases now total $750 million. So moving on to guidance, let's move to Slide 14. Jenny, I'm going to hand it back to you to start with the update on market verticals. Jennifer Parmentier: Thank you, Todd. So taking a look at our FY2025 sales forecast by market vertical. For Aerospace and Defense, Todd just went over some strong results, we are raising full-year organic growth to 12% on continued aftermarket strength and gradual OEM recovery. Previous guidance was 11%. We are lowering implant and industrial equipment growth to be negative low-single digits. Now this was previously slightly positive low-single digits. But this lowering is due to a prolonged delay in industrial recovery. But it is worth noting that quoting activity remains strong despite the project delays that are being seen. We are lowering transportation growth to be negative low single-digit. This was previously neutral. And this is primarily due to a lower automotive production forecast in North America and EMEA. Work truck demand does remain stronger than on-highway same as last quarter. Off-Highway improved slightly to negative low teens. This was previously negative mid-teens. OEM destocking and end market weakness does persist, but it is partially offset by stronger aftermarket. Ag weakness continues no real sign of recovery here yet. Lowered energy to negative low-single digits as was previously neutral, and this is due to lower oil prices and a disciplined approach to capital spending. And we have increased HVAC/R to high-single digits. This was previously mid-single digits and driven primarily by strength in residential air conditioning. I'll hand it back to you, Todd, to go over the guidance update. Todd Leombruno: Okay. Thank you, Jenny. Moving to Slide 15. I'm just going to go through some of the details for the guide. Reported sales growth for the year is now forecasted to be approximately minus 1%. In respect to organic growth, for the full-year, we expect organic growth to be about positive one. We have raised aerospace organic growth to 12% for the year. But we've lowered industrial segment, the Industrial segment to minus 3 and Industrial North America, organic growth is now forecasted to be approximately minus 4% and Industrial International organic growth is now forecasted to be approximately negative 2.5. The previously announced divestitures on a full-year basis will be negative 1.5%, 100% of those divestitures were reported within the Industrial North American businesses. And currency is now expected to be just a slight negative 0.5% headwind and those are based on March 31 exchange rates. In respect to segment operating margins, we are raising guidance by 10 basis points for the full-year. That will now be 25.9% segment operating margin. That forecast will be a full-year margin expansion of 100 basis points versus prior year. And of course, that improvement is being contributed by all businesses. Assumptions for corporate G&A, interest and other. As usual, we provided those in the appendix. We expect full-year tax rate to be 21.5. When you look at adjusted EPS, we now see the full-year – excuse me, as reported EPS, the full-year is now $26.02 at the midpoint, and we are maintaining our adjusted EPS guide of $26.70 at the midpoint. On both of those numbers, there's a range of plus or minus $0.10 on both the as-reported and the adjusted figures. In respect to tariffs, Jenny mentioned this earlier, but we expect to fully mitigate any additional costs associated with all the announced tariffs. Our EPS guidance does include costs and mitigation actions with all announced tariffs and those will be fully offset within the quarter. For Parker, on an annualized basis, we have targeted the announced tariff cost to be about $375 million, and that equates to roughly 3% of our cost of goods sold. We foresee full-year free cash flow to be $3.1 billion. And of course, free cash flow conversion is expected to be greater than 100%. For Q4, the last quarter of our fiscal year. More specifically, we expect reported sales to be $5.1 billion, organic growth of positive 1.5%, adjusted segment operating margin is expected to be approximately 26.1%. We have modeled a tax rate of 22% for the quarter and adjusted EPS is expected to be $7.05. That also includes all announced tariffs and are mitigating actions. So that's it for the details on the guide. Jenny, I'll hand it back to you and ask everyone to move to Slide 16. Jennifer Parmentier: Thanks, Todd. And just a final reminder on what drives Parker. I said it at the beginning of the presentation, safety engagement and ownership are the foundation of our culture. It's our people and living up to our purpose that drives top quartile performance. And we remain committed to being great generators and deployers of cash. We are actively focused on extending our track record, deploying capital to deliver the best shareholder value possible. Back to you, Todd. Todd Leombruno: Okay. Diego, we are ready to start the Q&A portion of the call. So we'll take whatever you have in queue. Operator: Thank you. [Operator Instructions] Our first question comes from Mig Dobre with Baird. Please state your questions. Mig Dobre: Thank you for taking the question. Good morning, everyone. I guess the orders, at least to me were quite surprising in the quarter. It's been, what, more than three years since we've seen international orders up 14% positive in North America as well. So I guess my question is this, when you talk about longer cycle, can you maybe talk a little bit more about that? How do these orders actually get to convert to revenues? What's kind of the time cycle here? And related to this, and I recognize that you don't provide fiscal 2026 guidance now. But given this inflection that we've seen in orders, is it fair for us to expect positive organic growth in fiscal 2026 in your industrial business? Jennifer Parmentier: Sure, Mig. So to answer your last question first, I think it is fair to say that we should get some positive industrial growth in FY2026. And these orders that we're talking about long cycle are definitely beyond this last quarter here in fiscal year 2025. So as Todd went through, and you said the rates had increased to 9% for total Parker. So when you look at North America, this was the second consecutive quarter of positive orders and stayed the same at 3%. So remember, we have Aerospace and Defense business and our industrial segment. So we saw some strong orders there. And we also saw HVAC and refrigeration orders remained strong. There was some gradual improvement from the distribution channel, not anything that I would call restocking, but their sentiment is positive, and they are awaiting the recovery. When you look at international order growth, it definitely accelerated on long-cycle strength. So Europe mainly driven by long-cycle energy orders, power gen and oil and gas. Todd mentioned, Asia orders remained solidly positive, and that is primarily driven by electronics and semicon and this is the third quarter in a row of positive orders for international. And Aerospace, obviously, I think well aware of that, but the backlog did increase again. Last quarter was a record at $7 billion, and this quarter, it went up to $7.3 billion, and this is on both strong commercial and defense orders. So that's some color on the orders. Mig Dobre: Great. Thank you. And my follow-up, speaking of backlog, very sizable in aerospace, more than a year's worth of business in there. And you sized the tariff impact here, but I sort of do wonder how you think about the risks that you might have on the cost side, whether it's tariff or any other costs related to this backlog and your ability to kind of either manage that through any other mechanisms that you have? Jennifer Parmentier: So as we said, we expect we will fully mitigate the tariff impact. As I was going through in my slides, we have several different actions in place. And when you look at the mitigation actions, I would put them in three different buckets: pricing actions, supply chain actions, and what we do all the time with the Win strategy, reducing costs on an ongoing basis. So those 3 areas are how we're confident that we're going to fully mitigate this. And we're ready. Mig Dobre: All right. Good luck. Todd Leombruno: Thanks, Mig. Operator: Thank you. And our next question comes from Jamie Cook with Truist Securities. Please state your questions. Jamie Cook: Hi, good morning and congratulations on another nice quarter. I guess my first question, Jenny, just the strength in margins in Aerospace and Defense. So to what degree are you worried that the aftermarket story and the strength in aftermarket is driving the margins that in 2026, I guess that becomes a headwind as OEs start to pick up? And if you could just break apart if there's anything more structural there in margins besides just aftermarket, right, improving their associated with Meggitt. I guess, that's my first question. And my second question, understanding you just put out these targets last June. But if we look at your implied adjusted EBITDA margins for the full-year, you're targeting 25.9%, I think, versus the target laid out last year of 27% and your industrial businesses are still fairly depressed. So again, just trying to understand why that is conservative? Or again, is the concern that aftermarket – sorry, Aerospace margins are sort of over earning. You know what I mean, as that normalizes and industrial picks up 27% is really the right target. Thank you. Jennifer Parmentier: Okay, Jamie. So starting out with just a little bit of color on aero aftermarket. So it's been very strong for us. It was strong in Q3. I mean, year-to-date, our aftermarket is 50% through Q3. So now going into Q4, we're forecasting around 49%. For the full-year, it will be 50%. And just a reminder, too, we did really gain a lot of aftermarket with the Meggitt acquisition. So we're in a higher aftermarket position to begin with. We do see that a gradual recovery on the rates, the OEM rates are having an impact on that mix, but we do feel very confident about our ability to continue to expand margins in aerospace. So we have not seen any degradation as a result of some of the reports out there about North America air traffic growth slowing. We're keeping a close eye on that. But we still have a very strong aftermarket business here, and we see that into the foreseeable future. As far as the targets go, I mean, obviously, Todd mentioned this, we couldn't be any prouder of these teams and how they've delivered in especially the industrial side of the business and a negative topline environment, we really do believe and we'll continue to expand margins with all the tools in the Win Strategy. Obviously, we'd like to see this industrial side of the business turn around. I think we all will enjoy that and benefit from it. But right now, we have a lot of confidence with everything going on in the environment that we're going to hit those targets, and that's what we're sticking with. Todd Leombruno: Jamie, I would just add to what Jenny said, I couldn't be happier with the progress we're making on margins. But when we set those targets, we also set a 4% to 6% growth target. We also set an EPS growth target, and we also set a cash flow target. And while we are making progress on those, we are far away from achieving those as well. So we look at these kind of holistically together. It's not just one of the margins, it's really all of the targets. So I'd tell you that's what the global team is focused on right now. Jamie Cook: Okay. That's helpful. Thank you. Operator: And your next question comes from Julian Mitchell with Barclays. Please state your question. Julian Mitchell: Hi, good morning. Maybe first off, just wanted to circle back to the sort of the jaws widening between industrial organic orders and sales trends that's been apparent for a couple of quarters. I understand on some level, it's natural if orders are meant to lead sales that there'd be a delta a lot of the time. I mean you mentioned the longer cycle element boosting the orders growth versus sales. Just wondered if there was any other dynamic to be aware of, perhaps sort of the dollar comps that we don't see from the outside. Is there anything notable there on orders versus sales? And maybe sort of allied to that, is there any color you could give us on how that industrial backlog is moving? I think it was $3.5 billion or so at the end of December. Jennifer Parmentier: Yes. So First of all, I would say that with the way the portfolio has transformed over the last several years, the connection between orders and shipments has extended, right? I mean we do see more longer cycle business as you mentioned earlier, aerospace being a third of the business and the aerospace that is sitting inside of our industrial businesses as well as some other industrial business that we consider a longer cycle. It is different than it was in the past. So that connection isn't as tight as we may have been due to even on the industrial side of the business. Second part of your question, Julian? Julian Mitchell: It was really just around any color you could give us on, say, the backlog movement at industrial? I think that was $3.5 billion at the end of December. Jennifer Parmentier: Yes. So it was $3.7 billion for industrial and $7.3 billion for aerospace. So it was 2% higher than prior year and 5% up sequentially. Julian Mitchell: That's very helpful. Thank you. And then just if you could put a finer point on some of the aerospace growth trends sort of in the fourth quarter as you see it, just so we have the jumping off point into 2026 on the sort of OE versus aftermarket dynamics in commercial and military? Jennifer Parmentier: Sure. You bet. So as we said, we've raised the full-year guidance – organic growth to 12%. We expect commercial OEM to be mid-single digit, and this obviously is as a result of the narrow-body increases and some of the wide-body recovery we're seeing as well. We expect defense OEM to be low single-digit growth. We expect commercial MRO of high-teens growth. So again, even though there's been some reports of North America air traffic growth slowing, global growth is still increasing, and we still see that we have an aging fleet out there. We expect to fence MRO of high-teens growth, and this is really a focus on retrofits and upgrades and really some nice increases in the public-private partnerships that we have with the Department of Defense. Julian Mitchell: That's great. Thank you. Operator: Your next question comes from Scott Davis with Melius Research. Please state your question. Scott Davis: Hey, good morning. And again, congrats on the margins and getting through what's been kind of a slower time in the core industrial stuff. This may be an impossible question to answer, Jenny. But have you guys – when you think about the margin gains you've made, obviously, mix has got to have a huge part of it. But is there any way to kind of tease out what kind of how much operational improvements have really helped you guys, even if you can't quantify it, just color around underlying operational improvements that could really help things snap back outside of aerospace. Let's assume aerospace isn't as much of a tailwind incrementally 26%, 27%. But I don't know, it may just be a possible question, but I'm curious to hear your response? Jennifer Parmentier: Well, I would say that, as I was mentioning in the presentation, and you've heard us talk a lot about all the tools that we have in the Win Strategy and the nature of our decentralized operating structure allowing those general managers to be completely in control of their business, right? So with our enhanced demand and capacity tools that we have. They have better visibility than they've ever had. So their planning ability around their operations, how they run their operations, how they control the cost of their operations is greater than it's ever been. So the operational improvements are going to continue to happen because they have the right tools in our toolbox and they have the ability to make these improvements even when the volume is down. So we expect that as the volume comes back, we're going to use those same tools, and we're going to be very mindful of how cost comes back into the business, and we're going to continue to do what we've been doing. Scott Davis: Makes sense. Just as a totally different follow-on, but M&A, just again, I know you still talk about having a pretty strong pipeline. But any additional color on what we might expect to see whether larger deals, mid-sized, small, more bolt-ons. I mean if you can talk through that pipeline, you're back – just a little bit of color there, please? Jennifer Parmentier: Yes. I mean listen, the pipeline has deals of all sizes. It really does. I mean the timing is hard to predict right now. The big thing for us, you've heard me say this before, has to be strategic. The relationships and the analysis continue to be very active, and we're still looking to acquire companies where we're the clear best owner that complements our interconnected technologies, follows the secular trends, all the same criteria that you've heard me talk about before, but it's active. It's the timing right now that's hard to predict. Scott Davis: Okay. Thank you, Jenny. Todd Leombruno: Yes, I would just add, Scott, I agree with everything Jenny said, the pipeline remains unbelievably active. It's just really kind of hard to predict timing on that. We have said we'd be active on capital deployment. You saw us do some share repurchase in the quarter. We have committed to operate the company around 2.0x net debt to adjusted EBITDA. We are still 1.7% today. So our commitment – our preference certainly is to do acquisitions, but we are committed to be active in the deployment space. Scott Davis: Got it. Thank you. I'll pass it on. Operator: And your next question comes from David Raso with Evercore ISI. Please state your question. David Raso: Hi. Thank you for the time. The tariff, 3% of COGS, is that a number that is expected to go up for the new fiscal year? Meaning you would think the first quarter, there's some inventory on the ground. There's some mitigating costs that already landed before tariffs. Or should we think of 3% of COGS as the run rate for fiscal 2026 based off the tariffs as they are today? Todd Leombruno: Yes, David, this is Todd. That is an annualized number. So the way we calculated that is basically looking at every tariff that has been announced and what our current run rate is in those areas. So I don't expect that to go up unless there's some kind of other change in the tariff space. And like Jenny said, our team is working feverishly around the globe to do everything we can to not just make sure that we protect earnings per share, but to make sure that we make the best decisions to mitigate that 375. David Raso: And how much of the run rate is actually hitting calendar 2Q fiscal 4Q? I'm just trying to understand, are we at full speed 3% hit for these three months of this quarter? Or is it more of a – and it is helpful to say at the peak during this quarter, it's the 3% of COGS. I'm just trying to get a sense of the ramp and if other actions are needed to be taken for, say, July 1 price increases or whatever it may be? Todd Leombruno: No, that is pretty much the run rate as it sits today. There is no ramp on that. And I would tell you the actions have already been in place. David Raso: All right. Terrific. Thank you. Operator: Your next question comes from Andrew Obin with Bank of America. Please state your question. Andrew Obin: Yes. Good morning. I guess still good morning. Jennifer Parmentier: Good morning. Andrew Obin: Yes, good morning. Todd Leombruno: Oh, good morning. Andrew Obin: Yes. So a question, I guess, about a month ago, people were excited about potential for European recovery. International orders are improving. Can you just tell us what it is you are seeing in Europe? And also, we've been getting a lot of questions about your exposure to European defense budgets. If you could just sort of give us color on, a, what are you seeing in Europe and specifically potential exposure within Aero to European defense? Thank you. Jennifer Parmentier: Okay. So first, Andrew, talking about – let's just start with the European defense. We do have – I think we talked about this the last time we were together. We do cab, content. We're well positioned globally in the defense market, and we sell to both U.S. and international defense prime. So many of the U.S. built aircraft are exported. And we expect that, for instance, with the F-35, a third of that total fleet will be sold to the Allied military. So that kind of gives you an idea of what our exposure is there. And sorry, again, I got distracted with the seaborne military, your first question, please. Andrew Obin: Yes. So the second question is just German elections at Hanover, I think nothing yet. People sort of seem to be excited about potential. What are you hearing from your partners in Europe? Jennifer Parmentier: Yes. So obviously, we expect this broad-based softness across the end markets in Europe to continue. I mean we don't see that easing up. But what there is some positive sentiment out there about is the proposed stimulus and future defense spending, as you were just saying. So we had the European Commission proposal on defense spending. We have some big dollars out there for Germany infrastructure on energy, transport and then overall defense spending. So that's longer term, but that's what the teams are talking about to be positive about in the future. Andrew Obin: Got it. And just a follow-up. How are you guys reconsidering your footprint after the second round of tariffs if in any way? And are you adjusting CapEx down in the fourth quarter in response to tariffs in any way, shape or form? Thank you. Jennifer Parmentier: No, we are not adjusting CapEx as a result of that, and we don't see any big need for supply chain realignment due to tariffs. Just that local-for-local model gives us global capacity around the world. We've been working with the multiple tiers throughout our supply chain. And we've got a lot of good actions, leveraging our dual sourcing strategy. So I think we're in a good position here. Andrew Obin: Thanks so much. Operator: Your next question comes from Nicole DeBlase with Deutsche Bank. Please state your question. Nicole DeBlase: Yes. Thanks. Good morning, guys. Todd Leombruno: Good morning, Nicole. Jennifer Parmentier: Good morning, Nicole. Nicole DeBlase: Maybe just first of all, with orders definitely kind of ahead of expectations this quarter. Are you guys hearing or seeing any evidence at all of prebuy ahead of tariffs? Or was that not a factor in the strength? Jennifer Parmentier: No. I would say minimal evidence of prebuy activity. And as we've talked about with this increase in orders, it's all longer cycle strength. Nicole DeBlase: Okay. Got it. Thanks, Jenny. And then the margins have been a real bright spot in fiscal 2025 despite a challenging volume environment. Super impressive performance from Parker. Do you guys think you can continue to target like 30% to 35% incrementals as we kind of flip the calendar to 2026? Or at some point, does it become tougher to expand margins to that extent? Thank you. Todd Leombruno: Yes. Nicole, this is Todd. That is the number that we hold our team members accountable for across the organization. We think that is a best-in-class number. It's not always 30%, right? It depends on what's going on with the topline. If the topline is more robust, we think we can do better if the topline is a little bit lower, we try to manage that as well. So I would tell you that's one of the things that I don't worry about for our team members across the globe is managing incrementals, whether we're in a growth environment or for challenged topline. Nicole DeBlase: Thanks, Todd. I'll pass it on. Operator: Your next question comes from Joe O'Dea with Wells Fargo. Please state your question. Joseph O'Dea: Hi, good morning. Jenny, I'm sure you anticipated a question on 2026 and so encouraging in terms of your comments around industrial and potential for growth. I think my question is really around, as you've seen some of that recovery push out this year, what it is that you're seeing that gives you confidence in seeing that growth next year in particular in light of an elevated uncertainty kind of macro backdrop? Jennifer Parmentier: Well, the – first of all, I would say the longer cycle orders that we see coming in there, what we see is going to hit in 2026. We have a really good visibility of all our orders. When they come in, we know when they're going to hit, right? So we've seen very few cancellations through the last several quarters. We're getting to the point if you want to consider the last couple of years a recession, a much shallower one at that on the industrial side of the business. We're getting to the point where we are at the average or above the average amount of quarters that this industrial business would be negative. So I am the optimist here, as you've seen our guide throughout the whole year, I mean, we've kept planning for the next quarter, the next quarter, unfortunately, we're not able to put that in this fourth quarter, but we believe that it's going to come. And when it does, we're not only going to be ready, but I think we're all going to enjoy it. Joseph O'Dea: And that kind of waiting for it next quarter kind of dynamic, is that a matter of – are there things like with the adjustment to guide, it's – I guess the question is, are there demand trends that you're seeing soften sequentially or is it more a matter of things that you thought would get better sequentially just didn't happen? And that's probably – a maybe there's a little bit of everything, but any color there would be helpful? Jennifer Parmentier: Yes, things that we thought would get better, just didn't happen. So we had to pull it down into Q4. Joseph O'Dea: Okay. Thank you. Todd Leombruno: Thanks, Joe. Operator: And your next question comes from Jeff Sprague with Vertical Research Partners. Please state your question. Jeffrey Sprague: Hey, thanks. Good morning, everyone. Hey, Jenny, just back to sort of the footprint and the like. Maybe I misinterpreted what you said, but it sounds like you're not really looking at making any significant footprint changes that just sort of surprises me right, like I wouldn't think you want to eat $375 million in tariffs. I get you've got plans to action it. But are you basically saying that you can handle it with dual sourcing. And then that leaves open the option to kind of flip back maybe to China at some point in the future, probably oversimplifying a complex question. But just your view on really kind of mitigating this maybe permanently as opposed to temporarily? Jennifer Parmentier: Yes. So first of all, I'd say this much, we are always looking at our structure in our footprint, right? That's just part of what we do, either through Kaizen or Parker Lean System. So we're constantly looking at that, and we make sure that we're making the best use of all our resources. So that's something that's ongoing. If you look back in time at what we've done there's good numbers on that. I would say that because we've always had this local-for-local model, we have the advantage of having capacity around the world, right? So we can leverage that capacity when we need to. So it's not just footprint or turning one supplier off and another supplier on that's going to mitigate all these actions. It is the dual sourcing strategy. It's working closely with suppliers on cost negotiations and further improvements. It's really making sure that all of our teams continue to use these tools that have provided this margin expansion all along, and they're really good at it. So I would tell you that those are the supply chain actions in addition to the win strategy, cost actions and then the pricing actions that we have a strong muscle in doing that. Jeffrey Sprague: So are the pricing actions actually smaller than the win and sourcing actions collectively? Jennifer Parmentier: I wouldn't say that they're smaller. I would say that it's a little bit different for every business, but it is a collection of all of those actions. It gives us the confidence to say we can fully mitigate the tariffs. Jeffrey Sprague: And then just maybe a little follow-on that – is the $375 million just simply tariffs? I assume there's other just inflation that might not be directly care of, but perhaps is indirect. I'm sure it's included in your guide. But just curious if that $375 million is just a mathematical tariff kind of gross number. Todd Leombruno: Yes, Jeff, you're exactly right, that $375 million is solely tariff costs, no other cost changes. Jeffrey Sprague: Right. Thank you, guys. Appreciate it. Operator: Your next question comes from Joe Ritchie with Goldman Sachs. Please state your question. Joseph Ritchie: Hey, everybody. Good morning. Jennifer Parmentier: Good morning. Joseph Ritchie: Jenny, can you just double-click a little bit on the implant project delays and what you're seeing there? I guess the disconnect a little bit with the order rates that you're seeing, but be curious – maybe if you can just tell us a little bit more about that bidding activity and how you see it playing out in the coming quarters? Jennifer Parmentier: So when we look at implant and industrial, like I mentioned, we did have that a positive low single-digit, slightly positive, low single-digit, and we took it to negative low single digits. And really, this is about the industrial recovery delays just persisting. Our previous guidance, as we just mentioned, assumed that we were getting some recovery, and we're not seeing that yet. Again, I would tell you that quoting is still active, even though there are project delays and we're not seeing a lot of cancellations. It's really more of delay. So it's not one big thing or even a small collection of any event or any areas just continued delays. Joseph Ritchie: Okay. That's helpful. And if I can maybe just ask a follow-up on that. As you think about the type of work that you're bidding on and what that pipeline looks like, there's a lot of activity that's happening in the U.S. that's already been started from a mega project standpoint. I'm just curious like how much of this is like new construction versus what you would normally kind of see as like maintenance or renovation repair type projects? Jennifer Parmentier: I don't have a specific split for you, but I would tell you that it's both. I mean when we talk to the channel, they tell us how they're participating in some retrofitting and plants, upgrades in plants and then also with some new construction. So it's a mix of both. Joseph Ritchie: Okay. Great. Thank you. Operator: Your next question comes from Andy Kaplowitz with Citigroup. Please state your question. Andrew Kaplowitz: Hey, good morning, everyone. Jennifer Parmentier: Good morning. Andrew Kaplowitz: So Jenny, I know you talked about Europe a bit more, but Asia seems to be holding up well for Parker, and specifically China seems to be holding up. Maybe you can give us a little more color on what you're seeing there. And Latin America has continued to be sort of strength of Parker. So how sustainable is that growth going into 2026? Jennifer Parmentier: So for Asia Pacific, in Q3, that was up 2%, as Todd mentioned, and that growth was mainly driven by electronics and Semicon. And we did see some gradual improvement implant. China, just a reminder, it's 5% of our sales, and Q3 sales were positive, I would say, low single digits over prior year. And we're continuing to see that really be driven by electronics and semicon. Some EV, some distribution, but it's – again, just a reminder, it's 5% of our sales. And then in Latin America.... Todd Leombruno: Yes, Latin America continues to be robust. I would say it's really broad-based. The team there really has been focusing on the areas they win. It's a big filtration market for us. It's a lot of motion systems and activity, and the team just really continues to manage a really volatile situation extremely well. Andrew Kaplowitz: And Todd, I just want to ask you about the corporate G&A, the bridge on Slide 10, the $0.08 positive. I think you talked about relatively significant cost containment in your prepared remarks. Is any of that temporary – should we think about any of it coming back? How does that line item moving forward? Todd Leombruno: Yes. I mean there was a couple things there that we talked about, market-based benefits. Those obviously fluctuate with market activity. But I think the team has done a really good job looking at what we can control. I don't foresee any significant amount of that rolling back into the business. I think I pride ourselves on being a very SG&A frugal in that space. Andrew Kaplowitz: Appreciate all the color. Todd Leombruno: Thank, Andy. Operator: Your next question comes from Stephen Volkmann with Jefferies. Please state your question. Stephen Volkmann: Hey, good morning, guys. Thank you for fitting me in. Two follow-ups for me. One, I guess, I want to turn this whole tariff thing completely around. And I feel like if I was a North American manufacturer trying to figure out how to have a more local supply chain you guys might be my first call, given you're kind of local-for-local. So I'm curious if you're seeing more inquiries as other manufacturers try to rejigger their supply chains? Jennifer Parmentier: Actual people like reaching out to us for advice. Stephen Volkmann: No, more reaching out to you for product, sorry to interrupt. But given that a lot of your competitors are international and you're not as much, I wonder if there's an opportunity for you there? Jennifer Parmentier: Well, we do think that there could be some share gain opportunities for us here. I mean, as I was mentioning, having this capacity globally and being able to serve the customers really well. We think that there are some opportunities here. Todd Leombruno: Yes, Steve, we were just talking about that the other day. I don't want to be overly bold on this. But for any business that we could potentially lose because the tariff, there is obviously some opportunity on business that we could win. So that's what the team is focused on, and I think it's still early days, but I like our chances there. Stephen Volkmann: Okay. Fine. And then maybe for you, Todd. I'm curious, again, you stepped up the repo here it feels like this may be a period where it's a little tougher to get deals done in general. I'm not really speaking for you, but there is a lot of uncertainty around outlooks and cost basis and recessions and so forth. So is the fact that you stepped up on repo, maybe telling us that the M&A is a little maybe further out and we should factor in a little more repo near-term? Todd Leombruno: No. Jenny mentioned this, our team continues to work the pipeline. The one thing that does become difficult is just really being able to accurately predict the timing, but yes. I would tell you there's many targets of various sizes in that pipeline. The reason we ramped up the repo was really because of our stated commitment to operate around a 2x leverage. And we had been below that really for the full part of FY2025, and we just took a little chunk out there, really just trying to fulfill our commitment of being active in that space. So we're going to balance that decision depending on what we see within each given month going here. But our commitment to everyone is that we will be active in the space. Stephen Volkmann: Much appreciated. Thanks. Operator: Your next question comes from Tim Thein with Raymond James. Please state your question. Timothy Thein: Great. Thank you. Maybe the first one for Jenny. I'm curious as to the kind of the tenor of conversations that you're having with customers. And as we've gone from hopes of animal spirits being unleashed after the U.S. election to now fears of recession and concerns around trade policy. I'm curious if you think the damage is sort of done for the year in terms of customers pulling the trigger on those more discretionary capital decisions? Or if we're having this conversation in three months and you're looking at your FY2026, is there a potential that, that those kind of reverse and there's more optimism. Just curious as to what you hear from your big customers? Jennifer Parmentier: Yes, there's just – there's a lot of uncertainty, right? So I think everybody is going to be smart. But at the same time, I think everybody believes that as we do that we'll get through this and that when we get through it, we want to be able to operate at our best. So I think people are cautious, but just kind of waiting to see what happens in some cases. But I wouldn't say there's been anything overly negative that I'm hearing from the customers. Timothy Thein: Okay. And then just on tariffs. And the question is just in terms of the pricing flexibility that you have in aerospace, specifically, just given typically, you have more longer-term agreements – so I'm just curious your ability to react and adjust there. I know we've seen some suppliers announce force majeure clauses. But anyway, just kind of the – as you think about the tariff ability to offset that industrial versus aero, if there's any notable difference between the two segments? Jennifer Parmentier: We're using the same pricing tools and strategies on – in aerospace that we use in the industrial segment. You are correct. There are some – there are longer-term agreements in aerospace, but we're having those conversations. We've been having those conversations even prior to tariffs with high inflationary time. So we're doing everything that we do on the industrial side of the business and getting through what we can get through. And obviously, we have a little bit more pricing availability on the aftermarket side. Timothy Thein: Great. Thank you. Todd Leombruno: Thanks, Tim. Hey, Diego, I think we've got time for maybe one short question here. So let's get a good one at finished draw. Operator: Absolutely. And our final question comes from Brett Linzey with Mizuho Securities. Please state your question. Brett Linzey: Hey, good morning, all. Thanks. Yes. So I guess maybe just – yes, just one more on M&A, and I understand it's just an episodic process. But I am surprised there hasn't been at least a smaller bolt-on type deal given you've been on your front foot. I guess is it fair to say you're really targeting something larger, more medium-sized type assets? And then have there been any priority assets that have actually just fallen out of the funnel completely? Jennifer Parmentier: Well, I mean I'm going to just repeat myself again, I mean, there are strategic assets in the pipeline of all sizes. We are not focused on one size versus the other. Really does have a lot to do with timing. And we are very committed to making sure that it is a strategic fit. So we always are looking at different assets, and we're evaluating them, and we'll continue to do so. The pipeline is robust and active. Todd Leombruno: Hey, Brett, I would just leave you with this. The capacity that the company has never been greater. We're going to generate over $5 billion of EBITDA this year. I already mentioned we're going to do over $3 billion of cash flow. So it really is not an issue of capacity. It's really just making sure it's the right strategic or series of strategic deals that make sense for us and that we model a future that we can generate returns on those. So it's really just a combination of that. Brett Linzey: All right. Great. Thanks. And I’ll leave there as my strong question. Todd Leombruno: Appreciate it. Thanks so much. Brett Linzey: Thank you. Operator: Thank you. Back to Todd Leombruno for closing remarks. Thank you. Todd Leombruno: Thank you, Diego. This concludes our FY2025 Q3 earnings release webcast. We appreciate your time and attention. We thank you for joining us today. Our Investor Relations team of Jeff Miller, [Genese Tucky] and Chantelle O'Kelly, will be available today and tomorrow for any follow-ups or clarifications. Thank you, everyone, and have a wonderful day. Operator: Thank you. This concludes today's conference. All parties may disconnect.

Operator: Greetings and welcome to the Parker-Hannifin Corporation Fiscal 2025 Second Quarter Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Todd Leombrun, Chief Financial Officer. Thank you. You may begin. Todd Leombrun: Thank you, Shelly. We appreciate it so much. Welcome to Parker's fiscal year 2025 second quarter earnings release webcast. This is Todd Leombrun, Chief Financial Officer, speaking. And with me today is Jenny Parmentier, our Chairman and Chief Executive Officer. We appreciate your interest in Parker, and thank you for joining us today. On Slide 2, we will address our disclosures on forward-looking projections and all non-GAAP financial measures. Items listed here could cause actual results to vary from our forecasts. Our press release, this presentation, and all reconciliations for any non-GAAP measures were released this morning and are available under the Investor section on Parker.com. The agenda for the call today has Jenny starting with the highlights to our record second quarter performance. She will also highlight how our business system, the Win strategy, drives operational excellence in Parker. And then she will give an update to our market vertical outlook for the rest of our fiscal year, FY’25. I will follow Jenny with more details on our strong second quarter financial results and provide additional color to our updated guidance. We'll then conclude, as usual, with the question and answer portion of the call, and we will do our best to address as many questions as possible within the hour. Now I'd like to draw your attention to slide number three, and Jenny, I will turn it over to you. Jenny Parmentier : Thank you, Todd. And thank you to everyone for attending the call today. Our performance this quarter reflects our focus on operational excellence and the strength of our balanced portfolio. We produced top quartile safety performance, aligned with our goal to be the safest industrial company in the world, and saw continued strength from our aerospace aftermarket. Consistent execution of the Win strategy delivered 110 basis points of margin expansion, resulting in a Q2 record of 25.6% adjusted segment operating margin. In addition, our teams delivered record adjusted segment operating margin across all businesses, as well as record earnings per share. Record year-to-date cash flow from operations, coupled with proceeds from previously announced divestitures allowed us to substantially reduce debt by $1.1 billion this quarter. And finally, we are encouraged to see industrial orders turn positive in our longer cycle businesses. Next slide, please. Our Win strategy. I'm often asked, how do we continue to expand margins, and more importantly, can we continue to do so? I've talked about this several times in the past. It is our business system, the Win strategy that drives operational excellence. We trust the process. It is a proven strategy, and it works. The next few slides will show you how our teams use the Win strategy to drive performance over the cycle. Next slide, please. Embedded in the Win strategy is the Parker Lean System. It is fundamental to our culture, and drives continuous improvement at all 85 divisions. Within the same pillars as the Win strategy are the critical tools used by all of our general managers and their teams to expand margins and drive organic growth. Disciplined execution of the Parker Lean System reduces variation and eliminates waste from the business. This system allows us to keep taking performance to the next level. And important to point out here is that we are never done improving our business. Next slide, please. On this slide, we have an example of how the Win strategy drives performance through the cycle in one of our North American divisions. This is a division in our filtration group that has diverse exposure across industrial market verticals and a balanced OEM aftermarket mix. This is an engaged team that has utilized our high-performance team structure to execute the Win strategy. Looking at the results on the far right-hand side of the page, they have achieved first quartile safety by bringing attention and ownership to concerns, tracking them to closure, and scheduling audit follow-ups to ensure sustained results. They are utilizing the Parker Lean System, specifically Kaizen, to expand margins and achieve the FY’25 profitability goals for their division even in a negative growth environment. In addition, they have utilized the Simple by Design tools to reduce complexity and cost, as well as increase dual sourcing to strengthen their supply chain. And finally, use of our zero-defect tools has resulted in a 52% reduction in rejected parts per million, thus providing their customers a better experience. Next slide, please. Parker is a transformed company today. The chart on the left side of this page shows the strength of our portfolio over the last two and a half years. Order rates increased across all reported business in Q2, coming in at 5% for the quarter. Aerospace order strength continued in both aftermarket and OEM. And although we are seeing a continued delay in the expected industrial recovery, we are encouraged to see industrial orders turn positive in our longer cycle businesses. Next slide, please. Taking a look at our updated FY’25 sales forecast by market vertical. We are raising aerospace and defense to 11% on the strength of the aftermarket and gradual OEM rate increases. On the industrial side of the business, although orders have turned positive, there continues to be pressure in many of these markets. We are expecting in-plant and industrial equipment growth to be slightly lower within our low single-digit framework. We are continuing to see delays in recovery while distribution sentiment does remain positive. We are changing our forecast on transportation from low single-digit to neutral, primarily driven by weakness in automotive and higher dealer inventories. The bright spot here is that work truck demand does remain strong. Off-highway steps down to negative mid-teens as OEM de-stocking and production cuts continue and the weakness in ag persists. We expect energy markets to remain neutral as projects and CapEx delays continue. And finally, we are increasing HVAC from low single digit to mid-single digit growth, driven by refrigerant changes in the industry. All of this adds up to an organic growth forecast of approximately 2% for fiscal year '25. I will now turn it over to Todd to summarize our Q2 results. Todd Leombrun: Thanks, Jenny. Okay, everyone. I'm going to begin with the results on Slide 10, and then we'll get to some more details on the outlook that Jenny just touched on. As Jenny mentioned, the second quarter was a strong quarter, lots of records. It was another quarter of strong margin expansion and EPS growth, despite some real top-line pressure. Sales were down 1.6% versus prior. Most of that decline is the result of the divestitures that we announced. The divestiture impact in the quarter was an unfavorable 1.4%. Currency also flipped on us this quarter. While we were forecasting a slight positive 90 days ago, it turned out to be unfavorable at 0.9. And on a good note, organic growth was positive at almost 1%. If you look at segment operating margins, 25.6% is a Q2 record. That's an increase of 110 basis points versus prior year. And adjusted EBITDA margins was also a record at 26.8%, happens to also be an increase of 110 basis points from prior year. Adjusted net income of 853 or 18% return on sales, both of those are also records. And lastly, adjusted earnings per share were up 6% to a Q2 record of $6.53. Jenny mentioned this also, but the strong second quarter performance was consistent across all of our businesses and really just a nice solid finish to the first half of our fiscal year. If we could move to Slide 11, this shows the walk for that $0.38 or 6% increase in adjusted EPS. And again, it was just a nice high-quality quarter from an operating standpoint. Segment operating income dollars did increase by $33 million or $0.20, despite the 1.6% lower top line. And while strong aerospace performance was the primary driver, the industrial businesses delivered record segment operating margins, despite negative organic growth pressure and FX pressures as well. In total, interest expense was $0.17 favorable. That was driven by our continued focus on debt reduction. Income tax and other both contributed $0.03, which was mostly offset by slightly higher corporate admin and share count. So the adjusted EPS of $6.53, I already said it, it's a record, and I really commend our team members around the world for strong operating performance, really diligent cost actions where necessary, and really a focus on cash flow that helped us achieve these results. If we move into the segments, if I look on Slide 12, it really is a testament to the Win strategy that our team members were able to deliver such broad-based margin expansion. We're so proud of the hard work and all of their efforts. Every business delivered record segment operating margins, whether they had a positive 14% organic growth or whether they were negative 5%. Margin expansion for the entire company was 110 basis points, and another positive sign was that orders moved to plus 5% versus prior year, mainly off of a longer cycle and market strength. If you look at the diversified industrial North America businesses, sales were $1.9 billion. That equated to an organic growth of negative 5% versus prior. That was lower than our expectations going into the quarter. We continue to see delays in the industrial recovery, specifically in transportation and off-highway markets. A recovery has also yet to materialize in the distribution channel. But if you look at adjusted segment operating margins, we were able to increase those by 40 basis points to a record 24.6, driven by just unbelievable operating execution. A nice positive sign in North America where orders did turn positive after a few quarters of negative, so we were happy to see that, and again, it's specifically driven by some of our longer cycle verticals. If we move to the industrial international businesses, sales were $1.3 billion. Organic growth in international came in at negative 3%. Asia-Pac was a positive 3%. That's similar to what we had last quarter. Latin America, positive at plus 10%, while EMEA remains challenged with organic growth at negative 8%. But if you look at adjusted segment operating margins, the international team achieved a record high of 24.1%. But if you look at adjusted segment operating margins, the international team achieved a record high of 24.1% and expanded margins by 110 basis points. As Jenny mentioned, it's really just the power of the wind strategy in action. Our international team continues to focus on productivity, cost controls, all things in the wind strategy to expand margins and really are operating with unbelievable resiliency in a very tough growth environment. Order rates here also moved further positive from plus 1 last quarter to plus 4. That was mainly driven by improvement out of Asia Pacific. If we look at aerospace, aerospace continues to outperform. Sales were a record $1.5 billion in aerospace. That is up 14% versus prior year. That did exceed our expectations for the quarter. All of that growth was organic, 14% organic growth. That was really driven by 20% plus growth in the aftermarket area and mid-single digit positive growth in the OEM markets. Adjusted segment operating margins, same story here, a record 28.2%. That is an increase of an incredible 170 basis points versus prior. Just really robust top line, favorable aftermarket mix continues to drive this great margin performance and aerospace orders continue at a positive clip of plus 9. Just great job across all of our businesses in the quarter. On Slide 13, just to touch on our year-to-date cash flow performance, year-to-date cash flow from operations was 17.4% of sales. That equates to about $1.7 billion in CFOA that is a record. It's also an increase of 24% versus prior year. Year-to-date free cash flow increased 17% from prior year. We finished at $1.5 billion or 15.2% of sales for free cash flow. Jenny mentioned some of that divestiture activity. Divestiture activity in the quarter generated cash proceeds of approximately $620 million and an as-reported post-tax gain of $223 million. We have excluded that gain from our adjusted results in the quarter. 100% of the proceeds from those transactions were used to further reduce debt. As Jenny mentioned, in the quarter we paid down $1.1 billion. That moves our year-to-date debt reduction to $1.5 billion. Our gross debt to adjusted EBITDA is now $1.7 billion. Good work on cash flow across all elements of the business. Moving to Slide 14 and guidance, let me give you some more details on this. Reported sales growth for the year is now forecasted to be in the range of minus 2 to positive 1 with 0.5 negative at the midpoint. Keep in mind, divestitures are 1.5% of that unfavorable impact and 100% of that divestiture activity is from the industrial North America businesses. Currency headwinds are now expected to be a 1% negative headwind. That is based on December 31st exchange rates as we always do. That did flip from what we were expecting 90 days ago, just currency rates continue to show significant volatility. In respect to organic growth, we have raised the aerospace organic growth midpoint by 100 basis points to now 11% for the full year. But the offset is on industrial segment. Midpoint has been decreased as followed. In Industrial North America, organic growth is now forecasted to be negative 2.5% at the midpoint for the year. And the midpoint of the Industrial International organic growth is now forecast to be flat. For the full year, we expect Parker's organic growth to be a positive 2% at the midpoint. Despite all of that, we are raising our adjusted segment operating margin guidance by an additional 10 basis points for the full year and moving our expectations to 25.8% for the year. That is now a forecasted margin expansion of 90 basis points versus our FY -- fiscal year finish of last year. Tax rate is now slightly down to approximately 22%. We are modeling 22.5% for the second half of the year. And that -- there's more details of that in the appendix, along with assumptions we're using for corporate G&A interest and other, as we usually provide those. Despite the currency headwinds and the delayed industrial recovery that Jenny talked to, we're maintaining our full year adjusted EPS midpoint at $26.70. Full year as reported EPS is now expected to be $24.76. And like I just said, adjusted EPS midpoint is expected to be $26.70. Both of those have a range of plus or minus $0.30 on either side. We also remain committed to our free cash flow forecast in the range of $3 billion to $3.3 billion for the full year. If we look specifically at third quarter for FY '25, our reported sales are expected to be approximately $4.9 billion with organic growth of positive 1.5%. Adjusted segment operating margin is 25.6%, and adjusted EPS for the quarter is expected to be $6.65. So Jenny, that's all I have. I will hand it back to you, and I'll drive everyone's attention to Slide 15. Jenny Parmentier : Thank you, Todd. And a reminder on what drives Parker: safety, engagement and ownership are the foundation of our culture. It's our people and living up to our purpose that drives top-quartile performance, and we remain committed to being great generators and deployers of cash. Todd just showed you our cash generation year-to-date, and we talked about all the great performance across all of the divisions. We are actively focused in extending our track record of deploying capital to deliver the best shareholder value possible. Back to you, Todd. Todd Leombrun: Shimon, we are ready to begin the Q&A session. So we'll take whoever you got first in the queue. Operator: Thank you. We’ll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Jeff Sprague with Vertical Research Partners. Please proceed with your question. Jeff Sprague : Thank you, good morning, everyone. Jenny, maybe to start, just more complexion on what you're seeing in the industrial long cycle. I guess, when you kind of addressed to the strength in industrial long cycle, is this the aero stuff that sits inside industrial? Or maybe you could elaborate on what verticals specifically are looking better on the long-cycle side. Jenny Parmentier : Yes. Jeff, primarily, it is the long-cycle strength. The aerospace and defense is sitting in those industrial businesses. But it's also positive in HVAC and in semicon. So that's really what's helping those orders in Asia Pacific increase this last quarter. Jeff Sprague : And so the kind of sales conversion cycle on that stuff is we're talking more 6, 9, 12 months in your view? Jenny Parmentier : Right, right. Beyond our fiscal year and more into fiscal year '26. Jeff Sprague : Okay. Great. And then I was just hoping, Todd could give a little bit more color on just the pattern -- organic pattern of industrial revenues Q3 and Q4 to close out the year. What's embedded in the $665 million, for example, for the industrial? Todd Leombrun: Yes. Absolutely, Jeff. So we did pull down Q3 slightly. When you look at what we're looking at full year -- Jenny, I may ask you to grab that, if you've got it handy. Jenny Parmentier : Yeah. So we have -- for our Q4 guidance, the industrial organic sales guidance is 2.5% for North America and 5% for international. It does assume a recovery, right? So basically, what we've done here is push things out a quarter. This guide is in line with prior growth periods when you look at sequentially Q3 to Q4. So that's an assumption that we're making in there. Aerospace, we've raised the growth outlook, as Todd mentioned earlier, to 11% for the full year. And if you look at Q4 for aerospace last year, we were at a positive 19%. So it's a tough comp for aerospace, but that's what we're showing for the rest of this year. Jeff Sprague : Great, thank you. I’ll leave it there. Todd Leombrun: Thanks, Jeff. Operator: Thank you. Our next question comes from the line of Joe Ritchie with Goldman Sachs. Please proceed with your questions. Joe Ritchie : Hey, good morning, guys. So I know that one month doesn't necessarily make a trend, but I'm just curious, as we've started 2025, have you seen like any discernible differences or changes in trends based on how you exited calendar year 2024? Jenny Parmentier : What we have right now is the best look that we have for this quarter and for the second half. So nothing notable that I would comment on at this point, just the best look we have today. Joe Ritchie : Okay. Fair enough. And then, I guess, the follow-on question to that, Jenny, is like, look, you guys have done an amazing job. And you described it a little bit earlier in your prepared remarks regarding your ability to expand margins in the industrial businesses despite this like very weak environment. If the current like trends hold through the remainder of your fiscal year, I mean, do you still expect to see some margin expansion coming out of both North America and international? Or does it become a lot harder? Jenny Parmentier : I think we're still going to expand margins. I feel very strongly about the power of The Win Strategy and the tool set that's available to our general managers. I mean, obviously, everybody likes me, right? That's something that is a positive. But I don't pull back on my margin expansion story. We have the tools and our teams are doing a great job. Todd Leombrun: Yes. Joe, I would just add. We do have margin expansion in the guide here for the second half. It is more muted just because there's some currency headwinds, and obviously, the top line headwinds. But to Jenny's point, if you look at across all three businesses, we're still showing strong margin expansion across all three of those businesses. Joe Ritchie : All right. Thanks, guys. Operator: Thank you. Our next question comes from the line of Scott Davis with Melius Research. Please proceed with your question. Scott Davis : Hey, good morning, Jenny and Todd. There's not much to pick on. There hasn't been for some time, guys, so I'll kind of ask some nuances around M&A. We keep hearing about kind of some of the enthusiasm of stuff coming out of PE. But historically, you guys have had kind of probably tilted a little bit more towards carve-outs. But what do you see out there in the M&A environment? And is your enthusiasm or, I should say, confidence in getting deals done in higher than it was in -- do you think in '24 or comparable? Jenny Parmentier : So it is an exciting time, and we do have a robust pipeline. And we put a lot of stock in the fact that many of the assets in the pipeline or relationships that we've built over many years. And obviously, we've worked really hard and we've done a good job paying down debt. So we're in a position to do that. So I don't know if I would comment that it's easier, but it's definitely a focus for us, and we're going to make sure that we continue to keep a close eye on everything. Targets of all sizes in the pipeline, you've heard me say that a couple of times. We still have the same criteria. We want to acquire companies. We're the clear best owner, accretive to growth, resiliency, margins cash flow, EPS, synergies. So we're really, really committed to deploying our capital in a way that's going to deliver the shareholder value that we've shown we can deliver in the past. Scott Davis : Yeah. That makes sense. And I have to ask a question just because orders are a little better than I would have thought they'd be. Any kind of weird stuff out there as it relates to either buying ahead of tariffs or buying ahead of price increases or anything else that you can kind of point to -- that would have impacted orders a little bit? Or was it just pretty much things are getting better, and that's the story? Jenny Parmentier : Yeah. No, I wouldn't say nothing at all under that -- under those couple of items you just said. I mean we're seeing the strength of aerospace and defense in our industrial businesses and HVAC and semicon. So longer cycle, nothing strange. Scott Davis : Okay. Congrats and best of luck this year. Jenny Parmentier : Thank you. Todd Leombrun: Thanks, Scott. Operator: Thank you. Our next question comes from the line of Mig Dobre with Baird. Please proceed with your question. Mig Dobre : Thank you. Good morning. Just to follow up on the tariff discussion, I'm wondering sort of how your own thinking has evolved around this issue. What are you hearing from customers in terms of how they're preparing to deal with tariffs, especially if Canada and Mexico is involved? And again, what Parker's strategy would be around this, whether with your production or anything else that you're planning to do with your business? Jenny Parmentier : Yeah. Well, I mean, Mig, obviously, there'll be an impact depending on what actually happens. But we've dealt with tariffs before. We have the visibility, we have the tools, and we have the agility to act when something does happen -- if and when something happens. So I would also say that over the past decade, we've built a local-for-local model because we want to be close to our customers. So if it happens, there will be impact, but that definitely helps us. And we've been focused on supply chain leadership now for a couple of years. A lot of new tools and strategies have been put into place to enforce that local-for-local and reduce lead times. So we don't see a big need for a supply chain realignment. We don't foresee any of that. And because we've dealt with this before and our customers know how we've handled this before, the teams will get to work when they need to. Mig Dobre : Understood. My follow-up, looking at Slide 8 where you kind of talk about your growth forecast by market vertical, I'm wondering a little bit about mix. Maybe you can comment on that. I know we talk about it in aerospace and defense, but within your industrial businesses, we're seeing some verticals like off-highway, for instance, more pressure relative to others. Is there anything to call out here in terms of some of these end markets bearing maybe higher margins versus the segment average? Thank you. Jenny Parmentier : I don't think there's anything to call out here, anything that would be of a concern or change the way that we're looking at the forecast or how we can expand margins. So nothing -- within some of these verticals, you've heard us talk, for instance, within off-highway, ag is weaker than construction. But there's nothing there that I would think we would point to a mix concern. Todd Leombrun: Yeah. Mig, the only thing I would tell you, as you know, this -- our distribution channel has a more positive margin profile than the OEM channel, but it's not anything out of line than what we've seen in normal periods at this time. So the margin expansion is really coming from the team working really hard on productivity, working really hard on cost and managing what they can control. Mig Dobre : All right. That’s great. Thanks. Operator: Thank you. Our next question comes from the line of David Raso with Evercore ISI. Please proceed with your question. David Raso : Hi, thank you for the time. Jenny, earlier, you were mentioning -- I believe you said fourth quarter organic growth rates. And I won't bore you with the math right now, but I'm just trying to make sure I understand the cadence seems to have a very light organic growth for aero in the third quarter to foot to the full company third quarter organic, but then a big bounce in the fourth quarter. I'm just trying to make sure I'm reading that correctly, the way you laid out the industrial growth. Jenny Parmentier : So aerospace in the third quarter is projected to be 9.5%. Fourth quarter is 5%. And what I mentioned earlier was fourth quarter last year was 19%, and so still strong aerospace growth but a pretty tough comp there. Total year is 11% for aerospace. Todd Leombrun: David, I really do think it's just the comps. If we look at the sheer dollars, Q4 would be the highest aerospace shipments we've ever had in the company, and it would be obviously the highest we shipped all year. David Raso : Okay. Helpful. And then when you noted you expect some improvement in the fourth quarter, can you highlight where are you seeing that? Are there already conversations, some stocking levels, maybe on some of the short cycle? Just where do you expect to see that improvement? Jenny Parmentier : Well, we just -- we expect to see some gradual industrial recovery based off of the fact that, as Todd just mentioned, our distributor sentiment is very positive. And we've been here at that average time of impact we're here at five quarters of negative growth, and the average is 6. And North America International, we're at six quarters of negative growth, and the average of 6. So we're just expecting that this turn is coming, but it's been pushed out another quarter from what we see right now. David Raso : And when it comes to the mix of what is picking up versus what you expect to pick up, I'm just trying to get a sense of how much should we think about. Is it an accelerator in the margin expansion, all else equal, with what's supposed to pick up in a couple of quarters? I mean, usually, you think of, for example, distribution is some of your highest-margin business. And that sounds like that maybe hasn't necessarily accelerated yet. Is that still on the come? Or maybe you can explain a little bit how to think about the mix of what's starting to recover and what's on the come. Jenny Parmentier : Yes. Distribution, we're -- it's still on the come, right? I mean they're positive. They're expecting it to happen. They're ready for a recovery, but it hasn't come yet. So yes, obviously, distribution is a higher margin for us. But again, our margin expansion is going to come from the teams continuing to do all the great work that they do on productivity and driving out costs in our plants as well. David Raso : Yeah. The spirit of the question is everybody after the next quarter or even after this call start thinking about how do you guide in July or early August. And just trying to think about distribution starts a little more of a lead horse earnings recovery into fiscal '26. Relatively speaking, that should be a positive margin mix. So that was the spirit of it. Thank you so much. Todd Leombrun: We were really happy to see the orders turn positive. I think another quarter would be another great data point to make us feel good about '26. David Raso : Thank you. Todd Leombrun: Thanks, David. Operator: Thank you. Our next question comes from the line of Jamie Cook with Truist Securities. Please proceed with your question. Jamie Cook : Hi, good morning. Congrats on a nice quarter. I guess just two questions. One, can you give more color on the LatAm order as a percent and then EM, I guess, down 8%, what you're seeing there? And then, I guess, Jenny or Todd, in the spirit of the margin question again and your outperformance given organic growth is disappointed this year. To what degree can we expect -- when the markets turn, is there a reason to believe that incremental margins coming out of this downturn should be better than average because of structural improvements in The Win Strategy that you would point to above-average incremental margins this cycle? Thank you. Todd Leombrun: Yeah. Jamie, let me touch on that margin question first. The incremental margins are a little bit difficult with a muted top line, right? The calculations get a little strange, but the team has unbelievably performed on that. We have clear margin expansion targets out to our longer-term targets. We don't expect FY '26 to be any different. That will be another leg in moving those margins to what we have committed to. But I think if you're looking at a, in general, we really still believe 30% incremental margins are best-in-class. And if you're doing that, you're doing all the right things like investing in the business and obviously generating a higher organic growth. So that's what we're kind of pushing the teams to. In respect to Latin America, yeah, they have been fantastic. It is a small piece of the company, but the team down there has been really stellar in growth, in margin performance and really just doing a fantastic job. We tell them all the time when we're in our meetings that we're so impressed with what they've been able to do. It's pretty much been broad-based performance across the Latin America businesses. There's a lot of filtration business in Latin America, a lot of Motion Systems business in Latin America, but they do touch really all of the verticals that we play in. So I'd say broad-based. Jamie Cook : Sorry, on EM, down 8%? Todd Leombrun: I'm sorry, what was that, Jamie? Jamie Cook : Sorry, the EM order is down 8%, EMEA? Todd Leombrun: EMEA has just been a really challenging environment. It's across the board there. It's been in a negative environment for a while. I think it's a plus that international orders have turned positive. We you have to see that in our EMEA region. But I will tell you, the team, again, is doing everything they can to be ready for a recovery and to do that in the most cost-efficient manager -- managed possible. They continue to be able to eke out margin improvement despite the top line pressure. Jenny Parmentier : Yeah. Jamie, I would just add on to that, that I would consider a broad-based, implant transportation off-highway, just really a challenging demand environment there. Jamie Cook : Thank you. Todd Leombrun: Thanks, Jamie. Operator: Thank you. Our next question comes from the line of Andrew Obin with Bank of America. Please proceed with your question. Andrew Obin : Hi, guys. Good morning. Todd Leombrun: Hi, Andrew. Andrew Obin : Just a sort of follow-up on Dave's question, I think, a little bit. Industrial businesses are getting more long cycle within your portfolio. So if you look at history, does it take longer versus history now for positive orders to translate to positive sales growth? Should we just thinking different growth algorithm? Jenny Parmentier : Well, it's been seven quarters and the average was 6. So it's one quarter longer than the past. Andrew Obin : No, no, no. I'm asking historically, you are a longer-cycle business, right? So if you get an order, right, should we dial in growth later than we would like looking at Parker 5, 10 years ago? Jenny Parmentier : Yeah. Todd Leombrun: Yeah. I think on the longer-cycle businesses, Andrew, that's for sure. I think the real challenges is some of those shorter-cycle businesses are the ones that are under the most pressure right now. So when we see that come back, I wouldn't expect any change in that cadence. But if you look at the mix of the whole company, leaning more longer cycle for us. That means a little bit longer translation into organic growth. Andrew Obin : And I guess, I'll ask two questions as a follow-up because I think one of you simply can't answer. Any sense when this off-highway OEM destock will end? And then second question, just granularity maybe on aftermarket for aero military versus commercial because that has been a very nice story? Thank you. Jenny Parmentier : Yeah. I think off-highway is going to be challenged for the rest of the calendar year, especially. So that would be my best estimate right now. And you want some color on aero mix? Was that what you asked, Andrew? Andrew Obin : Yeah, just aftermarket, military versus commercial. Jenny Parmentier : So aftermarket -- well, let me -- just let me go through the sales with you and then just remind you of our guidance. So total aerospace was 14% growth. Commercial OEM was 5%. Defense OEM was 8%. Commercial aftermarket, 21%; defense aftermarket, 25%. So we're continuing to see that strength there as we're waiting for those rate increases to go up. And then although we just have a really strong defense depot partnerships, which is just helping the defense aftermarket. And then if you look at the outlook, we are raising commercial OEM to mid-single-digit growth. It was previously low single digit. We're raising commercial MRO to high-teens growth. It was previously mid-teens. And we're raising defense MRO to high-teens growth, previously low double digit. So really, just overall great strength here in aerospace continues. Todd Leombrun: How about that, Andrew, we've got both of them for you. Andrew Obin : Makes lot of sense. Thanks so much. Todd Leombrun: How about that Andrew. We got [indiscernible] for you. Andrew Obin : Operator: Thank you. Todd Leombrun: Okay, thanks. Operator: Thank you. Our next question comes from the line of Julian Mitchell with Barclays. Julian Mitchell : Hi, good morning. Maybe just my first question around trying to understand in the industrial businesses, the sort of difference between North America and international. So if we look at the guidance, you've got worse trends in North America organic sales for the year than international. I think the sort of comps are pretty similar in terms of the 2024 performance. And I think in general, people would say there's been a better tone or customer sentiment or what have you, among U.S.-based distributors, at least in the last month or two. So just trying to understand why there is a worse outlook in North America? Is it -- because you talked about the HVAC and A&D strength on Slide 8, which I think would help North America at least as much as international. And was it just perhaps the greater weighting of North America off-highway and travel that's really hurting it, and that's offsetting whatever better domestic distributor sentiment there is? Jenny Parmentier : I think you nailed it. Yeah, I think that's exactly it. It's the greater weighting of the industrial business in North America. Todd Leombrun: Yeah. The other thing, Julian, you got to go back a couple of quarters here, but international decline started before the North America decline. So a little bit of this is year-over-year comparisons. It feels like international started a quarter or two before -- Jenny Parmentier : A quarter before. Todd Leombrun: North America got negative. So I think a little bit of that is just comps. Julian Mitchell : Understood. And then just a quick follow-up on the aerospace outlook. I think you mentioned that because of that very difficult comp, the fourth quarter aerospace organic sales are up around mid-single digits. Just when we're thinking about the modeling of that, is it really that military side of things where you may be flattish exiting the year and then you have another sort of quarter of very tough comps, and then you kind of pull out of that at the end of the calendar year on the military side? Jenny Parmentier : I don't think it's just military. It's just an overall tough comp because of how strong Q4 was last year. I wouldn't call out anything specific in military. Todd Leombrun: Yeah. I think we are expecting just a gradual recovery on commercial OEM. That might be some of it, if you're modeling, Julian. Julian Mitchell : Great. Thanks very much. Operator: Thank you. Our next question comes from the line of Nigel Coe with Wolfe Research. Please proceed with your question. Nigel Coe : Hi, good morning. I'm going to probably -- I'm going to try my pet here a little bit. Just curious, why would HVAC and semi be considered long-cycle orders? Because I think most of us would consider those to be pretty short-cycle book-and-ship types of end market. So just curious why they're long cycle. And then maybe, Jenny, you talked about the recovery pushing to the right, and I think we've all seen that. Obviously, now we've got ISM getting to 50 orders to turn positive. So it seems like the recovery is forming, but just curious what you're hearing from some of your customers, be it major customers, distribution models, et cetera. How is the tone in the field right now? Jenny Parmentier : The tone with distribution is very positive. They're ready for the recovery, and they're expecting the recovery. So they've been bullish for several quarters now. So no change there. If anything, I think as more time goes by, they know it's coming in and they're making sure that they're ready for it. And the first part of your question again? Nigel Coe : Yeah -- Jenny Parmentier : Why are we considering those? Julian, first of all, we get the visibility from an order standpoint from -- in those areas. We get that long demand horizon. But these both follow the secular trends that you hear us talk about. And we consider that longer cycle. Nigel Coe : Got it. Okay. And then just a quick one on SG&A. I mean outstanding SG&A management. I think on an underlying basis, SG&A fell from 678 down to 651, so call it 4%, 5% decline there. I know the aero mix is helping there to a degree, but as we recover just the confidence levels on -- you've said [indiscernible] margins, so that's very clear. Just how much of that SG&A reduction is structural versus some temporary cost management and that can in on the recovery? Todd Leombrun: Yeah. Nigel, we've always been very focused and frugal when it comes to SG&A. If I had to make a guess, I'd say almost all of it is structural. There will be increase in aerospace R&D, but that's going to be a ways off and that's going to depend on new programs coming. So we don't see that in the near term. That's not in our guide for the rest of this fiscal year. I don't think you'll see us have a step-up in SG&A cost. Nigel Coe : Okay. Great. Thank you. Operator: Thank you. Our next question comes from the line of Joe O'Dea with Wells Fargo. Please proceed with your question. Joe O'Dea : Hi, good morning. Along similar lines to some of the other questions, just trying to think through kind of typical cycle relationships in looking at the order chart on Slide 7. And I think over the past couple of quarters, you've expressed confidence that the destock headwinds are really done and that's played out. And so now we start thinking about restock. But when you start to see orders get a little bit better and you think about the distributor tone that's been better, what is that typical lag time between some signs of end-market demand are getting better and then that starts to translate to channel inventory reaction? Jenny Parmentier : I don't know that I have a specific time frame that I can call out for you. I think there's just a lot of our distributors that have gotten really good at controlling their cash and keeping a close eye on their inventory levels. So they're waiting for the orders to hit them. They've all kind of that -- there's been a lot of quoting activity, right? So they're -- that's why I think they're very bullish on the future and expecting the recovery. But we'll just have to wait and see what happens here. As we've already talked about, we're nearing that point where we're going to cross over the average of when this should recover. So we're all going to be ready. Joe O'Dea : And then last quarter in the deck, you put some details on mega projects. In our tracking of that data, we did see some delays from '24 and '25. Right now, it would have a pipeline with some pretty strong activity in 2025 across a number of the verticals that you called out last quarter. But just curious in terms of what you see in conversations you're having, I think, general concerns that maybe there's enough nervousness, this stuff continues to push to the right. Anything you're seeing that's starting to sort of pulse -- now things are going to start hitting construction and demand tied to that? Jenny Parmentier : No major changes. I mean this is still a growth driver for implant and industrial market especially. And as you know, there's just been a massive amount out there that's been announced. We're going to benefit at every stage. In some cases, some examples I've given in the past about where our distributors are quoting business with local and national contractors, there's still some of that going on. But I would say that some of those projects are being delayed. But whenever we might hear about a delay or a cancellation, the number goes up again. So it's still coming, just hasn't hit yet. Joe O'Dea : Yeah, got it. Thank you. Todd Leombrun: Thanks, Joe. Jenny Parmentier : Thank you, Joe. Operator: Thank you. Our next question comes from the line of Nicole DeBlase with Deutsche Bank. Please proceed with your question. Nicole DeBlase : Yeah, thanks. Good morning Jenny Parmentier : Hi, Nicole. Nicole DeBlase : Hello. So maybe just one on the 3Q outlook. And again, like I have to commend you guys for continued really strong margin performance. But you are modeling segment margins kind of flattish from 2Q to 3Q. And typically, we do see like a bit eventual step-up. So just curious if maybe that's conservatism baked in, maybe something going on from a mix perspective with aerospace. Anything on that? Todd Leombrun: You're right. Your math is right, Nicole. I would tell you, 28.2% in Q2 for was an all-time record. Obviously, the aftermarket mix was very, very favorable. We do not have that sort of mix in the guide. So that's a little bit of the flattishness is aerospace is not expected to be as high. And then the currency impact really is impacting the international side of the business. So we've got slightly lower than Q2 margins forecasted for the international businesses, but that is really volume and currency-related. If you look at North America, we're actually expanding margins Q3 from Q2. Nicole DeBlase : Got it. That's really helpful. Thanks, Todd. And then just -- Understand the commentary around the long-cycle end markets picking up within orders. Did you guys actually see short cycle kind of stabilize? Did it get worse? Just curious about the short-cycle order trend during the quarter. Jenny Parmentier : I would say, it's the same as it has been. So no real change there, Nicole. Nicole DeBlase : Thank you. I’ll pass it on. Jenny Parmentier : Thank you. Todd Leombrun: Great. Okay. I can't believe this, but we've gotten through the entire queue. I think that might be the first time ever. So this is the conclusion of our FY '25 Q2 earnings release webcast. Jeff Miller, our VP of Investor Relations; and Yan Huo, our Director of Investor Relations, will be available for any follow-ups needed today and tomorrow. And just one last note for everyone on the call, this will be the last time that Yan will be available for follow-ups. We need to congratulate Yan on taking a new role within the company as Group Vice President and Controller for our Motion Systems Group. So Yan, we thank you for all your great work you've done for the company. We will miss you in the Investor Relations space, but we know you're going to be a wonderful addition to the Motion Systems team. So congratulations. Jenny Parmentier : Great. Todd Leombrun: Okay. For everyone else on the call, we appreciate your time and your attention. Thank you for joining us today. I hope everyone has a wonderful afternoon. Thank you. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Operator: Greetings, and welcome to the Parker-Hannifin Fiscal 2025 First Quarter Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Todd Leombruno, Chief Financial Officer. Thank you. You may begin. Todd Leombruno: Thank you, Sachi, and welcome to Parker's fiscal year 2025 first quarter earnings release webcast. As Sachi said, this is Todd Leombruno, Chief Financial Officer speaking. Thank you to everyone for joining us this morning. With me today is Jenny Parmentier, Chairman and Chief Executive Officer. We do truly appreciate your interest in Parker. On Slide 2, we 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, this presentation and those reconciliations for all non-GAAP measures were released this morning and are available on the Investors section on our website at parker.com. The agenda for today is Jenny is going to start with highlights for our record first quarter performance. She's also going to reinforce how our key market verticals are positioned for longer-term growth. I'm going to follow Jenny with a more detailed look at our strong first quarter results. And then we're going to address the changes to the fiscal year 2025 guidance that we released and increased this morning. We'll then move to the Q&A session and we're going to try to address as many questions as possible. And with all of that, Jenny, we'll begin with you on Slide 3. Jenny Parmentier : Thank you, Todd, and thank you to everyone for attending the call today. We closed our first quarter of fiscal year 2025 with our transformed portfolio driving record performance. We produced top quartile safety performance aligned with our goal to be the safest industrial company in the world. And once again, our balanced and diverse Aerospace Systems segment delivered exceptional performance. We had record Q1 sales of $4.9 billion, organic growth of 1.4%, and consistent execution of the Win Strategy delivered 80 basis points of margin expansion resulting in 25.7% adjusted segment operating margin. Adjusted earnings per share grew 4% and cash flow from operations increased 14% to $744 million. Another quarter of impressive margin expansion. The team is off to a good start. Next slide please. I want to spend a few minutes reminding everyone why we win. First The Win Strategy is our business system. We have a decentralized operating structure 85 divisions run by general managers with full P&L responsibility all acting like owners close to their customers and executing the Win strategy every day. We have innovative products that solve customer problems, 85% covered by intellectual property. Our application engineers provide the expertise that allows us to have a competitive advantage with our interconnected technologies that provide solutions for our customers. And finally, our distribution network the envy of the competition and the best in the world. It took us over 60 years to build it and it is truly an extension of our engineering teams providing solutions to all of those small to midsized OEMs that are participating in the secular trends in mega CapEx projects. These partners are experts at applying our interconnected technology. Next slide please. We have the number one position in the $145 billion motion and control industry, a growing space where we continue to gain share. These six market verticals represent greater than 90% of the company's revenue. Our interconnected technologies cut across these market verticals and give us a clear competitive advantage. Two-thirds 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. Next slide please. Both a secular trend and our largest market vertical is Aerospace. Parker has a balanced and diverse portfolio with significant content on leading aerospace programs. We have a comprehensive product offering across our diversified customer base with proprietary design on premier programs. On the upper left-hand side of this page is our sales mix by application. You see a nice balance of commercial and military as well as business jets regional transport and helicopters. This diverse aerospace and defense exposure allows us to have multiple products and technologies on every major aircraft program globally many of them seen on the bottom of this page. We have a balanced narrow-body/wide-body sales mix and the Meggitt acquisition significantly expanded our aftermarket sales. Today, aftermarket represents approximately 50% of our total Aerospace sales. All of this adds up to be a compelling value proposition for all of our Aerospace customers. Next slide please. Our second largest market vertical is In-plant & Industrial Equipment. We have a comprehensive suite of motion & control technologies that enable manufacturing all around the world. As depicted on this slide, Parker provides solutions for both Factory Equipment and Factory Infrastructure. Next slide please. Although we are experiencing some near-term pressure right now, this slide highlights how we are positioned for growth in the In-plant & Industrial Market Vertical. Mega CapEx projects, industrial CapEx investment and demand associated with semiconductor fabs and data centers will continue to drive long-term growth. The chart at the bottom left shows the $1 trillion of mega projects that have been announced since 2021. Our powerhouse of interconnected technologies and independent distribution network are differentiators that allow us to benefit throughout a project's life cycle as depicted in the sales mix chart on the bottom right. We win with new construction, new equipment and retooling and our aftermarket supports ongoing operations. I will now turn it over to Todd, to go through the summary of our Q1 results. Todd Leombruno: Okay. Thanks Jenny. As Jenny said I'm on Slide 10. Our team set several records this quarter. Jenny called some of these out, but we set records for sales adjusted segment operating margin adjusted EBITDA margin and adjusted earnings per share. The sales of $4.9 billion, was an increase of 1.2% versus prior. Virtually all of that was organic. Organic growth was positive at 1.4%. There is some slight divestiture activity there unfavorable really just 0.2% and in the quarter compared to prior year currency was flat. Now we look at those segment adjusted segment operating margins, we increased those 80 basis points. We're really proud of that, on the 1.2% sales growth. EBITDA margins was a record at 24.9%. And net income ROS is 16.5%, with earnings per share at $6.20. Those are both records as well. And both of those are an increase of 4% from prior. It was really a nice start to the fiscal year, driven by consistent execution from our global team, really focused on continuing to take cost out and drive margin expansion. If you look at Slide 11, this details the increase in adjusted EPS. Again, if you can see that far outstanding operating performance along with some favorable interest expense really are the main drivers to the growth in EPS. Segment operating income dollars increased by $54 million in the quarter that was $0.33 of the EPS growth and that was really driven by strong Aerospace performance really meaning -- being the main driver on segment operating income. Interest expense is favorable $0.13 and that really is driven through our continued execution on our debt reduction plan. And corporate G&A and income tax were also slightly favorable in the quarter. If you look at other expense we did have a headwind of $0.26 in the quarter. This was related primarily to currency losses resulting from the re-measurement of intercompany loans and just some volatility on currency rates within the quarter. We do not expect that to continue for the remainder of the year. And also there is some slightly less favorable pension income compared to the prior year that shows up on the other line. And finally, share count was just $0.02 unfavorable. All in the adjusted EPS of $6.20 already said, it's a record, but it was really driven by strong margin expansion across the company. If we go to Slide 12, looking at the segments, we're proud of that margin expansion. We can't speak to it more enough. It's really just continued. The team continued to work on executing the Win Strategy. And I really do believe that our performance reflects how different a company Parker is today. And in spite of the low organic growth, we still generated 80 basis points of higher segment operating margins. Incrementals is unbelievably solid at 95% and orders remain positive at plus 1% and that's really driven by continued Aerospace strength. If we look at the Diversified Industrial North American businesses sales were $2.1 billion, organic growth was negative 5%. That was lower than what our expectations were going into the quarter. We are seeing delays and some near-term pressure in the energy and In-plant & Industrial Equipment verticals Jenny mentioned some of those. Transportation and off-highway verticals continue to be soft. But on a positive note HVAC did return to growth in the quarter. So we're happy about that. Even with that organic pressure, adjusted margins in North America increased 40 basis points to a record of 25.3% and it's really just great teamwork, resilience and operating execution. North American orders did take a step back. They were negative 3% in the quarter and we made sure that our guide reflects that pressure. Moving on to the international businesses. Sales were $1.4 billion. Organic growth was negative 2%, but that's kind of as we expected. So that's right in line with our guide. Organic growth in Asia Pacific improved to 3.2%; Latin America really positive at plus 14% but that was offset by a negative 8% in EMEA. Really proud of the team. Operating margins matched a record high of 24.1%, so even on that negative growth in the international businesses, we achieved – or matched a record high of 24.1%. The international team is really focused on productivity improvements cost controls and really performing well in a tough environment. On a good note, order rates did move to plus 1%, with Asia moving into positive territory driving that improved. If we look at Aerospace Systems, the Aerospace Systems segment continues to lead the way for the company. Again, it delivered an exceptional quarter. Sales were $1.4 billion. That's 18% greater than prior year. All of that is organic roughly 17% of that growth was organic and that was driven by double-digit growth in commercial and defense markets. And of course the adjusted segment operating margin of 27.9% is a record. That's up 190 basis points over the prior year. All that performance was driven by record top line sales, strong aftermarket mix as Jenny mentioned and continued implementation and integration of the Meggitt businesses. So great work there by our Aerospace team. Aerospace order rates continue to be positive at plus 7%. And I just want to remind everyone that we are lapping some very tough comparisons on those but we're happy that it's plus 7%. If I could draw your attention to Slide 13. Cash flow performance for the quarter is also a record. CFOA was $744 million or 15.2%, that is an increase of 14% versus prior year. Free cash flow increased 17% and finished at $649 million. That is 13.2% of sales. And conversion was strong to start the year at 93%. Within the quarter, we further reduced debt by $370 million and that drove our net debt to adjusted EBITDA to now 1.9 times. So we're happy about that. And I'm really proud of the team the way, we started the year on cash flow as a much better start than the prior year and that's due to a lot of hard work by everyone around the world. So that is a wrap on Q1 and we'll move to the outlook now. And Jenny, I'm going to hand it back to you for some comments. Jenny Parmentier: Thanks, Todd. So as we've already alluded to we've made some changes and updated our FY 2025 organic sales growth forecast for each of these market verticals, we wanted to share this with you today. So we are raising Aerospace and Defense on aftermarket strength. We're now forecasting 10% organic growth at the midpoint versus 8.5% in our initial guide. Over the last 90 days, macro conditions affecting our industrial market verticals have softened as I previously mentioned, so we expect a delayed gradual recovery on easing comps, as we move through the balance of our fiscal year. For In-plant Industrial, so we – a slight reduction to our low single-digit growth outlook for the year. We're seeing some near-term delays in projects and capital spending but I will tell you we are pleased that the channel sentiment does remain positive. On transportation, we are maintaining our low single-digit outlook. So while the automotive production forecast remains lower, heavy-duty and work truck demand remains positive. We are now expecting high single-digit decline for off-highway. OEM destocking is continuing and we are seeing customers continue to reduce production levels including instances of planned shutdowns. The energy market has also been impacted by uncertainty and delays and we are updating our forecast to neutral. We are maintaining our HVAC refrigeration outlook of low single-digit growth, as the regulatory changes are driving growth on the HV side of the business and Todd already mentioned this. So guidance now, reflects divestiture activity expected to close in the second quarter. Divestitures represent, a 1.5% reduction to fiscal year 2025 reported sales versus prior year. This now results in an overall organic growth of 1.5% to 4.5%. With our transformed portfolio, we remain confident in growing EPS and continuing our track record of expanding margins. I'll give it back to Todd to review the guide in a little more detail. Todd Leombruno: Okay. Thanks, Jenny. I'm on Slide 16, with some more detail and I'll try to not repeat what Jenny said, but reported sales growth for the year is now forecasted to be in the range of 1.5% to 3.5%. And that's 2% at the midpoint. The dollars work out to be $20.3 billion. Currency, we now expect that to be slightly favorable of 0.5% and as Jenny mentioned, the divestitures that we expect to close in the second quarter will be a 1.5% headwind. 100% of those divestiture sales will come out of the Diversified Industrial segment in the North American businesses. Organic growth in total is forecasted to be 3% at the midpoint. This is really driven by strong performance in Aerospace. We expect that to continue and adjusted segment operating margin guidance is raised by 30 basis points for the full year to 25.7%. That now will be a margin expansion of 80 basis points versus prior year. So, we're happy to see that. Incremental margins, we expect to be 70% that is really based on incorporating the Q1 performance into the full year guide and also the anticipated divestiture activity. Corporate G&A is expected to be slightly lower now at $215 million, and other expense is expected to be $70 million on an as-reported basis or $80 million on an adjusted basis really reflecting that activity from Q1. Interest expense, we are now forecasting that lower. We're expecting it to be $450 million that really is driven by using the anticipated proceeds on the divestiture activity to further reduce our debt. The full tax year we -- full year tax rate, we expect to be 22.5% that really is also incorporating the results of Q1. We are modeling Q2 through Q4 at 23%. And finally, full year as reported EPS is now $23.13 and adjusted EPS is $26.70 both of those at the midpoint with a range of plus or minus $0.35 on the either side. Adjusted EPS is split 46% first half 54% second half, and we do remain committed to our free cash flow forecast of a range of $3 billion to $3.3 billion for the year. Looking specifically at the second quarter, Jenny mentioned some of those near-term pressures. Reported sales are expected to be $4.8 billion, with organic growth of 1%. Adjusted segment operating margins we are forecasting to be 25.2% and adjusted EPS is now expected to be $6.15. And what we have done is as usual, we've provided some more specifics in the appendix if anyone is interested in those. If I could draw your attention to Slide 17, we provided a bridge on the major components to our increase in the FY 2025 guidance. Adjusted EPS moves to $26.70 per share. That was compared to our previous guidance of $26.65. You can see we exceeded our guidance by $0.15 in the first quarter. We have included that in the full year guide. The divestiture activity does net out to be $0.15 unfavorable. I do note that that is margin accretive. It's just slightly unfavorable $0.15. That is component of $0.25, less segment operating income, but $0.10 less interest expense. That nets out to $0.15. We are confident as Jenny said, in our ability to continue to drive margin expansion. And we are raising the remaining forecast of period by an additional $0.05 for the fiscal year and that's how we get back to the $26.70. So that is the walk and Jenny, I will hand it back to you for closing comments. Jenny Parmentier: Thank you, Todd. Just a reminder on what drives Parker. Safety, engagement and ownership are the foundation of our culture. It's our people and living up to our purpose that drives top quartile performance that allows us to be great generators and deployers of cash. Todd Leombruno: Okay. Sachi, we are ready to start the Q&A portion. I will hand the call back to you. Operator: Thank you. As mentioned, we will be conducting a question-and-answer session now. [Operator Instructions] The first question is from Jamie Cook from Truist Securities. Please go ahead. Jamie Cook: Hi, good morning, and congrats on a nice quarter. I guess, first question just on the implied incremental margins for the year Todd, 70% up from I think 40% before. How much is the divestiture just because the implied incremental margins in the back half of the year on the core business also seemed to be pretty good. So just wondering is it structural is it price what's going on there? And then I guess my second on the international orders you talked about Asia turning positive and sales turning positive. How big is that as a percentage of your business? And just any color on, which markets or the order growth that you're seeing in Asia? Thank you. Todd Leombruno: Jamie, I'll start with the question on the incrementals and then maybe I'll hand it to Jenny for the market commentary. Really, the Q1 performance, if you look at our Q1 performance it was 95%. That's really probably the main driver of the performance there. The divestiture is a little bit of it. But if you look at the out quarters, we're expecting to be well above our stated 30% target. A lot of that is driven by the Aerospace activity. They've got great growth and nice margin expansion. And I would tell you the industrial businesses are doing a great job, controlling costs and doing what's necessary in a low growth environment. And that's really how the math is working out on the incrementals. Jenny Parmentier: Okay. So Jamie, Asia Pacific represents approximately 11% of our total sales and it's approximately 40% of our total international sales. So as Todd mentioned, Asia Pacific Q1 growth came in a little higher than we thought came in at 3%. Orders do continue to trend positive across the region. That's what we saw in Q1, but the comp was easier on the growth and I would say that we're seeing some pickup in transportation and semicon markets. Seeing some nice robust growth momentum in India and Southeast Asia and China's growth was negative low single digits. Jamie Cook: Thank you. Jenny Parmentier: You're welcome. Todd Leombruno: Thanks, Jamie. Operator: The next question is from David Raso from Evercore ISI. Please go ahead. David Raso: Hi, thank you. North America you raised the margins 50 bps, but lowered the organic sales, and the buckets are right the divestiture you're seeing is helpful to margins. The weakness is more OE business, it sounds like if I'm reading that correctly kind of factory floor CapEx and some of the big OEs taking their production down. The distribution piece I assume right that's -- you didn't comment on it. Can you help us understand where that channel is? I just want to make sure that over 40% of earnings, the distribution business if that cracks that's a different level of concern around the margins. So can you help us on that channel? And again anything you can help us with on the margin resiliency the rest of the year for North America? Jenny Parmentier: Yeah. So David you are correct that the destocking comments are about what's happening at the OEM level and we're just seeing lower production rates and some additional shutdowns, longer shutdowns around the holidays. So when we're talking about the channel, the destocking in the channel as you know started over a year ago. And I mentioned last quarter, and I would say the same thing that we're not seeing restocking just yet. The sentiment I will tell you is very positive. Just within the last month, I've spent some time with two of our largest distributors and they are commenting on a lot of quote activity. They're just saying that they're experiencing delays. There's just project delays out there. So I would say that they're still managing their inventory tightly and not doing any stocking orders yet. And I would say to a certain extent some improved lead times have allowed them to operate with a little less product than they have in the past, but again very, very positive sentiment still coming from them. David Raso: That's helpful. And can I just follow up with M&A. Can you give us an update on what the lay of the land is the pipeline? Jenny Parmentier: Sure. So first of all I would say, we are very committed to actively deploying our capital. And as I've mentioned before the acquisition pipeline is active with targets of all sizes. We don't feel obligated to make a deal just because leverage is less than two times as Todd just talked about, it has to be the right deal. We're looking to acquire companies where we are the clear best owner with interconnected technologies building on those secular trends and mega CapEx projects. And we're looking for deals that are accretive to growth, they're resilient, they're accretive to margins cash flow and EPS. So I made the comment in the past too, we like all of our technologies and the pipeline is active. David Raso: I'm sorry to follow up with them. Yes I'm just curious about the multiples out there versus the target. I'm just trying to get a sense of -- I know the strategy but just any pulse of the candidates are out there now it's more a matter of price or people sort of holding on waiting for elections Fed easing cycles to agree on a price. Just curious more of the kind of conversations out there. Jenny Parmentier: Yes. A lot of it I would have to say is timing. Timing is a big factor. David Raso: I'm sorry Todd please? Todd Leombruno: But that was Jenny, David she just said it's really timing. It's not really an issue of anything other than just the normal activity of transaction process is I would say. The one thing I did want to follow up on David was your question on the margin, your math as usual is correct. The total company, the impact -- favorable impact of the divestiture is about 20 basis points. I mentioned earlier that that's 100% coming out of the Diversified Industrial North American businesses. It's about 40 basis points of favorable impact to those -- to that piece of the business. David Raso: That's helpful. Okay. So basically North America margin, the improvement is principally all from the divestiture, but you were still able to keep the core margin maybe even at 10 bps despite lowering the organic sales and that's probably a bit... Jenny Parmentier: Correct. David Raso: Okay. Thank you so much. I appreciate it. Jenny Parmentier: Thank you. Operator: The next question is from Julian Mitchell from Barclays. Please go ahead. Matt Laflash: Hi. Good morning. This is Matt Laflash on for Julian Mitchell. My question today is sort of around that $0.15 divestment headwind. Wondering, if you could maybe break down how that affects each quarter throughout the rest of the year? Should we kind of assume maybe $0.05 spread out across each quarter? Just how should we be thinking about that? Todd Leombruno: Yes. We've -- I can answer that Matt for you. We're expecting that to happen sometime in the second quarter. So there's a slight impact in the second quarter, but it bleeds out into the second half of the year. If you look at the $0.15, it's about $0.01 in Q2. It goes to $0.05 in Q3 and then it's about $0.08 in Q4. Matt Laflash: Got it. Thank you, Todd. That's helpful. And just a quick follow-up. If you could maybe dive a little bit deeper into the maybe Q2 segment and below-the-line assumptions for that $6.15 EPS guide for the second quarter? Todd Leombruno: Yes. I would say there's nothing unusual there. We did have that one currency issue in Q1. We do not expect that to repeat. So I would tell you, both for corporate G&A and other, we are forecasting a pretty normal Q2 through Q4. Matt Laflash: Great. Thank you Operator: The next question is from Nathan Jones from Stifel. Please go ahead. Nathan Jones: Good morning everyone. Todd Leombruno: Good morning, Nathan. Nathan Jones: I wonder, if we could just go a little bit deeper into some of the headwinds that you're seeing in North America I mean in-plant and industrial is a pretty broad category. So maybe any additional color you can give us on that kind of thing. And then in off-highway, is this all related to OEM and not related to equipment utilization that we generate aftermarket? Just any more color you can give us on those kinds of things. Jenny Parmentier: Sure. So let me talk about in-plant first, Nathan. So like I said, we're just seeing some near-term delays in projects and CapEx spending and just kind of overall uncertainty. An example of that would be tool builders. As I mentioned, the channel sentiment remains positive and it feels like interest rate cuts should help us in the future here. But we are seeing some positives too around some of the mega CapEx out there but they're delayed, right? We have some wins coming in but they are delayed a nice win in Asia-Pacific on an EV battery line. So, really more than anything it's about delays in In-plant & Industrial. It feels like a little bit of a pause right now but we feel positive about what we might see in the second half. In off-highway, we did move that to high single-digit negative for the year and we had it mid-single-digit negative. And again primarily based on OEM destocking. So, lower crop prices higher interest rates are continuing to really pressure agriculture. And as I mentioned too, a big indicator to us is production rates and additional shutdowns and we're seeing that from some of those customers. Construction is better but it remains soft. And I would say that it's even softer in Asia-Pacific and EMEA than it is in North America. So, that's some detail behind those two market verticals and what we're seeing. Nathan Jones: Thanks for that Jenny. I guess my follow-up probably around the divestitures. I mean Parker has divested businesses over the years pretty regularly. But this does seem to be a little bit bigger. Can you talk about kind of what area it's in why you don't consider yourself to be the best owner of this business anymore. Is this more of a one-off on the larger side? Or are there other things that we could see coming out of the portfolio that are a little bit bigger in the size of revenue than you've historically divested? Jenny Parmentier: This is a really great example of the best owner playbook process that we use every year. We go through and look at our businesses and make sure that we are clearly still the best owner that these businesses fit inside of the growth and margin profile that we expect from our businesses. So, when we looked at this business -- and you're right, it's a little bit bigger than some of the ones that we've done in the past few years, but when we looked at this business we didn't see that we were the best owner. It's a good business. We think they're going to be successful under the new owner, but didn't see it as a core technology for Parker even though with Aerospace, right? And you know how much we like Aerospace but just not a core technology for us. So, that's the reason that we made the decision and it's a great team and I'm sure they're going to do well. Nathan Jones: Thanks very much for taking my questions. Operator: The next question is from Joe O'Dea from Wells Fargo. Please go ahead. Joe O'Dea: Hi, good morning. Thanks for taking my question. I wanted to ask about sort of labor flexibility and just agility of the model to understand an environment when you've got kind of Boeing strikes to contend with and slowing kind of end market expectations over the course of the quarter? Just the levers that you can pull and how quickly you can pull them when we see kind of the margin outcome just sort of looking for a little bit more color on sort of agility advantages at Parker? Jenny Parmentier: Well, I would say that we have the ability to flex our workforce across the whole company. But we definitely have the ability to flex the Aerospace workforce and production from OEM to aftermarket and vice versa. So, we do have that flexibility. That's not a concern for us. Todd Leombruno: Joe, Jenny mentioned it in the earlier comments it's really a testament to the decentralized nature of the way the company runs. 85-some businesses with general managers that have full P&L responsibility. We've never had better data across the enterprise. And what we've learned over this journey is that you're never too soon to act, right? And we don't wait for signs from above. Those businesses take those decisions immediately when necessary depending on what markets they're exposed to. Jenny Parmentier: That's the beauty of all of the tools and the Win Strategy. Some of the best tools for the shop floor are not only driving out the waste but making sure that we can be flexible that we can be agile to meet our customers' needs. Joe O'Dea: Got it. And then I also wanted to touch on mega projects. Two things really. One, in terms of timing. So when you think about these multiyear projects, at what stage you would start to see orders for those? And then two, based on kind of what we track, it seems like chemicals and power gen have the biggest growth potential next year. And so just anything in terms of your exposure to those markets as well as what you hear from the customers and those delays, confidence that those projects break ground in 2025? Jenny Parmentier: Yes. When you look at -- like on the slide I had earlier, we're up to $1 trillion, and that's just -- that's the number that we cited from a source of projects that have been announced. And there's no doubt been some delays and some pushouts. But at the same time, there's been more announced, right? And when you look at all the years that they're going to start and projected finishes, I think it's just shifted out a bit. So some, we believe, based on what we see today, will start in calendar year 2025, and we'll participate in those. As we've talked about in the past, our distribution network will participate. In some cases, we will participate directly. As I mentioned before, we win with new construction, new equipment, retooling of factories. And then our distributor partners come in right behind that and support the ongoing operations. So it's really just a very promising future for us when it comes to that. I would say -- I just mentioned that we had a nice win supporting the EV battery line. And we're, I think, going to continue to see projects like that, smaller and larger projects really benefit us this fiscal year. Joe O'Dea: Great. Thank you. Todd Leombruno: Thanks, Joe. Operator: The next question is from Joe Ritchie from Goldman Sachs. Please go ahead. Vivek Srivastava: This is Vivek Srivastav on for Joe. Thanks for the question. Maybe just starting with order trends. Can you talk about how these trends were exiting September? And as we like exited 3Q, did you see any end markets getting better or worse? Any color there would be very helpful. Jenny Parmentier: So this is Jenny. So when we look at the orders, on average, what we've seen in the past, and we've talked about this a lot over the last year. But on average, we've seen about 5 to 7 quarters negative before it turns. So if you look at where we're at today, we had 5 negative. We had 1 at 0 at the end of Q4, and I'm speaking about North America now. And now we have Q1 at negative 3. So that makes this first quarter of FY 2025, the seventh quarter where we haven't seen orders turn positive yet. So again, that's what history has shown us. So we feel like this should turn soon. And as I mentioned, what weakened during the quarter in North America with transportation, off-highway and energy, but we did see aerospace orders very strong. And we saw international orders turn positive on Asia improvement. And most of that was semicon and transportation. Vivek Srivastava: Very helpful color. One thing I also wanted to get a sense was your backlog. Last we checked your backlog coverage in the industrial business specifically has become high 20s compared to like 15% back in 2015. So is this same -- is this still the case in first quarter? And how much of this current backlog coverage levels do you think is more structural versus areas where you think backlog still needs to come down in parts of the industrial business? Jenny Parmentier: Yes. So the industrial backlog from a dollar standpoint, held steady at $4.2 billion. So no dollar degradation there. It is still in the mid- to high 20s as a percent. And I think that it's a mix. I think it's structural from the standpoint that customers have changed the way that they order. I don't think anybody wants to go through what we went through a couple of years ago and have to really have a lot of weight for the product. But I also think it speaks mostly to the transformation of our portfolio. With the acquisitions that, we've done we have a longer cycle and higher aftermarket business out there and that longer cycle gives us more visibility and orders further out on the demand horizon. So I think that's really the biggest driver of why this is almost double of what it used to be under the old Parker. Vivek Srivastava: That's great. Thank you. Jenny Parmentier: You're welcome. Operator: The next question is from Andrew Obin from Bank of America. Please go ahead. Andrew Obin: Yes. Good morning. Just a question. We've been hearing a lot from corporates, and I got on a little bit late, so I apologize, if this was answered. But we hear a lot of sort of narrative about uncertainty about the election, and I was just wondering, obviously, very close to your distributors very close to your customers. What are you hearing from your customers? And how much will change -- really change on November 6 right? Because we also sort of have self-lending. We have higher interest rates. We still have inflation. From your perspective how much of a change will the results of the election make into the year-end and into 2025? Thank you. Jenny Parmentier: So Andrew, I would tell you as I mentioned I've been out in the field a bit this quarter and have talked to distributors some of our largest distributors and Andy Ross has also. We don't have any of them telling us election, right? I mean, they are focused on making sure that they meet the -- what they consider to be still a very high demand of quoting and that they're ready. They talk about their customers just delaying. Some of it may be interest rates but I can't tell you that I have customers that are telling me, hey, I'm going to wait until after November 6, to see what happens. Obviously, you read that a lot. You hear that a lot of people think, another rate cut, and getting past the election is maybe something that's going to change things. But I think, we'll have to see what happens, right? I mean, what we have in the guide for Q2 is based off of the orders that we saw in Q1 based off of what we see rolling up from our divisions. And like I said, we'll just have to wait and see what happens. Andrew Obin: And no I really appreciate it. And just a follow-up on aerospace and defense, your aftermarket and particularly there's public private partnerships on the defense aftermarket that has been very successful, but I assume eventually comps will matter. Can you just talk about what's driving the market outperformance there? And how sustainable it is? Thank you. Jenny Parmentier: Yeah. I mean, you said it exactly correct. I mean, if you just look at Q1 growth in defense MRO, it was 47%. And you're absolutely right, comps are going to get harder. Our previous guidance on that segment of Aerospace was high single digits and now we're saying low double digits. But it is really based off of just tremendous success with those public private partnerships. Our teams have done a really great job leveraging the Meggitt portfolio and growing that business even more than we had in the past. So, I do think it's going to continue to be a great growth area for us. But the comps will get harder. You're right. Andrew Obin: Really appreciate it. Congratulations. Thanks. Jenny Parmentier: Thanks, Andrew. Operator: The next question is from Nigel Coe from Wolfe Research. Please go ahead. Nigel Coe: Thanks. Good morning, everyone. Thanks for question. I guess just maybe Todd, can you just -- I mean if you answered that please cut me off -- but that help on the 25% impact from the divestments. Is that for the entire second quarter? And maybe just be a bit more kind of specific on the sort of the revenue and EBITDA impact. And then just [Technical Difficulty]. Todd Leombruno: Sachi -- are you still there Sachi? Nigel is cutting out a little bit. I think… Operator: Yes. I'm still here. Yes. Nigel I think cut out a little bit there. Todd Leombruno: Okay. What I'll try to do Nigel is I'll try to answer your question on the divestitures. That $0.25 of segment operating income and that $0.10 of lower interest expense. We are forecasting that for the remainder of our FY 2025. So that will start in Q2 and remain with the business for Q3 and Q4. It's about $300 million of sales. All of that is coming out of the North American businesses and we talked earlier it is going to have a favorable margin impact for the company. It will be 20 basis points for the full company and it's roughly 40 basis points for the North American business. So that's the details on the divestiture. If you need more follow-up can take that offline. Nigel Coe: Okay. And second -- it's like a mid-teens EBITDA margin right? Todd Leombruno: Correct. Nigel Coe: Okay. I mean look I think I cut off but just the other expense of $0.26 it just seems very discrete in nature. I mean any thoughts on why that was excluded from the line? Todd Leombruno: Well, we talked about that. It is based on just our normal activity. It was larger than it has been in the past so we chose not to adjust it out. It really was based on just volatility around currency rates from all the central banks cuts throughout the quarter. We do not expect that to continue. So we didn't forecast it to continue and that's the story on that. I think we may have lost Nigel. So Sachi maybe if we can go to the next person in line? Operator: Sounds good. The next question is from Jeff Sprague from Vertical Research Partners. Please go ahead. Jeff Sprague: Hi. Good morning. Thank you. Just a couple of things. First, Jenny thanks for the comment on defense MRO, Jenny can have it or Todd can you just give us the other three pieces of Aero if you haven't already -- I'm sorry if I missed it earlier in the call commercial OE versus aftermarket and defense OE? Jenny Parmentier: Yes. You bet Jeff. You didn't miss it. That was the only one I talked about so far. So commercial OEM Q1 came in at 3% growth. So our previous guidance there was high single digits and now our revised guidance is low single-digits. We expect that based on the slower pace of production and rate increases. Defense OEM it came in slightly negative, but we think that was really just a matter of timing and we remain with the guidance we had out on mid single-digit growth. Commercial MRO came in at 32% and again much like my defense MRO comments the comps are going to get harder. It was strong but the comps are going to get harder. We think that air traffic growth is going to continue to grow as forecasted and we're going to see an increase in spare parts purchases with everything that's going on with OEM production. And then defense MRO high single digit was initial guidance. Now it's low double digits. And again really a lot of growth with those public private partnerships. Jeff Sprague: And just on the commercial MRO, obviously, over the broader stroke of time less OE is good for aftermarket. Directionally, we all get that. But do you see any sort of kind of risk in the handoff between the two? If the strike persists, maybe not everything just kind of automatically shifts over that aftermarket. Maybe how are you managing that in the factories? Is there absorption issues you're trying to work through? Any other color there would be interesting. Jenny Parmentier: I would say that, obviously, we all look forward to returning to what it was. But we have such a diverse customer base that we're able to -- I said earlier, we're agile. We're flexible, and we're able to really overcome that. So we don't see any near-term issues with that. Jeff Sprague: And maybe just a really quick one for Todd. Todd, obviously, North American industrial starting off a little slower than expected. It sort of looks like your guide for the year would kind of imply normal sequentials from here off this a little bit slower starting point. Would you agree with that? Or any other color you would share in just terms of trying to get the complexion of the year right? Todd Leombruno: Yes Jeff. We do -- I do agree with what your comment is there. The only thing would be that that divestiture activity is expected to come out in North America. Jeff Sprague: With the divestiture noted, yes. Okay. Thank you. Todd Leombruno: Very good. Okay. Sachi, I think we have time for one more question here. Operator: Sounds good. The next question is from Joe Giordano from TD Cowen. Please go ahead. Joe Giordano: Hey, guys. Thanks for fitting me in here. Just a question when we think about the order sometimes it's tough like on the comps and what that's doing to the rates that we're seeing in the current quarter. Can you comment at all on North America international orders in dollars relative to last quarter? Jenny Parmentier: About the same industrial. Yes. $4.2 billion. Joe Giordano: So orders in this quarter -- yes, okay. So orders in this quarter pretty similar to last quarter in dollars? Okay. Jenny Parmentier: Yes. Joe Giordano: Okay. And then to your point on delays, I mean I guess it's kind of a tough question but like I guess, every cancellation in history started as a delay at some point. So like if you look back and think about like prior cycles when things ultimately were canceled like, what are the things that you're on the lookout to see like all right these delays are going to like extend indefinitely and get like become something else? Like what do you kind of tend to look for to see if that's happening? Jenny Parmentier: Yes. Well, we constantly analyze the backlog. The orders coming in the changes that happen week-to-week, our divisions are becoming even sharper at that. I would tell you in the past, I would expect with as many quarters as this is going -- has been going on that we would have -- in the past we would have seen cancellations. Right now we just see delays. And we weren't seeing delays before -- major delays before this last quarter. So it feels like -- like I mentioned before, it feels like more of a pause here. The other thing I would say is what we're just talking about is that overall the backlog just keeps staying where it is. But to answer your question of what other things we look for, we look for those additional plant shutdowns changes in production schedules, because you can kind of keep a close eye on that and determine whether or not those type of reductions are going to be enough. And so we're not surprised by those additional shutdowns now and reduced order rates. And that's what we have baked into the guide. And we'll have an even better look after the first of the year. Joe Giordano: Thanks guys. Todd Leombruno: Thanks Joe. Okay. That worked out perfectly. We have no more questions in the queue. So this concludes our FY 2025 Q1 earnings release webcast. We do appreciate your time, attention and confidence in Parker and I thank you for joining us today. Jeff Miller, our VP of Investor Relations; and Yan Huo, our Director of Investor Relations will be available if anyone has any follow-ups throughout the rest of the day. I hope everyone has a great day. Thank you. Operator: This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Operator: Welcome to the Parker-Hannifin Corporation Fiscal 2024 Fourth Quarter and Full Year Earnings Conference Call and Webcast. At this time, all participants are in listen-only mode. [Operator Instructions]. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the conference over to Todd Leombruno, Chief Financial Officer. Please go ahead, Todd. Todd Leombruno : Thank you, Kevin, and good day, everyone. Welcome to Parker's fiscal year 2024 fourth quarter and year-end earnings release webcast. As Kevin said, this is Todd Leombruno, Chief Financial Officer, speaking. And with me today is our Chairman and Chief Executive Officer, Jenny Parmentier. We appreciate your interest in Parker, and we thank you all for joining us today. If I could draw your attention to Slide 2, you will find our disclosures on our forward-looking projections for non-GAAP financial measures. Actual results could vary from our forecast based on the items we have listed here. Our press release, the presentation we're going to go through today, and reconciliations for all non-GAAP financial measures were released this morning and are available under the Investor section on our website at parker.com. We're going to start the call today with Jenny summarizing our record fiscal year 2024 that was really driven by our portfolio transformation and really some exceptional strength in our Aerospace businesses. She'll also touch on our bright future and what really is driving the company today. I'm going to follow Jenny with some more details on specifically the strong fourth quarter we just posted. And then both of us are going to provide some color on the Fiscal Year 2025 Guide that we released this morning that sets us off on our journey to achieve our FY’29 targets. After those remarks, we'll open the call for Q&A session. We'll try to take as many questions as possible within the one-hour time slot. And with that, Jenny, I'm going to hand it over to you and ask everyone to reference Slide 3. Jennifer Parmentier : Thank you, Todd. And thank you to everyone for joining the call today. Parker delivered an outstanding year in fiscal 2024 on the dedication of our people, the strength and balance of our portfolio, and the value of our business system, the win strategy. We met or exceeded many of our commitments for FY’24. We produced top quartile safety performance aligned with our goal to be the safest industrial company in the world. The strength of our portfolio was highlighted by a stellar year delivered by our Aerospace system segment. On low single-digit sales growth, the team delivered 200 basis points of margin expansion. Our earnings per share grew 18% on top of earnings growth of 15% in fiscal year 2023. And we generated record-free cash flow of $3 billion. Parker has a very promising future ahead, as you'll see from our strong fiscal year 25 guide and the targets we have set for fiscal year 2029. Next slide, please. And it was a record year for Aerospace. Our first full year with Meggitt, achieving over $5 billion in sales, more than two times the sales of fiscal year ‘20. All market segments delivered double-digit sales growth, and the strength continues as we look ahead. We are positioned for growth with significant content on leading programs, and our extensive portfolio will continue to create value for our customers, as well as our large install base will drive continued aftermarket growth. Next slide, please. As illustrated on this slide, the transformation of our portfolio further expanded longer cycle and secular revenue mix in fiscal year ‘24. And although Aerospace is a big part of the transformation, it's not the whole story. The acquisitions of CLARCOR and Lord and our on-purpose strategy to expand distribution in Europe and Asia have greatly contributed to the longer cycle secular and industrial aftermarket mix. We see this transformation continuing and expect 85% of our portfolio to be longer cycle secular and aftermarket by fiscal year ‘29. Early last week, we announced that we have signed an agreement to divest the North American composites business that came with the Meggitt acquisition. As mentioned during our investor day, we continue to optimize our portfolio. Our best owner playbook identifies businesses that find greater value with a different owner. Through this process, we determined that this business is not aligned with our core products and we are not the best owner. It's a great team and we are confident that they will be successful in the future. Next slide, please. These are the four key messages we presented at our investor day in May. We are positioned for growth with our interconnected technologies and the secular trend. We have demonstrated the win strategy. Our business system is compounding our performance and driving us to top quartile. Operational excellence, years of driving a continuous improvement culture through our lean tools creates growth and expands margins. We have confidence in achieving the fiscal year ‘29 target launched at our investor day in May. Next slide, please. As a reminder of what drives Parker, safety, engagement, and ownership are the foundation of our culture. It's our people and living up to our purpose that drives top quartile performance, allowing us to be great generators and deployers of cash. I'll turn it back to Todd to review our outstanding fourth quarter results. Todd Leombruno : Thank you, Jenny. It really was a fantastic year for the company. On Slide 9, I just would like to take some time to talk about the fourth quarter. Q4 was an exceptionally strong quarter for the company. Once again, every number in this gold box on this page is a Q4 record. They also happen to be the highest levels of performance that we experienced this fiscal year. Total sales growth was up nearly 2% from prior year. We reached almost $5.2 billion in sales in the quarter. Organic sales were positive at roughly 3%. That was a little bit better than what we were expecting with our guidance. Divestitures were just very slight, unfavorable impact, and currency really turned into another headwind, almost 1%, unfavorable on currency. If you look at adjusted segment operating margins, Jenny mentioned this, but we did improve them 130 basis points from prior year. And for the first time in the history of the company, we generated 25.3% segment operating margins for our quarter. Same story with EBITDA margins. The increase was a little bit greater, 190 basis points. For the quarter, we did 26.3% adjusted EBITDA margins. You look at adjusted net income, $884 million of adjusted net income. That is up 12% from prior year, and that is a little bit better from prior year, and that is a 17 return on sales. Earnings per share, Jenny mentioned this as well, $6.77 that was up $0.69 or $0.11 from prior year. And it was just really an exceptionally strong quarter. It was a great way to finish the fiscal year, really driven universally across the globe by our engaged team members, and it was really just a nice way to finish the year. And it's another data point on Parker being able to deliver on our commitments. If we jump to Slide 10, this is just the bridge on that 11% improvement and adjusted earnings per share. Again, the story is very similar to what we saw all year, strong operating execution continues to drive earnings per share growth. If you look at segment operating income dollars, we increased by $90 million, or 7%. That's basically $0.54 or 80% of the EPS growth quarter-over-quarter. And we've talked a lot about this already, but the Aerospace system segment, once again, is really responsible for over 90% of the earnings per share growth when it comes to segment operating income. The diversified industrial North American businesses made up the rest. If you look at some of the below segment operating income line, corporate G&A was $0.16 favorable in the quarter. That really, again, was a result of some favorable items from the prior year just not repeating. Interest expense favorable, again, $0.17 versus prior year. That really is the result of our successful deleveraging efforts that we've been working hard on all year. Tax was unfavorable, $0.12 against the prior year, and that was really just from slightly higher operating tax rate and, of course, the higher EBIT. And then other expense and share count were just both a bit higher than last year, but really the story here has been consistent throughout the whole year, strong operating execution, driving margin expansion, really keeping an eye on cost controls, and being disciplined with our debt pay down. Just a nice way to finish the year. If we jump to Slide 11, let's look at the segment performance. You can see, again, margin expansion across every business here. Really proud to see that. Incrementals for the company and really every part of the business were incredibly strong. Order rates inflected positive. It's 1% that's positive. We're really happy to see that. And our backlog remained at near record levels. We have $10.9 billion in shippable backlogs, so that was a nice way to finish the year. Let's look at the diversified industrial segment, specifically in North America. The U.S. sales volume really remained strong, $2.2 billion in sales. Organic growth was negative 3, but that was a full point better than our expectations. Softness in North America continues to be driven by off-highway markets and transportation markets. But despite those lower volumes, we were able to increase adjusted segment operating margins by 150 basis points, and the North American businesses achieved 25, that is a record. It is all driven by operational execution, executing the win strategy, and really working hard to deliver for our customers. Order rates in North America also did improve to flat. That ends our negative string of year-over-year order declines, and we were really happy to see that. If you look at the International businesses, sales were slightly over $1.4 billion. Organic growth was down 2.5% the prior year, but again, that was also better than our forecast. Off-highway markets continue to be soft. And if you look really across the regions, in Europe, we were negative 5%, in Asia-Pac, negative 1%, which did slightly improve from Q3, and Latin America just continues to be robust at 19% organic growth. Same story on the margins. Margins increased 60 basis points in the quarter. Our International businesses generated 23.9% segment operating margins, and really just continue to be focused on simplification, productivity improvements, and I'm really happy to see this in the continued margin expansion from those International businesses. Order rates in International finished at minus 1%, with positive order rates in Asia driving the majority of the improvement. So nice to see that improve from Q3 as well. But if we look at Aerospace systems, right, that business continues to shine. Sales reached a record $1.5 billion in Aerospace. First time we've had $1.5 billion of sales in our Aerospace business. Organic growth, 19%, with double-digit growth across all the platforms within Aerospace. Operating margins, a brand-new record, increasing 130 basis points to 27.1%, and it really is driven by great volumes and unbelievable strength in these. Aerospace orders still remain strong. We did get the highest dollar level of orders for the year, and order rates continue to grow at plus 7%, so all things are looking up in Aerospace. If we go to the next slide, Slide 12, I just want to highlight our cash flow performance for the year. We finished FY’24 with record cash flow performance. CFOA increased 14% to a record of $3.4 billion, that's 17% of sales. Free cash flow, nearly $3 billion. That's also a record. That was 15% of sales. It's also a 15% increase from prior year, and we did achieve a conversion of 105%. I really just want to thank our team. This has been a lot of effort by a lot of people across the company, really made some nice improvements in working capital, really nice efforts on AP and AR, but I really want to note this year we were able to reduce inventory by over $120 million, really showcasing the efforts and focus that we've had on supply chain excellence. Across the globe, we continue to focus on being great generators and great deployers of cash. If we jump to Slide 13, you can see what we did with all that cash. We reduced debt by over $800 million in the quarter, $800 million in the quarter alone, and since closing Meggitt, we have now reduced debt by over $3.4 billion. We had a target to reduce debt by $2 billion in the fiscal year. We hit that target, and if you look at our leverage ratios, gross debt to adjusted EBITDA is now 2.1 times, and net debt to adjusted EBITDA is now 2, so it's exactly what we had forecast. And it really wraps up just a solid Q4 and a great fiscal year. So with that, I'm going to hand it back to Jenny, and I'm going to get to what I know everyone is focused on, and that is our outlook for FY’25. Jennifer Parmentier : Thank you, Todd. So at our Investor Day in May, we introduced the six key market verticals of our business that you see on this slide. This slide represents our FY’25 sales growth forecast for each market vertical, resulting in organic growth of 2% to 5%. We are providing a realistic guide for fiscal year ‘25. At the midpoint of this guide, we have Aerospace at 8.5%, industrial North America at 2%, and industrial International at 1.5%. We are confident in growing EPS, achieving mega synergies, and continuing our track record of expanding margins. I'll get it back to Todd to review the guide in a little more detail. Todd Leombruno : Okay. Thank you, Jenny. So I'm now on Slide 16, and let me share some of the details of the FY’25 guide. Reported sales is forecast to be in the range of 1.5% to 4.5% or 3% at the midpoint. That will equate to approximately $20.5 billion in sales. That is really supported by outside support in our Aerospace businesses. Total sales for the company are modeled at 48% in the first half and 52% in the second half, so right in line with what we've historically done on sales splits. If you look specifically at organic growth, we are forecasting organic growth in the range of 2% to 5% or 3.5% at the midpoint, and we're expecting high single-digit growth from Aerospace, roughly 8.5%, and a gradual recovery in the industrial markets throughout FY’25. For the North American businesses, we are forecasting organic growth of 2% at the midpoint, and for the International businesses, we are forecasting growth of 1.5% organic at the midpoint for the full year. If you look at the mix on organic growth, it's 2.5% first half, 4.5% growth second half. And I will note that this guidance does include sales from the recently announced divestiture that Jenny mentioned. We are expecting that to close sometime in the second quarter, and we will give an update once that closes to the impact it has on the company. We are based on June 30 currency spot rates, and we're forecasting that to be a slight headwind of about 0.5% or $100 million on currency versus prior year. Jenny mentioned margin expansion, 50 basis points of margin expansion is our plan. And in FY’25, we're going to get that by continuing to do exactly what we've done over the last couple of years, is really implement and advance the win strategy. Adjusted segment operating margin guidance is 25.4% at the midpoint. There is a range of 20 basis points on either side of that, and segment operating income is split 47% first half, 53% second half. If you do the math on incrementals, we're expecting slightly at 40% incremental margins. That's a little bit higher than what we normally have had just based on the growth in Aerospace and of course, continued mega synergies. Few additional items on the guide. Corporate G&A is expected to be approximately $230 million. Interest expense is $450 million. That is a reduction of approximately $50 million from FY’24 and other expense is expected to be about $5 million. Tax rate, we are modeling a 23% tax rate and full year as reported EPS of $23 or adjusted EPS of $26.65. Both of those figures are at the midpoint and the range on those, both of those ranges is $0.35 on the high end and the low end. And if you look at adjusted EPS, it is split 47% first half, 53% second half. In respect to cash flow for the full year, we are giving a range of $3 billion to $3.3 billion. That is $3.15 billion at the midpoint. That will be approximately 15.3% of sales and of course, we expect free cash flow conversion to be greater than 100%. If you look at the far right column on this page, you'll see some specifics, specifically about Q1. And these are all at the midpoint. Reported sales, we are forecasting to be plus 1%. Organic growth is 1.5% positive. Adjusted segment margins of 25.2% and adjusted EPS is expected to be $6.05. As usual, we've provided several other details for guidance in the appendix. If you look at Slide 17, this is a very similar story to what we just did in FY’24. Segment operating income is the main driver of our EPS growth. That is $1.51 of EPS growth. We'll continue to have lower interest expense as a result of our great cash flow generation and our deleveraging efforts. That will add $0.34 to EPS. If you look at the tax rate, that will be an unfavorable number. Just a reminder that that will be a 23% model tax rate. That is a headwind of $0.41, really compared to a favorable rate that we had in the full year of FY’24. Our corporate G&A is slightly unfavorable, just $0.06. Other expense is $0.10 unfavorable, and share count is just another headwind of $0.07. But if you look at that all in, that's our walk to the $26.65 midpoint or 5% increase year-over-year. With that, Jenny, I'm going to hand it back to you and ask everyone to reference Slide 18. Jennifer Parmentier : Thanks, Todd. As mentioned at our investor day and demonstrated in our results, this is a different Parker. We will add more than $10 to EPS and generate an additional 50% free cash flow by fiscal year ‘29. Our performance will continue to be accelerated from the wind strategy. We have a longer cycle and more resilient portfolio. We will experience growth from secular trends, and we will continue to be great generators and deployers of cash. Next slide, please. We are very proud to be celebrating 60 years on the New York Stock Exchange, and we'll ring the closing bell next week on Wednesday, August 14. I'll turn it back to Todd to get us started with Q&A. Todd Leombruno : Yeah, okay, Kevin, we are ready to open the lines for Q&A. And we'll take the first person in the queue. Operator: Certainly. [Operator Instructions] Our first question is coming from Julian Mitchell from Barclays, your line is now live. Julian Mitchell: Hi, good morning. Maybe just a first question around the first quarter outlook. I think first off, maybe to talk about the organic sales guide a little bit. I think you're dialing in a bit of a deceleration from the June quarter year-on-year, even with better orders. So maybe just any commentary around kind of very recent demand trends, any big movement month-to-month? And then sort of on the firm-wide P&L for Q1, you're basically saying flat EPS dollars year-on-year but with sales growth and margins up. So is there something below the line moving around? Todd Leombruno : Yeah, Julian, this is Todd, I could take that. There is some seasonality just going from Q4 to Q1 if you look at our historical sales splits and our historical earnings split. What we're modeling here is in line with what we've historically done. Our organic growth guide for the total company is plus 1% for the quarter. That is driven by Aerospace, which continues to be a low double-digit organic growth is what we're expecting in Aerospace. But in the industrial businesses, both in North America and International, we are still expecting that to be down from prior year. So it's low single digits, but it's still down. We expect that to improve throughout the fiscal year, and this is just our best look at a roll-up. So you're right, it's a little bit of a soft industrial environment, but really offset by strength in Aerospace. If you look at margins, you know, what we just did in Q4 was all-time record for the quarter. We are guiding the 25.2%. That would be a Q1 record for the company. So it is not an easy number there. It really is, it would be a record. And to do that in light of some softness on the industrial side of the business, we're pretty proud about that. There's some below-the-line stuff that just is a first-quarter phenomenon, but nothing abnormal. We are experiencing earnings per share growth and net income growth in Q4. And that really supports what we see throughout the balance of the year. Julian Mitchell: That's helpful, thank you. And then maybe just my follow-up would be around Slide 15. So you have that very helpful color on the end-market verticals outlook for the year. Maybe just any context you could give around sort of, maybe fourth-quarter rates in some of those end markets. And I suppose in plant and industrial I'm particularly focused on. It seems like the CapEx environment is getting a little bit worse out there. Just wondered what you're seeing in that in plant and industrial piece, please. Jennifer Parmentier : Sure, Julian, be happy to do that. So if you look at in plant and industrial equipment, it improved from negative low single digit in Q3 to neutral in Q4. And as you can see on the slide that you're referencing, our FY’25 guide is forecasting neutral in the first half, low single digit in the second half, resulting in a low single digit for the full year. If you look at transportation, it was mid single digit negative in Q4, and that was primarily driven by automotive cars and light trucks. We are forecasting low single digit negative growth for transportation in the first half, mid single digit growth in the second half because we expect automotive to return to growth then. Work truck strength continues and heavy duty truck is positive now. So full year is at that low single digit growth. If you look at off-highway, it was high single digit negative in Q4. And we are forecasting the same for the first half, neutral for the second half, and mid single digit negative for the full year. Inside of there, we expect ag to be double digit negative this year, offset by construction, low single digit positive. So that's some color there. And then energy is forecasted to be low single digit for fiscal year ‘25, neutral in the first half, mid single digit in the second half. HVAC was low single digit negative for Q4, but it is improving. We are forecasting mid single digit growth for the first half. This is driven by a recent regulation change on refrigerant. And the second half growth forecast is at low single digit growth, but that's dependent on how fast some of these manufacturers get through their inventory and ramp up production under the new regulation. So for the full year, we have them at low single digit. Julian Mitchell: That's great, thank you. Todd Leombruno : Thanks, Julian. Operator: Thank you. Next question is coming from David Raso from Evercore ISI. Your line is now live. David Raso: Hi, thank you. My questions are on your comfort with the organic sales guide, right? We have 1.5% in the first quarter. We can back into 2Q, right? It's 3.5%. So that 2% faster growth in 2Q from 1Q, I'm the impression I get that's coming from industrial going from, say down 1.5%-2% in the first quarter to going slightly positive. And I just wanted to get some color on why do we see that turning flat to positive in 2Q? The comps get a little easier in North America, but just any color around that, particularly in the mix of orders. Are you seeing it more from distributors? Is it the lack of de-stocks, maybe from a year ago at the manufacturers? Just trying to get more comfortable with that delta on year-over-year growth for industrial 1Q and then getting essentially slightly positive for 2Q. Thank you. Jennifer Parmentier : Yeah. So I'll take that, David. So some of the things that Todd mentioned earlier, total company order rates did go positive to 1% in Q4. Industrial North America improved to zero in Q4 after being negative for -- so that was a positive sign. And as Todd mentioned, that did end five quarters of negative order entry. International orders improved to negative 1% from negative 8%, and that was driven by Asia-Pacific. When you look at the channel, that destocking in the channel started over a year ago, and we believe that it has pretty much played out. We see the distribution trend going up, but I would say it's not a step change yet. We aren't actually seeing them add inventory. But these are all the things that are placed into our guide. Todd mentioned also the backlog remains strong. Q4 flat with Q3, dollars at near-record levels. So all of these things are baked into the guide and the reason that we feel good with the organic growth numbers we have in the first half. Todd Leombruno : David, I'd agree with everything Jenny said there. As usual, your math is spot on. You mentioned the comps. Comps are 2% easier in Q2 than against the prior. So it's a little bit of all that stuff, but I just wanted to call out the comps. David Raso: The reason I asked is it doesn't seem like there's much pricing -- new pricing for July 1. So I'm just trying to figure out what's the incremental bump may be. You're saying there's a little bit of comp and, obviously -- maybe some pickup -- Jennifer Parmentier : We're back to a normal pricing environment. So it's more about those comps getting easier. If you look at North America, Todd mentioned that we expect Q1 to be flat to Q4. But that gradual industrial recovery is what we have really baked into the guide. And the growth uptick, mainly in the second half, is on easier comps. David Raso: And follow-up, if you could indulge me with one question, you don't have to answer it. But I'm curious, the verticals that we're now breaking out. We know the margins in Aerospace, obviously, they're highlighted separately. But the other 5 verticals, would you give us a sense of kind of force rank highest to lowest the margins between those 5, just so we get a sense of the mix looking at it in this format? Jennifer Parmentier : No, we're not going to disclose that, David. David Raso: That’s right. Thanks. Todd Leombruno : I would tell you, just look at those -- the Diversified Industrial segment. Those margins are -- they're record levels. The International businesses are not that far off from the North America businesses. And it's really just a factor of some softness in Europe and Asia kind of going through a recovery mode. But the margins are strong across all of those verticals, David. Jennifer Parmentier : All the businesses are performing really well in margin expansion. Operator: Thank you. Next question is coming from Scott Davis from Melius Research. Your line is now live. Scott Davis : Hey, good morning Jenny and Todd, congrats on another great year. Jennifer Parmentier : Thanks, Scott. Thank you. Scott Davis : I know it probably hasn't -- the answer probably hasn't changed much since the Analyst Day, but perhaps you could give us a little bit of an update on M&A and what you're seeing. I think you clearly have the balance sheet space to probably step up and get a little bit more aggressive. So just a little bit of an update would be helpful, I think. Thanks. Jennifer Parmentier : Yeah, you're right. Not a lot different, but obviously, we still have some debt to pay down. That's still our focus. But when we look to acquisitions, we're always working the pipeline. Those relationships, maintaining and building those relationships is really important to us. And we've been doing quite a bit of that. We're looking for those things where we are the clear best owner, with the interconnected technologies and building on the secular trends. But the one thing that I'd say the most is that we're looking for deals that are accretive to growth, resiliency, margins, cash flow and EPS, it really has to tick all of those boxes. And in some cases, it really is based on timing. So we like all of the 8 core technologies, and we see opportunities to build on the entire portfolio. We have different businesses that we're looking at, of all sizes. So a question that I get a lot too is, you've built with each one, is the next one going to be bigger than Meggitt? And that's not that's not something that we're focused on. We're focused on the right deal with all of that criteria that I just mentioned. Scott Davis : Okay. And Jenny, the portfolio optimization and the small divestiture, is the lens here that you guys are looking at -- the Slide 15 lens that -- the key market vertical stuff that's outside of that vertical? Or is there a -- or is it more a function of kind of margin growth potential and kind of more traditional metrics? Jennifer Parmentier : It's the latter. We have to see that it's part of our core technologies, our core product offering. Obviously, this business was in Aerospace, and that's a market that we're very fond of. But it's the future profile of the business, both margin expansion and growth. Scott Davis : Okay. That makes ton of sense. Thank you. I’ll pass it on. Appreciate it. Todd Leombruno : Thanks, Scott. Operator: Thank you. Our next question is coming from Mig Dobre from Baird. Your line is now live. Mig Dobre : Thank you. Good morning. I guess one of the things that kind of stood out to me over the past couple of quarters within your industrial technology platforms is that motion systems and low-end process control kind of behave the way we would sort of expect them to in the kind of industrial downturn we're experiencing, this whole down high single-digit revenue type. But your filtration, engineered materials platform has been pretty remarkably stable. So I guess my question is, looking back, why has that been the case? Is this sort of different than what you've seen in prior downturns? And is there an impact on margin from a mix standpoint within your industrial business from this filtration business hanging in there a little bit better? Jennifer Parmentier : Yeah. So thanks for the question, Mig. So if you think back to the on-purpose strategy that we had with our acquisitions to double the size of filtration, double the size of engineered materials and Aerospace. We've done that with the last four acquisitions. So if you take filtration for instance, with the acquisition of CLARCOR, we greatly increased our aftermarket exposure in filtration. And that business has become more resilient than it was in the past. And when you look at Lord, into engineered materials, that's where we picked up a lot of that longer cycle business. And so you see those two groups behaving a little bit differently than the other two that you mentioned. That is definitely the main reason. Mig Dobre : And the margin impact? Jennifer Parmentier : The margin impact is accretive, just like the criteria that we give to the acquisitions that we would do in the future. These have been -- those have both been very successful deals where synergies were hit. And they continue to use The Win Strategy to improve margins. Todd Leombruno : Let me give you a little color on this. If you're worried, we agree with you, the top line has acted exactly as we expected it. But I would tell you the margin expansion has been equally generated by all of these businesses. When you look at that record that we put up for the quarter, 25.4, that motion systems platform, that flow and process control, those were equally contributing to those margin ramp. Jennifer Parmentier : Yeah. Wouldn't have happened without those two areas. Todd Leombruno : Yeah. And when you look at the cash that we generate, those businesses are stellar cash flow generators as well. So it's all part of the mix. It's all why we love the portfolio as it sits, and it's helped generating all-time record numbers. Jennifer Parmentier : Those technologies are a very important part of our portfolio and participate in the secular trends that we talk about. Mig Dobre : Thanks for the color. I’ll pass it on. Operator: Thank you. Next question today is coming from Jamie Cook from Truist Securities. Your line is now live. Jamie Cook : Hi, good morning. And congratulations on a nice quarter and guide. I guess my first question, Todd or Jenny, just looking at the implied incrementals for the year, the 40%-ish, it's a very good incremental margin above your targeted range on lower organic growth relative to your longer-term guide. So is there anything unusual in your -- in the mix this year that would allow you to have above-average incrementals on a low organic growth versus your targeted range? And then I guess the follow-up question is, once you get to the 4% to 6% organic growth, like why should your incremental margins be better than that just given what we're seeing already today? And then, Jenny, you're probably not going to want to answer this, but I'm going to ask it anyway. The order surprised me both on Industrial North America and on International. Anything you can do to talk to like the cadence of what you saw since April? And where were there -- did the orders outperformed your expectations as well? Thank you. Todd Leombruno : Yeah, Jamie, let me start on the incrementals. This is Todd. Thank you for the recognition of the quarter. We appreciate that. You're right. The incrementals are a little bit higher than what we have historically forecast. That 30% is really kind of over the cycle, so sometimes we think we could do better, sometimes it might be a challenge on the top line. But the way the math works is a little bit funny, right? Aerospace, with the strong growth in Aerospace and the margin profile that Aerospace is operating at, it is driving the incrementals for the company a little bit higher than normal. We also are committed to the $300 million in synergies that we have promised for Meggitt. We expect $50 million of incremental synergies in FY '25 versus FY '24. So that's putting Aerospace a little bit higher than historically where we've been at. And when you look at the Industrial businesses, we still see margin expansion even in a low-growth top line environment. So when you put all that together, that's how we came up with the numbers. So we feel really good about that. But the team is energized and focused on making sure that we deliver that. Jennifer Parmentier : Yeah. And from an order standpoint, Jamie, on the May call, I did something that I normally don't do, but made the comment that we were encouraged at the start of the quarter with what we were seeing in orders. And obviously, that continued and we saw ourselves get to the order condition that we're talking about today at the end of Q4. So that played out well for us. But what we have in the guide today is supported by the comments that we've made at those Q4 orders. So no additional color on orders. Jamie Cook : Okay. Thank you. Nice job. Todd Leombruno : Thanks, Jamie. Jennifer Parmentier : Thank you, Jamie. Operator: Thank you. Next question today is coming from Joe Ritchie from Goldman Sachs. Your line is now live. Joe Ritchie : Hi, good morning, Jenny and Todd, a terrific year, not just the quarter, it was a great year. Jennifer Parmentier : Thank you. Joe Ritchie : I'm going to tackle the margin question maybe slightly differently. And so, look, the exit rate for the Industrial businesses were really strong, right, both in North America and International. If you take a look at the 25% North America and the 23.9% in International, squarely either at the high end of your guidance for this year or the midpoint for the International segment. I guess why isn't it going to be better than that? If we're going to expect some growth, and typically, you guys have shown that you could expand margins even in a no-growth environment. Todd Leombruno : Well, Joe, I'll start. I'm looking at Jenny, she's smiling. We just a few months ago gave you the FY '29 targets. And if you look at this, this is right on track with those FY '29 targets. Aerospace, we're going to expand 100 basis points off of an all-time record for that business. And when you look at the Industrial businesses, we're showing margin expansion there as well, and really an unbelievably low growth top line number. So we feel really good about that. If you look at the cadence throughout the year, every one of these quarters would be a record margin number for us, and it increases, outside of Q2, which is a little bit of seasonal volume, they're aggressive numbers. So that's what we feel today. That's what we have confidence in. And that was kind of all that went into our guide. Jennifer Parmentier : Yeah. I would just back that up by saying, obviously, it was a fantastic year, it's a fantastic exit rate. But this guide is realistic. And this isn't a slam dunk for our teams. We believe in The Win Strategy, we believe in our ability to continue to expand margins, but this is a -- this isn't easy. Joe Ritchie : Okay. Got it. I'm sure you'll make it look easy. But the follow-up question is the -- Jennifer Parmentier : We'll try. Joe Ritchie : Yeah. So you mentioned that you're still planning to continue to pay down debt. You got your leverage ratio, your net leverage down to two turns, so congrats on that. I know there was a question earlier around M&A. So just talk to us a little bit about what's the kind of right leverage ratio that you want to get to before you get a little bit more front-footed with capital deployment on the M&A side. And then is there an opportunity to continue to buy back shares as well? Like how are you thinking about that priority going forward? Todd Leombruno : Yeah, Joe, it's a great question. It's something we talk about constantly here. We've been very clear, our target was to get to and operate around a 2 net debt to adjusted EBITDA leverage. We got there, we're very proud about that. It was not easy, but the team worked really hard to get there. The way our debt is structured, we have a service debt that goes all the way out into 2026. So we feel good that we will not -- we'll be putting our cash to good work as we continue to pay down that debt. But I would tell you, our preference continues to be to deploy our capital optionality towards deals, as Jenny mentioned it earlier. It's going to be the right deal. It's not going to be one that just happens to be available. It's got to be able to grow the top line differently. It's got to be accretive to our margins. It's going to have to be EPS accretive. And it's going to have to help generate cash in a way that's different than what the company has been able to generate. And if we can't get those done, we have no worries about deploying that elsewhere. We're going to keep our dividend record going. And our share buyback is $200 million a year. We're going to do that at a bare minimum, and we will be active. I could assure you that. Jennifer Parmentier : And if the timing and the deal don't line up the way we'd like one to in the future, we'll always buy back shares, like Todd said. I mean, we believe in Parker. Joe Ritchie : Great. Thank you, both. Operator: Thank you. Next question is coming from Stephen Volkmann from Jefferies. Your line is now live. Stephen Volkmann : Great. Thanks for taking the question. Todd, I just missed it when you said the Meggitt synergies in FY '24. Todd Leombruno : Yeah. We increased those Meggitt synergies. I think that was in the second quarter or the third quarter, $200 million is what the accumulated synergies were at the end of FY '24. We're committed to the $300 million number. That would be $50 million in FY '25 and an additional $50 million in FY '26. Stephen Volkmann : Got it. Thank you. And then I'm trying to think, just mentally, if I back that out, how much did mix add relative to sort of other drivers for the margin in Aerospace? Todd Leombruno : Yeah. I mean everything in Aerospace is really booming right now. Aftermarket is especially strong. You know the profile of that business. That is the highest-margin business we have, and it's been really robust. So if you look at what they did for the quarter, I think it was 27% margins. If you look at what we are forecasting for FY '25, it's another 100 basis points of margin expansion in Aerospace. And that gets us 27.5% ballpark. So really strong margins in Aerospace. Stephen Volkmann : Great. I guess what I'm trying to think about is, assuming that the aftermarket OE mix kind of normalizes at some point, maybe that's a big assumption, I don't know. But if it does, should we be worried about potential kind of margin headwinds in that scenario? Todd Leombruno : No. When you look at our team -- of all of the forecast tools that we have that we've improved across the company, our best tools remain in the Aerospace verticals. And I would tell you, our team, we've had multiple discussions with the team. We feel really good about that. And I don't want to speak outside of FY '25, but we feel really good about what '25 has in store. Jennifer Parmentier : Yeah. We feel very positive about air traffic growth. So we're not concerned about that. Stephen Volkmann : Great. Thank you so much. Operator: Thank you. Our next question today is coming from Nathan Jones from Stifel. Your line is now live. Nathan Jones : Good morning, everyone. Todd Leombruno : Good morning, Nathan. Nathan Jones : I'm going to go back to the revenue guide. For as long as I can remember, Parker has been guiding for a revenue split, 1H to 2H of 58% to 42%. So I wanted to ask, you've got a much larger backlog now than you've had historically. So potentially some better visibility out into that. So I'm just interested on what you're visibility into that second half revenue guidance is based on where the backlog is. And what kind of macroeconomic assumptions that you've got baked in there? A lot of peers and competitors have been talking about lower CapEx spending going forward, but it's -- maybe that you guys went into the downturn first, you're coming out of it first. But just any color you can give us there. Jennifer Parmentier : Well, just to run through it a little bit. Obviously, for Aerospace, as we talked about, we have 8.5% organic growth out there. In the first half is at 11%, second half is at 6%, and that's really because the comps get pretty tough when you get into the second half. So obviously, we feel really good about Aerospace. We have good visibility over -- we have a high backlog there, right? So no concerns there. When you look at North America, as Todd mentioned, we're guiding to 2% organic growth, minus 1% in the first half. And as we've talked about, that's based off of a typical Q1 and based off of what we see today in the orders and the information that we have from our customers. Again, we expect continued softness in off-highway all year and transportation in the first half. So kind of going back to those forecasts for the market verticals. We do expect a gradual industrial recovery, as we've mentioned here, and that's what we have baked in. So again, the growth uptick is mainly in the second half, and it is somewhat on easier comps. Those are the inputs that we're looking at. In International, 1.5% organic growth, again, negative 1% in the first half, second half at 3.5%. As we mentioned, order rates improved, but they're still in negative territory. Our guidance assumes that Asia-Pacific turns positive, offset by continued weakness in Europe. So that's what we're looking at right now. Again, softness around end-markets in Europe, neutral growth in the guide for the full year. So that's what we have built into the guide. Nathan Jones : Do you need things like interest rate cuts to spur some of that recovery that you're looking for in the second half in various parts of the industrial economy? Kind of what are the underlying assumptions that you've got that inform that expectation? Todd Leombruno : Yeah. Nathan, this is Todd. Those certainly would be helpful, there's no doubt about it. What we have baked into the numbers is really -- again, you've heard us talk about our AI forecast. So we have a variety of macroeconomic forecasts that we're using. There's nothing outside of anything that you're not seeing yourself. It really is driven by great Aerospace performance, a gradual recovery in the Industrial markets, mainly in the second half of the fiscal year. And that's based off of what we've seen orders do for many, many, many years. We were really glad to see North American orders turn not negative, and we were really happy to see the Industrial orders move to minus 1%. So all of that is what we've been using to build our forecast. Nathan Jones : Awesome. Thank you for taking my questions. Todd Leombruno : Thank you. Operator: Thank you. Next question is coming from Jeffrey Sprague from Vertical Research Partners. Your line is now live. Jeffrey Sprague : Thank you. Good morning everyone. A lot of ground covered here. A couple of things from me. First, just on the divestiture, Jenny or Todd. I think it sounds like it's kind of part and parcel to your kind of normal process of reviewing the portfolio and assets. But should we view this as largely kind of a one-off? And obviously, it just kind of came with something you recently acquired? Or there's kind of other pieces here and there that could be methodically coming out as your margin structure has moved up, right, and your threshold for what's good enough rises, does that cause some additional things to shake out of the portfolio? Jennifer Parmentier : At Investor Day, we mentioned that we would continue to trim around the portfolio, but not anything significant. All of our businesses have to perform. Every year we go through an analysis of our businesses, a best owner analysis. But again, nothing significant, Jeff. It would be just some trimming around the portfolio. Jeffrey Sprague : And could you also just share with us your view on Aero for 2025 in terms of the big buckets, commercial OE versus aftermarket military OE versus aftermarket? Jennifer Parmentier : Absolutely. So on commercial OE, we are forecasting high single digit, really based off of narrow-body rates and wide-body ramp-up. Commercial aftermarket, low double digits. And again, air traffic recovery, broad-based growth there, been very strong as we've talked about today. Defense OE mid-single digit increase, increasing defense budget and continued demand for legacy fighters. And then defense aftermarket, high single digit. And again, pointing to those public-private partnerships we have with the depots, that's really proved to be great growth for us. And again, retrofits, repairs, upgrades. So really it's going to be a strong year for Aerospace, high single digit at 8.5%. Jeffrey Sprague : I’ll leave it there. Thanks a lot. Jennifer Parmentier : Thank you. Todd Leombruno : Appreciate, Jeff. Operator: Thank you. Your next question is coming from Nicole DeBlase from Deutsche Bank. Your line is now live. Nicole DeBlase: Yeah, thanks. Good morning, guys. Todd Leombruno : Good morning, Nicole. Nicole DeBlase: I just wanted to ask another question on the divestiture. And we all have the revenue number that was in the press release. But I guess, any color on whether the divestiture will be accretive to margins? And can you just confirm that that's all coming out of the Industrial North America segment? Todd Leombruno : Yeah, Nicole, this is Todd. It will all come out of the Industrial North America segment businesses. We do expect that to close sometime in Q2. It will be margin accretive, there's no doubt about it. I'd rather wait until we get the actual close date to give you exact color on that. Jenny talked about it. It's a great business, just maybe not perfectly aligned with our core products. If you look at the enterprise value that we got for that business, it's $560 million of enterprise value. So there will be a gain on that. And like I said, we'll be looking to share more of that once it finally closes. Nicole DeBlase: Got it. That's really helpful. And then on the outlook for International, it sounds like you guys are expecting Europe to be down again. If you could kind of confirm your thoughts there. And I know it's small for you, but any color on what you're seeing in China. Thank you. Jennifer Parmentier : Yeah. So the guide does assume that Asia Pacific turns positive, offset by continued weakness in Europe. So the full year for Europe is neutral to fiscal year '24. So just continued softness there. What I would say in China, growth improved to negative low single digits in Q4, and Q4 orders increased due to some project orders. So there's some positive there. Nicole DeBlase: Thank you. I’ll pass it on. Todd Leombruno : Thanks, Nicole. Jennifer Parmentier : Thank you. Todd Leombruno : Kevin, I think just in light of time, I think we have 5 minutes left, maybe one last question. Operator: Final question today is coming from Brett Linzey from Mizuho Securities. Your line is now live. Brett Linzey : Hey, good morning. Congratulations. Jennifer Parmentier : Thank you. Brett Linzey : Just a question on the margin outlook, but specifically gross margins. So another strong year in '24, but you're now seeing a better mix of secular in these applications. Are you embedding a higher-than-normal gross margin lift in the '25 outlook as you're seeing some traction here? Todd Leombruno : Yeah. Brett, this is Todd. Thanks for noticing that. We've been working hard on all elements of profitability for a long time here. When you look at that 50 basis points of segment operating income expansion, the vast majority of that will come in the gross margin line. Brett Linzey : Okay. Got it. Great. And then I apologize if I missed it. On off-highway, so I appreciate the color on adverse construction, but I was wondering if you could dimension the outlook between OE, the distribution business in Off-Highway, and what's your level of visibility is on some of the OE inventories. Thanks. Jennifer Parmentier : I mean, I don't have a good picture of that that I could share with you today, but perhaps we can pick that up in a callback. Brett Linzey : I’ll leave it there. Thanks a lot. Todd Leombruno : Appreciate, Brett. Operator: Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further closing comments. Todd Leombruno : Okay, Kevin, thank you. This concludes our earnings webcast. Thanks to everyone for joining us today. As always, we do appreciate your attention, interest and support of Parker. If anyone's got any more follow-up questions, whether that's on the quarter, the year or the FY '25 guide, Jeff Miller, our VP of Investor Relations; and Yan Huo, our Director of Investor Relations, will be available throughout the day and even if tomorrow, if needed. I hope everyone has a great day. We appreciate it. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

Operator: Greetings. Welcome to Parker-Hannifin Corporation's Fiscal 2024 Third Quarter Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that today's conference is being recorded. At this time, I'll now turn the conference over to Todd Leombruno, Chief Financial Officer. Mr. Leombruno, you may now begin your presentation. Todd Leombruno: Thank you, Rob, and good day, everyone. As Rob said, this is Parker's fiscal year 2024 third quarter earnings release webcast. This is Todd Leombruno, Chief Financial Officer speaking. With me on the call today is our Chairman and Chief Executive Officer, Jenny Parmentier. We appreciate your interest in Parker, and we thank you for joining us today. If we move to Slide 2, you will find our disclosures on our forward-looking projections and non-GAAP financial measures. Actual results could vary from our forecast based on the items listed here. The press release, this presentation and reconciliations for all non-GAAP measures that we will discuss today were released this morning and are available under the Investors section on parker.com. We're going to start today with Jenny reviewing the highlights of our strong third quarter performance, and then she's going to highlight how the competitive advantage of our high-performance culture is getting our global team members to deliver consistent margin expansion. I will follow up then with some color on the financial results of the quarter, and I will provide some assumptions to our increase in the fiscal year 2024 guidance. We're going to end the call with a Q&A session, and we'll try to take as many questions as we possibly can. Just a reminder, please try to limit your questions to one and a follow-up, if needed, so we can get to all of those in the queue. With that, I now draw your attention to Slide 3, and Jenny, I will hand it over to you. Jennifer Parmentier: Thank you, Todd. Q3 was another quarter where the team delivered outstanding results executing the Win Strategy. Starting with safety, a 17% reduction in recordable incidents over prior Q3. Safety has been and will remain our top priority. Record sales of $5.1 billion in the quarter, with organic growth of 1.2%, record adjusted segment operating margin of 24.7%, that's a 150 basis point improvement over prior year with all segments expanding margins. Adjusted EPS growth of 10%, along with 12.6% year-to-date free cash flow margin. Aerospace demand remains robust and was again a significant driver of our performance in the quarter. Our transformed portfolio and strong performance are driving an increase to full year guidance. Next slide, please. Those of you who know us well know, this is the Win Strategy. This is our business system focused on the fundamentals. It is a proven strategy. We trust the process, and this is how we deliver results. Very simply put, this strategy works. I first used the Win Strategy when I joined Parker 16 years ago as a plant manager. I very quickly learned that it wasn't just words written on a piece of paper. I was trusted, empowered and expected to use the tools in the Win Strategy to improve my plan. I've since used it as a General Manager, Group President and as an Executive Officer of the company. Based on a solid foundation of culture and values, we pursue four goals: engage people, customer experience, profitable growth and financial performance. Engage people is the first and most important pillar. As I mentioned on the previous slide, safety is our top priority, and it sits in the first position of this first pillar. One of the keys to our success is our decentralized operating structure. High performance teams at our 85 operating division utilize all the tools in the Win Strategy to deliver results. Our culture drives an ownership and entrepreneurial mindset, one that I appreciate it as a General Manager and respect today. We are excited to show you some examples of the Win Strategy in action at our upcoming Investor Day on May 16. Next slide, please. Embedded in the Win Strategy is our high-performance culture. This is a competitive advantage that has allowed us to build a better and more resilient Parker. The structure of high-performance teams increases engagement and commitment at all levels of the organization. This, coupled with a disciplined operating cadence drives top quartile performance. Our approach is strength based, focused on building relationships and team member development. This structure reinforces our customer centric mindset and drive continuous improvement across the enterprise. Next slide, please. Our people, our high-performance culture that I just spoke about, our strategy, the Win Strategy and our transformed portfolio have driven the performance you see on this page. This is a snapshot from FY 2019 through our FY 2024 guidance, 7% revenue CAGR from $14.3 billion to our FY 2024 guide of $19.8 billion. 600 basis point increase in adjusted operating margin from 18.6% to our guide of 24.6%, 14% adjusted EPS CAGR and from $13.10 to our FY '24 guidance of $24.75 and 2 times the amount of free cash flow dollars, $1.5 billion in fiscal year 2019 and to our FY 2024 guide of $3 billion. A lot of hard work. We are very proud of the global team delivering these results, and we have a very promising future ahead of us. And we're not done. I'll hand it over to Todd for the summary of our third quarter highlights Todd Leombruno: Thank you, Jenny. It's great to see those results. Let's take a look at the quarter. This is just a high-level financial summary for the company. As Jenny said, Q3 was another strong quarter for Parker. Once again, every number in that gold highlighted box is a Q3 record for the company. If you'll see total sales, we did grow -- it's up slightly from prior year. We reached $5.1 billion in sales. Organic growth was just over 1% positive, slight negative impact from divestitures. That's just 0.3%. Our sales and currency did shift to a slight headwind this quarter, not terrible at 0.6%, but it's the first time the sheer currency has been a headwind. If you look at the adjusted segment operating margins, that's an improvement of 150 basis points versus prior year. We did finish at 24.7%. And a similar story on EBITDA margins. We finished at 25.5%. That is an increase of 130 basis points from prior year. Moving to adjusted net income. We generated $851 million of net income. That is an loss of 16.8%. And adjusted earnings per share were $6.51, and that's a $0.58 or 10% increase from prior year. Net income is also an increase of 10% from prior year. Q3 was really just a solid quarter when you look at the sales, when you look at segment operating income, when you look at net income and earnings per share, each one of those generated the highest levels that we produced this fiscal year. So a very strong quarter. If we can move to Slide 9. This just shows the walk of that $0.58 or 10% increase in adjusted EPS. I'm really glad to say again, the main driver of segment operating income dollars increasing. We increased by $76 million in the quarter. That accounted for $0.45 of the EPS growth. That's nearly 80% of the EPS growth in the quarter. Again, Jenny mentioned this, but it's just impressive operating performance across the company, but specifically, the strength in our Aerospace Systems segment was again a main contributor this quarter. Interest expense is again favorable. That really is the result of our successful efforts to deleverage after the Meggitt transaction. Tax was favorable $0.06 versus prior year. Simply, that's just a few discretes that are certainly hard to predict. Corporate G&A was higher from prior year, but really, that's just more a result of prior year favorable items not repeating this fiscal year and you can see other expense and share count were just a little bit higher than prior year. So the theme really remains the same this quarter as it has in the first half of the year. Our team members are generating strong operating performance that is driving margin expansion, really in a tepid top line industrial environment. And our debt paydown efforts are really reducing our interest cost. So it's just great to see the team work together to generate those results. If we go to Slide 10, this is the segment performance. You can see we continue to see positive growth as a result of the higher concentration of Aerospace in our portfolio. Margin expansion does continue across all of our businesses. That is great to see. Order dollars did remain strong against a very tough comp in the prior year. Order dollars did improve sequentially from last quarter. So we're happy to see that. If you look at the North American businesses, sales volume reached $2.2 billion. Organic growth was down 4.6%, as you can see on the slide, but that was in line with our expectations. It was driven by softness in off-highway and transportation markets specifically. We did continue to see destocking throughout the quarter, but I will say it did continue at a decelerating rate. Despite the down volume, margins increased 120 basis points to a third quarter record of 24.1% in the North American business. This just really is a shining example of operation excellence and how the teams continue to see opportunities to drive margins even higher. Order rates in North America did remain constant with last quarter. They finished at minus 4 in the quarter. If we move to the international businesses, you can see sales volume reached $1.4 billion. Organic growth was down 3.1% on those businesses. But again, that was in line with our guidance. If you look at EMEA, that was the most negative at negative 5.1 and just some contraction again in highway transportation and implant industrial markets. Asia Pac growth was minus 2.8%. China remains generally soft. Latin America is a strong point. They continue to be positive at 19% versus prior year. What we're really proud about is the team, even on that lower volume, expanded margins by 10 basis points, and they also generated a third quarter record of 23.5%. Focus remains on productivity improvements and cost controls in these businesses with orders in the international businesses at minus 8. In EMEA, we are seeing some choppiness on orders, while Asia Pac we are seeing some improvements. If we look at Aerospace, Aerospace delivered another stellar quarter for the company. Sales reached a record of $1.4 billion, that's the highest we've ever had in the aerospace business. Organic growth was 18% across every market segment we have in aerospace. This is the fifth quarter of double-digit organic growth within Aerospace. Aftermarket strength continues to be outstanding. This quarter, we were up 26% in the commercial aftermarket area and operating margins are fantastic, reaching a new record, increasing by 320 basis points versus prior year to come in at 26.7%. Demand just remains robust, aftermarket strength continues and the team is just doing great driving margins ever higher. Order rates in aerospace continue to be very strong at plus 15. So just great performance across all of our businesses. If we go to Slide 11, let's talk about cash flow. So first of all, I think most of you have probably seen this last week, our Board approved a quarterly dividend payout of $1.63 per share. That is a 10% increase over the prior dividend payout. With that increase, this does increase our annual record of paying higher dividend dollars per year from 67 years to now 68 years, just an unbelievably impressive record. Looking at cash flow. We've got a record on cash flow of $2.1 billion of cash flow from operations, that's 14.6% of sales. That is a 20% increase over prior year. And I said it already, but it is a record. When you look at free cash flow, we did $1.9 billion that is 12.6% to sales and that also is a 22% increase versus prior year. The team really remains focused on being great generators and great deployers of cash. We are reaffirming our full year target of free cash flow dollars of over $3 billion, and we certainly are committed to free cash flow conversion of over 100 for the full fiscal year. So great performance on cash. Let's move to Slide 12. I'm happy to give an update on our deleveraging progress. We did reduce debt by over $420 million in the quarter. Since we closed the Mega transaction, it was just six quarters ago. We have reduced debt by over $2.6 billion. That, coupled with the continued expansion in EBITDA growth, we have reduced our leverage by over 40% just since the close. Both of those are ahead of our original commitment. And you can see on the slide here, gross debt to adjusted EBITDA is now 2.3 times and net debt is down to 2.2 times. We still feel confident that we will get the $2 billion of debt paid down in this fiscal year and we certainly are on track to achieve net leverage of 2 times by June of this fiscal year, just in two months. So if we go to Slide 13, just some color on our guidance. We are reaffirming our full year organic growth midpoint and increasing our margin and earnings per share expectations for the year. Our reported sales growth for the year is expected to be 4% at the midpoint. And on organic growth, we are increasing aerospace once again. We're increasing it by 300 basis points to 15% for the full year. Both North America and international diversified industrial businesses. Organic growth is now forecasted to be negative 2.5. But for the company, full year organic growth remains the same at 1.5% positive. So you can see how aerospace is helping the portfolio on our top line. We're raising adjusted segment operating margins. We're raising that to 24.6. That's 30 basis points higher than prior guidance, and that now forces the full year margin expansion to be approximately 170 basis points versus prior year. Corporate G&A and interest, unchanged from prior guide. Tax rate is down a little bit, just really based on Q3 actual results. We expect that to be 22% now. Full year as-reported EPS has increased to $20.90 and full year adjusted EPS has increased to $24.75. Both of those are at the midpoint and there's a range narrowed to plus or minus $0.10 for the fourth quarter. Finally, if you look at the fourth quarter, our adjusted EPS is expected to be $6.13 at the midpoint. So as usual, we've got some more specifics in the appendix if needed. And now, I'm going to hand it back to you, Jenny, and I ask everyone to turn to Slide 14. Jennifer Parmentier: Thank you, Todd. A few key messages to close this out as we near the end of our fiscal year 2024, our high-performance culture built a better and more resilient Parker. We will continue to drive operational excellence through the Win Strategy. As mentioned a couple of times already, aerospace demand remains robust, and our transformed portfolio drives growth. And finally, Parker is and will continue to be a great generator and deplorer of cash. Next slide, please. We are looking forward to sharing our story at our investor meeting on May 16th. I will be joined by our President and Chief Operating Officer, Andy Ross, our Chief Financial Officer, Todd Leombruno, and our Vice President of Investor Relations, Jeff Miller. Our key themes for the meeting are transforming the company, how we are positioned for growth from secular trends, operational excellence and financial performance. Thank you again for joining the call today. And I'll turn it back over to Todd for Q&A. Todd Leombruno: Rob, we're ready to open the lines for Q&A, and we'll take whatever you got first in the queue. Operator: Thank you. Our first question in the queue today is Scott Davis with Melius Research. Please proceed with your question. Scott Davis: Hey. Good morning, Jenny and Todd and Jeff. Jennifer Parmentier: Good morning, Scott. Todd Leombruno: Good morning. Scott Davis: Look forward to you in a couple of weeks. I got a bunch of questions, but I'll try to keep it brief and pass it on. Just as it relates to M&A, what just mark-to-market a little bit on what you guys are thinking on your pipeline, what your comfort level and stepping forward right now, kind of what good looks like? And are we more -- are we looking at more bolt-on-ish type stuff at this point? Or are there other kind of Meggitt type deals that are out there? Jennifer Parmentier: Well, I often say, Scott, we really like Meggitt, and we wish there were a lot of Meggitt like deals out there for us. Listen, we -- first and foremost, as Todd was talking about, we're committed to paying this debt down, right? We're doing it earlier than we said we would. We're forecasting to be at two times by the end of this fiscal year. But we're always working on that pipeline, building the relationships. The pipeline is robust. There are targets in there of various sizes, some bolt-ons, some larger ones. Really, it's about making sure that we have the right one. It has to be accretive to growth, margins, follow the secular trends and really be the right fit for Parker, fit with our interconnected technologies and be the right business. So we continue to work that pipeline, and we'll have more to talk about that in the future. Scott Davis: Okay. I look forward to that. And a smaller issue, but when you think about commercial aftermarket in Aero being up 26%, that is -- those are big numbers. And help us understand at the customer level are they taking on more inventory? Do they -- how do they generally manage their inventory? Or how do you guys at least help them manage our inventory so that you don't experience double ordering and things like that. And perhaps just making sure we understand the risk profile of those types of growth rates and the sustainability? Thanks. Jennifer Parmentier: Yes. It's a good question, Scott. I haven't heard of any concerns of double ordering in aerospace. I think there's still supply chain constraints out there that everybody has their orders. There's long lead times but no, I've heard nothing about double ordering. As we go through this balance of air traffic returning to pre-COVID levels, different manufacturers ramping up to higher rates, it's a balance and MRO, I believe, will continue to be strong. So for the foreseeable future, we see that as strong. Todd Leombruno: Scott, one thing -- you probably know this, Scott. But with Meggitt, specifically in the quarter, our aftermarket business is 47% of the total aerospace business. So it's up Jenny mentioned the air traffic is back to pre-COVID numbers. And it's really a combination of expanded aftermarket mix within the company. Scott Davis: Yes. Well, it looks like they certainly need to replace some wheels and brakes based on what we read out there. So good luck guys. Thank you. Jennifer Parmentier: Thanks. Operator: Our next question is from the line of Andrew Obin with Bank of America. Please proceed with your question. Andrew Obin: Yes. Good morning. Jennifer Parmentier: Good morning, Andrew. Andrew Obin: Just a follow-up on aerospace and aero margins. You guys have really emphasized one-time mix over the past one-time mix benefits over the past couple of quarters I guess, high spare impact. But you know, we are up sequentially from 1Q, 2Q, what's going so well? Jennifer Parmentier: Well, as we were just talking about the mix, Q3 was actually -- aftermarket mix was actually 48%. Year-to-date, we're at [Indiscernible]. So the combination of what we had in our portfolio and adding to what we got with Meggitt, it's been a big increase. And it is excellent growth from our braking business in other areas. Also military aftermarket growth is higher because of these public private partnerships we have with the Department of Defense. So a lot of things going well really pleased and well positioned with this portfolio of complementary technologies, so really positive about this going well into the future. Andrew Obin: Got you. And just a question on orders in North America, I think you highlighted softness enough highway and transportation, maybe you could just walk us through what are you seeing on the mobile, and I mean, it's been a while since we used those terms. But mobile and stationary and am I correct just to think that it's a lot of Ag and Class A trucks? And just how much visibility do you have because you are saying the stock can continue at a decelerating rate. But where do you see the bottom? Jennifer Parmentier: Okay. So I'll just -- I'll do a little run-through of the markets. Obviously, we know aerospace is very strong, and we've raised our guidance because of that. If you take a look at energy, oil and gas, that remains positive. Implant industrial equipment, low single-digit negative, more negative in Europe, less in North America. Transportation, mid mid-single-digit negative, Automotive is down globally. And I would again say that Europe is more negative there. Off-highway, high single-digit negative, primarily construction and Ag and both of them are equally negative, Andrew. Again, Europe a little more negative. When we take a look at HVAC refrigeration, it is still double-digit negative, but it's some pretty tough comps to prior it was quite positive this time last year, mainly driven by the residential business. It is improving. There's an improvement in commercial and as you were just mentioning, destocking, distribution is slightly negative, and we saw that destocking lingering through the quarter. So when we take a look at where we're at today, Industrial North America orders have been negative for five quarters now. And we're still very proud of it, still guiding to 1.5% organic growth for the company. And historically, you would see that orders go negative for an average of six core years. And both portfolio, total Parker went negative same quarter as industrial North America. So a big difference here. What I would also say is the backlog remains strong. Backlog dollars are at near record levels. And as we spoke about in quarters past, consistent coverage really holding in there, as we've talked about before, pretty much double what they've been historically. And while we have Q3 order conditions reflected in the guide, I would have to say that April orders are off to a better start, and we might be seeing the end of destocking here. Andrew Obin: I’ll take that. Thanks so much. Operator: Thank you. Our next question is from the line of David Raso with Evercore ISI. Please proceed with your question. David Raso: Hi. Thank you. The implied fourth quarter for international, the organic growth rate weakening from the third quarter. Can you just help us maybe geographically or however you like to take us through that cadence? And is there any sort of visibility on when those declines start to lessen. Jennifer Parmentier: Yes. Thank you, David. So obviously, orders went from minus 5 in Q2 in international to minus 8. So that is definitely what is reflected in the guide. Destocking continued, as I was mentioning earlier, softness in off-highway and transportation and industrial equipment. We just really see that the macroeconomic indicators are still in contraction in Europe. Really, the sales for the quarter were in line with our expectations, but the orders in the quarter are really what has driven us to take that down in Q4 and slightly for the year, we had -- had a negative two for the year, and now we have it at a negative 2.5%. So we're not seeing the same thing that we're seeing in North America at the start of this quarter. So not signaling any turn there yet, but we're keeping a close eye on it. David Raso: Okay. I'm just trying to get a sense of when, if North America, you sound a little more encouraged for April. I'm just making sure the international doesn't sort of dampen what -- I would suspect you think maybe North America organic can turn positive in a couple of quarters. Maybe sort of if you kind of address that thought, if you could? Jennifer Parmentier: Usually, North America, historically, the average has been six quarters, and then we see a turn, right? And international has just -- it's been choppy. It's been really choppy over the last several quarters. So it's hard to call at what point that would follow North America. We're just going to have to keep a close eye on it, and we'll have a better update for you next quarter. David Raso: And then lastly, price cost. Can you give us an update on how that's trending? And I'll hop off. Thank you. Jennifer Parmentier: Yes. So we're back to what we would call a normal pricing environment. We're doing our twice a year price increases. As a reminder with price, we went out early and often. We believe that price to be sticky. We still have inflation out there. And I think we've done a really good job. The team has done a good job at maintaining our margin neutrality. So we're back to more of a normal environment right now. David Raso: Thank you. Jennifer Parmentier: Thanks, David. Operator: Our next question is from the line of Joe Ritchie with Goldman Sachs. Please proceed with your question. Joe Ritchie: Hi. Good morning. Jennifer Parmentier: Good morning. Joe Ritchie: And so we're getting lots of questions, obviously, on the turn in North America. And I'm just curious, so really helpful to hear that April is a little bit better and that we maybe were towards the end of destocking. Just curious like how do you think that this potential inflection actually will work? And what I'm asking specifically is with your distributors, what are the conversations like you feel like things could be low and slow just given we've been -- we've seen this destocking now for several quarters. Just any comment around that would be really helpful. Jennifer Parmentier: Well, I would tell you that the distributors have been positive for a couple of quarters now, right? They've been sharing with us how they've been able to participate in some nice work with some reinvestment in some factories, maybe some early days on some of these mega CapEx projects. But it's really a positive sentiment. I wouldn't tell you at this point, is indicating a slow move or a steep climb. It's just what we're seeing early in this quarter. It's just really kind of looking like we might be seeing bottom. Joe Ritchie: Okay. Yes. No, that's great to hear. I guess maybe just kind of thinking through also the questions around the industrial international business as well. Like -- you guys have done a really good job of expanding margins even at a time when things haven't -- volumes have been negative. I'm just curious like if we're if it's slower to pick up in the international business, how do you feel about the margin trajectory of that business from here? Jennifer Parmentier: I have a lot of confidence in these teams. I mean in this environment for the last several quarters, they've just done a great job with cost control and expanding margins. These teams, as I mentioned earlier, their practitioners of the Win Strategy, and they know what levers to pull. We've commented in the past, we're never waiting for a downturn or a recession or anything that might happen. We're constantly looking at making sure that we expand margins. Joe Ritchie: Awesome. Thanks, Jenny, look forward to seeing you in a couple of weeks. Jennifer Parmentier: Yes. Operator: Thank you. Our next question is from the line of Jamie Cook with Truist Securities. Please proceed with your question. Jamie Cook: Hi. Good morning. Congratulations on a nice quarter. I guess, Jenny, if you look at your implied margins for this year, the 24.6% were sort of already at, your targeted margins, which I'm assuming -- which you guys will address at your Analyst Day. But I'm just thinking, as you're focused on igniting organic growth for Parker-Hannifin in total just brought across the portfolio. To what degree do you have to balance the ability to improve margins much more from here just for most industrial companies having a 25% margin or whatever is pretty good. I'm just wondering if we have to put a ceiling sort of on the margins to get the organic growth. And then my second question is -- or would you to, I guess, you don't have to, but would you consider that strategy? And then my second question, just back to the M&A question again. I mean, obviously, Meggitt has been a big positive for you guys. Longer cycle business is giving you guys the ability to grow the organically as industrials weaker. Do we need sort of more long late-cycle aerospace businesses, do you think to have a more balanced portfolio? Thanks. And I'll get back in queue after that. Jennifer Parmentier: Thanks, Jamie. So first of all, I would say we're really proud of our teams in this margin expansion that we have achieved. And as I mentioned earlier, we're not done. We feel like there's still a lot of runway, no pun intended in Win Strategy 3.0, a lot of opportunity to expand margins. We feel very strongly about our ability to grow differently with this portfolio and with the secular trends. And we'll have some more updates for you at the investor meeting here in a few weeks. But we're not pulling together a strategy right now that limits us on one or the other. We're just going to stay focused on margin expansion and growing that top line organically. On your acquisition question, for more aerospace or what the mix needs to be, it does need to be that longer cycle business, accretive to growth, accretive to margins, EPS, complementary technologies. All of those things have encompassed the last couple of acquisitions that we've done and is one of the reasons that I believe that we've been so successful with them. So that's the kind of business we're looking for. No magic number on a percentage of aerospace. We obviously like the aerospace business, but we like all of our technologies. We think there's real power in these technologies being together, and that's why we often talk about them being interconnected and most of our customers buying 4 or more of these at a time. Operator: Our next question is from the line of Nathan Jones with Stifel. Please proceed with your question. Nathan Jones: Good morning everyone. I guess a bit of a follow-up on some of the questions on the order rates and expected improvement in those in the short term. I think by historical standards, this has been a relatively shallow downturn in the industrial businesses for Parker as well. So I was just interested in your commentary on how you envision the shape of that recovery as well, just given that it's been a relatively shallow downturn, should that lead to maybe shallow or upturn or just kind of your expectations on what the recovery looks like when it comes. Jennifer Parmentier: Yes. I think it's been -- to use your terms, we're shallow than the past, obviously, because we've changed the portfolio. We do have longer lead time business in the industrial part of our business today. We have higher aftermarket with CLARCOR. We have longer lead time business with Lord. And as a reminder, we have some aerospace business that sits in the industrial segment, where it belongs to some of those technologies in those groups. So I think the portfolio is the reason that it's not as deep as maybe as it has been in the past. Going forward, it's hard to say how that's going to move, but I do believe with the secular trends with some of these projects that are out there that we're going to like the way we grow differently. So no real indication for you today on if it's going to be slow and steady or some spikes, but just really wanted to share with everybody today that the start of the quarter looks better. And we might be seeing -- finally seeing an end to this lingering destocking. Nathan Jones: That would be good to say. A couple of questions on margins or any question on margins. Obviously, North America margin is up 120 basis points on down revenue. And international margins up 10 points on a 6% decline in revenue, a very strong margin performance. As we envision the return to growth in the end to this destocking and down cycle here, what kind of incremental margins should we be expecting as you see those industrial businesses return to growth? Jennifer Parmentier: I think you're going to see the normal incrementals that you've seen for us. We target 30%. We still think that, that's a good number. But you've seen us outperform that in the past. But I think going forward, that's a good number for us. Nathan Jones: Okay. Thanks very much for taking my questions. Jennifer Parmentier: Thank you. Operator: Our next question is from the line of Julian Mitchell with Barclays. Please proceed with your question. Julian Mitchell: Hi. Good morning. Maybe apologies, I just wanted to revisit the DI North America sort of top line color, just one more time, if that's okay. And it was really sort of relating to the point around it seems like destocking may be nearing an end in the order intake, but you did take down your fourth quarter organic sales assumption for North America. So is that really reflecting the fact that you've had a five-quarter orders decline behind you, but you've only had a two-quarter revenue decline behind you in that region. And so we should expect several quarters of revenue decline commensurate with the longevity of the orders decline. Is that the right way to think about it? Or there's something moving around with the backlog that means no, that's the wrong answer, we should have a much shorter revenue downturn than the orders downturn? Thank you. Todd Leombruno: Yes, Julian, we're not expecting that to linger like that. What we really were just trying to signal was that things look better in the month of April than the way we finished to Q3. So no, there's no long lingering expectation for negative growth in North America. Julian Mitchell: Understood. Thank you. And then just my second question, trying to look at revenue another way, perhaps in industrial would be on the sort of technology platforms basis. So we saw around, I think, high single-digit declines in Motion and flow and process control in the quarter and sort of flattish in Filtration and Engineered Materials. I realize there's different moving parts geographically and so forth. But on the Filtration and Engineered Materials side, do you think that, that can sort of hold in there better than what happened in the other two industrial tech platforms or does it sort of follow them down and then back up just with a lag. Thank you. Todd Leombruno: Julian, we do -- thanks for pointing that out. We do believe that those businesses could and should grow differently than the motion systems and flow and process platform, those businesses, motion systems, flow and process, those are the most levered to the distribution network, highest percentage of distribution sales. You've seen the destocking continue over the last couple of quarters in that space. We do think that, that's kind of nearing an end. Jenny already mentioned it, but filtration, heavy aftermarket, engineered materials, a little bit more longer cycle business, both in automotive end markets and then some of the transportation markets. So it kind of supports our strategy over the last many, many years to help the company perform differently no matter what's going on in the global industrial market that we could perform differently. And I think if you look back over the last 18 months, that's why the order downturn has been less shallow, that's why we've been able to post organic growth as a positive, even in industrial in light of some negative orders. So I think it's part of our shaping of the portfolio. Jennifer Parmentier: Yes. I mean it's -- the portfolio is more resilient. And the teams across all of these businesses are doing a great job using the tools to expand margins. It's the reason why with 1.5% organic growth, we can expand margins 170 basis points. So it's -- I guess said before, we're really proud of the whole team. Julian Mitchell: That’s great. Thank you. Jennifer Parmentier: Thanks, Julian. Operator: Next questions are from the line of Mig Dobre with Baird. Please proceed with your question. Mig Dobre: Thank you for taking the question. Good morning. I also sort of want to talk a little bit about industrial and orders there. I'm curious when you kind of destocking business and you look at the last four or five quarters, how you think about the OE versus distributor demand. It seems to me that in this down cycle, we had lower distributor demand occur maybe earlier than what's been going on with OEMs. The destocking process started earlier for distributors and we're just maybe now really starting to see the OEM production cuts. I'm wondering if that's sort of your experience as well. And if that somehow implies that while the down cycle is shallower, it could actually be longer than the traditional six quarters that you've seen in the past where things were more synchronized. Jennifer Parmentier: I would say that I do think we saw destocking start earlier for distribution. But as we've seen with many of our large OEs, they talked about higher dealer inventory, right? And so that's kind of a sense of their own destocking when the dealer inventories are high, they're not placing as big orders as they had in the past. But I would tell you, though, there's nobody canceling orders or pushing them, pushing them out to any great extent. So I don't feel like this is going to last longer. We're not seeing any signs that are telling us that right now. Just the early Q4 signs here that it looks different than it has. Todd Leombruno: Mig, that mix really still remains the same, that 50-50 mix that we talk about in the Industrial segment. So we think there's a nice balance there. Mig Dobre: Okay. And on capital deployment and maybe you'll comment on this at your upcoming Investor Day, but I'm sort of curious as you're evaluating M&A if there is -- there is something to be said about expanding portfolio -- the portfolio outside of the core areas that you've been targeting over the past couple of years. So more expansive strategy or if sort of the lanes that you've been active in are still the areas that you're looking to build. Thanks. Jennifer Parmentier: Right now, I would tell you that we're not looking to expand outside of the technologies we have. As I've commented a couple of times externally, we really like this set of technologies. They have a connectivity to them, and we think they're the right ones for our portfolio. Mig Dobre: Appreciate it. Jennifer Parmentier: Thanks, Mig Operator: Our next questions is from the line of Jeffrey Sprague with Vertical Research Partners. Please proceed with your question. Jeffrey Sprague: Hi. Thank you. Good morning, everyone. I guess you can tell we're all like hyper focused on orders, right, Jenny? Jennifer Parmentier: [indiscernible] Jeffrey Sprague: Yes. And I may be even a little more hyper focused given the way I'm going to phrase my question, it rhythms a little bit with what a couple of other people brought up. But it is interesting when you look at North America, right? Sales growth has outpaced order growth, I think, for seven quarters until this quarter, and it looks like we've kind of recoupled. You mentioned some backlog, but should we be thinking really that sales and orders are going to be much more tightly correlated here as we try to glean where the upturn might be. Jennifer Parmentier: No, I don't think so, Jeff. I don't think we should be thinking that way. I think that, again, if I go back to the strength of the backlog and the change in the portfolio. It's different than it was in the past. It's a different company than it was 10 years ago, five years ago, right? And we really believe that once this turns, we're going to grow differently because of that. Jeffrey Sprague: Okay. Todd Leombruno: Yes. Jeff, I would add, obviously, every one of these things we go through is a little bit different. We did come off two years of double-digit organic growth, right? So there was a significant amount of demand that we had to deliver through those industrial businesses. I think if you've seen that inventory levels moderate throughout the year, we've kind of reduced that thing. But as Jenny said, the backlog really pretty strong. It's at near all-time levels. We continue to pressure test that to make sure that it's real and legitimate. I think it's just part of having a longer cycle mix within that portfolio. Jeffrey Sprague: Great. And if you have the numbers handy, can you just tick through the kind of the four aero buckets we got here, commercial aftermarket up 25, but just OE and then military aftermarket and OE, what those numbers were in the quarter? Jennifer Parmentier: For Q3, Jeff, you're asking? Jeffrey Sprague: Yes, for Q3. Jennifer Parmentier: Yes. Commercial OEM was up 18%, and that was mainly based on strong narrow wide-body growth. MRO up 26%. And same thing. Their traffic recovery, things we've talked about, military OEM 7% and MRO 14%. Jeffrey Sprague: Thanks a lot. I’ll leave it there. Todd Leombruno: Jeff, I would just remind everyone, that's all organic at this point, too. Jennifer Parmentier: Yes. Thank you, Todd, all organic. Operator: Thank you. Our next question is from the line of Joe O'Dea with Wells Fargo. Please proceed with your question. Joe O'Dea: Hi. Good morning. Sorry to bore you, but I'll stick with the common theme. And just wanted to get a little color around, I mean, certainly encouraging commentary on kind of North America through cycle and demand. I guess as it relates to what's implied for fourth quarter, I mean, it looks like a larger kind of sequential revenue decline from 3Q to 4Q, than what we've seen over the last number of years outside of COVID. And so just kind of sequentially, what you're anticipating there? The orders seemed like they were stable from 3Q to 4Q. I think you said -- from 2Q to 3Q, I think you said dollars up. And so just what's kind of driving maybe a little bit softer sequential trend there because it sounds like otherwise, things are holding and even improving. Jennifer Parmentier: Yes. So as I mentioned earlier, the guide is based off of Q3 order rates, and they -- you are right, they did stay at negative four, but if you look at the sales dollars, Q4 dollars are in line with Q3. So that's why we're signaling that minus 4 versus the approximately minus 1 that we had previously. Joe O'Dea: Got it. Okay. That's helpful and then just a question in terms of kind of pricing sensitivity and just to, kind of understand customer experience. I mean when a customer walks into a distributor. Are they typically walking in knowing exactly what they want to buy and the Parker product? Or are they kind of looking at prices and shopping between Parker and competitors? Just trying to understand how much price shopping goes on versus how much is -- is kind of predetermined and brand loyal. Jennifer Parmentier: Yes. First of all, I think the Parker brand is very strong and people are looking for Parker products when they walk into a Parker distributor. And they need a part and they need it now, right? So it's not what I would characterize as price shopping, it's availability. And then having that person standing behind the counter who knows how to apply that part, how to help them get the right part if they don't know exactly what they need or they don't know exactly what replacement is an order. So they're walking in to get help and they're walking in to get a product. And that really is what is so special about the partnership that we have with our distributors. They're just an extension of our engineering team, and they provide a great value and service to many customers. Joe O'Dea: That's helpful. Thank you. Operator: Thank you. Our next question is from the line of Joe Giordano with TD Cowen. Please proceed with your question. Joe Giordano: Hey guys. Thanks for taking my questions. Todd Leombruno: Hey Joe. Jennifer Parmentier: Hi Joe. Joe Giordano: Hey. On the aerospace side, so given all that's happening, I know you're in your aerospace portfolio is very broad. But if we just kind of narrow into like OEM commercial, like given what's going on with Boeing. And the reduction in rates there, like it doesn't sound like they've told any of their suppliers anywhere to slow down what they're shipping to them given supply chains. But like is there -- at what point do you see risk to that dynamic where build rates are down, but everyone is still shipping the same and inventories must be building over there? Jennifer Parmentier: No. We stay in close contact with all the airframe manufacturers and our aerospace team talks to the Boeing team on a regular basis. So -- what we're seeing is consistent with what they've talked about most recently, production in the 30s. They have signaled that the rate increase isn't going to happen right now. But we are committed to make sure that we are at pace with them and that we continue to supply product them to help them reach their goals. So we're not seeing any signs of that's slowing down right now. Todd Leombruno: Joe, too, we talked about it, but if you think about that mix, it's nearly 50-50 aftermarket versus OEM in the aerospace business. So that's helpful as well. Joe Giordano: Yes, for sure. Just on price, you mentioned you're back to like normalized situation here. I guess inflation is kind of tough to figure, you have some things going up like copper, something is going down. If we get into a situation where inflation is more consistently rising than falling again, how do you think about your customers either willingness or ability to accept price to the same extent that they did last cycle? Jennifer Parmentier: Well, I think we've talked about how our pricing team, our pricing muscle is strong. And one of the things that I think we even got stronger during these last couple of years is really looking at the total cost of inflation. So it's not just material, right? It's all those things that just hit extraordinary levels all at once. And while those aren't easy conversations, you know their conversations that we had and if we would need to have them again, we would. They're based on facts, they're based on data. And we would cross that bridge when we come to it. But as I mentioned earlier, we're back in more of a normal pricing environment, but I believe it's sticky because inflation is still out there. Joe Giordano: Thank you guys. Todd Leombruno: Thank you. Operator: Our next question is from the line of Brett Linzey with Mizuho. Please proceed with your question. Brett Linzey: Hi. Good morning all. Todd Leombruno: Good morning, Brett. Jennifer Parmentier: Good morning. Brett Linzey: Yes. First question is on business realignment charges. So it looks like the 2024 expectation dropped to $57 million from $70 million, anything to glean there? Is it just timing on projects? Or is there some costs to achieve perhaps moving lower, any thoughts there? Todd Leombruno: Yes. It's just a minor tweak. I would call it more timing than anything, maybe getting some of those done at a little bit of a lower cost as well. So we just kind of updated it based on the best that we had from the team. Brett Linzey: Okay. Great. And then just on pricing, I know you don't disclose actual price, but was it positive in both those industrial segments. And I'm just curious on any competitive behavior on price and some of the more challenged regions like Europe or Asia? Jennifer Parmentier: No, you're right. We don't comment on the exact price. And as I mentioned earlier, we went out early and often. So we've protected our margin to make sure that it maintains neutral going through everything that's gone on in the last couple of years, and that's where we stand today with price. Todd Leombruno: Yes. I mean if you're asking about rolling price back, we've not done that, right? Jenny mentioned that we're still in an inflationary environment and a lot of those costs that went up, have not gone back down. So we feel very much tied to the price. We don't do it randomly. We do it when we need to and that's kind of where our process has been. Brett Linzey: Okay. Great. Congrats on a performance. Todd Leombruno: Thanks Brett. Jennifer Parmentier: Thanks Brett. Todd Leombruno: Hi Rob. I think we've got time for one more question here if we've got somebody. Operator: Sure. Sure. Our next question will be from line of Nigel Coe with Wolfe Research. Todd Leombruno: Nigel, are you there? Nigel Coe: Thanks. Yes. I am here. Can you hear me? Todd Leombruno: Good to hear you. Nigel Coe: Yes. Yes. Good. Thanks for squeezing me in. Okay. So coming back to April, let's look at it again. Maybe could you just hone in the North America, where you're seeing the improving trends. And the spirit of the question is that it feels like in your off-highway and even in the on-highway customers, things aren't necessarily getting better. So I'd be curious on which pockets of customer groups are you seeing that improvement? And then if we do move to Europe, are we seeing a similar degree of improvement over there? Or do we still see pretty negative trends? Jennifer Parmentier: No, I would say, Nigel, at this point, just commenting on how I see it better in April. I don't really want to go into any detail in markets or specifics. But I would say that where we're seeing it is mainly North America, it's not to say that there's nothing positive in Europe or Asia, but the comments about April are mainly North America, where we're seeing quite -- might be that this destocking is coming to an end and that we'll see a turn here. Nigel Coe: Yes, it's got to come down at some point, I suppose. And then switching over to margin and SG&A productivity is really impressive. I think underlying SG&A came in at 13.5% this quarter. So I think for the full year, we're sort of in that 14% zone. Is that the right range going forward? Do you think you can maintain sort of 15% SG&A to sales? That's the question, really. Is there anything sort of like discretionary you're controlling at this point? Or is this a good range going forward? Todd Leombruno: Nigel thanks for recognizing that. We have always proud of ourselves on being frugal when it comes to SG&A expenses. Quite honestly, we think we can do better. I wouldn't say that there's anything that we've been holding off on, right? I mean the overall level of the business remains extremely high, right? The sales levels are at record levels. But we hold our team to constantly assessing and making sure, we're making the best investments in the business. So we think we can do better when it comes to SG&A, there's no doubt. Nigel Coe: Great. Okay. Thanks. Todd Leombruno: Thanks so much. I think that's all we have time for. So I want to thank everyone for joining us today. As usual, Jeff Miller, our VP of Investor Relations; and Yan Huo, our Director of Investor Relations, will be available, if anyone needs any follow-ups. As always, we appreciate your time, your attention and your interest. So this concludes our FY 2024 Q3 earnings release webcast, and I wish everyone a great day. Thank you. Operator: Thank you. Today's conference and webcast has concluded. You may now disconnect your lines at this time and log off your computers. Thank you for your participation, and have a wonderful day.

Operator: Greetings, and welcome to the Parker-Hannifin Fiscal 2024 Second Quarter Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Todd Leombruno, Chief Financial Officer. Thank you. You may begin. Todd Leombruno: Well, thank you, Diego, and good morning, everyone. Welcome to Parker-Hannifin's fiscal year 2024 second quarter earnings release webcast. As Diego said, this is Todd Leombruno, Chief Financial Officer speaking. And I'm here today with our Chairman and Chief Executive Officer, Jenny Parmentier. We know that this is an extremely busy day for everyone, and we appreciate you joining us, and we appreciate your interest in Parker. On Slide 2, you'll see our disclosures addressing forward-looking projections and non-GAAP financial measures. Actual results could vary from our forecast based on the items listed here. Our press release, this presentation and reconciliations for all non-GAAP financial measures were released this morning and are available under the Investors section at parker.com. The agenda for today is Jenny starting with the highlights of our record second quarter. She's also going to reinforce how our portfolio, our team members and the Win Strategy, our business system, are driving margin expansion and position Parker for a very bright future. I'm going to add some color on the financial results and a few details on the increase to our guidance that we released this morning. And after that, we're going to open up the lines, and Jenny and I will take any questions from those in the queue. I now ask you to move to Slide 3. And Jenny, I'll turn it over to you. Jennifer Parmentier: Thank you, Todd. Good morning to everyone, and thank you for joining our call today. Q2 was a quarter of exceptional results, excellent operating performance driven by all of our team members executing the Win Strategy. Starting with safety. A 16% reduction in recordable incidents over prior Q2. Safety has been and will remain our top priority. Record sales of $4.8 billion in the quarter, a 3% increase over prior year, with organic growth of 3%. Record adjusted segment operating margin of 24.5%, a 300 basis point increase over prior year, with all segments expanding margins. And adjusted EPS growth of 29%, along with 11.9% year-to-date free cash flow margin. Aerospace strength was a significant driver of our performance in the quarter. We now expect to achieve $200 million in cumulative synergies in fiscal year '24, a $50 million increase to our original guide for this fiscal year. We remain committed to achieving $300 million in synergies by fiscal year '26. And our backlog remains resilient at $10.8 billion. We had a strong finish to the first half and, as a result, are increasing fiscal year '24 guidance, Todd will go over this later in the slide deck. Next slide, please. I'd like to spend a few minutes highlighting the power of the entire Parker portfolio. We have a technology powerhouse of interconnected solutions that delivers value for customers in both Aerospace and Industrial markets. Today, 2/3 of our revenue comes from customers who buy 4 or more of the technologies you see across the top of this page. And 2/3 of our portfolio product solutions that we have today enables clean technologies. Next slide, please. Parker has significant content on leading Aerospace programs. We have a comprehensive product offering with proprietary design on premier programs. On the upper left-hand side of this page is our first half sales mix by application. You see a nice balance of commercial and military, as well as business jets, regional transport and helicopters. This diverse aerospace and defense exposure allows us to have multiple products and technologies on every major aircraft program globally, many of them seen along the bottom of this page. All of this adds up to be a compelling value proposition for all of our aerospace customers. Next slide, please. And equally compelling is our global distribution network, a competitive differentiator for Parker. 50% of our diversified Industrial revenue is through distribution, a high-margin channel serving aftermarket and small- to medium-sized OEMs. Our distribution partners integrate Parker technologies that solve customer problems. They are truly an extension of Parker's sales and engineering teams. Building on the success of the North American distribution channel, we continue to drive an increasing revenue mix of 100 basis points per year in international markets. This past December, we held our North America national sales meeting for the first time since the pandemic. Nearly 100 distribution partners attended the meeting, along with Parker divisions and sales teams. It was great to have everyone together again. And despite the destocking, we've been talking about for several quarters, the overall sentiment and tone was very positive for the future. Next slide, please. We continue to be very proud of our margin expansion progress. Our people, our business system, The Win Strategy and our portfolio have truly transformed Parker's performance. The progress can be seen in every segment on this page. In addition to our core strategies on lean pricing and procurement, Win 3.0 initiatives like Simple by Design, our focus on demand forecasting, zero defects, and productivity and automation will take us to 25% adjusted operating margin and beyond. Every strategy and tool in the Win Strategy expand the margins. I'll now turn it back to Todd. Todd Leombruno: Okay. Thanks, Jenny. I'm going to start on Slide 9, and I'm just going to really quickly go through the FY '24 Q2 financial summary. As Jenny mentioned, the second quarter was an extremely strong quarter for us. It was a great finish to the first half of our fiscal year. And once again, the team set an unbelievable amount of records for the quarter. If you look at this slide, every number in that gold column is a second quarter record. We set new highs for sales, segment operating margin, EBITDA margin, net income and earnings per share. Total sales growth was plus 3% in the quarter. All of that 3% was organic. And just a reminder, this is the first full quarter that we have Meggitt in both the current and prior year periods. The net impact of divestitures and currency basically offset each other. Divestitures were slightly unfavorable at 0.3%, currency was slightly favorable at 0.5%. When you look at the margins, Jenny already mentioned this, but 24.5% was an increase of 300 basis points versus prior year. And adjusted EBITDA margin reached 25.7%. That was an increase of 330 basis points versus prior year. If you take a look at net income, we did $802 million on an adjusted basis. That is a 16.6% return on sales. That was a 30% increase versus prior year. And lastly, adjusted earnings per share, a record for the quarter, $6.15. That was up 29% from prior. Just an exceptional second quarter. And again, unbelievable margin expansion. And what I really like about it, it was very consistent across all of our businesses, as Jenny just shared on that last slide. If you go to Slide 10, this is the earnings per share bridge. And this chart really shows what a high-quality quarter it was for the company. The 29% in adjusted earnings per share, that amounted to an additional $1.39 of earnings per share in the quarter. The main driver of this continues to be excellent operating performance. If you look at segment operating income dollars, that increased by $173 million in the quarter. That accounted for just a little over $1 of that EPS growth. And that equated to 74% of the increased earnings per share in the quarter. Clearly, Aerospace Systems was a major driver of improvement. But what is really impressive is both Industrial businesses also contributed to the increase in segment operating income dollars. If you look at tax, that was $0.18 favorable versus prior year, again, just driven by some discrete items. Other expense was favorable $0.12 versus prior year. That was mainly the result of currency changes and some favorable pension expense. Interest expense was $0.10 favorable versus prior. That really is a result of our successful efforts to reduce outstanding debt over the last 12 months. I'll talk about that in a little bit later in the deck. Corporate G&A and share count were just both slightly higher than prior year, just a net $0.03. And those are the components of the increase in adjusted earnings per share. Really, it's just strong margin performance across the company, continue with some great outstanding performance from the Meggitt business. If you go to the next slide -- oh, excuse me, if you go to Slide 11, we'll talk about the segment performance. That's detailed on Slide 11. I couldn't be prouder of the broad-based margin expansion really driven by the Win Strategy. Jenny mentioned this, but our synergies are ahead of schedule. We did increase that synergy number. Aerospace demand really remains very, very high. So just a nice consistent execution across our businesses, across all of our global team members. You can see that segment operating margin, 24.5%, at the bottom of the page, up 300 basis points. Incrementals were stellar at over 100%. And orders remain positive at plus 2% versus prior year, and backlog really remains resilient. Total backlog dollars did increase slightly sequentially as well. And Jenny mentioned this, but total backlog remains at near record levels. And aerospace activity remains especially robust. If you look at the North American businesses, sales volume reached $2.1 billion in the quarter. Organic growth was down 1.5% versus prior year. That was driven by continued destocking, some channel rebalancing, and really some softness in off-highway markets. However, what is impressive out of the North American team is that adjusted operating margins did increase 240 basis points to a second quarter record of 24.2%. That was just really driven by excellent execution, some great efficiency improvements and really some tight cost controls. Orders in North America also remained consistent with the prior quarter. They remained at down minus 4%. If you look at the international businesses, sales were $1.4 billion, slightly positive versus prior year. Organic growth was essentially flat, which was better than we were forecasting. Organic growth in EMEA was positive at 0.7%. Latin America was positive at 9.2%. And Asia Pac did improve, it did come in at negative 2.5%, really just being pulled down by the slower-than-expected recovery in China. But also what's impressive there is adjusted operating margins did expand 110 basis points in these businesses, and also finished at a second quarter record of 23%. That international team continues to be focused on productivity improvements, expanding margins, and being very resilient across the segment even in a low growth environment. Very impressive results. Orders in the international segment did improve. If you remember, last quarter, they were minus 8%. They did improve to minus 5%. And finally, on Aerospace Systems, they delivered another standout quarter. Sales reached $1.3 billion, a 15% increase from prior year. All of that 15% is organic growth. And volume just continues to be driven by commercial aftermarket growth that was, in the quarter, up 25%. Operating margins reached a new record, increasing by 590 basis points to reach 26.5%. Really, the healthy volumes, the favorable aftermarket mix, outstanding performance from the Meggitt business really all contributed to drive these record margins. We are increasing the synergies. Jenny went over that just briefly. Cumulative synergies were increasing from $150 million to $200 million. And order rates in aerospace continue to remain plus 21%, which is very robust. On the next slide, we'll talk about cash flow. Let's take a look at what we've done there. Our year-to-date cash flow from operations is $1.4 billion. That's 14% of sales. That is an increase of 26% versus prior year. Just fantastic cash flow performance. If you look at free cash flow, that was $1.1 billion. That's up 11.9%, also increasing significantly, 29% increase from prior. Our cash flow conversion is year-to-date 86%. We really have the team remaining focused on being great generators and great deployers of cash. You've heard us say that many times. Last week, our Board approved a quarterly dividend of $1.48 per share. That is our 295th consecutive quarterly dividend. Just a nice, solid testament to our belief that we can be great generators and great deployers of cash. When you look at the full year, we are increasing our expectations for free cash flow. We've increased that range to $2.8 billion to $3.1 billion. That's moving the midpoint up $150 million to approximately $3 billion. And of course, free cash flow conversion will be over 100% for the full year. On the next slide, let's take a look at our progress on deleveraging. We did reduce debt another $400 million in the quarter. And just a reminder, since we closed Meggitt just 5 quarters ago, we have reduced debt by over $2.2 billion now and we've improved our leverage by 1.4x, both ahead -- both of those figures are ahead of what we've originally committed to. If you look at the metrics, gross debt to adjusted EBITDA is now 2.4x, net debt to adjusted EBITDA is 2.3x. And we continue to forecast just approximately $2 billion of debt pay down in the fiscal year. And now based on the performance we've got year-to-date, we expect to achieve net leverage of 2.0x by June of 2024. Just great performance across the board. Okay. On guidance, just a few details on guidance. You saw the increase to guidance. We are reaffirming our full year organic growth midpoint and increasing our margin and earnings per share expectations for the year. Our reported sales growth for the year is forecasted to be in the range of 3% to 5% or roughly 4% at the midpoint, and they are modeled 49% first half, 51% second half. In respect to organic growth, we are raising the aerospace organic growth midpoint by 200 basis points to 12% for the full year. We are also raising the international organic growth midpoint by 100 basis points to minus 2%. That's slightly better than what we gave you last quarter. Those increases are offset by a decrease in the North American organic growth midpoint by 200 basis points to minus 1.5%. Full year organic growth for the entire company remains the same as last quarter at plus 1.5%. Moving on to margins. Adjusted segment operating margin guidance is being raised to 24.3% at the midpoint. That's up 70 basis points from prior guidance. And if you look at it on a year-over-year basis, that would be 140 basis points of margin expansion versus prior year. Meggitt synergies, we've talked a lot about that, we're moving that to $200 million. Corporate G&A, interest and other are relatively unchanged from our prior guide. Tax rate is tweaked just a little bit. We expect the full year to be 22.5%. That's really based on the performance in the first half. We expect the second half to be 23.7% from a tax rate perspective. Full year as-reported earnings per share increased to $20.30 and full year adjusted earnings per share has increased to $24.20. Both of those are at the midpoint. And finally, for FY '24 Q3 adjusted earnings per share, we expect that to be $6 even at the midpoint. And as usual, we've included some more specifics in the appendix. So that's it on the increase to guide. Jenny, I will hand it back to you and ask everyone to move to Slide 15. Jennifer Parmentier: Thank you, Todd. A few key messages to close this out. Q2, as we stated many times, was an exceptional quarter that closed a strong first half. We'll continue to drive positive results and accelerate our performance using the Win Strategy. Our portfolio and strengthened customer value proposition, along with growth from secular trends, will deliver organic growth of 4% to 6% over the cycle. We remain committed to our FY '27 targets of approximately $30 earnings per share and greater than $3.5 billion free cash flow. We expect another year of record performance, and we have a very promising future ahead of us. We look forward to talking to you about our promising future at our investor meeting on May 16 of this year. Back to you, Todd? Todd Leombruno: Okay. Diego, we are ready to open the lines for Q&A, and we'll take whoever is first in the queue. Operator: [Operator Instructions] Our first question comes from Joe Ritchie with Goldman Sachs. Joseph Ritchie: Great quarter. The first place I'd like to start is just around North America. So clearly, good color, Todd, and what the guidance now implies. But it looks like your order rates are at least stabilizing there, even though you took down the growth guidance for the year. So maybe just talk a little bit about what you're seeing across those end markets and whether you're seeing any stabilization or green shoots on your North America Industrial business? Jennifer Parmentier: Sure, Joe. This is Jenny. So yes, we did see, as Todd said, a negative 1.5% of organic decline in Q2. We've had 4 consecutive quarters with negative orders now, but as Todd stated, the orders did remain the same as last quarter at minus 4%. What I would say is that destocking in the channel continued. We saw weakness in off-highway, primarily construction, in Q2, some weakness in transportation and automotive and in heavy duty. We did talk last quarter about this inventory rebalancing and destocking, not only through distribution, but also at the OEM level with customers, dealerships, dealers, and that we did anticipate this to go into calendar year '24. So I would say, overall, destocking is in line with our expectation for Q2, but North America was just a little worse. It's been a year since it started, and it's going to continue into the second half here. And that's what we have in the guide. But backlog remains strong. We had this longer horizon of backlog strength. And I would say that, as I mentioned earlier, distribution sentiment is very positive. We haven't seen any major cancellations or pushouts out there right now. So we lowered the guide, the 2.5% on this continued destocking, and the softer off-highway we think was going to continue. We see it will be construction again and ag too this quarter. But we're feeling good about this guide right now. Todd Leombruno: Joe, this is Todd. I would just add. If you look at the total Industrial business, right? In total, it kind of came in exactly as we were expecting. You're exactly right, there was a little bit of a shift from North America into the international markets. But when you look at total reported sales, at least what we're guiding to, these are really very, very close to all-time highs when it comes to volumes. So we feel really good about that. We think we can continue to expand margins despite what's going on with the choppiness in the order market. So we feel really good about that. Joseph Ritchie: Yes. That's great color from both of you. I guess my quick follow-on there is, look, the margin performance, despite the kind of weaker growth expectations in North America and really across your Industrial businesses, has been incredible. Last couple of quarters, you're above 24%. So I guess the question is like, is 24% kind of a new baseline for the Industrial businesses going forward? Todd Leombruno: Joe, it's a great question. Like I said in the comments, I couldn't be prouder of the team. We talk about this all the time, the Win Strategy. Every single item on that win strategy is a margin-enhancing set of tools. And it really is rewarding to see the team put up numbers like that. We have a target set out there. We want the company to be at 25% segment operating margin. We have not achieved that yet. We will achieve that, there is no doubt. But we're just keeping an eye on what's happening with the top line. And obviously, we're doing everything we can within the 4 walls of our facilities to make sure that we keep pushing that number higher. Jennifer Parmentier: And Joe, I would just add, I mean, our culture is one of continuous improvement. And we're just -- we're never waiting for a downturn. We're using all the tools in the Win Strategy to expand margins. And again, I got to echo Todd's comments, we couldn't be prouder of the team. They're just really doing a really nice job in a slower growth environment. We expect that to continue. Operator: Our next question comes from Julian Mitchell with Barclays. Julian Mitchell: Maybe just wanted to understand on the international business in Industrial. Orders have been down, I think, for 5 quarters now. You slightly took up the sales guide. What's your impression of sort of where we are in that orders downturn? Maybe help us understand sort of what on the revenue side changed a little bit. And are we thinking it's sort of a very gradual, maybe we find a floor in the next couple of quarters and then a very gradual recovery thereafter across those main regions in international? Jennifer Parmentier: Thanks, Julian. This is Jenny. So listen, we've been saying it's just been choppy in international now for several quarters. But flat -- call it, flat organic growth in Q2. As Todd said, orders did improve from minus 8% in Q1 to minus 5% in Q2. Europe, EMEA, had positive organic growth of 0.7%. It was better than our forecast, as you said, really due to some resilience in our filtration business and favorable project business timing. We did see destocking continue. We see some softness in off-highway and Industrial markets. In Asia Pacific, Todd mentioned the 2.5% organic decline. China recovery is still slow. I mean, we did see some low single-digit positive growth for China in Q2, but again, it was against a much easier comp from the COVID shutdown last year. So off-highway construction remains soft in Asia Pacific, transportation, truck, I would say that India does remain a bright spot in Asia Pacific. When we look forward, that full year organic growth improved 100 basis points really due to the strength we saw in Q2, and an improvement in orders in Asia Pacific. We do expect that Europe destocking will continue and that softness that I mentioned in Q2, off-highway and Industrial markets, will continue. Again, China recovery is still slow, but the team is doing a great job controlling the cost and giving margin performance in the region. And I would say that when you look at the rest of Asia, Japan and Korea is still pretty soft in semicon. But again, Southeast Asia and India look good right now. Julian Mitchell: That's helpful. And then just my follow-up on Aerospace Systems. Maybe help us understand sort of, is it more volume or price perhaps in commercial that drove the revenue guide uplift for aero? And on the synergies point, it came in with a much stronger margin than I think people were expecting for the second quarter, in Aerospace. Maybe help us understand kind of any bucket of those synergies that's coming in ahead of plan? Todd Leombruno: Yes, Julian, this is Todd. I'll start on the increase to the top line, obviously, you could see demand across all verticals in the Aerospace business is extremely strong. If you look at what we did in the quarter, 15% organic growth in the quarter, that gave us the confidence to raise the second half. That has been a big plus. If you look at within the business, the mix, it's 47% aftermarket. That was higher than we were forecasting. So that was a part of driving that margin expansion. And we've talked about this now for a year on Meggitt and our base Aerospace business. it really is -- the volume is certainly a help to that. But it's really the team working through the efficiency. The supply chain is still a little noisy on the aerospace side of the business, but it's really -- the team has started to perform in a normalized environment when it comes to that. So that's what gave us comfort in Aerospace. Jennifer Parmentier: Yes. We've obviously, with pulling the synergies ahead, we've had some great performance by the team. We've done a really nice job delayering the organization and getting it into the Parker division structure. And now we're really starting to see the benefits of implementing the Win Strategy. So the team is really doing a nice job. And as Todd said, we expect this to continue. Volume always helps. Operator: Our next question comes from Scott Davis with Melius Research. Scott Davis: Just kind of a nuanced question, and excuse if you think it's weird, but your gross margin is just -- has gone up a ton, right? Pre-COVID kind of 25%, today, 35-plus percent. Op margins have gone up, call it, 500 basis points or so that same time frame. But is the future margin improvement that you guys see, do you think it will come more from gross margin than kind of SG&A leverage? Or would we expect a balance there? I guess it's a nuanced question, but I'm kind of fascinated with, it feels like there could be some upside to operating margins perhaps beyond even what you've shown today. Todd Leombruno: Yes, Scott, it's a great question. It's something we look at intensely across the organization. I think there's upside on both areas, to be totally honest with you. But you're right. If you look at what we've done, and it depends on if you're looking at the as-reported gross margin number, there is a lot of noise in there from the purchase accounting transactions over the last year. But this quarter was fairly clean. So I expect it to stay at the high levels it was at this quarter and obviously improve from there. We are constantly looking at SG&A and reinventing ourselves everywhere that we do business. So I really do think that there is potential in both areas. Jennifer Parmentier: Yes. I'll just pile on a little bit there. The Win Strategy tools apply to the entire business, right? So I agree with Todd to be in both places. And I mentioned earlier some of the Win Strategy initiatives that came with 3.0. And you look at Simple by Design, just yielding benefits everywhere up and down. And then some of the initiatives that we have around demand forecasting, allowing us to better analyze demand, better staff our factories, really be able to serve the customer better, really reduce our overall cost of service to the customers. So that's really a plus. And then our Zero Defect initiative. A lot of activity around producing a product 100% quality the first time, and that's a lot of cost reduction there. So just a lot of tools in our toolbox to continue to expand margins. And a lot of nice work done across the board by all the teams. The high-performance team structure really lends itself to improvements throughout the whole organization. So it's not going to be in just one area, it'll be across the board. Operator: Our next question comes from Nicole DeBlase with Deutsche Bank. Nicole DeBlase: Just maybe starting with the cadence of EPS through the year. I think just looking back at normal seasonality, do you typically see like a step-up in the second half from either the first half or 2Q, however you want to look at it? I mean what are the key puts and takes you're embedding more of like a step down at the midpoint this year? Todd Leombruno: Nicole, that's a great question. We looked at that a lot as we put this guidance together. What I like about the guide is the EPS is evenly split now first half, second half, it's 50-50, so there's no big ramp in the second half that should be concerning. I would call out that Q1 and Q2, obviously, those were both record numbers when it comes to EPS. So I think that's a little bit of the driver there. Aerospace business remains strong. We have no concerns about that business whatsoever. But we did see some softness in the North American businesses. And obviously, international got a little bit better, but it's still a little choppiness out there. So that's really the elements that went into our guide. If you look at both of those quarters and really the second half of the year, I mean, we really are still guiding at the record levels of earnings per share. Nicole DeBlase: Totally understood. And then just going back to some of the order trends. You guys gave really good color around the international revenues that you saw. But what actually improved sequentially in the orders going from the down 8% to the down 5% in 2Q? Jennifer Parmentier: Asia Pacific orders improved in the quarter. That's [indiscernible]. Operator: Next question comes from Nathan Jones with Stifel. Nathan Jones: I'm going to start off on capital allocation. Now that the balance sheet is in a much better order post paying down a lot of the debt of Meggitt, being back to maybe around 2x net leverage at the end of 2024, can you talk about your willingness to get back into the M&A market? We're in a bit of a different interest rate environment than we were when you bought Meggitt. You went up to a little over 3.5x of leverage to buy that. What your appetite is for potentially levering up given the different interest rate environment and priorities for debt versus M&A? Jennifer Parmentier: Thank you, Nathan. This is Jenny. Well, first of all, as we've said, debt paydown is our #1 priority. But as Todd mentioned, we are ahead of schedule for achieving around that 2.0x number by the end of this fiscal year. One thing I would say is that we never let the pipeline go dry. We're always working the pipeline. We've built a lot of relationships over the years. That's how we've wound up with these great companies in our portfolio. And we continue to do that. We have to have the right deal. It has to be the right property out there. We still want to be the consolidator of choice. We like all of our 8 technologies. We do see an opportunity to build on the entire portfolio. We want that to be driven by secular trends and longer cycle, faster-growing, more resilient businesses. And we wanted to be accretive to margins, to EPS, to cash flow. So we'll keep this pipeline going. And we'll be looking for that right deal. Nathan Jones: I mean, would you be willing to do something like 3.5x of leverage and then delever after that, again, given the change in the interest rate environment as a lower number kind of your feeling these days given the interest rate environment? Todd Leombruno: Nathan, this is Todd. I'll take a stab at that. So listen, we're not trying to do anything bigger than what we've done. Jenny said it, I think, very well, we're trying to make sure we do the right deal for the company, for the shareholders. What we have proven is we have proven that we can delever quickly. We generate cash like we've never done before. And I think what we've been is we've been created with the way we structured those deals that allows us some flexibility on that. So I don't think we would -- we wouldn't be afraid to do something like what we did before, but we don't necessarily have to do that if it doesn't present itself. Operator: Our next question comes from Mig Dobre with Baird. Mircea Dobre: All right. Just a follow-up on that discussion with Nathan. When you're approaching M&A at this point, first, are you sort of just looking at the 8 technologies that you currently have in your portfolio? Or are you willing to look more broadly beyond that? And also, how do you sort of think about your specific vertical or end-market exposure? You've done some sizable things obviously in Aerospace. Is that still an area that you're looking at? Or are you, frankly, willing to look to further diversify your portfolio beyond the end-markets that you currently have exposure to? Jennifer Parmentier: We like the 8 core technologies. We think that, that is where we do really well. We don't have a specific Aerospace mix number that we target. Right now, we have a nice balance between the segments. But we're going to continue to keep growing the Industrial business as well. So we're going to be looking at the markets that we know, customers that we know, and technologies that we're familiar with. So that's our current focus. Todd Leombruno: And I would just add, you're right, we have expanded the Aerospace exposure pretty significantly. But those are the same technologies that we have throughout the entire company. So they just happen to be in Aerospace end-markets. The applications are part of those 8 technologies. So that's why we like those 8 technologies. Mircea Dobre: Understood. And then I know a lot of people asked about margins, I guess I'll ask one as well. The performance in Industrial really kind of stood out to me, given everything that's going on in those end markets. And I'm sort of curious as to what are you effectively doing there? Is this margin expansion that we're seeing more of a cost mitigation and an environment in which the volumes are, frankly, not that great? Or is there something more structural in nature? If we see reacceleration, for instance, in fiscal '25, should we assume normal incremental margins at that point on this base? Or will some of these costs that you're taking out eventually come back with volume? Jennifer Parmentier: I think you can -- we can say that you would see normal incremental margins with an acceleration. It's a lot of what we've talked about this morning. The Win Strategy is very effective across all the businesses. And our teams are doing an excellent job with some of our legacy tools around lean and supply chain, as well as some of those newer initiatives that are driving cost out. And we'll continue to see that in the Industrial business. We've said a couple of times, Win Strategy 3.0 still has room in it, and we'll continue to expand margins. Operator: Our next question comes from Andrew Obin with Bank of America. Our next question comes from Jeff Sprague with Vertical Research Partners. Todd Leombruno: Yes. Diego, it's a busy day out there. I know people might be stacked up on multiple calls. Operator: We have Joe O'Dea with Wells Fargo. Joseph O'Dea: Jenny, I wanted to circle back. You talked about sort of recent meetings with distributors and a broadly sort of positive tone. Can you just expand on that a little bit in terms of how maybe that tone has changed over the last several months, what they're pointing to, trying to understand bigger picture thematic elements versus a little bit more near term kind of on the ground and what folks are talking about seeing out there? Jennifer Parmentier: I would have to tell you that, visiting distributors and talking with distributors over the last several quarters, I've never felt a negative tone. They've all felt rather positive and bullish on the future. A slowdown in orders, but never an overall concern of what was in front of us. What I would say about the meeting in December is that there was just a lot of talk about a return to acceleration. Not seeing it yet, but very positive that it would come. And commentary on it's been almost 4 quarters now, now it has been 4 quarters and we usually see that turn coming in front of us. So just a very overall positive sentiment. Some of them are participating in some of these, what we would call, mega CapEx projects. They've commented on how they're working with some local and national contractors on new plants that are being built, site prep and some of the walls going up. So some feel really positive about that. So again, really good sentiment, good tone about the future. Joseph O'Dea: I appreciate the color. And then I also wanted to ask on international margins. I think you commented about ongoing progress in terms of the distribution side of the margin profile improving on the International segment. But those International margins are pretty close to North America margins, too. So just if we think specifically about the distribution side, what does the margin gap look like sort of International versus North America? How much more upside should we think about in terms of navigating higher on international distribution margins? Todd Leombruno: Yes. Joe, this is Todd. We've been very public, the sales that go through the distribution network are anywhere from 10 to 15 margin points better than our direct shipments. And that's just -- it's part of the structure of the channel, sort of the value they add, Jenny had a nice slide that kind of went through why that is supportive of that margin mix. What we've been trying to do for many years now is to increase that mix in the international businesses. And that was on the slide as well. We think we're not done with that yet. Jennifer Parmentier: No, we're not done. Todd Leombruno: [indiscernible] more room to grow on that. So we feel like that still has room to grow, and that will also be a margin driver out into the future. Operator: Our next question comes from Jeff Hammond with KeyBanc Capital Markets. Jeffrey Hammond: Just on second half Aero margins, I think you're guiding maybe flat to a little bit down. It seems like synergies are building. Just wondering, I think historically, your margins have kind of built through the year. Just how are you thinking about maybe any headwinds within second half versus first half Aero margins? Jennifer Parmentier: Yes, I would just start with, and then I can let Todd to add on. We had a really nice aftermarket mix in Q2 and in the first half, but really driven by favorable spares. So it's -- we didn't feel comfortable forecasting that into the second half, so that is some of it. Todd Leombruno: Yes. We did call out some one-timers in Q1 that were margin positive. Q2 obviously was another great margin quarter. Jenny is absolutely right. That mix at 47%, we hope it remains there, but we didn't feel prudent to guide that way. And again, I just go back to, if you look at the second half there, those are record numbers when you look at what we're guiding to. So we feel like we can achieve them. There's just -- I can see a few more quarters at that level before we get overly confident. Jeffrey Hammond: Okay, that's great. And then just the backlog, I think you've said it's stable at a high level. I think you've given some stats around 30% and 50% for Industrial and 55% for overall, and that was kind of 2x. Are those kind of running at those same levels? Are we seeing any backlog drawdown? Jennifer Parmentier: No. I mean they're just exactly what you said, they're holding steady at those levels. And it is about twice of what we've seen in the past. So we feel really good about the quality of the backlog. I would tell you that we constantly analyze it and we do a lot of checks with our customers. But again, not seeing any major cancellations or pushouts at this time. So we think it's of good quality. Operator: Our next question comes from Andrew Obin with Bank of America. Andrew Obin: I apologize for the confusion earlier. Just a question on pricing and inflation. I guess our channel work suggests that, just generally, fluid power pricing is running higher, I think, than we would have expected. In the new calendar year, what are your expectations? How your expectations about pricing are evolving? Any change to your framework? And what does it say about sort of just general inflationary environment for the industrials? Jennifer Parmentier: So Andrew, this is Jenny. Just kind of a reminder with pricing, we went out early and often through some of these really historical inflationary times over the last couple of years. We are now back at our regular pricing cadence of January and July. And I would just say that the increase that we just did was very modest. I wouldn't consider it a higher increase for fluid power. So -- and that's what we -- barring any major changes, that's what we expect to see going into the future. So we still are in inflationary times. And there's some of those inflationary cost drivers that aren't going to reverse. So looking forward, this is what we see right now, but we'll continue to use the pricing tools that we've always used in the past. Andrew Obin: Got you. And just a follow-up, I think, on Meggitt synergies. I guess, just to clarify, you've raised the synergies from $150 million to $200 million cumulative. So should we think about it as a pull forward? Or is the $300 million target going higher because, clearly, Meggitt has been a big success for you, but just to understand what the formal framework is? Jennifer Parmentier: Consider it a pull forward. We originally said $75 million for this fiscal year. Now it's going to be that $50 million higher. So we're in a good position here. We remain committed to the $300 million by FY '26. We're just realizing some of that sooner. Todd Leombruno: Diego, I'm being told that, that was the last question in the queue. So unless you see anything different, we will wrap up just a little bit early. I know it's a busy day out there for everyone. If you do need any follow-ups, Jeff Miller, our VP of Investor Relations; and Yan Huo, our Director of Investor Relations, certainly, will be available if you need any follow-ups. And as always, we appreciate your attention. Thank you for your support of Parker. And I hope everyone has a great day. Thanks. Operator: Thank you. And that concludes today's conference. All parties may now disconnect. Have a great day.

Operator: Greetings, and welcome to the Parker Hannifin Fiscal 2024 First Quarter Earnings Conference Call and Webcast. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Todd Leombruno, Chief Financial Officer. Thank you. You may begin. Todd Leombruno: Thank you, Diego. Welcome to Parker's Fiscal Year 2024 First Quarter Earnings Release Webcast. As Diego said, this is Todd Leombruno, Chief Financial Officer, speaking. Thank you to everyone for joining us this morning. With me today is Jenny Parmentier, our Chief Executive Officer; and Lee Banks, our Vice Chairman and President. Our comments today will be addressing forward projections and non-GAAP financial measures. Slide 2 of this presentation provide specific details to our disclosures in respect to these areas. Actual results could vary from our projections based on the items listed here. Our press release, this presentation and reconciliations for all non-GAAP measures were released this morning and are available under the Investors section at parker.com. And they will remain available there for 1 year. Today, Jenny is going to start with some highlights of our outstanding first quarter. She will also reiterate how our portfolio transformation, along with strong aerospace secular trends, position Parker for a promising future. I will then provide some financial details on the quarter and detail our increase to our fiscal year '24 guidance. Jenny is going to wrap up. And then Jenny, Lee and I will take as many questions as we could fit in the hour. And with that, I would ask you to move to Slide 3. And Jenny, I'll hand it over to you. Jennifer Parmentier: Thank you, Todd. Good morning to everyone, and thank you for joining our call today. Q1 was a standout quarter, driven by a strong portfolio and our teams executing The Win Strategy. Starting with safety, a 16% reduction in recordable incidents. Safety has been and will remain our top priority. Record sales of $4.8 billion in the quarter, a 15% increase over prior year with organic growth of 2.3%. Record adjusted segment operating margin of 24.9%, a 220 basis point increase over prior year with all segments coming in above 24% and 26% adjusted EPS growth along with 11.4% free cash flow margin. The combination of Parker and Meggitt delivered an outstanding quarter for aerospace and a strong start to the year. As a result of this performance, we are increasing our FY '24 guidance, and Todd will go over this later in the slide deck. Next slide, please. Many of you have seen this slide before. The transformation of our portfolio over the last 8 years has doubled the size of aerospace, filtration and engineered materials. As a result of this, from FY '15 to FY '24 guidance, you can see the obvious shift to a longer cycle and secular revenue mix. We have high confidence that by fiscal year '27, we'll have approximately 85% of the company in long cycle end markets and industrial aftermarket. Next slide, please. The mix shift that I just spoke of is evident in our strong backlog. For total Parker, backlog remains resilient. Coverage has doubled from 27% in fiscal year '16 to 54% today, and this has been consistent for the last several quarters. Aerospace backlog is extremely robust. This coverage will support high single-digit growth well into the future. Industrial backlog coverage continues to be 2x what it was in the past, from mid-teens to low 30s. We now have longer-term visibility from the portfolio changing acquisitions with secular and longer-cycle exposure. Next slide, please. We have transformed the portfolio, and we have strong backlog. Let me remind you of the future sales growth drivers. The Win Strategy is our business system that delivers growth and financial performance. It is a proven strategy, and every tool in this system expands margins. Macro CapEx reinvestment is addressing the last decade of underinvestment as well as investments to strengthen and develop the supply chain. This will result in increased equipment spend and higher levels of automation. Under innovation, our new product blueprinting tools and Simple by Design principles have increased our product vitality index, that is the percent of sales from new products, enabling faster growth and support of the secular trends. And as mentioned on the previous slide, the acquisitions we have made are great companies with higher growth rates, aftermarket and accretive margins. We continue to benefit from the growth related to the secular trends. As previously stated, we expect multiple years of solid growth in aerospace, driven by both commercial and defense. And no matter what the energy source is, from diesel to electric to hybrid, the primary Parker content that we have today increases 1.5 to 2x with electrification. With 2/3 of our portfolio supporting clean technologies, we are well positioned today, even better for tomorrow, and we are truly energy-agnostic. Again, all of this is giving us high confidence to grow differently than we have in the past and achieve our 4% to 6% organic growth over the cycle. Next slide, please. Now 30% of our business, aerospace is a growth differentiator for Parker. And Parker and Meggitt are a powerful combination. This team has embraced The Win Strategy and is exceeding our expectations. We couldn't be happier with this acquisition. Next slide, please. From nose to tail, we have a comprehensive portfolio of products and services. Parker has a broad product offering for both airframe and engine applications. Meggitt brought new product and system areas, including braking, fire detection and suppression, thermal management, avionics and sensors and electric power. This breadth of technologies is enabling a more strategic relationship and discussions with our customers, both OEM and aftermarket. Next slide, please. This slide highlights the favorable aerospace secular trend we are experiencing now and will into the future. Taking a look at the sales mix at the top of the page, we are now 45% aftermarket, an 800 basis point increase with the acquisition of Meggitt. And we have a balanced portfolio with strong growth drivers in each of these 4 areas. At the bottom of the page are the macro growth drivers. On the commercial side, we are expecting double-digit growth in aircraft deliveries and air traffic. On the military side, the Department of Defense budget increases. And our military aftermarket partnerships will drive mid- and long-term growth, a very promising future for aerospace. I'll now turn it over to Todd to go through the summary of our Q1 results. Todd Leombruno: Thank you, Jenny. I'm going to begin here on Slide 11 and just touch on some of the financial results. Jenny mentioned this, our FY '24 is off to a very strong start, really speaks to the alignment across our global team. We broke several records this quarter. We set records for sales and on an adjusted basis, segment operating margin, EBITDA margin, net income and earnings per share. If you look at the sales growth, it's up 15% versus prior year, obviously, strongly impacted by the net of acquisitions and divestitures. You look at that impact, that was a little over 11% positive to our growth. Organic growth remained positive at 2.3%, and currency was actually a slight favorable 1% impact in the quarter. When you look at adjusted segment operating margin, it was 24.9%. That is an increase of 220 basis points versus prior year. And if you look at adjusted EBITDA margin, that was 24.8%, an increase of 150 basis points versus prior year. If you look at adjusted net income, we generated $776 million in net income. And adjusted EPS was a record at $5.96. If you look at both of those items, it's a 26% improvement versus prior year. And we can't say this enough, it's our portfolio transformation and really consistent execution across the global team, just great work delivering a standout quarter here. And I'm really pleased to say that these results are consistent across all of our businesses. If you can move to Slide 12, this just kind of details the 26% increase in earnings per share, that's $1.22 of improvement. What I really like about this chart, the main driver continues to be standout operating performance. We increased segment operating margin dollars by nearly $250 million. That was $1.46 of our EPS growth. And while all segments contributed to growth, really the strength in our aerospace business was a major driver this quarter. If you look at income tax, that was $0.17 favorable this year. Really, that is solely based off of a few discrete items that settled in the quarter. We did have some headwinds on the other expense line of $0.27 and also the interest expense line of $0.10. But I will tell you, both of those items are simply related to timing with last year's funding of the Meggitt transaction. We do not expect those to repeat going forward. And finally, corporate G&A and share count were just slightly [indiscernible] at $0.02 each, and that is -- really that is in line with what we guided to. So nothing of concern there. So that's the walk to the record $5.96 in EPS, and it really is just driven off a broad-based offering improvements. Obviously, the Meggitt results are in there. The synergies are in there. And as you can see, strong record margins across all of the businesses, just great job by the team. On Slide 13, we'll just talk a little bit about segment performance. Every segment delivered adjusted operating margins over 24%. That's the first time in the history of the company that, that has happened. And it was really, again, just driven by strong performance, good volumes. Obviously, Meggitt synergies helped quite a bit, and really just the global team is very aligned. If you look at incrementals, we did 40% incrementals versus prior year, really proud of that number. And orders are positive at plus 2 versus prior year. And backlog coverage, as Jenny mentioned, really remains elevated. And again, aerospace activity remains especially robust on the order line. So just great work there. And then lastly, I would just say as we celebrate that 1-year anniversary with Meggitt, we're really very pleased that those businesses continue to outperform. It's been a great addition to the company. If you look at North America specifically, sales volume is up 4.5%. We generated $2.2 billion of sales. Organic growth was slightly positive, just 0.5% there. And that was impacted by some destocking and channel rebalancing that we've kind of mentioned throughout the quarter. If you look at adjusted operating margins, we did increase operating margins 150 basis points to 24.9%. And that was really just great execution and obviously cost controls. So great work there. And if you look at orders in North America, they did improve versus last quarter. They are minus 4. They did improve from minus 8. And backlog coverage in North America obviously remains strong as well. So great work to our North America team. In the international businesses, sales were $1.4 billion. That is an increase of about 2.5% versus prior year. Organic growth in the segment was about negative 2. So that was down. Organic growth in EMEA was positive 2, right? So that was a plus. Latin America, also very positive at plus 8. The impact of the segment was really driven by Asia Pacific, and that was about a negative 8 organic growth. And that's really just a result of mostly China softness that I think is well documented and also some tough comps that we had in the prior year. However, if you look at operating margins, even with that negative 2 organic growth, we expanded operating margins by 100 basis points. And the segment finished at 24.1%. So our team members there are focused on productivity, cost controls. The team really expanded margins in a very, very tough environment. So just great, resilient performance across the segment there, very nice work. Order rates do continue to be choppy. They did decline to minus 8. Really, that is conditions driven really out of Europe and China. The standout for the quarter is our aerospace business, right? Just a stellar quarter from aerospace. Sales were $1.2 billion. That was an increase of 65% versus prior year. Organic growth, very robust at about 16%. And that was really broad-based, double-digit growth in all of the aerospace market platforms. So business is very strong there. Operating margins, unbelievable, a new record, increasing 610 basis points to 26%. Really, that was driven by healthy margins, rate increases at the airlines, strong aftermarket growth, really all those things contributing to great margin performance. I will note, we did benefit from a few small favorable onetime contractual settlements in the quarter. And we do not expect those to repeat throughout the rest of our fiscal year. Aerospace orders, I already mentioned this, but plus 24 are very robust. Great future for the aerospace business. If you move to Slide 14, just a quick look at cash flow. Our cash flow from operations increased 42% versus prior year. Cash flow from operations was $650 million. That's 13.4% of sales. Our free cash flow increased even more, 48% increase versus prior year, finished at $552 million for the quarter. That's 11.4% of sales, and free cash flow was 85%. For the full year, we are committed to our strong cash flow generation profile. We are forecasting mid-teens cash flow from operations. And of course, we will extend our record free cash flow conversion of over 100% [indiscernible]. So great start to the year on cash flow. Moving to Slide 15. I just want to touch real quick on our leverage reduction. I think everybody knows we are focused on our leverage reduction commitment. We reduced debt in the quarter by $370 million. And just since the Meggitt close, we've reduced that by over $1.8 billion and improved our leverage by 1.2 turns. Both of those numbers are ahead of what we originally scheduled. If you look at gross debt to EBITDA, it's now 2.6 and net debt to adjusted EBITDA is now 2.5. And of course, we are still committed to forecast over 10 -- over $2 billion of debt paydown in FY '24. So great work there that [indiscernible]. Looking forward on Slide 16, just some details on guidance. Basically, we are reaffirming our full year organic growth midpoint. We did incorporate September 30 currency rates. And we are increasing our margin and EPS expectations for the year. Reported sales growth for the year is now forecasted to be in the range of 2.5% to 5.5% or roughly 4% at the midpoint. That split will be just as it always is, 49% in the first half, 51% in the second half. We are raising our aerospace organic growth guidance 200 basis points from 8% in our prior guide, now 10%. So that's great to see that business performing so well. Full year organic growth is tweaked just a little bit. The company will remain at 1.5%. Currency is a small offset, which is now expected to be just a slight headwind to our prior guide. Margins, if you look at margins, we're raising our margin expectation to 23.6. At the midpoint, there's a range of 20 basis points on either side of that. And if you look at what we're forecasting on a year-over-year change, we're increasing that expectation to 70 basis points of margin expansion versus prior year. It was 30 basis points in our prior guide. Incremental margins really just based off of the strong Q1 performance, we expect those to be around 40% for the full year. And if you look at the other items, corporate G&A, interest and other are relatively unchanged to what we guided to last quarter. Tax rate for Q2 through Q4 we expect to be 23.5. So if you look at the full year, that will equate to about 23% on the tax line. And EPS on an as-reported basis is now $19.13 at the midpoint, and adjusted EPS is $23. And the range on both of those items is $0.40 plus or minus. Split remains the same, 48% first half, 52% second half. And specifically for Q2, adjusted EPS is now expected to be $5.17 at the midpoint. And as usual, if needed, we have more guidance specifics that are included in the appendix, and that's all I had. Jenny, I'll turn it back to you, Slide 17. Jennifer Parmentier: Thank you, Todd. And now I would like to recognize our colleague and friend, Lee Banks, during his last quarter earnings call. Lee will be retiring as Vice Chairman and President effective December 31, 2023. He joined Parker in 1991, has been an officer of the company since 2006 and a director since 2015. During Lee's tenure, sales grew at a 7% CAGR to nearly $20 billion. EPS grew from $0.36 per share in fiscal year '91 to $21.55 adjusted per share in fiscal year '23. Since 2015, total shareholder return was 292% versus S&P 500 industrial sector of 80%. As if all of this isn't enough, I'd like to repeat a few of my comments from last week's shareholder meeting when we announced Lee's retirement. It's obviously not possible to overstate the tremendous positive impact Lee has had on our company, our businesses and our team members around the world. His legacy and track record is nothing short of extraordinary. From leading our largest businesses to growing our global distribution network to championing and driving operational excellence to co-creating the recent versions of The Win Strategy and probably most importantly and what he's proud of is to recruiting, leading and developing many of our most talented leaders and beyond, Lee's set the bar for us for what good looks like and was a key leader in the transformation of Parker's performance and portfolio. Lee, on behalf of all of us, we can't thank you enough. We will miss you. And we wish you and your family nothing but great health and happiness in your retirement. Lee Banks: Thank you, Jenny. Thank you, Todd. Todd Leombruno: Lee, we know you're going to crush retirement just like you crushed [indiscernible]. Lee Banks: I've got a plan. Jennifer Parmentier: All right. Next slide, please. A few key messages to close this out before Q&A. Q1 was a great start to fiscal year '24. Our focus on safety and engagement will continue to drive positive results in our business. We have a proven track record, and we're going to continue to accelerate our performance with The Win Strategy 3.0. It's been a successful first year with Meggitt. And the transformation of the portfolio is delivering a longer cycle and more resilient revenue mix, allowing us to achieve our FY '27 goals and continue to be great generators and deployers of cash. We have a very promising future ahead of us. Back to you, Todd. Todd Leombruno: Diego, we're going to open the call for Q&A. So we'll take whoever's first in the queue. Thank you. Operator: [Operator Instructions]. And our first question, we have Andrew Obin with Bank of America. Andrew Obin: Lee, congratulations. We'll definitely miss you. But these EPS numbers are staggering when you started where you are right now. Yes, just a question in terms of guidance. If I take the midpoint of your EPS guidance and you gave us the first half, second half split, and then just subtract what you've printed in the first quarter, there seems to be a sort of sequential decline in EPS that would be quite a bit more than what the history would suggest. And I'm just trying to understand, is that -- given that you do have Meggitt now, is that just a different seasonal pattern that Parker is going to have? Or are there onetime items in the second quarter versus the first quarter that's sort of this -- that the implied numbers are driving? Todd Leombruno: Andrew, I'll take a stab at that and then if Jenny or Lee's got some color, I'll let them add. Q2 for us has obviously got some seasonality in it. It is our lowest volume quarter of the year. But really, I would call out just a stellar performance in Q1. Every number that we talked about was a record. It's kind of hard to keep that going into your lowest volume quarter. You're right, we do anniversary Meggitt. So that from a year-over-year standpoint, it's now in the base or will be in the base for Q2. So that is it. But there's no other onetime items that are abnormal that we would expect to see in Q2. It's really just volume and seasonality around the business. Andrew Obin: No, that's a good answer. I'll take it. And the other question, just North American orders. Could you just provide a little bit more visibility by key verticals? I think they're holding in a bit better than I would have expected. What's coming in better than expected, what's weaker and maybe a lot of focus on orders this quarter. Maybe just talk a little bit about the cadence of orders throughout the quarter. Lee Banks: Andrew, it's Lee. I'll take this. So maybe I'll just take a step back. I think all the reports that I've read, I think the narrative is right. If you look at it globally, and I'll get into North America here in a second, but underlying demand in North America is still fairly positive. There is definitely some inventory balancing taking place, not only through the distribution channel, but I would also argue at OEM levels, too, with their customers, dealership, dealers, et cetera. And I think that's going to continue to play out through the second half of this -- into calendar 2024. But there's a lot of -- I mean, you just look at all the infrastructure spending taking place, there's been a lot of money flooded in the economy in North America. And I would still say it's good. When you look at the rest of the world, really, the story is China. China, not only tough comps, but it just hasn't rebounded like I thought it would have rebounded maybe 3 or 4 quarters ago. And it's got -- it's probably got a bigger impact on what's happening in Europe right now, especially in Germany would be a key market. So that's soft. If I look at the rest of Asia, the rest of Asia, Southeast Asia, India are still strong. But if you look at Japan and Korea, they're pretty soft, too, I think, tied to China. When I think about the North American markets, and I'll lump aerospace in there, I mean, you can't find any weakness. What's going on in aerospace, commercial, military, OEM, MRO, all really strong. And I don't see that stopping for some time. If you look at those 3 indicators that Jenny talked about, you're hard-pressed to find a time in history where you've had all those 3 indicators, available seat kilometers, DoD spend and then aircraft coming into service where they've all lined up that well. Land-based oil and gas in North America is still really strong. There's less rig count, but there's a lot of MRO activity taking place that's keeping people busy. And again, our distribution, if you look at all the end markets, yes, they [indiscernible] on inventory, but things are not falling off a cliff. It's still real good. So the short way telling you, I feel pretty positive about North America end markets. We just got a little bit of a balancing taking place right now. Operator: Our next question comes from Joe Ritchie with Goldman Sachs. Joseph Ritchie: Congrats on a great start to the year. And then, Lee, trips to Cleveland won't be as fun. We'll miss you. [indiscernible] retirement. Lee Banks: Great. Joseph Ritchie: So maybe following up on Andrew's question, if you had to think -- if you had to look across your industrial end markets today, what portion of those end market do you think are continuing to decelerate? And then as you kind of think about the destocking commentary, any color on like how long you think certain end markets will continue to destock for you guys? Lee Banks: I'll take a stab at this, and maybe I'll let Jenny and Todd pile on. But I think in North America, you've got things like automotive are somewhat flat; heavy-duty trucks, flat; agriculture is flat. Construction in North America is really kind of flat for the most part. Again, I think there's some dealer inventory that people are working through. But it's still good overall demand there. I think things that were tied to COVID production, life sciences, there's still some big overhang from the ramp-up we had during that period of time. So that's just tough comps, and the demand is down a little bit. Yes, I'll leave it -- material handling is still really strong. Joseph Ritchie: Got it. Go ahead, Jenny. Jennifer Parmentier: Just to echo Lee's comments to Andrew's question and yours, I think with this backlog as strong as it is, although that we see this destocking continuing, we see a bit of supply chain normalizing, and that's helping things. And as that heals, we'll start to see, I think, a bit of a better environment. But just echo all Lee's comments. Lee Banks: One other thing I meant to say when I was talking, Joe, is I think what everybody forgets about, everybody is focused on aerospace and Meggitt, which have been huge positives. But don't forget about that we bought LORD and we bought CLARCOR. And we bought those to kind of -- we knew they would not be as cyclical as the core legacy Parker business. And I think you're seeing that in the numbers. It's panning out that way to be true. Joseph Ritchie: Okay. Great. That's helpful. And then look, big focus this quarter on mega projects, timing of orders. Just, Jenny, maybe just talk a little bit about how you see things kind of playing out with all the investment that's happening in the U.S. Do you think Parker is well positioned to see an inflection in orders when you start to see a lot more equipment and the stuff that's going inside of factory come through? Jennifer Parmentier: Absolutely. I mean, when you think about, as I mentioned earlier, the underinvestment that's happened in the last decade and what will happen a decade, I mean, we are in a great position to participate. We've said a couple of times, it's still early days. But in speaking with some of our channel partners, where there's some factories going in for semicon and some of these other big projects, they're starting to participate in that. We've said we're there when the land is prepped, when the walls go up and when the equipment goes inside the factory. And some of our distributors have been able to talk to us about how they're already enjoying that business. So we're in a really good position with those as well as the secular trends that I mentioned earlier. Operator: Our next question comes from Mig Dobre with Baird. Mircea Dobre: Congratulations, Lee, and all the best to you going forward. My question, going back to the industrial backlog discussion, I'm sort of curious as to how you think about this elevated level of backlog. Is this sort of a function of a change in the way your customers are ordering? Or is this more of a function of really what we've been going through over the past couple of years with supply chains and so on and so forth and safety stock being built up? Jennifer Parmentier: Mig, this is Jenny. I think it's all the things you mentioned. But as Lee just stated, with the acquisitions that we've made, we're getting longer cycle business here. So we see a longer demand sense, a longer demand horizon than we've seen in the past. So the transformation of the portfolio is definitely impacting the backlog. And I do think that what we've been through the last couple of years, of course, you're going to see some people just kind of sharpening their pencils on how they order and making sure that they have the right lead times out there. So I think that's part of it. But more of it is really about the shift of our portfolio. I've said many times, we know from the past that backlog isn't bulletproof. But we've seen this now for the last several quarters in a declining order environment. In North America, orders have been negative for quarters, but this backlog has remained resilient. And we believe that while it might go down a little bit, our portfolio is going to drive us to have this kind of backlog going forward. Mircea Dobre: Right. Understood. My follow-up is on aero. Can you be a little more specific on that contractual settlement and the benefit in the quarter? And then in terms of the guidance raise, talk a little bit maybe about that as well, the organic as well as the market. I mean, is this a function of aftermarket really driving that guidance raise? Or is there something else in there? Todd Leombruno: Mig, this is Todd. On the guidance raise, you obviously can see the orders. Activity across all of those platforms has been extremely strong. Aftermarket was a big standout in the quarter. That was a big driver of the growth, and it was a big driver of the margin performance. So we just feel a little bit more confident with another quarter in there that we feel that we're able to raise that. So we moved to 200 basis points from 8 to 10 for the full year, and we feel pretty confident about that. I don't want to make a big deal about those things. I said they were small and minor, those onetime items. I just wanted to call it out so that it would make a little bit more sense if you look at our margin guide going forward for the rest of the year. So it's little of that. Jennifer Parmentier: And just a little more color on aerospace. Like Todd said, very strong aftermarket, commercial and military. And if we look forward in this guidance, we've said it a couple of times already, but just to look at each 4 of these -- each of these areas, commercial OEM is in the mid-teens. And those narrow-body rate increases, they've happened, and we see that they're going to continue to do so. Commercial MRO is in the mid-teens. The narrow-body aircraft are almost at pre-pandemic levels. There's a lot of engine repair and component restocking going on. So very positive there. And then military OEM, mid-single-digit as demand for legacy programs continue. And then military MRO, mid- to high single digit. Near term, we have tailwind with some of our Department of Defense repair depots. We continue to really enjoy public-private partnerships. They're growing. And there's fleet [indiscernible] and service extension. So just all in all, just a great environment across all 4 of these areas. Operator: And our next question comes from David Raso with Evercore ISI. David Raso: Obviously, congratulations, Lee. Best of luck. When it comes to the North American orders, just given 2 quarters ago, right, down 8, now some second derivative improvement we just saw. Given the comps are starting to ease, I'm just curious if you'd be willing to say, do you think we've seen the bottom in the year-over-year orders in North America? And then I have a question about the organic sales cadence. Can you just update us on how we get from here to the full year 1.5? And I'm particularly interested also what do you have for organic in Europe in the guide. Jennifer Parmentier: David, this is Jenny. I don't think any of us really have that good of a crystal ball. But I will restate that the backlog is strong. And as you said, orders were at negative 8, and they went to negative 4. So we feel good about that. There's some uncertainty out there. And all in all, if you look at North America, we have the first half slightly lower at about 1%, but full year, mostly unchanged, it's slightly positive. So I can't give you an exact answer on that, but we feel good about where we're at right now. David Raso: Can you help with the organic cadence a little bit though maybe for the whole company just to get a sense of the 1.5, if you can take us through that a little bit detail? And again, maybe a little color on Europe, in particular, what's in the guide. I thought the first quarter was a little stronger than expected. So just trying to get a sense. Todd Leombruno: Yes, David, I agree with you. Europe did outperform in the first quarter. I think we called that derivative plus 2. The total company did plus 2. Obviously, aerospace was fantastic at 16. If you look at the cadence, it's really not that much different than what we guided to initially, is not second half-weighted. We expect comps to kind of moderate a little bit. But if you look at Europe specifically, they did 2 in Q1. We're expecting about 1 in Q2, and then it goes -- turns a little bit negative just again based on comps in the second half. I would say for the second half, it's probably about minus 3. Operator: Our next question comes from Scott Davis with Melius Research. Scott Davis: Also, congrats, Lee. Great run. It's been nothing but a pleasure indeed, but good luck in the future. I have a tough time picturing you retired, but... Todd Leombruno: Scott. You've got a plan. He's got a plan. Scott Davis: Yes. I'm guessing we'll see you around on Boards and such even more so. But anyways, a lot of the questions about inventories and stuff have been asked. So I just wanted to go back to a big picture one on Slide 4. Jenny, you kind of showed the -- where you want to be in '27. Can you get there with -- I mean, is the plan kind of further tweaking around with the portfolio and a longer cycle M&A? Or do you get there just on the growth rates, the outsized growth rates and aero and some of your longer-cycle businesses? Jennifer Parmentier: Yes, it's the latter. We -- these illustrations are with the portfolio that we have today and the tailwind that we see not just from aerospace but from the macro CapEx investment and the secular trends. Scott Davis: Okay. Fair enough. And then the -- just looking through my notes here, the distribution levels and like Parker stores, you guys have great visibility. But are they -- is there a new normal above COVID levels? I know this has been asked in a different way, and I'm trying to really narrow down whether in this new world, everybody holds a little bit more inventory or whether supply chains are so healed up and people are so comfortable that they're back down to kind of what was more of the long-term averages pre-COVID. And obviously, the cost of carrying inventory has risen, too, with higher rates. We haven't had that in quite some time. So any comments there and how that plays into it would be interesting, too. Lee Banks: Yes, Scott, it's Lee. I would think it's the latter. The cost of carrying inventory is way up from what it's been. I think the insanity of supply chains has started to quiet down. So I don't expect there to be a huge difference as we go forward about how some of those core industrial products are inventory versus what they were before pre-COVID. Operator: Our next question comes from Jeffrey Sprague with Vertical Research. Jeffrey Sprague: Lee, congrats, and thanks for all the help over the years. Could we just maybe kind of come back to the margins, which really stood out here. I think it's probably pretty clear from just other companies we follow that price/cost spreads were pretty favorable this quarter. I know you don't want to talk about price in isolation, but can you give us some sense of kind of where you're tracking on a price/cost basis, how that might differ from what you saw in fiscal '23 and how it's progressing through the year embedded in your guide? Jennifer Parmentier: So if you recall, we went out early and often with price. And we are now back to more of a what we would call a normal pricing environment where we are going out in July and January. So we don't disclose the specifics, obviously, but price/cost management is a core element of The Win Strategy. And what we did do is we expanded from just material inflation to total cost of inflation. So we feel good about what we have covered, and we're back to more of a normal environment. Jeffrey Sprague: But you are getting some cost relief. Is that fair or not so much? You've got some metals relief, but other inflation, maybe just a little perspective on the cost side of the equation. Jennifer Parmentier: Where we have some of those commodities index, which is very few, there's adjustments. And where we have agreements with customers, there's adjustments, but that's already built in. Jeffrey Sprague: And then just back to Meggitt and aero. When I saw the margins this morning, I thought okay, you're going to be talking up the synergies or you've accelerated them into 2024. Really no comment about that. So I'm sure you're capturing synergies, but it sounds like the margins are little one-offs that Todd mentioned but mostly aftermarket mix. But maybe just a little bit of color on the synergy pace, and is there scope for that to go up? And is any of that actually embedded in these results here in the quarter? Jennifer Parmentier: So if you recall, in fiscal year '23, we increased the synergies from $60 million to $75 million. And then we committed to another $75 million in fiscal year '24. So as Todd mentioned, the synergies are in there. The team is doing a great job. We're committed to the $300 million, and we're just confident we're going to get there. A lot of -- as Todd mentioned, too, strong aftermarket, right? That is just a very favorable mix, really helped boost the margin in the quarter. Jeffrey Sprague: Great. Yes. Felt like you're getting after that additional 75 faster, but I'll leave it there. Todd Leombruno: No, Jeff, it really is a combination of -- obviously, the volumes have helped on the efficiency side, but Jenny has mentioned supply chain has eased. I think that has taken a lot of noise out of a lot of our operations. It's not totally gone yet, but if you look back to a year or 1.5 years ago, it is a lot more efficiencies that we're seeing across all businesses. Jennifer Parmentier: Yes. Operator: Our next question comes from Julian Mitchell with Barclays. Julian Mitchell: I wish Lee all the best. Just wanted to circle back to my first question on the international sort of demand picture. So I guess, if you look at the last 6 quarters, you've had orders down in 5 of those 6. When you think about inventory levels, and it's an extremely disparate set of countries and markets, that down 8 on orders you saw in the most [indiscernible] quarter and when you think about the duration of these orders downturn, I just wondered any perspectives on when you think we start to sort of pull out of that order slump. And if you think that down 8 marks the kind of low point of what we should see this down cycle in international orders. Jennifer Parmentier: Well, Julian, orders, like you said, it's been choppy for a while. In international, Q1 organic growth was in line with our prior forecast at segment level. As Lee mentioned, in Europe, destocking continues, softness in some broad-based end markets. Low recovery in China is impacting that region. And there's Eurozone macroeconomic indicators that remain in contraction territory. So I would say, hard to tell there. But two, again, China, if you look at Asia Pacific, China recovery remains slow. There's continued softness in construction in semicon and automotive. As we mentioned earlier, there is a bit of a tough comp for last year Q1 because they were rebounding from the Q4 shutdown. So in the guide, no big change for the first half, and the full year is largely in line with previous guidance, so at about negative 3%. This is the best view we have today. Julian Mitchell: And then on the North America business, I think a lot of investors still get concerned when they see some of those big sort of mobile OEM customers talk about backlog down, and what does that mean for their inventories for suppliers such as yourselves and others. So maybe just remind us of the scale of that kind mobile piece within North America. And how do you gauge or what's your assessment of that inventory level at some of those big machine or mobile customers? Jennifer Parmentier: So as Lee mentioned, there's a certain amount of rebalancing going on there as well as dealers are starting to get some inventory. But it kind of goes in line with the constant analysis we do on the backlog to make sure that there are no pushouts, there are no cancellations. And in discussion with some of our big OE mobile customers, they are adamant that the orders, the backlog are real. And some have even commented that if they happen to get a cancellation from one customer, they have another customer who will take that slot right away. So we still feel pretty positive about that. But again, as -- if the supply chain is improving, it's helping us. So I think we're in a pretty good position there. Todd Leombruno: Yes, Julian, I would just add. Lee brought this up earlier, but you think about the North America portfolio, that does include LORD. That does include the CLARCOR businesses. There's a significant amount of aftermarket that we benefit from in the North America business, and I think that's helped offsetting some of these larger OEM callouts. Jennifer Parmentier: Longer cycle. Operator: Our next question comes from Joe O'Dea with Wells Fargo. Joseph O’Dea: First question is just related to field inventory. I think some of the corrections have been going on for several quarters now. And so what your views are, both at an OEM level and a distributor level and maybe even if you take it by region. But just how far along that process is? Are those headwinds actually starting to abate a bit? Jennifer Parmentier: Yes. Well, I think as we've gone through the regions, what we've talked about here is that first, again, backlog coverage remains strong. Destocking is continuing. We probably saw a little more of that in North America in Q1 than we had anticipated, and it's continuing. But as Lee pointed out, the overall channel sentiment is very positive. As I was just mentioning before, international, too, I mean, the backlog is strong, too, there. But the orders have been choppy. So to try and say where that's going to wind up in the next quarter or 2, we'll have a better update for you in February. But as Lee mentioned, this is -- and international is really a story about China recovery remaining slow and the impact that it has on -- and on Europe. So continued softness there in industrial markets, and destocking is continuing. Joseph O’Dea: And then, Jenny, I wanted to ask on investment spend and just strategic focus as you think about opportunities over the next 1 to 2 years and really, in particular, on the industrial side of the business. But across the regions, across technologies, where you're trying to direct the most emphasis right now because of the biggest opportunities that you see for returns on some of that spend? Jennifer Parmentier: Well, our CapEx goal has increased from 1.5% to 2%. We were at 2%, a little bit above in fiscal year '23. And we're forecasting 2% for fiscal year '24. It's a pretty big increase from our 10-year average. And our focus is on safety, automation, robotics, some AI tools on AI-driven inspection, so things that are really going to help us increase our efficiency and our productivity. We're investing in the supply chain. And then we're investing in specific divisions where we have -- we need to support secular growth. So, for instance, electrification projects with our customers. So when we look at this, the investing in the supply chain is something that we think will help us well into the future and make sure that we have not only those local-for-local strategy is intact, but dual sourcing strategies. And so that investment, we expect that to pay dividends well into the future. Operator: Our next question comes from Brett Linzey with Mizuho. Brett Linzey: Congrats to Lee. Appreciate all the insight over the years. Wanted to come back to some of the market choppiness and the destock. I guess what is Parker doing from a cost-containment standpoint? In the quarter, international volumes down, margins up. Is this just simply throttling back on discretionary? Are you taking more structural simplification actions and how that positions you? Jennifer Parmentier: Yes. So we always say that we're planning for the next recession, right? So what is evident with our Q1 performance is that executing The Win Strategy in a slower-growth environment works, right? So every tool, and I say this because I've used The Win Strategy to run Parker divisions and Parker groups. Every tool in that Win Strategy helps to expand margins. So it can be anywhere from adjusting your discretionary spending, changing the way you staff the operation to how you order material for your production. So there's a lot of levers that our general managers can pull. And they become very agile and flexible. And they have learned how to look around corners and see demand changes coming. So we're very proud of what they do on the downside as well as the upside to make sure that we get the best return. Brett Linzey: Yes. That's great. And then just one more on orders. Just curious how the sequential evolution of orders played out through the quarter into October. Any discernible pattern that might give you confidence that we could be some [indiscernible] to the bottom here? Jennifer Parmentier: We'll give you an update on that in February. Todd Leombruno: Brett, I wanted to just touch on that restructuring comment. There's been no change to our restructuring plans for the fiscal year. We do this all the time. This is not something that we wait for. I think we have $70 million of restructuring costs in the guide for the year. And that's the beauty of the decentralization of all the markets. Our businesses are doing what they need to do depending on what's happening in their businesses all around the world. So we're not waiting for any kind of high sign to do restructuring. We constantly do that. To Jenny's point, it's part of The Win Strategy, and it's part of what we do every day. Operator: Our next question comes from Nathan Jones with Stifel. Nathan Jones: I add my congratulations on retirement to Lee and [indiscernible]. I'm going to ask David and Julian's question a little bit of a different way. Parker has been through many order downturns over the years. And while every downturn is different, the math always tends to be the same. You see 3 to 5, maybe 6 quarters of negative order rates. The magnitude of those declines are either a mid-cycle pause or a recession. We've got to the point where we're now 3 to 5 quarters of negative order rates. Is this starting to feel more like a mid-cycle pause in the recession we've been trying to talk ourselves into for the last 18 months? And maybe just any comments around the feelings you guys have about this downturn relative to the downturns that you've seen previously. Jennifer Parmentier: Well, I'll start off just by saying that I think as evidenced by past performance, we're able to handle these downturns, and we just weather them better each time, right? So with the transformation of the portfolio, again, I think we're going to continue to see a longer cycle view of the backlog, and we're going to be less susceptible to the dips. So I think we're just in a really good position going forward to be able to achieve our organic growth targets and really perform at a higher level. We're going to keep expanding margins in a slower-growth environment and be very well positioned for when some of this returns on the industrial side. Todd Leombruno: Nathan, too, we've said this a couple of times, but we've never had as high a percentage of aerospace exposure across the whole portfolio. So it's over 30% of the portfolio, and that part of the business is extremely strong right now. So we're benefiting from that as well. Nathan Jones: Yes. I was just talking about the industrial businesses that understand that there [indiscernible] dynamic. And then just one on Meggitt. You guys have talked about that outperforming. I think it's clearly seeing better growth, the market seeing better growth likely leading to some [indiscernible] margins here. You had targeted year 5 high single-digit ROI. Is the double-digit ROI on this business with the outperformance now within reach in year 5? Todd Leombruno: Nathan, we couldn't be more happy with the way that business is performing. It still is early days. We just had the 1-year anniversary. Growth is robust. The margin performance has been good. And if you remember, we had a 3-year plan here on synergies and our focus is executing that. It's kind of performing better than our expectations. So we're happy with it. Nathan Jones: Okay. We'll wait till the upgrade of that target. Todd Leombruno: Yes. Thanks, Nathan. Diego, I think we got time for one more question. Operator: Okay, and that question comes from Nigel Coe with Wolfe Research. Nigel Coe: Lee, you've had a lot of callouts, but we will like dream of walking off on a high, and that's certainly what you're doing. So congrats and enjoy. Enjoy the rest of the year before you retire. So backlog, I've got to say I'm surprised you didn't consume more backlog based on what we're hearing elsewhere. Maybe you could confirm, Todd. I'm calculating maybe $100 million of sequential backlog consumption in industrial in that kind of range. I was wondering, are you seeing more like longer cycle, lumpier orders coming through the backlog here? I mean, just any color there would be helpful. Todd Leombruno: Nigel, you're saying specifically on aerospace? Nigel Coe: Industrial, industrial. Todd Leombruno: Excuse me, industrial. I think you're about right on the number that you're talking about. And again, Jenny and Lee have talked about this. We think it's really just kind of more rebalancing, nothing overly concerning at this point in the cycle yet. I can't say that we're seeing anything more lumpiness from the industrial orders. There are some project-based things in there, but it's nothing significant in comparison to the total. Nigel Coe: Okay. Great. And as the last question, I guess, is the cleanup questions here. But I'm getting -- when I bridge the current guide to the previous guide for FY '24, I'm getting $0.40 from the margin uplift, about $0.10 in taxes [indiscernible] taxes, about $0.10 of interest. Is that right? That gets me to $0.60 or thereabouts, which is the increase. And there's nothing [indiscernible] for FX. Is that right? Todd Leombruno: The only thing we did for FX was updated the currency rates to September 30. So there's a little bit of a headwind on the sales line. That translates throughout the P&L, but it's really just an update, [indiscernible] major. Nigel Coe: Okay. Great. Well, sorry for the low-level questions there. Todd Leombruno: No. No worries. No worries. Yes, and we can follow up with you more. Lee Banks: I think we're almost at the end. I'm going to pass it back to Todd. This is Lee. I just want to say thank you for all the nice callouts from everybody. It's 32 years. It's been a long run. During that 32 years, I've worked for 4 CEOs, 3 of them directly. Every CEO has taken the baton from their predecessor and run the race faster. And I've got no doubt in my mind that Jenny and this team is going to do the same thing. So thank you, and hopefully, we'll see you around. Todd Leombruno: Lee, you're definitely going to see us around. Congratulations to you and Elizabeth and your whole family. I know they're going to enjoy more Lee time. And we are going to miss you. So congratulations again. Thank you to everyone for joining us today. This does conclude our FY '24 Q1 webcast. As usual, Jeff Miller, our VP of Investor Relations; and Yan Huo, our Director of Investor Relations, will be available if anyone needs any kind of follow-ups. Thank you all for joining, and everyone, have a great day. Thanks. Operator: Thank you, and that concludes today's call. All parties may disconnect. Have a good day.

Operator: Hello and welcome to the Parker Hannifin Corporation’s Fiscal 2023 Fourth Quarter and Full Year Earnings Conference Call and Webcast. At this time, all participants are on a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Todd Leombruno, Chief Financial Officer. Thank you. Please go ahead. Todd Leombruno: Thank you so much, Donna. And good morning, everyone, and thank you for joining Parker Hannifin’s fiscal year ‘23 fourth quarter and full year earnings release webcast. As Donna said, this is Todd Leombruno, Chief Financial Officer speaking. And with me today for the webcast is Jenny Parmentier, our Chief Executive Officer; and Lee Banks, our Vice Chairman and President. I think everyone knows we released our results and all of these slide materials this morning. Our comments today will address forward projections and non-GAAP financial measures. On slide 2 of this presentation, you will find specific details to the disclosures that we are making in respect to both, non-GAAP financial measures and forward projections. And just as a reminder, actual results could vary from what we speak about today in this presentation based on all of the items listed here in these disclosures. Our press release, this presentation and all reconciliations are available under the Investors section at parker.com, and those will remain available for one year. Today, we’re going to start with Jenny addressing some of the highlights of our strong fourth quarter and really what was a transformational fiscal year for Parker. She is also going to reiterate some reasons that show why Parker is so well positioned for the future. I’m going to follow up with just some color on how the quarter wrapped up and provide some details around our initial FY24 guidance that we released this morning. Jenny will wrap up the call with some key messages, and then we’re going to open up the lines for Q&A for Jenny, Lee or myself. So, now, I’ll ask you all to move to slide 3. And Jenny, I’ll hand it over to you. Jenny Parmentier: Thank you, Todd. Good morning to everyone, and thank you for joining our call today. Q4 was a quarter of outstanding performance across all of Parker. Starting with safety. We remain in the top quartile with a 20% reduction in recordable incidents. Safety has been and will remain our top priority. We had record sales of $5.1 billion in the quarter, a 22% increase over prior year with organic growth of 6%. This is our second quarter above $5 billion in sales. We achieved record adjusted segment operating margin of 24%, a 110 basis-point increase over prior year. And as we discussed last quarter, our backlog coverage remains resilient at 55% and has increased 1% sequentially. The Win Strategy and portfolio changes have delivered a strong finish to a great year. Next slide, please. A great and transformational year. On the right side of the page, you can see highlights from fiscal year ‘23. Again, it all starts with our team. Top-quartile safety and engagement delivers these results. We now have approximately 30% of the portfolio in aerospace and defense, and we couldn’t be happier with the progress of the Meggitt integration. The team is exceeding our expectations. And a record $3 billion operating cash flow, 22% higher than prior year, allowing us to make great progress in paying down debt. Todd will give you a few more details on this in his upcoming slides. Next slide, please. Many of you have seen this slide before. As you know, over the past eight years, we have strategically reshaped the portfolio to double the size of aerospace, filtration and engineered materials. I’d like to draw your attention to the middle of the page for the FY23 update. The dotted line represents where we originally forecasted our longer-cycle and secular trends revenue to be at the end of the year. The arrow and new solid line represent that we have realized a bigger shift to longer-cycle revenue. The combination of the portfolio changes and secular trends is already and will continue to create a profound shift in our revenue mix. We have high confidence that by FY27, we will have approximately 85% of the Company in long-cycle end markets and industrial aftermarket. This mix shift is further reason why we will grow differently in the future. Next slide, please. Diving a little deeper into our future sales growth drivers. The five buckets on this slide will allow us to achieve our FY27 target of 4% to 6% organic growth over the cycle. The Win Strategy is our business system. It delivers growth and financial performance. Every tool in this system expands margins. CapEx reinvestment is addressing the last decade of underinvestment as well as investments to strengthen and develop the supply chain. This will result in increased equipment spend and higher levels of automation. And under innovation, our new product blueprinting tools and Simple by Design principles have increased our product vitality index, that is the percent of sales from new products. This enables faster growth and support of the secular trends. The acquisitions we have made are great companies with higher growth rates, aftermarket and accretive margins. We continue to benefit from the growth related to secular trends. We expect multiple years of solid growth in aerospace driven by both commercial and defense. And we are enjoying an increased bill of material on all electric passenger vehicles and continue to partner with our mobile customers on electrifying their equipment and helping them to achieve their carbon-neutral goals. And today, two-thirds of our portfolio enables these clean technologies. Again, all of this giving us high confidence to grow differently than we have in the past and achieve our 4% to 6% organic growth over the cycle. Next slide, please. As a reminder, living up to our purpose, top-quartile performance and being great generators and deployers of cash is what drives Parker. This slide provides an update on living up to our purpose, enabling engineering breakthroughs that lead to a better tomorrow. We are committed and on track to be carbon-neutral by 2040 and achieved a 20% carbon reduction in fiscal year ‘23. And we are proud to be in the first quartile of the Carbon Disclosure Project on climate change. Post pandemic, our teams were anxious to get back into the communities where we work and volunteered over 10,000 hours in fiscal year ‘23 to help serve others. And again, our clean technologies are critical in helping our customers achieve their carbon-neutral goals. Next slide, please. The combination of our growth drivers and living up to our purpose points to a very promising future for Parker. We are committed to our FY27 targets of growing EPS from $21.55 to $30 and achieving 25% adjusted segment operating margin. Growth from secular trends, continued transformation of the portfolio with Meggitt and continuing to accelerate our performance with Win Strategy 3.0 will drive top-quartile performance and organic growth of 4% to 6% over the cycle. We have entered fiscal year 2024 on a solid foundation. The guidance that we are sharing with you today reflects continued progress to these FY27 goals. Todd will go through the quarter and the guide, and then I will be back with more comments on our guide assumptions and why we are still very bullish about the future and the 4% to 6% organic growth over the cycle. Over to you, Todd. Todd Leombruno: Thank you, Jenny. If everyone’s following, I’m going to start on slide 10. And I’m really proud to say once again, every Q4 number highlighted in this gold box is a record for the Company. It was really just an unbelievably strong finish to the fiscal year. I’m going to try to move quickly because Jenny already spoke to the 22% sales growth and the 24% segment operating margin. But in respect to sales, organic growth was 6%. When you take a look at the Meggitt acquisitions and the divestitures that we did in FY23, the net addition for the quarter was 16%. And the good news here is on currency, the headwinds have moderated. It’s now was just a slight a headwind of 0.4% in the quarter. One thing I do want to note is adjusted EBITDA margins, 24.4%. That’s an increase of 130 basis points versus prior year. And if you continue down the page, both net income and adjusted earnings per share did increase by 18% versus the prior year. Our adjusted net income was $791 million or a 15.5% return on sales, and adjusted EPS was $6.08 in the quarter. That is an increase of $0.92 or 18% versus prior year. Internally, we always stress how important it is to finish strong. And really, these results are just really a testament to the resilience of our global team. So, thank you to everyone for a great Q4 and a great fiscal year ‘23. If you move to slide 11, this is just a bridge on how we generated that $6.08. This is a $0.92 walk. And I’m proud to say, again, you could see the biggest bar on this page is increased segment operating income. If you look at that, we increased segment operating dollars by $264 million. That’s nearly 28% increase year-over-year. That added $1.63 of EPS to our total for the quarter. There were a few headwinds below the segment that are really no surprise. Obviously, that interest is 100% related to Meggitt. That’s consistent with what we’ve seen in past quarters. And income tax was favorable this year in the quarter. Even though we did finish favorable, it was a headwind of $0.19 compared to what we did last quarter. And if you think about that, last quarter, we did have a few onetime items that were related with the acquisition that were favorable and some higher discretes last year. Those were obviously non-repeating issues this year. So the story on the walk is just really strong operating execution, and it’s really across the board. If you move to slide 12, just some details on the segment performance. Every segment delivered positive organic growth this quarter, but they also delivered positive margin expansion, you can see across the board here. Incrementals were very strong, and all of these margins are records. And I’m also proud to say, even with the challenging comparisons, orders did increase from last quarter to a plus-3% versus prior year. And our backlog did increase 1% sequentially and did reach a record, $11 billion. So this is really the result of robust aerospace activity but also the changes to the portfolio that we spoke to throughout the year. Just jumping into the North American businesses. Sales were very strong, $2.3 billion. That was 5% organic. That’s really right in line with our guide. Adjusted operating margins did increase 60 basis points to 23.5%, really just driven by excellent execution across those North American businesses. Incrementals also did improve sequentially, and that helped drive our margin expansion. One thing to note, orders did turn negative to 8%, but that really still is against tough comps. We still have strong backlog coverage that we believe will continue to support growth. And customer sentiment overall remains positive in North America. So, all-in-all, a great quarter and a great finish by our North American team members. If you look at the international businesses, sales were $1.5 billion; organic growth, nearly 4%. Organic growth did remain positive in all of our international regions, really led by Asia Pacific, 8.5%, almost 8.6%. Latin America was 2.5% positive. And even EMEA, which we’ve seen some softness, did post a 1% positive organic growth. Even with all that said, margins did increase 90 basis points, finished at 23.3% versus prior year and really still continue to reflect consistent performance, productivity improvement, good cost controls and that increase in distribution mix that we’ve talked about periodically. Orders in the international business did improve from last quarter. They are still negative 1, but it is a nice improvement from last quarter. And again, from our international team members, great consistent performance, and I’m glad to see these results. If you move to aerospace, this is really the story of the quarter, really a standout, just fantastic results all around. Sales are $1.3 billion, 16% organic. Total sales are a 90% increase versus prior year. That’s really obviously benefiting from the Meggitt acquisition. But if you look at the business, commercial OEM and MRO continue to be very strong. Both of those businesses are growing at plus 20% versus prior in the quarter. The military OEM business did return to growth this quarter with high single-digit organic performance. That was really nice to see. And operating margins, a new record high, really increasing an impressive 160 basis points to 25.8%. Those strong margins reflect that growth in the commercial aftermarket businesses and really notably a nice favorable mix of spares versus repairs. So, you can also see the addition of Meggitt has also increased our aftermarket exposure. That was one of the compelling aspects of that acquisition. We’re glad to see that materialize in the results. The aerospace team is really doing a phenomenal job, obviously, dealing with growth. The integration is ahead of schedule and on track, and these results are really fantastic to see. It’s really truth that Parker and Meggitt are really better together. If you look at aerospace order rates, plus 28%, continues to be robust and then obviously, it’s helping our backlog. Great performance across the segments. If I jump to slide 13, I just want to highlight our cash flow performance. We finished the year with extremely strong cash flow. It was a record in FY23. We increased cash flow from operations 22%. We reached a record $3 billion of cash flow from operations. That’s 15.6% of sales. Free cash flow, also very strong, $2.6 billion or 13.6% of sales. Our CapEx came in right where we were forecasting, 2%. And just as a note, because this was the closing of Meggitt, we did have some transaction-related expenses that were a drag to cash flow that was about 1% of sales. So those obviously aren’t going to repeat next year. And we have set ourselves up extremely well to be great generators of cash. If you look at conversion, free cash flow conversion for the year, 125%. And I just really want to thank our teams for the great work on working capital. We strive to be great generators, great deployers of cash, and reaching this $3 billion milestone is really the result of significant effort from our team across the globe. If you go to slide 14, you can see what we did with all that cash. We reduced debt by $850 million in the quarter. Since we closed Meggitt just this fiscal year in September, we have reduced our debt by $1.4 billion. Since announcing Meggitt, way back in August of 2021, we have already paid down approximately 35% of the total consideration of nearly $10 billion. So, very impressive work across the board by our team. If you look at leverage, gross debt to adjusted EBITDA finished the year at 2.8%, and net debt to adjusted EBITDA finished the year at 2.7 -- excuse me, 2.7 times. We’ve spoken about our great track record of how we are so dedicated to quickly deleveraging after the deals. And since closing the transaction in September, we have already reduced leverage by 1 full turn. So we’re proud of that. Looking forward to next year, we expect to generate significant cash flow. We think we can reduce debt by an additional $2 billion in FY24. And we are targeting leverage of 2 times in early FY25. Okay. So moving to guidance and putting FY23 to bed. You could see what we are looking at here is slide 15. And I’ll start with the top line. Reported sales growth for the year is forecasted to be in the range of 3% to 6% or 4.5% at the midpoint. That equates to approximately $19.9 billion in total sales. If you look at the split, the first half is 49% and the second half is 51%. Speaking specifically to organic growth, for the full year, we expect it to be 1.5% at the midpoint. In respect to aerospace, we’re expecting high single-digit growth in aerospace, a little over 8%. North America organic, we expect that to still be positive at plus 1%. And international, we are forecasting slightly negative at 2.5%. Those are all full year numbers. The backlog that I just spoke of earlier does support our growth, so we feel confident in these numbers. And if you look at the breakdown, the guidance does assume acquisition sales, roughly $500 million from Meggitt, offset by $400 million of the divestitures that we did complete in FY23. So, the net impact is $460 million or about 2.5% of our total sales. I mentioned currency earlier based on spot rates as of June 30th. We do expect currency to be a slight tailwind of 0.5% or roughly $100 million. So, that is based on currency rates as of June 30th. We still see margin expansion this year, 30 basis points is what we’re forecasting for FY24. That is all based on continuing to accelerate our performance across all of our businesses using the Win Strategy and, of course, delivering on Meggitt synergies that we have communicated. If you look at adjusted segment operating margin, our guidance is 23.2% at the midpoint, and there is a range of 20 basis points on either side of that midpoint. If you look at operating income dollars -- segment operating income dollars, the split is 47% first half, 53% second half. And for the full year, we are forecasting incremental margins of 30%. Few other items in respect to guidance. Corporate G&A is $240 million. That’s a full year number. Interest expense is $525 million. That is a $40 million reduction from where we finished in FY23, really just based on our strong debt pay-down. And other expense is $25 million. Full tax rate, we’re guiding at 23.5%. That is without any discrete items that is really a continuing rate from operations, 23.5%. And finally, we expect full year as reported EPS of $18.55 or on an adjusted basis, $22.40. The range -- those are both midpoint numbers. The range on either side of those is $0.50, plus or minus. And the split is 46% first half, 54% second half. And just specifically for Q1 of FY24, we are forecasting adjusted EPS to be $5.10 at the midpoint. Looking at cash flow. Full year free cash flow is expected to be between $2.6 billion and $3 billion. So, will be mid-teens free cash flow, and our conversion will be over 100%. Also included in the appendix is subsegment guidance details and some other specifics that you might find helpful. If I move to slide 16, this is just a bridge and really highlights as follow, again, very similar to what’s happened throughout this fiscal year. The organic growth, the acquisition sales, margin expansion and the $75 million of incremental Meggitt synergies for the year translate to an increase in segment operating income of $1.47. We will have less interest expense next year based on that debt reduction that we’ve done, but -- and that will add $0.23 to EPS. Our forecasted tax rate of 23.5% is a headwind of $0.26. But remember, we had a lot of favorable items in FY23. We’re not forecasting those to continue. We also had lower interest income. If you remember, we prefunded those -- the Meggitt transaction in June of last year. So, we had interest income in the first quarter of last year. That was about $35 million. Just to note, that is reported in the other expense/income line on the business segment statement. That was a one-off benefit that obviously will not repeat in FY23. That’s a $0.21 headwind. The rest is just a forecasted $0.20 unfavorable to EPS, and there’s just some really some non-repeating items in there. And obviously, share count is also a $0.10 headwind that we hope to make up. So, that’s a walk from FY23 to FY24. EPS at the midpoint is forecasted to be $22.40. So with that, Jenny, I’ll hand it back to you and ask everyone to move to slide 17. Jenny Parmentier: Thank you, Todd. Just a few key messages to close this out. So, FY23 was a tremendous year with record performance. We have top-quartile safety and engagement, and that continues to drive results in our business. We truly have a great team. We have a proven track record, and we’re going to continue to accelerate our performance with the Win Strategy 3.0. The transformation of the portfolio is clearly delivering on longer cycle and more resilient portfolio, and this will allow us to achieve our FY27 targets and continue to be great generators and deployers of cash. So before we go into Q&A, I’d like to give you a few of our assumptions and comments on the guide. So obviously, aerospace is a real growth differentiator for Parker in fiscal year ‘24. We are projecting total aerospace growth at 17% with the acquisition sales from Meggitt and organic growth of 8%. We see strong mid-teens growth in commercial and mid-single-digit in military. Good story all the way around. We have now had two years in a row of double-digit growth for industrial. But having said that, as Todd mentioned, industrial orders have been negative for the past two quarters. However, in North America, backlog coverage is still above 30%, which is roughly double what it has been in the past, and it will support the growth we have in the first half. We do expect some destocking to continue, but overall sentiment from our customers is positive about steady demand and future growth. Obviously, there’s more macroeconomic uncertainty for the second half, and we’ll update you on that in future calls. While we did see an improvement in international orders from Q3 to Q4, this does include a benefit coming from some of those multi-period, longer-cycle orders and an easier comp from last year’s China COVID shutdown. Again, the backlog coverage remains above 30%. But as Todd said, we are forecasting negative growth for the first half and full year. Since the last time we talked, we’ve seen some signs of Europe slowing. Customers are returning to those seasonal shutdowns where they do maintenance in their facilities, and we’re starting to see some softness in some of the end and geographic markets as well as some weakening macroeconomic indicators. And although China had stronger growth in Q4 than Q3, recovery is slower than anticipated, and then we will face a tough comp in Q1 against prior year China COVID rebound. So in summary, this is our thinking right now: strong aerospace growth, strong backlog on the industrial side, some near-term uncertainties and tough comps, but the future growth drivers that I went through on the earlier slide remain intact, and activity is at a high level. We are still very bullish about the future and our 4% to 6% organic growth target over the cycle. So now I’ll hand it back to Donna for Q&A. Operator: [Operator Instructions] Today’s first question is coming from Julian Mitchell of Barclays. Julian Mitchell: Maybe just wanted to start off with the industrial businesses. Maybe give us a bit more color on the assumptions for international. It sounds like you’ve got a down first half organic sales and also down second half organic sales in the guide. So, are you sort of assuming heavy negative orders pressure there for the coming six months or so? Just wanted to check that. And broadly on destocking, any regions or markets to call out in particular where that’s most severe? Jenny Parmentier: So first of all, your question on international, like I was talking about earlier, obviously, the backlog is still strong. It’s above 30%. But those customer shutdowns that I mentioned, that takes weeks out of the schedule that we hadn’t seen previously. So, a return to that is one of the reasons. And then obviously, since the last time we talked, we’ve seen a slowing in Europe. We’ve seen the demand not be as strong in certain regions. And then the China recovery is -- we haven’t seen the rebound from the stimulus that had been previously anticipated. So, that is all weighing in there as well. Julian Mitchell: I see. And maybe just following up on the sort of the destocking comments you’ve made. Any more color on markets or geographies most affected? Jenny Parmentier: So, we did see destocking happen in Q4, and we just expect that to continue through the first half. I’ll let Lee comment a little bit on the specifics of some regions and markets. Lee Banks: Yes. Julian, it’s Lee. I think destocking, mostly at the distribution level, there’s -- it’s been going on for a couple of quarters. They were holding more inventory than usual. But I would tell you the sentiment is still strong. So, we’ve seen destocking across our European distributors and in North America. Maybe too, just a little more color on Europe, as Jenny was talking about, the biggest softness really is around the DACH region. So that would be Germany, Austria, Switzerland. I think it’s a couple of things. It’s -- the China export market is a big deal for them. And China has not rebounded like we all expected it would. And then, I think when you pivot to Asia, with China, the property woes continue to weigh heavily on the business community there. So all the stimulus we read about really hasn’t trickled down to any significant economic activity. I’m still expecting that to change going forward, but those are the plus sides as we move forward. Todd Leombruno: Hey Julian, this is Todd. I would just add, we don’t have this really first half-, second half-weighted. We are forecasting international in total to be about 2.5% for the full year. And if I look across the year, there’s no real weighting there. It’s about an even split. Operator: The next question is coming from Joe Ritchie of Goldman Sachs. Joe Ritchie: Thanks. Good morning, guys. And nice end to a year. Todd Leombruno: Thanks, Joe. Jenny Parmentier: Thanks, Joe. Joe Ritchie: Maybe just -- hey, just wanted to maybe talk a little bit more about North America. Obviously, you’ve got this little order deceleration, the destocking commentary. Just maybe talk a little bit more about what your expectation is for orders going forward or any comments you can make about how this fiscal first quarter is trending, that would be helpful. Jenny Parmentier: Yes. Thank you, Joe. So obviously, we’ve already talked a bit about what we expect to see, a continuing destocking and just kind of a softening in orders despite a very positive sentiment from the customer. So in the first half, in North America, we’re projecting 2% growth and overall for the year, 1%. So, we think that there’s some macroeconomic uncertainty in the second half. But in the first half, we fully believe that this strong backlog is going to support what we have in the guide. So, the backlog, again, above 30%, a little bit down, about 2% down, from last quarter but very strong. And in talking with our customers, we continue to constantly pressure test this and analyze it. And we’re not really seeing any major pushouts or cancellations, so we feel good about the guide we have out there. Joe Ritchie: Okay, great. And then maybe just focusing to aero. I guess it’s funny, like you’re expecting 8% growth -- good growth. But why is 8% the right number? It feels like it could be better than that and then -- particularly with military inflecting. And then also, would love to get any color around where the integration is going better than expected with Meggitt. Jenny Parmentier: Sure, sure. So, the first half for aero is 12%. So obviously, we’re going to see some nice growth here in the first half. And in the second half, we have 5%. And the comps get pretty tough in the second half. So, we feel good about that 8% organic number right now. So obviously, we’re seeing really nice growth in commercial OEM. We see those narrow-body rates increasing. Wide-bodies are starting to recover, but really, it’s a story about narrow-body rate increases. And then MRO, as Todd mentioned earlier, the Meggitt acquisition has really increased our aftermarket exposure. And it’s been really strong with the air traffic recovery, especially with those narrow-bodies. And we’re pleased to see military OEM return. Obviously, the military budget increase is going to drive mid- and long-term growth. F-35 is nearing peak delivery. So all good news there. And then, same thing with military MRO. I mean, there’s a focus on retrofits and upgrades as the fleet ages. So really good outlook for all of aerospace going forward. So, you questioned about Meggitt integration. I mentioned in the slides, we couldn’t be happier with the progress of that integration. We’re forecasting another $75 million in synergies in FY24. Team did a great job in FY23 of pulling some actions ahead and allowing us to increase those synergies by $15 million. So really just a positive outlook for aerospace. Todd Leombruno: Hey Joe, this is Todd. Just one thing I would add. If you remember a year ago, when we did the Meggitt post-close call, we said that we felt Meggitt could add $0.80 of EPS on a full year basis. We are ahead of that schedule. So that should give you some comfort too, that it is adding EPS to the bottom line as well. Operator: The next question is coming from Andrew Obin of Bank of America. Andrew Obin: Just a question on price and cost. Companies are starting to talk about disinflation, maybe some deflation. What’s the view on the Company’s pricing power into next year and also ability to actually extract price concessions from supply chain? Lee Banks: So, we’ve -- you’ve covered us a long time. I mean, the one thing I think we’ve got a good handle on inside the Company is kind of price/cost and the ability to push cost in the price. Every one of our facilities is embedded in our Win Strategy. We look at costs constantly, and we look at price. I would say pricing has become much more normal now. We’re not in that rapid inflationary period. But our goal is always to keep things margin-neutral, and we’re working that. And we’re working the cost side on the supply chain side, too. So I’m comfortable that kind of the price/cost scenario we have is baked into our margin forecast. Andrew Obin: Excellent. And then, the other question, you sort of talked about seeing Europe slow down, specifically Germany and the DACH region. If you read the newspapers, economists, politico, a lot of articles about sort of structural slowdown in Germany, right, because exports to China, cheap energy from Russia. Could you give us a slowdown as an opportunity to sort of reconfigure your manufacturing footprint and supply chains in Central -- I would call it, Central Europe or just Western Europe in general? What are your thoughts? And is it too early to say? Lee Banks: Well, so first off, we’ve been reconfiguring our supply chains and our manufacturing footprint in Europe for the last 8 or 10 years. I mean, you remember when Tom and I took our roles, we had a big initiative… Andrew Obin: I absolutely do, absolutely do. Lee Banks: So -- and I would just tell you that that is always ongoing. So, we never stopped with that. And we take every opportunity we can to just continue to be better, and we’re doing that today. Jenny Parmentier: Yes. We don’t wait for an event, Andrew. It’s something we’re always working on. Todd Leombruno: Andrew, this is Todd as well. I think Lee brings up a good point. We’ve been working that initiative for a long time. And if you look at the margins that I just ran through for Q4 and really what we’re guiding for FY24, you’ll see that those international margins are similar to every other piece of our business. So, that has been a great success. Lee Banks: Great European team with great leadership, doing great things, they really are. Andrew Obin: No, I appreciate you’ve certainly been doing something right. Thanks a lot. Lee Banks: Thank you. Jenny Parmentier: Thanks, Andrew. Operator: The next question is coming from Nathan Jones of Stifel. Nathan Jones: Question on the margin guidance in aerospace. Jenny, you just mentioned $75 million of additional synergies for Meggitt in 2024, which I think is about 150 basis points. And the margin guidance is up about 60 basis points. So maybe just some commentary on the core, I guess, margin decline in 2024. Is that really just a function of increasing commercial OEM as part of the mix or is something else in there? Jenny Parmentier: You just answered the question, right? We expect those narrow-body rates to go up, and it’s definitely a matter of mix. Nathan Jones: Okay. Fair enough. That’s helpful. And then, I guess, just on the M&A outlook now. I mean, you guys have obviously done a sensational job paying down debt post Meggitt back to towards 2 by the end of the fiscal year, early in ‘25. What are kind of your criteria for getting more materially back into the M&A market and the shape of the pipeline? I know you guys continue to cultivate that even when you’re out of the market. Just commentary on plans there? Jenny Parmentier: Yes. So, we’re committed first to pay down our debt. That is our number one priority and our focus. We’re always working in the pipeline. We have long-standing relationships with people we talk to now as we have in the past. So, that’s not something that we ever let go stale or dry. It’s a continuous pipeline. So, for now, we’re focused on paying down debt, and we expect to get in the range of about 2 times by fiscal year 2025. And I’m sure we’ll talk about it in the future. Operator: The next question is coming from Jeff Sprague of Vertical Research Partners. Jeff Sprague: Just wanted to follow up on your comments on price/cost margin-neutral. I believe you got yourself the price/cost margin-accretive through this period. Kind of correct me if I’m wrong on that. But should we kind of expect that trend back to neutral to occur here in ‘24, or can you actually maintain some kind of positive spread? Lee Banks: Well, I think, Jeff, again, you followed us, we’ve always maintained some kind of positive spread. We’re always looking at the portfolio. We’re sunsetting products. We’ve got different strategic pricing initiatives. But I would tell you, we deal with a lot of core tough customers, and pricing is very competitive. It’s really what we do with the balance of the portfolio that helps us out. And as we’ve talked about in the past, one of the great strengths of this company is the distribution base we have, which gives us a great opportunity to kind of price into that market. Jeff Sprague: Understood. And then, Jenny, just back to aero. Can you be a little bit more explicit about what your aero commercial aftermarket assumption is inside the guide? And is the growth similar at legacy Parker aero and Meggitt on those metrics? Jenny Parmentier: I guess, I would say, first of all, that it is very similar. But obviously, the Meggitt acquisition, as we’ve mentioned, has meaningfully increased our aftermarket exposure. So it’s mid-teens is what we’re projecting right now. And again, that air traffic recovery, especially with the narrow-bodies with this high domestic traffic, is that really what’s going to help that into the fiscal year. Operator: The next question is coming from David Raso of Evercore ISI. David Raso: On the margins industrially that you had them up despite in aggregate, your industrial organic sales are down. Just want to make sure I understand, the destocking that you’re referring to, I think that probably is distribution, which would be a challenging mix if that’s your destock. Are you also referencing, though, maybe a more balanced destock? It’s at OEs as well? I’m just trying to get a sense of the ability to have margins up when you’re destocking distributions, a heavy lift. So, I’m just curious if you could color on that. And maybe the -- what’s in the backlog? It sounds like the backlog will help carry the first part of the fiscal year. Although margins particularly positive, what will be coming out of the backlog? Just trying to get a sense of the margin progression and how to have margins up if organic is down industrially for top line. Jenny Parmentier: Yes. So David, primarily when we talk about destocking, we are talking about distribution. But we’re just seeing a kind of a moderation of growth across all of our customers. So, don’t worry about margin degradation. We’re not going to allow that. We have all the right things in place to make sure that we hit our margin targets. So really, it’s about -- we’re just continuing to see the benefit of this transformed portfolio, right? We’re continuing to see the power of the acquisitions that we’ve done over the last several years. Todd Leombruno: Hey David, this is Todd. I would just add to that. Jenny is absolutely right. We do believe that we can expand margins both in the North American businesses and the international businesses. It really is a testament to the power of the Win Strategy. But if I’m looking at the numbers here, it really is a smooth glide path, very similar to what we’ve done historically with our normal seasonality. So, it’s not weighted in any -- one way or the other. I gave a little color on the splits of segment operating income, but the margin expansion is a nice glide throughout the year. David Raso: And maybe I missed it, just a clarification. The first quarter in North America particularly has a hard comp. Are we saying margins could be up every quarter in North America, or is it just for the full year and the first quarter is down and then it’s up from there? Todd Leombruno: No, we see margin expansion in every quarter this fiscal year. Operator: The next question is coming from Josh Pokrzywinski of Morgan Stanley. Josh Pokrzywinski: Jenny, you referenced the backlog here a few times. I think for most folks, they don’t really think about backlog when they think about the industrial pieces of Parker. Clearly, that’s changing, but maybe some more kind of breakdown of how long does that backlog extend out? Is there a particular set of end markets or channel mix? Like I would assume more OEM, maybe more project activity. Just any kind of color you can give us on the nature of that backlog and really the duration over which it ships. Is it kind of one to two quarters, three, four or something like that? Jenny Parmentier: So the backlog, as I’ve said, is at 55% right now, and it went up 1% sequentially. So that -- we talk about that backlog being so strong and especially, obviously, aerospace is in there. But in industrial being above 30% is roughly double what it was in the past. So we were sitting around 15% to 17% coverage in the past, and now we have 30%. So that’s really coming from the acquisitions we’ve done, the higher aftermarket, the longer cycle. So we’re seeing a more resilient and longer, I call it the demand horizon, a longer horizon on that backlog. So, we feel very strongly about it. Now we know from the past that backlog isn’t bulletproof, but we are constantly pressure testing it, analyzing it, talking to our customers, which is really a great benefit of us being so decentralized because our divisions can have real-time conversations to make sure that that backlog is strong. So I wouldn’t be able to break out all the details that you were just asking about between the channel and the OEMs, but I would tell you that over 30% coverage in industrial is a good place to be right now. And that’s why we feel good about covering the growth we have in the first half. Josh Pokrzywinski: Got it. That’s helpful. And then -- oh, yes, please go ahead. Todd Leombruno: Josh, this is Todd. I was just going to add to that the other thing to keep in mind is when we talk about the Company having 30% aerospace exposure, 5% of that exposure does come from our industrial businesses. So, that is also a plus there as well. Josh Pokrzywinski: Understood. That’s helpful. And then just pivoting to something I’ve heard a lot of your peers talk about, particularly this quarter, on U.S. mega projects or, I guess, North American mega projects and near-shoring. Obviously, you folks play in all stages of that, I guess, new products that are being developed here as well as the construction of maybe some of these facilities themselves. Open-ended question, but is that something that in Parker’s, I guess, more kind of component- and subsystem-type business that you’re actually seeing yet, or is it just a little too early and maybe we see that more kind of later in ‘24? Jenny Parmentier: We are seeing some of it through our customers and our distributor partners. And you’re right, there’s just been a massive amount of announced CapEx. I mean, some industry sources are citing over $500 billion. Some key examples of that where we will get into the game is the semi fabs and the electric vehicle battery plants that are now breaking ground. So, we win -- Parker wins when the job site is prepped, when the factory is built and when the machines go into the factory. So, it’s early days, but Parker is winning and will continue to win in the future. Operator: The next question is coming from Joe O’Dea of Wells Fargo. Joe O’Dea: Todd, I wanted to circle back. You talked about Meggitt trending ahead of that $0.80 that you had given about a year ago. Just any sort of color on what you think the all-in Meggitt contribution is this year? Todd Leombruno: Yes. I would say it’s slightly above that $0.80 that we really forecasted for the first full 12 months. So, we’ve only owned them 9.5 months, but it’s been a fantastic 9.5 months. We’ve talked about the synergies being ahead of schedule, but the other thing is they are benefiting from the secular trend in aerospace. So, their growth has exceeded expectations every quarter since the close. So, we feel really good about that. I’m really happy we got the deal done. Joe O’Dea: All right. Got it. And then, Jenny, I wanted to circle back the macro CapEx investment sort of drivers that you talked about, kind of the three main buckets with underinvestment, supply chain, megaprojects. Can you just talk about sort of within those buckets, sort of if you can rank order what you’re seeing is sort of like the biggest growth drivers for you, but also just what you’re seeing in terms of kind of the evolution of them, maybe where things are accelerating, where things have played out a little bit more? Jenny Parmentier: Well, I don’t know that I can rank them right now, but I would tell you that I see activity in obviously, all three of them. If you start off just thinking about the CapEx, investment because of the reinvestment over the last 10 years, we’re seeing some -- just some upgrading of factories, a lot of work being done to really develop the supply chain and increase capacity. So, that ties into the investment, a lot of machinery and a lot to help really that supply chain development. A lot of folks that got burned during the pandemic are going to dual source this. So that drives a lot of investment. And as I mentioned just a few minutes ago, the mega projects, we’re starting to see some of that. We’re hearing about involvement in that from some of our distribution partners. And it’s still early days, but there’s a lot out there for us to go win. Operator: The next question is coming from Jamie Cook of Credit Suisse. Jamie Cook: Congrats on a nice quarter. I guess most of my questions have been asked, but I guess just to -- you wouldn’t know this from looking at your results. But in 2023 or 2022, is there any way you can handicap the inefficiencies running to your earnings, whether it was related to supply chain, employees not being back, et cetera? And I’m just wondering, for if any of this is an opportunity for 2024 potential tailwind that’s not implied in your guide. And then my second question, Lee, I don’t think you said this yet. I know you walked through some end-market color. But last quarter, you told us like the percent of the portfolio that was growing versus not growing. I think last quarter, 90% of the portfolio was still in growth mode. Can you give us an update just on your portfolio percent, flat versus growing versus negative? Lee Banks: So Jamie, it’s Lee. I guess, I’ll start on a couple of things. One, in terms of -- we’re always striving for productivity and continuous improvement. So certainly, things coming out of COVID were chaotic. Some of that chaos is settling down. So those are opportunities for us, but productivity is increasing. You see it in our numbers and kind of the inefficiencies that were going on are getting better. It’s not perfect. There still are supply chain issues out there, but it’s a far cry from what it was before. I would say when we look at our markets from the backlog that we have, all our markets are still growing at different levels. I mean, it’s kind of interesting, nobody talks about oil and gas anymore, but that’s been incredibly strong, land-based oil and gas here and even offshore here and in Europe. Everything in aerospace is great, and forestry and automotive is still great. North America, anything around electric vehicles is doing really well, and we share a lot of content in those areas. And then, construction equipment is still steady throughout all that as is ag. I think some of the areas have softened, and you’ve seen it with public announcements as the whole area of HVAC is down. I think that’s short term. That will come back. And semicon is soft. And life sciences really just tough comps coming out COVID, things were really going there. The sentiment is it’s just tough comps. So, it’s getting better as we kind of cycle through the comps. Todd Leombruno: Hey Jamie, this is Todd. I would just add to that, on your 90% question, if you look at our total orders last quarter, they were plus 2. They did move to plus 3. So there really hasn’t been a material change in that percentage of end markets that continue to grow. Operator: Thank you. The next question… Todd Leombruno: Hey Donna, this is -- sorry to interrupt you. This is Todd. I think we have time for one more question. So, whoever you have next in the queue, that will be our last call. Operator: Okay. The next question is coming from Jeffrey Hammond of KeyBanc Capital Markets. Jeffrey Hammond: Just a couple of quick questions. Supply chain in aero has kind of been a problem point. Just wondering what you’re seeing there and how that kind of informs kind of the growth rate and how much it’s may be holding the growth back. Jenny Parmentier: Yes. So, it’s interesting. I’ve been talking to a lot of people about supply chain, as always. And the aerospace supply chain is really experiencing what the industrial side of the business did 18 to 24 months ago. So just -- it’s a little bit tough. There’s constraints responding to the high rate increases and demand. But, I would tell you that outside of chips and electronics, we’re starting to see some lead times moderating. But overall, I would say it’s still a constraint for aerospace. So again, we work closely with our suppliers. We’re investing in developing suppliers, especially in aerospace, because obviously, with it being a third of our portfolio, it’s very important to us that we can deliver these orders. Jeffrey Hammond: Okay, great. And then, I think as was the case with LORD, Exotic, the deleveraging process is pretty swift here and seems maybe a little bit ahead. Just level set us on when we start to shift away from debt pay down. Todd Leombruno: Hey Jeff, this is Todd. Obviously, Jenny mentioned it earlier. We are fully committed to debt pay down. So if you look at what I mentioned earlier, we expect to pay down another $2 billion of debt in this fiscal year, FY24. We don’t expect to get to 2.0 times till early FY25. So, we talked about the portfolio. We never stop looking at it both from an addition and a subtraction standpoint. But our main focus really is still for FY23 is to continue that debt pay down trajectory. Todd Leombruno: Okay. This concludes our FY23 Q4 webcast. As always, we fully appreciate everyone’s interest in Parker, Jeff Miller, our VP of Investor Relations; and Yan Huo, our Director of Investor Relations, are available if anyone needs any further clarifications or has any questions on any of the materials we covered this morning. I want to really thank everyone for joining. We appreciate your support. Thanks.

Operator: Good day, and thank you for standing by. Welcome to the Parker-Hannifin’s Fiscal 2023 Third Quarter Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Todd Leombruno, Chief Financial Officer. Please go ahead. Todd Leombruno: Thank you, Chris. And good morning, everyone, and thank you for joining Parker’s fiscal year 2023 Q3 earnings release webcast. As Chris said, this is Todd Leombruno, Chief Financial Officer, speaking. And joining me today is Jennifer Parmentier, our Chief Executive Officer; and Lee Banks, our Vice Chairman and President. Our third quarter results were released this morning. And just a reminder, today we will be addressing forward projections and non-GAAP financial measures. On Slide 2 of this presentation you will find further details to our disclosure in these areas. Actual results may vary from our projections based on some of the details that are listed on this slide. Our press release, this presentation and all reconciliations of non-GAAP financial measures are available under our Investors section at parker.com, and they will remain available for one year. We're going to begin the call today with Jenny addressing highlights of the third quarter and really touching on how Parker is so well positioned for the future. I will follow with a brief financial summary and then review the increase to our guidance that we released this morning. Jenny will then wrap up with summary comments, and then Jenny, Lee and myself will address any questions from the queue. I will all ask you now to address yourself to Slide 3. And Jenny, I'll hand over to you. Jennifer Parmentier: Thank you, Todd. Good morning to everyone and thank you for joining our call today. Q3 was a quarter of outstanding performance across all of Parker. Starting with safety. We remain in the top quartile with a 17% reduction in recordable incidents. Safety has been and will continue to be our top priority. We had record sales of $5.1 billion in the quarter, a 24% increase over prior year with organic growth of 12%. The Win Strategy and portfolio changes have clearly delivered record performance, driving a full year guidance increase. We are increasing the quarterly dividend 11% over last year, and we are happy to report today that the Meggitt integration and synergies are ahead of schedule for fiscal year 2023. Moving to Slide 4, please. We couldn't be more pleased with the enthusiasm and dedication of the talented Meggitt team, further evidence to the shared heritage and culture identified early in the acquisition process. From the start of the integration, safety and engagement has been top priority. We have the key leaders and structure in place to ensure performance into the future and the Win Strategy deployment is well underway. The team picture on the right of this page is from a recent Kaizen event held in the Ansty Park UK location. And at the end of March, we held a Win Strategy training session here in Cleveland with over 50 leaders from various Meggitt locations. There are multiple examples of where the Win Strategy has already taken root and is being used to improve the business. We are confident in our assumptions around working capital opportunities and are already starting to see some of them materialized. We are increasing our FY 2023 synergies from $60 million to $75 million, and we remain committed to achieving $300 million in synergies by FY 2026. Slide 5, please. With the addition of Meggitt to our portfolio, we are well positioned for long aerospace cycle growth. We have significant content on premier commercial and military programs, all the right ones with a growing bill of material. These are long life cycle programs with a growing aftermarket well into the future. As a reminder, with the addition of Meggitt, our aerospace aftermarket has increased 500 basis points. We are greatly benefiting from the recovery of the aerospace market. Commercial MRO and OEM is very strong and military is positioned to do well in the upcoming years. With the addition of Meggitt complementary technologies, we provide a comprehensive offering and a stronger bill of material that allows us to add value and help solve our customers' problems. We have key technologies such as advanced sensors for more efficient engine control, thermal management systems for higher heat loads and lightweight materials for reduced fuel consumption, all of these enabling sustainable aviation. Aerospace and defense markets are now 30% of our sales. All of this adds up to significantly increased shareholder value. Slide 6, please. Many of you have seen this slide before as we introduced it last year at our Investor Relations Day. Over the last eight years, we have strategically reshaped the portfolio to double the size of aerospace, filtration and engineered materials. The combination of the portfolio changes and secular trends is already and will continue to create a profound shift in our sales mix. By FY 2027, we will have approximately 85% of the company in long cycle end markets or industrial aftermarket. This mix shift is further reason while we will grow differently in the future, and it is why we are committed to our FY 2027 target of 4% to 6% organic growth over the cycle. Slide 7, please. A lot of discussion, questions and inquiries lately on backlog. And as you can see by the chart on the left of this page, our backlog is at a record level. What is encouraging is that in Q3, we saw our backlog dollars increased 3% sequentially. Since FY 2016, we've seen a 3x increase in backlog dollars and a 2x increase in backlog coverage. Very important to note here that we are constantly analyzing the backlog at the division and group level and staying close to our customers on the health of the backlog. We know from the past that it isn't bulletproof. But having said that, this consistent growth over time is an indicator that the portfolio changes are changing the company. Slide 8, please. As demonstrated by the strong performance in the quarter, and the increasing power of our transformed portfolio, I want to share a few slides with you on why Parker is built for the present and the future. Slide 9, please. Parker has a proven business system, the Win Strategy 3.0. Whenever I talk to anyone about the Win Strategy, whether it's a new Parker team member or someone externally, I'd say the same thing. Trust me. I've used it and it works. It is a system focused on the fundamentals. We trust the process, and we know that making the safety and engagement of our team members, our top priority consistently delivers results. Our Lean tools, Kaizen culture, supply chain and simplification initiatives have driven margin expansion and will continue to do so well into the future. Our increased aerospace exposure is delivering results today as well as our 800 basis points expansion of international distribution, which still has room for growth. Our innovation sales are two times the previous decade. And we have a new annual incentive plan that incentivizes the right behaviors and driving intensity around profitable growth throughout the whole company. Nearly all of our 65,000 team members are on this plan as of this fiscal year. Now more than ever, we have better top line resilience. Slide 10, please. And the good news is we have significant opportunities ahead. As I mentioned earlier, approximately 85% of our portfolio will be longer cycle and more resilient. There are strong Meggitt growth opportunities well into the future, and we are confident in achieving the $300 million in synergies by FY 2026. The Win Strategy 3.0 performance acceleration will further drive margin expansion and ensure we hit our FY 2027 goals. As I mentioned in our February call, the pandemic and subsequent increase in volume exposed some areas that we can further improve upon to become supply chain leaders. We will utilize new tools and strategies to respond to changing demand while increasing productivity and achieving best-in-class lead times. Simplify design has become a business fundamental and will continue to drive us to design excellence by reducing complexity and overall product costs, thus helping to further expand our margins. We're very excited about zero defects. It's still early days. It exposes the hidden factory, improves quality, reduces cost, expands margins and most importantly, provides a better overall customer experience. And with all of the announced and already initiated Meggitt capital projects in addition to the secular trends, we will grow differently in the future. I'll now hand it over to Todd. Todd Leombruno: Thank you, Jenny. Just for reference, everyone, I'm going to start on slide 12 with just the Q3 financial summary. It was a stellar quarter for the company. Every number on this page highlighted in the gold box is a record for Q3, every single number. And Jenny did mention this, but we did surpass $5 billion in sales for the first time for a quarter in the history of the company. Reported sales were up 24% versus prior year. Organic sales were very robust at approximately 12% in the quarter, and that did extend our string of double-digit organic growth quarters. The net of acquisitions and divestitures did have a favorable impact on sales. That was approximately 15%. And currency still remains negative, but it's basically exactly as we forecast. It's minus 2.4% impact for the quarter and that is obviously unfavorable to prior year. When you look at adjusted segment operating margins, we did exceed our forecast. We finished at 23.2% for the quarter. That's an increase of 50 basis points versus prior year. It's the first time in history of the company that we surpassed 23% for a full quarter. So impressive results really across the board. When you look at dollars on segment operating margin, we generated nearly $1.2 billion in segment operating margin dollars. That itself is a 27% increase from prior year. And it happens to be the second quarter in a row that the company has generated over $1 billion in adjusted segment operating dollars. When you look at EBITDA, another record here, we surpassed 24% for the first time. In the history of the company, we finished at 24.2% and adjusted net income of $772 or 15.2% ROS, was an improvement of 22% versus prior year. And finally, when you look at EPS, adjusted EPS nearly $6, $5.93 for the quarter. That was an increase of $1.10 or 23% compared to prior year, just outstanding execution for the company for the quarter. When you look at sales, segment operating margin dollars, net income and earnings per share, every single one of those was an increase of greater than 20%. I can tell you, I'm just immensely proud of our team for the record performance. Meggitt is really truly adding value to the company, and the company is just executing soundly across the board. If you go to slide 13, this is just a walk on that $1.10 improvement of EPS year-over-year. And I mentioned on the last slide, the biggest driver of that is our increase in segment operating income dollars. We did basically an additional $250 million in segment operating income. That 27% increase. That added $1.50 to EPS year-over-year. When you look at the corporate G&A and other that was a $0.23 favorable EPS impact that was primarily driven by lower salary and other benefit costs. Interest, as you all know, is a headwind. That was a $0.54 headwind, but 100% of that is attributed to the Meggitt acquisition and of course, what's going on in our rates. You look at income tax that was $0.09 unfavorable. Really, it's driven by some prior year favorable items that were discrete that aren't repeating this year. And really, that's the walk to the $5.93. It's really a stellar number, record 23% increase. If you go to slide 14 across the segments, you can see, as I mentioned, it's really just across the board solid performance. Organic growth was a double-digit positive in every segment. We exceeded our margin expectations across the board and our legacy businesses really perform soundly with incremental margins above 30% in every single segment. Beginning this quarter on orders, we finalized the Meggitt structure. We felt good about that. And going forward, we are including Meggitt orders in both the prior and current period for comparison purposes. And we really feel that, that better reflects the transformed portfolio that Jenny mentioned earlier. So all in, orders remain positive despite really some tough comps versus prior year and finished at plus 2%. Demand remains really broad-based across most of our markets. And Jenny also mentioned this, but I just want to reiterate, the dollar value of orders in the quarter was certainly the highest that we've had in FY 2023, and it did grow 9% sequentially from Q2. And of course, the backlog obviously is up 3% sequentially as well. So our team members are really just executing well to meet our customer expectations and really focus on delivering top quartile results. If you look at the North American businesses, sales really strong at $2.3 billion. Organic growth was just under 12%. Adjusted segment operating margins nearly 23%. And if you remember, there is a dilutive impact on some of the Meggitt businesses that are in the Industrial North American businesses, but like I said before, the legacy business has really outperformed and strong sales growth in supply chains, improving gradually and really just great incrementals across those base businesses and really strong backlog and that demand is very solid across all of our North American businesses. International really outperformed in the quarter. Sales were $1.5 billion. Organic growth exceeded our expectations and finished at just about 10% organic growth versus prior year. Organic growth in the International segment was positive in all regions. EMEA was plus 11%, Asia Pac 8.5%, Latin America 8%. So all positive in every single region in the International segment. Adjusted operating margins were up 70 basis points, finished at 23.4%, really benefiting from that volume, that strong organic growth, but really some focus on cost control and productivity improvements really helped leverage result in the International segment this quarter. Overall, this really strong performance across every region. And then finally, aerospace, secular trend we've talked a lot about. Sales were $1.2 billion. That's almost 90% increase from prior year. That is obviously clearly driven by the Meggitt acquisition. But organic growth led the company in aerospace at 14.5% versus prior year. And really just strong across the board, OEM and MRO commercial businesses, sales and orders are very strong, both being mid-20s positive. And interesting, this quarter, military OEM returned to flat versus down from prior quarter. Operating margin is extremely sound, 23.5%. That's 160 basis point improvement year-over-year. Jenny mentioned it, that the Meggitt integration is going extremely well. Synergies are ahead of schedule. We did raise our synergy estimate for the quarter, $15 million and performance in those businesses continue to impress. Order rates in aerospace, obviously very strong. You look at that order number of plus 25%, but both strong in commercial and military end markets. Just really sound operational performance across the company, no weak spots at all. Moving to slide 15, just talking about our year-to-date cash flow performance. Cash flow from operations was 12.8% of sales. $1.8 billion of cash generated so far this fiscal year, that's 16% over what we did last year. Free cash flow is 10.9%. Our CapEx remains right at 2% like we have been forecasting. There are some one-time transactions that were the result of the Meggitt transaction. That impacts our cash flow by 1.5 points. So without those transactions, those numbers I just gave you would be 1.5% better. And free cash flow continues to be greater than 100%. We're at 111% year-to-date. And just I want to reiterate, for the full year, we continue to forecast cash flow from operations and free cash flow conversion of over $100 million and that free cash flow would be mid-teens for the year. If we go to the next slide, just touching on capital deployment and some leverage. We did increase our quarterly dividend. Our Board approved this last week to an 11% increase. The dividend payout is now $1.48. That is in line with our stated target of being in the range of 30% to 35% of our trailing five-year net income. And the increase this quarter does increase our annual record of increasing annual dividend paid from 66 years to 67 years. So long-standing record that we intend to keep. On leverage, we did make some significant progress reducing leverage this quarter. We paid down approximately $650 million in debt in the quarter. If you look at our gross debt to adjusted EBITDA, it was 3.2, that's down from 3.6 last quarter, so 0.4 turns from Q2. And if you look at the net debt to adjusted EBITDA, finished the quarter at 3.1, that's down 0.3 turns from Q2. So we are pleased with the deleveraging progress. We are on track and we continue to target our leverage commitment of 2.0 times, and we are committed to delivering on our commitments there. Looking at slide 17 and guidance. Obviously, we increased our guidance this morning. We have incorporated obviously the strong performance from Q3, but we've also increased our expectations for Q4. Full year sales growth at the mid point increases to 19% versus prior year, with organic moving up to 10%. That's up from 7% last quarter. When you look at the net impact of acquisitions and divestitures, we expect that to be about 12%. That's just up slightly from 11.5% last quarter and currency remains a headwind, no change to our prior guidance, but the full year, we expect it to be a minus 3. When you look at adjusted segment operating margins, we've increased our full year guide by 40 basis points. We now are forecasting 22.5% for the full year. And the midpoint of adjusted EPS is raised to $20.75 for the full year with a range of plus or minus $0.15. Just some specific details for Q4. We expect organic growth to be approximately 4% in the quarter and segment operating margins to be approximately 22.6%. And finally, EPS for the quarter, we are forecasting $5.32 and at the midpoint, same range wrapped around that. And we've also included guidance by segment and several other details that could be useful for your models in the appendix. So with that, just a really solid quarter. Glad to increase our guide. And with that, Jenny, I'll hand it back to you and ask everyone to reference Slide 18. Jennifer Parmentier: Thank you, Todd. As discussed today, Parker has a very promising future. Our highly engaged team is living up to our purpose as evidenced in the results. We will continue to accelerate our performance using the Win Strategy 3.0. And as mentioned several times, our portfolio transformation is making us longer cycle and more resilient. This will allow us to achieve our FY 2027 targets and continue to be great generators and deployers of cash. We remain committed to top quartile performance. . Next slide, please. A quick look at our upcoming events for the rest of the calendar year. And with that, Chris, we are ready for questions. Operator: Thank you. At this time we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from Joe Ritchie of Goldman Sachs. Your line is open. Joe Ritchie: Thanks. Good morning, everyone. Todd Leombruno: Good morning. Joe Ritchie: So let's just -- let's start on the backlog as a percentage of next 12-month sales is super interesting, how that's progressed over time. I guess -- my question is really, as you're kind of thinking about the 2024 framework, I know you'll give us guidance in August. How is this going to inform that framework, whether that's a like more narrow sales range? And any color you can give us around that would be helpful. Jennifer Parmentier: Well, you're right. We'll come back to you in August with the full year guidance. So we really believe that this backlog as we've shown the consistent increase over time will remain. I always use the term demand sense. And I think that with the transformation of the portfolio, we're going to have more backlog because we have a longer cycle business. So we'll look at it for the new fiscal year, the same way in which we've been looking at it most recently. So that will help us with the future year guidance. Joe Ritchie: Okay. Thank you. That's helpful. And I guess maybe since things seemingly are still going very well. If you take a look at the organic growth you put up this quarter, there's certainly some pricing that's coming through that as well. Just maybe talk through the orders in industrial a little bit. And I'd love to hear whether there are certain areas, particularly in industrial distribution, how that's holding up today, whether there's any destocking that's happening. Just any color around that would be helpful. Jennifer Parmentier: So I'll start off and give you a little bit of color on industrial, and then I'll let Lee chime in on distribution. So in North America, orders to go negative, as Todd mentioned, a negative 4%. Just a reminder, real tough comp as North America last Q3 was plus 23%. So, customer demand remains strong. We have seen some destocking happening, and we believe that's very steady overall, positive outlook, and we continue to believe there will be broad-based growth. International also at minus 4%. That decrease was mainly driven by Asia-Pacific, which was down the mid-teens. China Mobile construction remaining very soft. A lot of, I think, automotive awaiting for the government stimulus. Semicon soft, but that's pretty much what drove the international negative. And EMEA, there's really no signs right now of the market weakening, strong mobile construction and automotive. still some tough comps related to COVID vaccine business last year and some supply chain challenges. But that's primarily around electronics chips and sensors. So, it looks to be good in EMEA. Lee Banks: Joe, I'll just add on, just a quick -- this is Lee, just a little bit about distribution. I would tell you, in general, the sentiment is still very strong, very positive, and the backlogs have stayed very consistent. There's obviously here and there some balancing of inventory, but it's truly negligible on the total backlog for distribution and it's really true for all the regions. North America, the most. Asia, I continue to see some strength in China on our distribution level. And EMEA has been fairly resilient, which if you would have asked me a quarter ago, I thought we'd have a little more headwinds, but it's been much more resilient than I planned on. Joe Ritchie: Got it. Thank you both. Operator: Thank you. This question comes from Andrew Obin of Bank of America. Your line is open. Andrew Obin: Good morning. Todd Leombruno: Good morning Andrew. Jennifer Parmentier: Good morning Andrew. Andrew Obin: So, I love your slide that shows the company's transition to longer cycle business over time and how it's just fundamentally different. But I guess it's a question for Jenny and Lee. As you -- as the company has transitioned the portfolio, clearly, it's happening outside of aerospace as well, right? How are you adjusting the sales organization and you go to market to deal with the fact that you now have to deal with longer horizons, perhaps you do need to carry more inventory to service these kinds of customers. Maybe give us a 30,000-foot view. Thank you. Lee Banks: Yes. That's a great question, Andrew. So, I think I could probably spend a half hour on this conversation. But the sales organizations continue to morph around the globe. I would say at a high level, we've got very focused teams that deal in the aerospace sector, deal with the big OEMs and in a separate organization on the MRO side. And then with key market segments, if I could take electrification initiatives around automotive, we've got whole sales organizations and application engineers that deal specifically with that. So, we are constantly adapting. We've got a team right now that's dealing nothing, but hydrogen generation, even though it's early days. So, we kind of organized based on some of these secular trends and based on what we see the opportunity in the field. Andrew Obin: Excellent. Thank you. And I guess I want to resist asking this question, giving Jenny's background. But I think a lot of debate on HVAC. And I know that this is one of your largest businesses. Can you just give us more insight if you're willing to go that granular what's happening at the Portland? And I guess if you can, that's great. And if you can, just would love to hear your view on the U.S. construction cycle? Thank you. Jennifer Parmentier: So yes, obviously, very, very fond of the Portland division and a lot of history there. It is one of our markets that is single-digit negative right now. But I would tell you this is a very strong business and historically has done very well. So we don't expect that this is going to be any time -- any long-term impact to the division. And I think they're in a good position, Andrew. . Andrew Obin : Thank you. Operator: Thank you. One moment for the next question. This question comes from Scott Davis of Melius Research. Your line is open. Scott Davis: Great. Good morning, Jenny, Lee and Todd. Congrats on another good quarter here. Great quarter. Jenny, you mentioned in your prepared remarks about a new annual incentive plan. What -- can you share a little bit of color around what you changed or what you're emphasizing in the plan? Jennifer Parmentier: Yes. Thanks for asking, Scott. So we used to be on a plan that was driven off of return on net assets. And it was very difficult for all of our team members from -- inside of our factories even up into our offices to understand exactly where all those numbers came from and how they fit into that calculation. And now with our annual incentive plan, the operators on the shop floor, all of the people who support the manufacturing environment, everyone can clearly see because it is based off of sales and profit and cash. So they know exactly how they fit into it at the division level. So if you can kind of imagine a production planner, thinking about the inventory they need to bring in and the scheduling of the shop floor, they are in tune to that fact that, that is cash, and that is a metric that drives their incentive plans. So that's just one example of how we've been able to take that plan and the metrics that support it and deploy it to where everyone can understand it and buy into it. First full year this year, all groups, and like I said, nearly all of our team members are on this and has been very positive thus far. Scott Davis: That makes sense. And just conceptually to back up a little bit. I mean, it's -- I've been studying companies for 30 years. It's very hard for capital spending to stay at levels around 2% of sales with growth above GDP and less productivity is just exceptional. And so I guess my question, which is a little bit of a tough question here. But productivity is something you measure in kind of the 3% to 4% level. I would guess it would have to be something like that to be able to sustain something down towards the 2%. How do you guys think about it, I guess, is the question? Jennifer Parmentier: Yes. Great question. So we think about it a little bit higher than that. We're very challenging when it comes to continuous improvement. It's why the Win Strategy has been so successful. Our lean tools and Kaizen constantly drive cost out of the business and make that productivity possible. That goes again to every member of the business being part of using those lean tools being part of Kaizen. So it's ingrained in our culture to consistently be more productive quarter-over-quarter, year-over-year. And in many cases, that's part of people's annual goals, depending on the role they're in. So we pride ourselves. We we're the hardest on ourselves. We still think we have plenty of room to improve, but we do pride ourselves on constantly looking for ways to increase efficiency and drive output. Scott Davis: So even above the 3% to 4% level that I mentioned, is that what you said, Jenny? JenniferParmentier: In some cases, targets that divisions will be there, yes. Scott Davis: All right, okay. Impressive. Thank you. Best of luck. JenniferParmentier: Thank you. Operator: Thank you. One moment for the next question. This question comes from the line of Mig Dobre of Baird. Your line is open. Mig Dobre: Thank you and good morning, everyone. I wanted to go back to backlog as well. I'm curious how much of this backlog is deliverable in the next 12 months? Do you have multiyear orders that are in here? And as you look at the backlog build here, is there a sense from you as to how much of this build is just a function of supply chains and lead times and folks securing production slots as opposed to just a pure structural change in your business model? JenniferParmentier: Well, Mig, I think that, obviously, we know that the supply chain has been very chaotic over the last several years. But -- that's why we wanted to talk about this consistent growth over time, because this is not just related to what's happened in the supply chain. I mean, you can look at the slide, you can think about where floored and Exotic and now Meggitt has come into play. And those are all longer cycle businesses that put orders out there for a further period of time. So when you look at this, we think that this is something that is going to be consistently out there into the future. We don't expect that we're going to see this drop very much. Mig Dobre: And how much of this is deliverable in the next 12 months? Is it all of it or just portions? JenniferParmentier: About 85% of it. Mig Dobre: Okay. Then my follow-up on industrial and international, and maybe this kind of relates to the backlog discussion, too. If we're looking at the last couple of quarters, we've seen order intake declines. Your organic growth has stayed positive. You're guiding for the fourth quarter, implying still positive organic growth. So there is this disconnect, I guess, between orders and organic growth. And I'm wondering how you would frame it for us to think on a go-forward basis? Thank you. JenniferParmentier: Well, I think the big thing there is that the backlog remains strong, right? So the orders did go negative. But as I mentioned earlier, we constantly check the health of that backlog, and we see the shippable orders to that backlog. Mig Dobre: Thank you. Operator: Thank you. One moment for next question. [Operator Instructions] This next question comes from the line of Julian Mitchell of Barclays. Your line is open. Julian Mitchell: Hi. Good morning. Just wanted to switch back maybe to the aerospace business. Some of your peers have been very, very upbeat as they're thinking about the defense or military exposure into next year. I think your orders are starting to reflect that the last couple of quarters after some tough comp's prior to that. So maybe help us understand kind of how you're thinking about that military piece within aerospace over the next kind of 12, 18 months. Any update around Meggitt's organic performance? Jennifer Parmentier: Sure. So first of all, you're right about military. Military OEM, we're starting to see orders return on the F-35, F-135 and the Black Hawk. So we're happy to see that. That's looking good. On military MRO, it is increasing as well with some new partnerships on stocking. And when you look at the growth compared to last year, military OEM will still be negative mid-single digits. But as Todd pointed out, it went flat to prior year for the first time in the last quarter and MRO will be high single digits. So I feel really good about that. . The second part of your question again, please? Julian Mitchell: It was really around the sort of the growth outlook into fiscal 2024. Aero is a particularly sort of backlog-centric business, especially the OE side. So is it realistic that we could see kind of high single-digit growth again for the segment overall next year just because you've got very good commercial growth and now sort of military helping. Jennifer Parmentier: Yeah, absolutely. We see that as a possibility. And just as a note, last quarter, I mentioned that the outlook for this fiscal year for Meggitt was $1.9 billion at 17% and we increased that to $2 billion at 19%. So strong outlook. Todd Leombruno: Yeah, Julian, I would just add. If you look at our organic growth in our aerospace business, nearly 15%. The Meggitt business is performing better than that. If you remember, they dipped down lower than we did in the airline COVID times, but orders are strong. And if you see the total orders that we reported, it's a plus 25%. So we feel really good going forward about aerospace. Julian Mitchell: That's very good to hear. Thank you. And just one quick sort of fiddly follow-up, apologies for this, but just sort of the nature of the guide. If I look at the North America industrial, it looks like you're assuming sort of margins are down a bit year-on-year in the current fourth fiscal quarter. Just wondered, if that's correct. And is that more just around the kind of seasonal you've got a sequential decline in sales and that's bringing the margins down with it, anything else going on there? Todd Leombruno: Yeah. I mean I would just say, Julian, Q3 was fantastic. I mean, stellar far exceeded our expectations. We were forecasting a slight decline in margin for Q3. We outperformed, and we did better than that. We did increase our Q4 margin expectations. You're right though, it is slightly below prior year. It's just a combination of mix and of course, Meggitt being in there, and obviously, organic growth moderating. So we're going to try to do the best we can there, but we are forecasting just a slight dilutive year-over-year just for Q4. Julian Mitchell: That’s great. Thank you. Operator: Thank you. One moment for the next question. This question comes from the line of Jamie Cook with Credit Suisse. Your line is open. Jamie Cook: Hi, good morning. Nice quarter. I guess two questions. One, the international margins have surprised on the upside, in particular this quarter in your guidance. So can you speak to the color of what's going on there? How much of that's price cost versus some structural stuff? And then I guess my second question, back to Parker's change business model with later-cycle businesses and Meggitt and integrator backlog going into a potential recession. How does Parker manage the business differently going into recession versus the old Parker that was much shorter cycle in terms of levers that you pull, maybe you're less aggressive to take cost out quickly. I'm just trying to understand how you approach the new Parker in a pending recession. Thanks. Todd Leombruno: Yeah. Hey, Jamie, this is Todd. Thanks for the good comments there. I'll start with the international margins, and then maybe I'll hand it over to Jenny to talk about how we're going to manage through whatever the future holds for the macroeconomic trends. You're absolutely right. International margins, international volumes far surpassed our forecast. And it really was across the board. It was -- Europe is way better than feared. Asia has been extremely resilient with the start-ups and shutdowns and the back and forth with certain end markets. And Latin America has really been very solid for us. So across the board, it was a combination this specifically this quarter. Lots of volume leverage, great cost control, really integrating the Meggitt businesses that are in the international area. And it was just solid execution across the board, so easiest that. I wouldn't call out price cost as any different than any other region. They're doing exactly the same thing that we're doing everywhere across the board, it was really just really solid execution. Jenny, you want to take that? Jennifer Parmentier: Thanks, Todd. So Jamie, probably the biggest thing to say is we don't wait for the recession to hit. We have a playbook for this. And quite honestly, we're always planning for the next recession. So when you look inside of the wind strategy and you look at our tool box, some of the things I was talking about earlier, constantly using our lean tools and our Kaizen events to make sure that we drive out cost. Those are the things that are always ongoing that help us expand margins. When we get to the point where there are some changes in volume, we have several different levers that we pull around -- over time around the temporary workforce before we make any permanent reductions. We also make sure that we are constantly keeping an eye on the customer demand. Like right now, we've seen no significant push-outs or cancellations, but we continue to work closely with them. So we can stay ahead of that from the standpoint of bringing in inventory and staffing the shop floor. So we have a lot of levers we pull on an ongoing basis, and we performed well in the last couple of downturns. And as I mentioned before, we're very well-positioned for what's going on today and into the future. Jamie Cook: Thank you. Great job. Todd Leombruno: Thanks Jamie. Jennifer Parmentier: Thank you. Operator: Thank you. One moment for the next caller. The next question comes from the line of Nathan Jones of Stifel. Your line is open. Nathan Jones: Good morning, everyone. Todd Leombruno: Good morning, Nathan. Jennifer Parmentier: Good morning, Nathan. Nathan Jones: Just a question on the corporate G&A. I think, Jenny, you said lowest salary and other benefits. I'm here if anybody talking about labor costs going down. Can you give us a little more color around what's going on there? Todd Leombruno: Nathan, yes, that was me. It's really true. So lower salary costs across the board. I did mention other benefit costs, a little bit of that is pension. Other things is just a market-based benefit. So it's really a combination of really just minding our SG&A, like we always do and then some favorable headwinds from pension and other market-based benefits. Nathan Jones: Are you talking about salary costs going down per capita or the number of heads going down? Todd Leombruno: Yes, it would be the number of people. Nathan Jones: Number of people. Okay. And then maybe if you could just give us an outlook on working capital going forward here. You obviously got growth to support, but it's probably carrying extra inventory or supply chain issues and themselves out. So just any expectations, I guess, more for going into 2024 than for just the end of the fiscal year? Todd Leombruno: Yes, for sure. Obviously, working capital with what's been going on in supply chain and obviously dealing with the growth and making sure we've got continuity for our customers. It has been a headwind to cash flow. I think we've turned the corner on that. Our teams are really focused on reducing inventory. We are tightly managing CapEx, right? Our plan has been 2%. We've kind of stated that throughout the year. There is opportunities certainly across the Meggitt businesses as we continue to integrate those. So we feel positive about that being a tailwind for next year. And I would tell you across a number of the legacy businesses, we think there's opportunity as well. So I expect that to be a plus for us going forward, Nathan. Nathan Jones: Great. Thanks for taking the questions. Operator: Thank you. One moment for the next question. The next question comes from the line of Nigel Coe with Wolfe Research. Your line is open. Nigel Coe: Thanks, good morning, everyone and great quarter. Very strong execution, obviously. So just looking at the fourth quarter guidance. And as my math is 1Q, you're guiding for sales to be down roughly 4%, 5%. Again, if I'm wrong there, please let me know. But that's something we only normally see during the sessions, I think it was 2009 and 2020. It doesn't sound like you're planning for recession. So just curious what course need to be so conservative with that 4Q guide? And what are you hearing from customers as you go into 2024? Are you hearing more caution as we kind of come into that planning session? I mean any thoughts there would be helpful. Todd Leombruno: Yes. Nigel, this is Todd. I think your number might be a little bit high. I think if you look at it, we might be close to 2%, down from Q3. And when you look at this, Q4 really starts to kind of anniversary some of these growth periods that we had prior year. If you remember, Jenny said last year, I think North America was plus 23%. We significantly increased our guide. If you look at organic growth for the quarter. I think we were almost flat with our forecast coming into Q4, we're now roughly 4%, 4.5% organic growth. There's still some uncertainty out there. We are monitoring it closely. And like I said, we're just giving you the best look that we have right now. We feel really good about aerospace, and we're watching North America and international. You've seen the orders, the orders did turn negative, still robust. We're just giving you the best look we got at this point. Nigel Coe: No, I appreciate that. That's helpful. And just on the orders cuts, down 4% for both North America and International. I noticed that you've made a slight tweak to the policy with acquisitions. So do those numbers include the contribution from the Meggitt industrial businesses in both segments, or is that a change to the like-for-like? So you've also just the prior year. So we still have a core but including Meggitt, so do we have 4, 5 points in North America for Meggitt there? Todd Leombruno: No. Yes, we did. You're absolutely right. What we started to do this quarter, we finalized the formal structure of where those Meggitt businesses now sit within legacy Parker-Hannifin. And we felt good about that. As we've talked about the change in our portfolio and when we looked at what we were guiding going forward, we felt at this point in time, it was prudent enough to include those both in the prior and in the current year period. So that is -- those comparison rates that you're seeing, those are apples-to-apples comparison rates. And if you remember… Nigel Coe: Okay. That’s helpful. Yes. Todd Leombruno: Yes. 80% of Meggitt sits in the Aerospace Systems segment, roughly 20% of that does sit in the International segment, roughly 15% of that is North America, 5% of that is in international. And I would tell you, just got to keep in mind, obviously, Aerospace segments got the biggest chunk of that. You can see the plus 25% on the orders in the aerospace segment. It is a smaller slice of Meggitt that is in the North American and International Industrial segments. And when you look at the size of those businesses, it really is a small impact to what it was historically reported. Nigel Coe: That’s very helpful. Thanks, Todd. Todd Leombruno: Yes. Operator: Thank you. One moment for the next question. Our next question comes from the line of Jeffrey Sprague with Vertical Research Partners. Your line is open. Jeffrey Sprague: Thank you. Good morning, everyone. I was on late, so I'm just going to ask one, and I apologize if it's been addressed. But just, again, looking at kind of the backlog. It is interesting, right, the backlog of forward sales has moved up pretty nicely. Certainly, Aero plays a big role in it. But looking at even industrial backlog to forward sales by my math is sort of double what it used to be, high teens to maybe into the 30s now sort of thing. I just wonder if you could maybe address how much of that is reflective of the longer-cycle business mix shift that's going on within Industrial, versus just kind of legacy supply chain and other issues and just kind of the raw ability that gets to out the door as you deal with supply chain, both on the back end of the process through your plants and then out to the customer level. Thanks. Jennifer Parmentier: Yes. Thanks, Jeff. Yes, we believe that the majority of it is due to longer cycle business and the way that it's going to look going forward. So if you think about the addition of the LORD business and you think about how that's impacted the industrial segment, that's definitely longer cycle and in here along with all of the aerospace that you already mentioned. So we feel like this is the new way that the backlog is going to look and feel that it's a little bit of supply chain impact probably, but seeing this growth over time is an indicator to us that the portfolio changes are really changing the company and changing what the backlog looks like going forward. Jeff Sprague: And maybe then just a second part of that. So the margins obviously look very solid. Are there any residual just inefficiencies that you're dealing with in the system because of supply chain or other dynamics, or is that pretty much ironed itself out at this point? Thank you. Jennifer Parmentier: Yes, I would say, overall, we've seen some supply chain healing, but we definitely are still in the thick of it when it comes to electronic sensors and chips. And our Motion Systems group on the mobile side is impacted by that. And I would say that aerospace not only impacted by chips and sensors, but still a little bit of a bumpy road in supply chain yet in aerospace. So, we're not completely through it. Jeff Sprague: Great. Thanks for the color. Operator: Thank you. [Operator Instructions] This question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Your line is open. Jeff Hammond: Hey good morning everyone. Todd Leombruno: Good morning Jeff. How are you? Jeff Hammond: Hey just a follow-on on supply chain. I guess, one, if you look in the industrial business, as supply chains kind of heal, are you seeing changes in order patterns, less blanket orders and maybe how does that impact the order rate? And then also, just as the supply chain friction comes out, how do you see that playing out in the margins going ahead? Jennifer Parmentier: Well, first of all, we're not seeing any significant changes in order patterns or lead times overall, I would say. The thing I would say about that is that when we have supply chain issues in any of our businesses, it does somewhat drive inefficiency, right? We're doing whatever we can to get the material in and get it out the door. So, as the supply chain continues to heal in different parts of our business, we'll look for those opportunities to be more productive. It's one of the things that I mentioned that we were focused on in the last call and again in this call, is that some of the chaos that we went through really highlighted some areas where we could improve, and we could look to use new tools and new strategies to analyze that demand in a faster way, be more reactive, thus increasing productivity and shortening the lead-time. So, definitely still opportunities out there to become supply chain leaders in. We're working closely with our suppliers on this. And it's one of the things that we've come out and said that we're using capital for to invest in the supply chain. Jeff Hammond: Okay. And then just on Meggitt, do you have an accretion number for the quarter to give us? And then just on the up-synergy should we think of that as more of a pull ahead, getting things done faster or some upside to that $300 million number? Todd Leombruno: Hey Jeff, this is Todd. I'll take that. We're not going to give an EPS accretion number. I would tell you, we're just extremely happy with the way that's performing. It is doing exactly what we hoped it would do. When you look at the synergies, we did up the synergy numbers for FY 2023 from $60 million to $75 million. That's basically just doing things faster. So, if you look at the cost to achieve, if you go to that detail, the cost to achieve are slightly higher. That is just a result of doing things faster than we originally had planned. So we still are committed to the $300 million in the full third year of acquisition. We just are pulling those a little bit forward. . Jeff Hammond: Okay. Thanks. Todd Leombruno: Thanks, Jeff. Operator: Thank you. One moment for next question. This question comes from Josh Pokrzywinski with Morgan Stanley. Your line is open. Unidentified Analyst : Hi. This is Toby [ph] on for Josh. Congrats on great -- a follow-up on the order trend question. Jenny, you mentioned some of the mega projects that have been going on. Where are you seeing this in the business? And how would you think about the potential uplift given Parker historically is focused more on components and assemblies? Jennifer Parmentier: Yes. So it's -- it's difficult to directly tie it to a specific project, but we are definitely benefiting from some of these projects in the secular trends. So if you think about a lot of the new battery plants that are being built to support electrification, we're there when they're prepping the land, we're there when they're building the factory and we're there when they're putting all the equipment in the factory. So definite benefits there. Also although it's a little bit longer-term for these to be online, but we'll directly benefit from a lot of the chip and sensor production that is coming to the U.S. And today, if you look at the secular trends, obviously, aerospace, we've been talking about that a lot definitely benefiting from that secular trend in that market recovery. And beyond the battery production, we currently have a lot of content on electric vehicles. And when we transition from an internal combustion to an electric, it's 1.5 times to two times the bill of material for us. In addition, we're starting to see from an electrification standpoint, a big pull on our mobile business. So between mega CapEx projects and secular trends, again, it's the reason we feel so confident about those targets in the future, 4% to 6% organically and really why we believe we're going to grow differently with this portfolio. Unidentified Analyst : That's very helpful. Thank you. Todd Leombruno: Hey, Chris, this is Todd. I think we've got time to maybe squeeze in one more question. Let's take one more and then we'll wrap up after that. Operator: Thank you. Todd. Standby for our next question. Our final question comes from the line of Joe O'Dea of Wells Fargo. Your line is open. Joe O'Dea: Hi. Thanks for taking my question. One, just on the quarter in the North America margins flat year-over-year on 12% organic growth. And so can you elaborate a little bit on mix? I also just anything else that you could be ramping up on the investment spend side where you could see opportunities there? Todd Leombruno: Yes. Let me take this. This is Todd. When you look at the Meggitt business, we're extremely happy with the way the Meggitt business is performing. If you remember, what we did was we put some of those businesses in the technologies where we thought they fit best. That would be engineered materials and a little bit into filtration. Those just happen to be some businesses, some parts of Meggitt that are lower performers compared to the total. So when you take that out, if you could look at just the legacy portion of North America, it would be very similar to what you're seeing across the rest of the company, record performance, record volumes, record incrementals and -- or strong incrementals, I should say and really sound performance across those legacy businesses. So if I had to call one thing out, it would be the main driver of why North America was flat, it would be simply the inclusion of those mega businesses in that total. Joe O'Dea: That's helpful. And then just in terms of -- I mean, what's kind of changed over the past three months? I think, Jenny, three months ago, you were talking about maybe seeing a little bit of pushouts. I'm sure a little bit of destock as supply chain improves here. But given the strength of the revenue in the quarter, real evidence of much in terms of pushouts. And so I'm just curious with credit conditions out there, obviously, the macro uncertainty, but sort of day-to-day, what you're seeing anything notable in terms of shifts, either more constructive or more cautious? Jennifer Parmentier: Yeah. Really, I think it goes back to the strength of the backlog, and we've seen no notable shifts. We were cautious last quarter, and I think we obviously are very pleased with the performance. March really, really strong month for us. So we were able to ship a lot of that. And again, that backlog is still healthy and really has what has led us to the guide for Q4. Joe O'Dea: Appreciate it. Thank you. Jennifer Parmentier: Thank you. Operator: And thank you for your participation in today's conference. Sorry, please go ahead. Todd Leombruno: Yes. Thank you, Chris. This concludes our FY 2023 Q3 webcast. If anyone needs any kind of clarification or have further questions or need to follow-up, both Jeff and Yan we'll be here for today and through tomorrow. We obviously appreciate everyone's time. We appreciate your recognition of a strong quarter, and we obviously appreciate your interest in Parker. So thank you all for joining us today. . Operator: That does conclude our program. You may now disconnect.

Operator: Good day, and thank you for standing by. Welcome to the Parker-Hannifin Corporation's Fiscal 2023 Second Quarter Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. And I would now like to hand the conference over to your speaker today, Mr. Todd Leombruno, Chief Financial Officer. Sir, please go ahead. Todd Leombruno: Thank you, Chris. Good morning, everyone, and thank you for joining Parker's fiscal year 2023 Q2 earnings release webcast. As Chris said, this is Todd Leombruno, Chief Financial Officer speaking. And joining me today is Jenny Parmentier, our Chief Executive Officer; and Lee Banks, our Vice Chairman and President. Our second quarter results were released this morning and before we get started, I just want to remind everyone, we will be addressing forward projections and non-GAAP financial measures. Slide 2 of this presentation details our disclosures our disclosure statement to issues in these areas. These forward-looking statements detailed issues that could make actual results vary from our projections. Our press release, this presentation and all reconciliations for non-GAAP measures are now available under the Investors section at parker.com and will remain available for 1 year. We're going to start the call today with Jenny addressing some focus areas for the company as she takes on the role of CEO. She will then address some highlights for the quarter, which we just released this morning, and then I'll follow up with a brief financial summary and then review the increase to our FY '23 guidance that we issued this morning. Jenny is going to wrap up with a few summary comments. And then Jenny, Lee and I will take as many of your questions as possible. I now ask you to reference Slide 3. And Jenny, I will hand it over to you. Jennifer Parmentier: Thank you, Todd. Good morning to everyone, and thank you for joining the call today. As Todd said, before we get into the quarter results, I'd like to remind everyone what drives Parker and give you some insight on where we'll be focusing. Moving to Slide 2. New CEO, same three drivers: living up to our purpose, continuing to be great generators and deployers of cash and achieving top-quartile performance versus our proxy peers. Slide 3, please. Safety, purpose and engagement are the foundation of top quartile performance. As I mentioned to all of you in the December call, we are committed to delivering the Meggitt cost synergies of $300 million, and we're very pleased with the progress to date. We've said before, it's still early innings for Win Strategy 3.0, and we will continue to utilize it to accelerate our performance. Our culture is one of continuous improvement as evidenced by past performance and results we will deliver well into the future. And we are fully committed to achieving our FY '27 targets that we rolled out at Investor Day last March. All of this will allow us to continue with the transformation and ensure a very promising future for Parker. Moving to Slide 4, please. You've seen this before, Parker has a proven strategy. The Win Strategy is and will remain our business system. It is a system focused on the fundamentals. We trust the process, and we'll continue to get results from it as we have in the past. Slide 5, please. So where will Win Strategy 3.0 accelerate our performance? Well, it always starts with our people. Safety number 1 and it always will be. Our goal is zero incidents, and we believe it is possible. We brought a lot of new people into the business over the last couple of years, and we have the opportunity to double down on the training and chartering of high-performance teams and leaders. This will further strengthen our culture of continuous improvement and our brand of Kaizen well into the future. Moving over to customer experience. We have an opportunity to do even better with the digital customer experience. Anywhere from how we interact with our customers on quotes and orders, to the availability of digital products and the use of artificial intelligence for demand forecasting with both our customers and our suppliers. It's early days for our zero defect initiative as well. This obviously drives better quality and overall customer satisfaction. This is the exact same approach that we took with zero safety incidents. Zero defects is possible. It starts with engaging our people around robust products and capable processes. Doing this right exposes the hidden factory, improves quality, reduces cost and thus expand margin. Best-in-class lead times have been part of our Win Strategy for many years. And coming out of the pandemic and subsequent increase in volume, we see even more opportunities to improve lead times and become supply chain leaders. Our customers deserve this level of service and all of these are strong enablers of growth. Profitable growth is a combination of performance and portfolio changes, which we have demonstrated. Strategic positioning is a tool used by our general managers to segment their business and position them best in their markets and with their customers. This process and cadence will continue to drive the critical thinking about growth in the division and closest to the customer. We are obviously seeing the benefits of the transformed portfolio, and we will continue to seek out those opportunities that will enhance the transformation. The most significant CapEx spending in decades will bring growth to Parker with all the technologies we have supporting the secular trends today and for many years to come. And we have an annual cash incentive plan, which incentivizes the right behaviors and drives a real intensity around growth. Moving over to financial performance. We have a proven set of simplification tools, which will continue to help us reduce complexity and cost. House in this area is our simple by design process, which you've heard us talk about a lot. This has become a fundamental -- a business fundamental across the Corporation. We have a robust process around value pricing, and we'll continue to strive for margin neutrality in these inflationary times. We will also double down on training the principles of lean. This is the foundation of our continuous improvement culture and it drives safety and productivity in all of our operations. You've heard us say many times over the past few years that while not immune to the chaos of the supply chain, we fared better than others due to our dual sourcing initiatives and our local-for-local strategy. The pandemic and subsequent increase in volume exposed some areas that we can further improve upon to ensure that we become supply chain leaders. Our teams are looking to further enhance the visibility of the changing demand picture and utilize some new scheduling tools that will drive efficiency in the operations and those best-in-class lead times that I just mentioned. Focusing on these areas and Win Strategy 3.0 will help us to achieve top quartile performance. Slide 6, please. Our capital deployment priorities remain unchanged. We will maintain our record on dividend payouts and target a 5-year average payout of 30% to 35% net income. We will target 2% of sales on CapEx to fund organic growth and productivity. The 10b5-1 share repurchase program will remain in place and our near-term and top priority is to delever post the Meggitt acquisition. We will keep our acquisition pipeline healthy and we'll continue to build relationships for future acquisitions. Slide 7, please. So Q2 was another quarter of excellent operating performance. We saw a 16% reduction in safety incidents versus prior year, further supporting our ability to reach zero incidents. Sales came in at $4.7 billion, a 22% increase to prior with organic growth coming in at 10%. Strong segment operating margin across all segments has led us to a full year guidance increase and we are very happy with the progress of the Meggitt integration. All activities and synergies are on schedule. Moving to Slide 8. We'd like to share some recent highlights on the integration. Key leaders from both Parker and Meggitt are leading over 20 teams that are creating a lot of value in integrating the functions. Engagement with the team members and the customers that had widespread activity in all locations and wind strategy training and implementation is well underway. Just to note here, we have a proven track record of delivering synergy targets, and this acquisition will be the same. The teams are following the integration playbook that has been developed over the last several acquisitions, and I am sure they will add some new best practices to it as well. Slide #9. So we are on track to achieve the $60 million in synergies by the end of this fiscal year, and the graph on the left illustrates our path to $300 million in synergies and adjusted EBITDA margins of 30% by FY '26. Synergies are represented in blue and the cumulative costs to achieve are in gold. On the right side of this page, this quadrant depicts the use of the overall Win Strategy to achieve the synergies and ensure operational excellence into the future. Starting with the top left, Safety, Lean, Kaizen, high-performance teams all make up our brand of Kaizen and will drive the engagement and continuous improvement well into the future. Simplification is a major area of focus for the integration teams. This is where we look at structure and org design. We use our 80-20 complexity reduction tool, and we implement simple by design principles. All of this drives real ownership and decision-making at the division level, further empowering the team to drive results. Moving over to SG&A. We've had the realization that there's a lot of opportunity moving Meggitt from a centralized structure to Parker's decentralized structure, driving that overall decision-making to the local level and improving overall speed. With this acquisition, footprint optimization is very minor. Remember, we have complementary technologies with this acquisition and not a lot of overlap at the plant level. And with supply chain will optimize pricing, terms and conditions, direct and indirect material spend as well as logistics. Again, off to a great start, very pleased with the performance on quarter end. And now I'll turn it back to Todd for a summary of our Q2 results. Todd Leombruno: Thanks, Jenny. That was great. Okay. So I'm going to begin on Slide 12 with the financial results. I can't tell you how excited the team is. This is the first full quarter that includes Meggitt in our results. It also is the first full quarter that we do not have Aircraft Wheel and Brake in our results. So the year-over-year comparisons are a little bit more complicated than usual. But you see the top line sales increased 22% versus prior year. That clearly is a record for us at $4.7 billion. Organic growth continues to be extremely healthy and was just over 10% in the quarter. That does extend our string of double-digit organic growth quarters. Although better than forecasted, the currency headwinds do continue. The currency impact to sales was unfavorable by 4% in the quarter versus prior year. And when you look at the net of the Meggitt acquisition and the Aircraft Wheel and Brake divestiture, that was a positive 16% to our sales in the quarter. Looking at adjusted segment operating margin, we exceeded our forecast, and we finished at 21.5%. And if you look at adjusted EBITDA margins, that was even stronger at 22.4%. And just as a reminder, we mentioned this last quarter, we do expect Meggitt to be just slightly dilutive to overall margins in this first sub-years as we generate those synergies that Jenny just spoke to. Looking at adjusted net income, we did $619 million or 13.2% ROS. That is an improvement of 6% versus prior year, and adjusted earnings per share were $4.76. That's a Q2 record and an increase of $0.30 or 7% compared to the prior year. Overall for Q3, we are extremely happy to have that first quarter of Meggitt in the books to see that sales increase by 22% and obviously, see the positive net income and EPS growth. So just really happy with the results of the quarter. If we jump to Slide 13. This is just going to be the visual elements of that $0.30 EPS improvement. And again, I'm really happy to say the driver of this is the additional segment operating income. We generated $180 million or 22% additional segment operating income versus the prior year. If you look at that, that added $1.8 to EPS for the quarter. Interest expense, as expected, is a headwind. It's a $0.51 headwind. That was a little bit higher than we were expecting just with the movement in rates, 100% of that entire $0.51 is related to the Meggitt transaction and what's going on in the rate environment. Other expense was $0.12 unfavorable. That was primarily driven by year-over-year changes in currency rates and income tax is a drag of $0.14, really because last year benefited from a number of discrete items that were favorable. And of course, this year, we have some of these transaction costs in the quarter that are not deductible. Everything else nets to just $0.01. And if you look at all those items, that makes up our $0.30 increase to that record $4.76 earnings per share, and we're really happy with that. If you jump to Slide 14 and just looking at the segments, once again, every segment was positive organic growth in the quarter. We exceeded our margins across the board. Every segment exceeded our expectations on margins. Orders remain positive despite some pretty tough comps in the prior year and for the total company finished at plus 3. And really, demand does remain robust across all the markets we serve. Our team members really are working hard to meet customer expectations. And the result is that record sales that we just generated in the second quarter. If you look specifically at the North American businesses, Sales are extremely strong at $2.1 billion. Organic growth in that segment is 13.5%. Adjusted operating margins did increase 50 basis points in North America. They finished at 21.8%, that is a record and just really healthy volumes and a gradually improving supply chain really helped drive performance in those North American businesses. Order rates are positive at plus 2 and that really matches our strong backlog and really that broad-based demand that is consistent across North America. So special thanks to our team members in North America for their record performance. Looking at the international businesses, sales were $1.4 billion. Organic growth there, almost 9% from prior year. And across all of our regions in the International segment, we were positive from an organic growth standpoint. Margins remained high at 21.9%. This is slightly down from prior year, really due to currency, a little bit of product mix and some China COVID-related headwinds, just specifically in China. Order rates are minus 4. They were positive last quarter, but that did have a bit of a rebound, if you remember, from the COVID-related shutdowns in China. So we're watching that very closely. Aerospace Systems, obviously, huge sales, up 84%. They did exceed $1 billion for the first time, and that obviously is clearly driven by the addition of the Meggitt businesses in our Aerospace Systems segment. Organic growth in aerospace was almost 5%. Really strong OEM and MRO commercial activity in that segment, both from sales and orders being mid-teen positive on the OEM side of it and military OEM remains negative as we expected. Operating margins were 20.6% in that segment. That is up 70 basis points from last quarter and better than we forecasted. And really, the Meggitt integration, the performance of the businesses, the synergies, like Jenny had mentioned, totally on track, and we're really happy with that. When you look at aerospace orders, they are plus 22. We talked for the last couple of quarters about that bad comp we had with the military orders we've now -- we've passed that comp. So you can see the orders are 22%. We're really happy with that. Great performance across all of the businesses this quarter. Great job, everyone. If we go to Slide 15, this is just cash flow. This is our performance on a year-to-date basis. The Meggitt transaction, we've talked about this last quarter, there's a drag to cash flow just based on some of those transactions costs. They did impact CFOA and free cash flow by roughly 2%. But even excluding that, if you look at the numbers as reported, cash flow from operations is 12.1% of sales. We did surpass $1 billion in cash flow from operations on a year-to-date basis and our free cash flow is 10% of sales. Our CapEx, as we have communicated, just slightly over 2% for the year, and free cash flow conversion is 114%. I think everyone knows us pretty well. Our cash flow is always second half weighted and we continue to forecast mid-teens cash flow from operations, and certainly, free cash flow conversion over 100% for the full year. If we jump to Slide 16, just a few comments on capital deployment. I think everyone saw that last week, our Board approved a quarterly dividend payout of $1.33 per share. That is our 291st consecutive quarterly dividend, and it is certainly in line with those targets that Jenny mentioned earlier. On leverage, we did make progress on reducing our leverage. If you look at gross debt to adjusted EBITDA, that was 3.6. Net debt to adjusted EBITDA was 3.4. Both of those metrics improved 0.2 turns from Q1. So that EBITDA is on a trailing 12-month basis. And just a reminder, that only includes Meggitt EBITDA from the date of close, so roughly 3.5 months of Meggitt EBITDA. And I'm proud to say we've now applied over $2.2 billion of cash towards that Meggitt transaction. And we're really fully committed to our deleveraging plan, and that plan remains on track. So good progress there. Okay. So moving to guidance on Slide 17. You saw we did increase our guidance this morning. We are providing this as usual, on an as reported and on an adjusted basis. And if you look at the sales range, we are increasing that. We're increasing the range from 14.5 to 16.5 or from, excuse me, 14.5 to 16.5 or 15.5% at the midpoint. More importantly, organic growth, if you look at our organic growth for the full year, we are increasing that to 7%. That is up 1% from 6% last quarter. The impact of acquisitions and divestitures. We're moving that up just slightly to 11.5%. That was 11% last quarter. And while currency is still a headwind, we expect that to be less bad. We now forecast that to be a 3% impact to sales, negative. And that's down from what we were forecasting last quarter at negative 4.5 and that is using spot rates as of December 31 like we normally do. When you look at adjusted segment operating margins for the full year, we are increasing that full year guide by 20 basis points to 22.1%, and that is at the midpoint, there's a range of 20 basis points on either side of that. And just a few additional items to note. If you look at interest expense, that is now up to $555 million. That was $510 million last quarter. That does include the changes in the interest rates that just were announced yesterday and really what we forecast them to do in the upcoming months. Corporate G&A is $204 million and other income is really an income of $18 million. Both of those numbers are virtually unchanged from our prior guide. If you look at our tax rate, just based on where we're at now, halfway through the year, we believe that will be 23.5% for the full year. And adjusted EPS is now raised to $19.45, that's a $0.50 increase from our prior guide and there is a range around that or plus or minus $0.25. Specifically, for Q3, organic growth is expected to be nearly 4%. We raised that from our prior guide and adjusted EPS is expected to be [$4.76] at the midpoint. And finally, adjustments in the forecast at a pre-tax level are listed here on this table for the remainder of the year, together with acquisition-related expenses incurred to date. So that's the details on guidance. If you go to Slide 18, this is again just a little bridge on that. You can see where we start. Our prior guide was $18.95, that strong performance in Q2. We're rolling in that $0.45 beat. We are increasing segment operating income by $0.35 for the remainder of the second half. And I just wanted to note that $0.25 of that is due to the less bad currency rates. If you remember last quarter, we knocked that down a little bit based on where rates were at the end of September. We've now moved that back a little bit, and there's a little bit more based on the organic growth increases, and that is $0.35. Interest and tax still continue to be a bit of a headwind. You can see the interest expense is a $0.20 headwind and income tax for the second half of the year is just $0.10. Add it all together, we get to $19.45 at the midpoint, and that is the changes to our guidance. So with that slide, I will ask you to focus on Slide 19. And Jenny, I will hand it back over to you for summary comments before we go to Q&A. Jennifer Parmentier: Thank you, Todd. So we have a very promising future. We have a highly engaged team that's living up to its purpose. We'll continue to accelerate our performance with Win Strategy 3.0. We are seeing the benefit of our strategic portfolio transformation, and we will continue to be great generators and deployers of cash. And with that, Chris, I think we're ready for questions. Operator: [Operator Instructions] And one moment for our first question. Our first question will come from Jamie Cook of Credit Suisse. Jamie Cook: Nice quarter. I guess two questions. One, can you give a little more color on the negative order growth in international and then the acceleration that you saw in orders in the Aerospace segment? That would be helpful. And then, Jenny, I guess, just a bigger question for you today. Obviously, Parker has been on a journey to move their -- through acquisitions, move their portfolio into higher value-add services, higher organic growth businesses, but it's been more really about acquisitions versus divestitures. I guess as you look at the portfolio today, do you still see Parker going down the path of looking at acquisitions? Or is there an opportunity to look at potential businesses that might not make sense for Parker over the longer term? Jennifer Parmentier: Thanks, Jamie. I'll try to answer your second question, and then I'm going to let Lee give some color on your first question. So we always want to be the best owner of any business, right? So we have a regular process where we look at that every year. So that's something that's well in place, and we'll continue to do that. As we look to future acquisitions, again, we're going to be looking for the type of acquisition that is margin accretive. It has that resilience of a longer-cycle business and something that fits well with Parker. So obviously, short term, we need to pay down some debt for Meggitt, but that's why it's important for us to keep those relationships strong for the future. Lee Banks: Jamie, it's Lee. Just commenting on international orders. The biggest story here is really Asia Pacific, and it's really around China. If you think about where we've been, I mean, we've had consistent COVID lockdowns, start-stop, and then really tight monitoring fiscal restraint by the government trying to get some of the real estate markets under control, et cetera. And we saw really that really play out specifically later in the quarter, things contracting and slowing down. The other thing quite frankly, the Chinese New Year is the first time in almost three years, the Chinese New Year has really been fully open. So the amount of people traveling and gone is a lot different than it's been in the past. Having said that, we're conservatively optimistic going on the second half of the year. I'm seeing low single -- flat to low single-digit positive growth in Asia Pacific, really led by China. The -- I think it's still going to be a little troublesome in China as they get their supply chains up and running, et cetera. But I'd like to believe that with the stimulus going in and everything else that we're going to see some positive momentum there. Jamie Cook: Okay. And then color on aerospace, is it just all commercial, I presume? Lee Banks: Yes. The big thing, aerospace was really the military OEM orders lapping. So we had some big pull forwards orders and then we've lapped that on that 12, 12 basis. So you're seeing the positive order entry rate in commercial OEM and commercial MRO right now. Operator: Thank you. One moment please for our next question. Next question will come from Andrew Obin of Bank of America. Andrew Obin: Yes. No, it's a pleasure not to be restricted. Yes, just more of a longer-term question. So a couple of companies are sort of talking about managing the operations, managing the backlog differently in this environment, maybe sort of accepting that lead times are going to be extended for a while, right, given that at the tail, there's still a lot of disruption in the supply chain. Are you guys thinking about sort of structurally adjusting your view on lead times? How much backlog Parker carries into the future? Just any insight would be super helpful. Jennifer Parmentier: Yes. Thanks for the question, Andrew. So the beauty of the Win Strategy and the lean tools that are inside of the Win Strategy is really all about constantly looking at optimizing our lead times. So as far as restructuring the way we look at it, I wouldn't say we're going to do that, but I would say we're going to continue to look to have those best-in-class lead times. The supply chain, I would characterize it as it's healing. We are seeing some improvement. The one thing that we will really continue to do is increase our dual sourcing and our local-for-local model that has really helped us out. It also helps us that our teams are in a decentralized structure, and they're able to work closely with the customers. So I think that those are some of the keys that help us work closer with our suppliers and really help us have a good look into the future so we can best utilize our resources and our capacity. Andrew Obin: Got you. And just a follow-up question on CapEx when you talk about your capital deployment priority. You sort of said CapEx target 2%. I may be wrong, but I recall sort of having conversations where you sort of thought maybe you needed on the margin to have capacity in places like Mexico, et cetera, and maybe take it off a bit to deal with what's coming in terms of the cycle. A, have you changed your view? Is that a function of Meggitt? And just generally, maybe how do you think about capacity additions, given what you're seeing over the next couple of years in terms of broader CapEx cycle trends? Jennifer Parmentier: No, we have not changed our position. We're doing exactly what we said we were going to do. We have a need to increase capacity in a couple of our operating groups. And obviously, we'll invest in Meggitt in the future as well. So that position remains the same. Todd Leombruno: Andrew, I would just add, if you look at historically over the last couple of years, our CapEx has been about 1.4% of sales. So you look at it today, it's a 2.1%. That's a pretty significant increase for us. And of course, as the sales of the company increased, that's more CapEx dollars that we've got to spend there. So we think that 2% number is right, including Meggitt, including all the supply chain initiatives that we're looking for as well. And it might be a little bit bumpy, but you're not going to see it too far about that, too. Operator: And one moment for our next question. Our next question will come from Scott Davis of Melius Research. Scott Davis: I was hoping to dig into supply chain a little bit and not necessarily what's going on this quarter, but the longer-term fixes and priorities and such. And so when you think about supply chains, there's a notion of kind of localization and dual sourcing. Some of that, in some ways, feels almost inflationary. But then there's the other component of kind of streamlining supply chains and driving more productivity and it becomes kind of a cost tailwind. How do you guys think about the priorities that you're trying to -- now that kind of COVID is less of a problem around the globe? How do you think about those priorities and the puts and takes behind kind of costing you more but maybe saving you more? I'll just stop there and leave it open ended. Jennifer Parmentier: Yes. No, thanks for the question, Scott. Listen, it really is all about driving efficiency in the operations. And we've had a long-term strategy of being local for local, right, being close to our customers, having our suppliers close and being able to give that good lead time and really provide a good customer experience. So we'll continue with that. And then with dual sourcing, I mean, I think some of it in the past has had to do with different things going on in whatever environment we're in. But it really is a good practice through different cycles in the business. So it's really something that we want to increase in all regions and make sure that we can be flexible and agile as demand goes up and down. That's the big key is being able to go to one source or the other and really respond to your customers' demand. So that is really the way that we look at it. I think going forward, we've learned a lot through the pandemic. That's the beauty of having a continuous improvement culture. Our teams are trying to recognize where there's opportunities. And we think we have opportunities to make sure we're more efficient and that comes through visibility and analysis of demand as well as really optimizing the schedule that goes to the production floor. So that's where we're focused. Scott Davis: Okay. Makes sense. And then to back up a little bit, when you have a big CEO change, oftentimes any issues or problems or complaints or gripes kind of come up or kind of rise to the top of your desk file, but what are the big internal complaints or fixes or gripes that perhaps we don't see as investors, but things that you want to tackle and fix internally that maybe perhaps wasn't really something that Parker was good at in the past? Jennifer Parmentier: Well, first of all, I just -- I'd like to say that I've had no big complaints or gripes or no surprises. Somebody asked me last week if I had any surprises. I know there's been none of those. I've been on this team for several years now and very aware of how we run the business. And what I talked about with my slide, that's where the focus is. I mean there's an opportunity to become supply chain leaders here. There's an opportunity to really make sure that we capitalize on the portfolio transformation and we continue to expand margins. So what you saw in those slides is exactly what we're going to work on. Lee Banks: Scott, it's Lee. I would say the only gripe is the one I have. She's working me harder than time ever. Scott Davis: Well, my gripe is I don't own enough of your stock, but otherwise. I'll pass it on. Operator: One moment, please, for our next question. And our next question will come from Julian Mitchell of Barclays. Julian Mitchell: Maybe just a first question on the industrial businesses. So I guess several other industrial companies who are more sort of short cycle in nature, have talked about maybe some destocking early in the year in the U.S. and also Europe. Doesn't sound like you're seeing any of that yourself. But maybe just talk a little bit about how you see customer behavior or distributor behavior if it's different on that front? And what do you assume Europe does in terms of organic sales in the international business, the balance of the fiscal year? Lee Banks: Julian, it's Lee. I'm going to just take a step back a little bit and talk to what you're asking to, but a little bit commercial for the company. So sitting in front of me is a heat map from every country around the world and region of what the PMIs are doing, and it's a sea of red, and it's really turning a red since August or September. And the success we're having today, I think, really has to do with the portfolio changes that we've made inside the company and then really focusing on these key secular trends. So that's made a big difference as we navigate through what is forecasted around the world is a slowdown in different areas. On inventory, I would say, if I just break this down by region -- I was out with some of our large distributors here in North America. There's definitely some inventory balancing taking place. We were at a frantic pace there for probably 18 months. This things came out of COVID, there's people taking their breast balancing things out. But I would tell you their order book is still very strong, and they're still very positive about what's happening. And the other thing to test for me in some of the regions on distribution is what kind of CapEx projects they have going on with customers. And the CapEx dollars with end customers are still flowing. On the OEM side, I would say, broadly speaking, the order books are still good, especially on the mobile side and that inventory level, they try to get us true to adjusting time as they can. A little bit of disruption with microprocessors, et cetera, but really not a great deal. So that's still positive. I think I'll stop there if -- I don't know if I hit your question or not. Julian Mitchell: No, that's good color, Lee. And maybe just a follow-up on aerospace, give us some insights as to how the Meggitt top line is trending at present? And I guess when you think of overall Parker Aerospace, a couple of large sort of aero peers, GE and Honeywell, for example, have talked about the headwinds, whether it's cash or P&L margin from the OE ramp at the airframers. Maybe help us understand if that's a big pressure point for Parker Aero on margins or cash in the next year or two? Jennifer Parmentier: I'll start with your last comment first. We don't see that as a big pressure point for us. I mean we're pleased with the performance. We expect their full year sales to be $1.9 billion at about approximately 17% adjusted segment operating margin. As I mentioned earlier, we're on track to achieve the $60 million in synergies by the end of this fiscal year. We expect this to grow at or a bit faster than legacy aerospace. So we're real positive on this. Operator: Thank you. One moment please for our next question. Our next question will come from Jeffrey Sprague of Vertical Research. Jeffrey Sprague: Thank you. Good day, everyone. Jenny, just back to where you left off on Meggitt and synergies, probably very early to talk about changing those forecasts or anything. I'm actually a little bit more curious about cost to achieve and opportunities to sort of outperform there? Given that it's not a real heavy lift on factories and the like, there's some people costs associated with getting this right. But -- is that a potential lever here as you get into this and lean the company out to do this maybe even more cost effectively than you were originally thinking? Jennifer Parmentier: So Jeff, you're right, it is too early to say that there's some upside to that number. We feel good about this year's synergies at $60 million. We feel good about the path to $300 million. But obviously, as I spoke about with the synergies and the operational excellence driven by the Win Strategy implementation, we expect to get this to a higher level of performance, and we'll update you along the way. Todd Leombruno: Jeff, this is Todd. I would just add, this is a big complex acquisitions. The biggest one we've done to date. We've talked about the integration team. It's the largest team that we've had to date. Jenny had a comment. There's over 20 teams, both Parker and Meggitt team members working together across the board. A big chunk of this is SG&A cost, right? There's clearly associated with that. So I would say in the near term here, I'm pretty confident on those costs to achieve numbers. If there is maybe some upside, I think it's too early to tell, but maybe in the out years, '25, '26 maybe there might be some upside there. But again, I think we're going to have to talk about that when we get further into the process. Jeffrey Sprague: And then maybe a follow-up for Lee. Lee, when you were addressing the international question, you mostly talked about what's going on in China, which is understandable. But can you give us a little bit of an update on what you're seeing in Europe and how you're expecting the balance of the year to play out there? Lee Banks: Yes. So I think the balance of the year and kind of what's implicit in our guide is kind of flat to very low single digits negative. There's definitely saw a big slowdown in December. I mean you've got rate hikes everywhere. You've got the war going on, you've got the industrial business being affected by that. It's not -- so that's kind of how I would see it. Distribution is still hanging in. There's some inventory rebalancing taking place. So there's -- and there's some incredibly tough comps from previous year. I mean Europe was one area where we were at the benefit of some big COVID production type products that have kind of lapped and they're not coming back. So that's how I would characterize it, flat to slightly negative. Operator: One moment for our next question. And our next question will come from Mig Dobre of Baird. Mircea Dobre: Lee, maybe sticking with you here, you provided color on order trends by geography, but I'm kind of curious if you can comment by the various end markets within your industrial business, how -- if there's any variance there that we should be aware of? Lee Banks: Yes. I'll give you kind of what our outlook is. That's implicit in our guide. And I think the key thing to think about is really 90% of our markets are still positive as we look forward. But I kind of look at the greater than 10% positive. Commercial aerospace is still really strong. Commercial military MRO is really strong. Electric vehicle passenger cars. That's one of those secular trends where we've applied product through our portfolio change that we're participating in. And then oil and gas, especially here in the U.S., land base and even some offshore now, it's really come back with a vengeance. I would call high single-digit positives, agriculture, heavy-duty trucks, passenger cars, and telecommunications. And then mid-single digits, the neutral construction markets, distribution, forestry, marine, material handling, mining, power gen, rail, et cetera, and semiconductor is still strong. There's a lot of infrastructure build on the semiconductor side that's still taking place. The big negative markets that kind of stand out a little bit of what we would categorize as life science, and that's really comps around coded equipment and drug dispensing stuff that we were supplying and then really military OEM that's really a timing thing, I think, long term, but that would be negative for the outlook. So at a kind of high level, not breaking it down by region, that's kind of how we see it. Mircea Dobre: I appreciate that. Then I guess my follow-up would be, you talked about the fact that there is a divergence between the demand that you're seeing and PMIs in the industrial business, that's obviously obvious to everyone at this point. But I'm curious, as you're kind of analyzing your order intake, how much of that do you think can be attributed specifically to these higher-growth verticals rather than customers that have significant backlogs that are just now trying to increase production after normalizing the supply chain? Lee Banks: I would be -- that's not something I can answer here on the call. I would just tell you anecdotally, some of the customers that we're participating with today are at a different level than we participated with them before, and that's due to the portfolio changes. But I can't answer that right off the cuff. Operator: And one moment for the next question. The next question will come from the line of Stephen Volkmann of Jefferies. Stephen Volkmann : Maybe I'll stick with you, Lee, here because as I hear you lay all that out, it sounds like the maybe even said, I mean, it was quite tilted to the positive. And yet I look at kind of what's embedded in your organic guide for the second half. And I guess it looks like the exit rate is going to be sort of close to zero on organic growth. Maybe you disagree with that, but I'm just curious, would you sort of characterize this as a little bit conservative or careful given the economic outlook? Or is this really kind of a bottoms-up kind of forecast that you have for the second half? Todd Leombruno: Steve, this is Todd. I'll give Lee a chance to catch his breath a bit. There is a lot of positives. We see demand broad-based across the business. Obviously, we talked about North America. We did increase the North America organic guide basically doubled it, was 2.5 -- this is for the third quarter, I'm speaking, it was 2.5. We moved that to almost 5. For the third quarter, I think I was clear on the guidance. We think it's going to be about 4 organic growth. Q4, a little bit of comps come into play there. Your rough math is pretty close. We think maybe 1% organic growth in Q4, second half really is 2.5 when you look at the total. So there are some headwinds out there. I think we're being a little cautious in what we're seeing here. And at this point, it's the best look that we got. So the international piece, I think we gave some color on that. Currency is still not as bad, but still pretty hurtful. You look at the second half, it's about a 1.5% drag for the total company, but almost a little over 4 for the International segment. So that's kind of how we rolled up the numbers and that's the way we feel right now. Stephen Volkmann: Okay. Fair enough. Just to follow on to that, though. I mean, it would seem, Todd, that you could get that level organic just from kind of pricing rolling its way through. And any comment on that? Todd Leombruno: Well, we don't give a lot of color on pricing there, but you could tell it's in the organic number. So that's totally in the guide that we just laid out. Operator: And one moment for our next question. And our next question will come from Josh Pokrzywinski of Morgan Stanley. Joshua Pokrzywinski: We've covered supply chain and some of this like inventory phenomenon for a while now in orders. But maybe just to put a bow on it a little bit. As your own lead times have improved, have you seen customers adjust the way they order to match that? So I'm assuming there was a point in time in which everyone was sort of scrambling a little bit more to get everything that they can and maybe it's a little bit more normalcy, that's changed. Anything that you guys have seen on that end? Jennifer Parmentier: Yes. I think that's a really good question. We really haven't seen that yet, but we know that that's what happens, right? We know that when the lead times either reduced or just effect to normal, the order patterns usually follow that. We have really close relationships from the divisions to the customers. So we really work closely with the customers and looking at the backlog and making sure that it's healthy but I would also say, at the same time, we've seen a few pushouts. Nothing that I would characterize as being significant, but I do think it's a little bit of a leveling of demand as the supply chain heels, but really nothing that has drastically changed any order patterns yet. Joshua Pokrzywinski: Got it. That's helpful. And then just as a follow-up in terms of what lessons, I guess, the last two or three years have taught you guys. How are you thinking about different ways you would pull levers in a downturn knowing the types of scarcity and tightness that might have waived on the other side as well as what you guys are doing today even without a downturn? Jennifer Parmentier: Yes. I think we -- as we've talked about before, we're well positioned for changes. We have a recession playbook, right? We start pulling those levers way in advance at the first signal. So I think we do a really good job of that. Thinking about levers into the future, it really goes back to that increasing the dual sourcing and the local for local. What helps us reduce those lead times and ensure that we can give our customers the delivery that they're looking for. So that's why that's an area of focus for us going into the future. Lee Banks: Josh, short thing I would add to that, too, is we've got an incredibly strong operating cadence around here. I mean we -- we are looking at orders, we're looking at businesses weekly, both at the division level and then rolled up to myself and Andy Ross. And as a team, we get together once a month look at the trend, making sure we are ahead of the curve on whatever is happening. And it's no different. It's the way we've operated in the past, and that's the reason we've been able to act quickly. Operator: And one moment for our next question. Our next question will come from Joe Ritchie of Goldman Sachs. Joseph Ritchie: Lee, just one quick clarification on your fee of red comment from earlier. You're basically implying that the outlook that your end markets are decelerating, but not necessarily negative because it sounds like you still -- you guys found still pretty constructive on most of your end markets. Is that correct? Lee Banks: Yes, I think that's exactly what I'm trying to tell you. When I'm looking at this heat map, we've been in a contraction from a PMI standpoint almost around the world since August. And I think what's really holding us well are the portfolio changes that we've done inside the business, and the secular trends that are taking place that we're able to tap into inside our business today. So we're not immune from what's happening around the world. None of us are, but it's a different portfolio today when I started 32 years ago. Joseph Ritchie: Yes. Okay, great. That makes a lot of sense. And wanted to ask also on cash flow. Todd, obviously, I saw you guys -- you reduced your debt by about a couple of hundred million this quarter. I know that there's a lot more cash flow expected in the second half of the year. What can we anticipate from either a net leverage or debt reduction perspective as you progress through the year? Todd Leombruno: Yes. We're really focused on that, Joe. It's a great question. I kind of mentioned it earlier, our cash flow is certainly more weighted to the second half. We just made the dividend increase. Jenny talked about the CapEx 100% of the cash flow that we generate in that second half will be dedicated to that debt pay down. And like I said, we've got a nice plan for it. We're on track, and the team is already focused on that. So we're pretty positive on that. Chris, this is Todd. I think we have time for one more question. So thank you whoever is next on the list. Operator: Thank you. One moment for the next question. Our last question will come from Nathan Jones of Stifel. Nathan Jones: I've got a bit of a follow-up on the kind of orders backlog cadence as we see supply chains normalize here. Can you give us maybe a little bit more color on how elevated your backlog is relative to where it normally was, I guess, we haven't had normal for three or four years now? And as supply chains improve and lead times shortened, if you would expect to see backlog get worked down, the order cadence dropped down a bit. And we could get into a scenario where we see lower orders with that, that actually signaling any lower demand as we normalize order cadence in backlog. Jennifer Parmentier: Okay. Nathan, this is Jenny. Just to kind of talk a little bit about the backlog. So right now, our backlog without Meggitt is 12% over prior year. It's roughly coming in at the same dollars as last quarter. When we answered this question, it's around $8 billion. If you put Meggitt on top of that, it's another $2 billion plus, so it's a little bit over $10 billion total. So when we look at the backlog and at the orders, I think the first thing to point out is that with the portfolio changes, it's different than it used to be. So we have longer cycle business. We're going to see what I'd like to call a demand sense, a longer demand sense, and we're going to see more orders out there. There’s been a lot of noise the last couple of years because of the supply chain. But we have seen with the transformation of the portfolio that this has gradually increased. So even with supply chain normalizing in the future order patterns changing. I don't think we're going to get this down to where it used to be pre portfolio transformation. I think we're going to see a higher backlog going forward. Nathan Jones: And I have one on price cost. Parker has a tremendous long-term record for being mutual loan price cost at the margin level and did a tremendous job through the inflationary period we've seen over the last couple of years. Do you expect that if we get to a deflationary period to remain price cost neutral? Or do you think that you could actually hold on some of that pricing and have that be a tailwind to mine? Lee Banks: Well, Nathan, it's Lee. I think the first thing is a lot of our pricing isn't always price cost neutral. We're selling -- introducing a lot of new products every year. That based on the value delivered to the customers, these are margin accretive. So there's a big mix about what's happening. We've been through moderate deflationary periods in the past, and we've weathered it just fine. And when I talk about one of those operating cadences, when it comes to price cost, that's just kind of ingrained in all of us here on how we do that. And I think we'll be okay on the margin front. Todd Leombruno: All right, everyone. This concludes our FY '23 Q2 webcast. We do appreciate your time, your questions and of course, your interest in Parker. If anyone needs any clarifications or follow-ups on anything we cover today, Jeff Miller, our Vice President of Investor Relations; and Yan Huo, our Director of Investor Relations, will be available today. So that's all we have today. Thank you for joining, and have a great day. Thank you. Operator: This concludes today's conference call. Thank you all for participating. You may now disconnect, and have a pleasant day.

Operator: Thank you for standing by, and welcome to the Parker-Hannifin Fiscal 2023 First Quarter Earnings Conference Call and Webcast. [Operator Instructions]. As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Mr. Todd Leombruno, Chief Financial Officer. Please go ahead, sir. Todd Leombruno: Thank you, Jonathan. Good morning, everyone, and thank you for joining Parker's fiscal year 2023 Q1 earnings release webcast. As Jonathan said, this is Todd Leombruno, Chief Financial Officer speaking. And joining me today is our Chairman and Chief Executive Officer, Tom Williams; our Vice Chairman and President, Lee Banks; and our current Chief Operating Officer and Chief Executive Officer elect, Jenny Parmentier. We will be addressing forward projections and non-GAAP financial measures today. Slide 2 provides details to our disclosure statement in these areas. Actual results could vary from our projections for the items listed in these forward-looking statements and also detailed in our SEC filings. The presentation today will address non-GAAP measures, and reconciliations for those non-GAAP measures are available in this presentation and all of this is available on the Investors section at parker.com and will remain available for 1 year. Tom is going to begin the call today with a couple of highlights on the quarter and also provide an update to the Meggitt integration. I'll follow with a brief summary on the financials and review the increase to our guidance that we issued this morning. And then we'll touch on the leadership transition that we announced last week, and we'll finish the call with Q&A. So if I could ask you to reference Slide 3, and I'll hand it over to Tom to begin. Thomas Williams: Thank you, Todd, and good morning, everybody. Thanks for joining the call today. We had an impressive first quarter -- first quarter record sales, net income, EPS and several margin records. And we closed the Meggitt acquisition, which was a big accomplishment. So if you look at this slide, the first bullet, safety is our top priority. We leverage the high-performance teams, Lean and Kaizen. We had a 17% reduction in incidents versus the prior year. If you look at that on a safety incident rates, there would be a number of incidents per 100 team members, that will put us in the top quartile versus our proxy peer group, which is fantastic results. Sales were $4.2 billion, an increase of 12% versus the prior year. Organic was very strong at a plus 14% versus the prior, and we had strength across all regions and segments. Segment operating margin was 19.8% as reported or 22.7% adjusted. We had a 70 basis point improvement versus prior year, again, excellent improvement in pretty tough conditions. As I mentioned, we completed the Meggitt acquisition integration, is well underway. We're off to a good start. I'll talk more about that in a second. So if you look at the quarter and really the last several years, is that takeaway that you see in this slide, The Win Strategy, the portfolio changes working together to deliver record performance. Go to Slide 4, some pictures from day 1. We showed you some of these in our last call, but it was a great day 1. We had Parker executives at every Meggitt site globally, 34 sites around the world. Very positive meetings, and we're off to a good start putting the 2 companies together. If you go to Slide 5, I went through this in a fair amount of detail on the September 28 investor call, but just to orientate you on the page on the left-hand side, the blue bars of the synergies, gold is cost achieved. This is by fiscal year, it shows you the walk to a $300 million worth of synergies in FY '26. That would take us to approximately 30% adjusted EBITDA margin over a period of time, so a significant improvement in profitability. On the right-hand side, is really the how, how we'll get to $300 million synergies. And again, I went through that in a lot of detail. Suffice it to say, it all sits on at the umbrella of The Win Strategy. Those 4 boxes that you see underneath there. And we've had -- we're now 7 weeks into it. I've had a chance to spend time with the teams. I feel very good about our ability to deliver these synergies. If you go to Slide 6, really, the combination of the portfolio changes that we've made so the doubling of filtration, doubling of Engineered Materials and the doubling of Aerospace over the last 8 years. If you put that together with our technology offering, which is very much aligned to the secular trends of today and the future aerospace, digital electrification and clean technologies, that combination is going to have a profound shift in our sales mix. And that's what you see illustrated on these pie charts at the bottom here. So if you look at where we were in FY '15 and you go out to FY '27 on an illustrative basis, you'd see we have 85% of the company, either industrial aftermarket or a longer cycle. That mix shift is what has allowed us to change our FY '27 target on growth to grow 4% to 6% organically over the cycle. Go to Slide 7. If I was only allowed one slide on these earnings calls, this is probably the slide I'll show up. It demonstrates that the company is distinctively different and better over quite a period of time here. So on the left is adjusted EPS, and we've updated that for the FY '23 guide, you see the $18.95 at the midpoint. And the adjusted EBITDA margins on the right-hand side, an almost 800 basis point improvement over this period of time. This slide really speaks for itself. It's hard to make metrics go at a 45-degree in a little rate, but it's a fantastic job by our people, portfolio changes and the strategy of the company. Arguably, the most improved industrial company over this period of time and a great company to invest in. And with that, I'm going to hand it over to Todd to talk more about the quarter. Todd Leombruno: Thanks, Tom. I'm going to start on Slide 9. Obviously, it was an impressive quarter. Tom mentioned that. It's a really strong start to our fiscal year. And our team members just really globally continue to execute and deploy The Win Strategy, and we're very proud of the results that they were able to put up. Tom mentioned this, but sales are up 12.5% versus the prior year. That was a record of $4.2 billion. The organic growth in Q1 was extremely strong, 14%. Everyone is seeing the strengthening of the dollar, and that has created a currency headwind for us. That's about 5.5% of sales. And we're very happy that we closed Meggitt. We also close the Aircraft Wheel and Brake divestiture. All in, net of that, it added 4% to our sales for the quarter. Adjusted segment operating margins, 22.7%. That's an increase of 70 basis points from prior year. Adjusted EBITDA margins came in at 23.3%. That's an even bigger increase. That's 120 basis points up from prior year. And really, this year-over-year margin, both the adjusted segment operating margins and the EBITDA margin improvements, really just demonstrate the power of Win Strategy 3.0. When you look at adjusted net income, the number is $616 million, that's a 14.5% ROS. Adjusted earnings per share is $4.74. That is a Q1 record. It's up $0.48 from prior year, and that's really despite some currency headwinds that we saw in the quarter. Both adjusted net income and earnings per share have increased 11% versus prior year. I would say I just want to make a couple of notes. There were a number of several onetime items incurred this quarter as a result of the Meggitt acquisition and the Wheel and Brake divestiture. We've included a reconciliation to all those items in the appendix. Those are mostly over but some large onetime items. And I really want to thank our global finance and accounting teams for getting all this done with just 2 weeks of ownership and closing the quarter really well. So all in, this is a really a fantastic start to our fiscal year. If you go to Slide 10, this is just a bridge on the year-over-year EPS improvement. I've already mentioned it, but the strong Q1 operating performance, obviously, the main driver there. We generated $133 million or 16% additional segment operating income Q1 versus Q1 last year. That equated to $0.80 of the earnings per share improvement. Incrementals were extremely strong, excluding acquisitions and divestitures. Total company did about 36% incrementals. When you look at everything else, the net of corporate G&A, other tax and shares outstanding, all of that nets to $0.03. And you can see the big line there, interest expense is $0.35 headwind. But 100% of that is related to the Meggitt acquisition, and we knew that, that was going to be a headwind. So all in, that's $4.34, that's 11% increase from prior year. If we go to Slide 11, just looking at the segments, you can see organic growth, again, very strong in the quarter. Orders remained positive in every segment, despite some notably tough comps versus prior year. Total company orders are up 5%, and we continue to see broad-based demand across all the end markets that we serve. Strong incrementals drove that margin expansion, that 70 basis point margin expansion versus prior year. And again, our team members just really continue to be agile in the current environment, and I'm very proud that they were able to generate record sales and operating margins. Looking at North America, the organic growth was extremely strong in North America. Nearly 18% sales came in at $2.1 billion, significant margin expansion, 200 basis points over prior year, that reached 23.74%. Volumes obviously were a big driver here. But again, we've talked over the last couple of quarters about the specific regional supply chain challenges. Our team has just been very resilient, working on our operational efficiencies, and that really is the main driver on driving this strong margin performance. Incrementals in North America, ex acquisitions, was 38%. Orders are positive at plus 3. And again, just operating in all cylinders in North America broad-based demand. Looking at the international businesses. Organic growth, again, strong there at 12% organic growth. Sales reached $1.4 billion. Organic growth was positive low to mid-teens in every region in our international businesses. And adjusted operating margins expanded 30 basis points from prior year and reached 23.1%. And again, that's all in light of some currency headwinds that obviously more heavily impact this segment. Our Asia Pacific team continues to outperform. We've talked about that. They have done a great job recovering from those shipment delays that were a result of COVID shutdowns, and we feel that, that is kind of mostly played out in Q1 here. Orders are positive in the international business to plus 6. And that clearly reflects a rebound, obviously, from China as well. Looking at Aerospace Systems. Sales are $746 million now. That's obviously up 26%. If you remember, about 82% of the Meggitt transaction does get reported in this segment. There's about $150 million of sales for Meggitt in Q1 in our Aerospace Systems segment. That makes up 19.5% of the sales increase. But if you look at organic growth, very strong there as well, 7.4%. We just continue to see a strong OEM and MRO commercial volumes continuing throughout the year. When you look at operating margins, that was impacted really by Meggitt coming in, Wheel and Brake coming out and then there were some nonrecurring program timing charges that were in respect to our OEM business. So all in, that's a onetime issue, and we don't see that continuing going forward. If you look at Aerospace orders on a 12-month rolling basis, it's plus 5. But you remember, we've talked about these multiyear military orders. That will anniversary next quarter if we adjust for that, orders were positive 29% in Aerospace. And Aerospace dollars continue to remain at extremely high levels. So all in, great performance across all of our segments. We're really happy with the way the team has outperformed there. Looking at cash, another good story here. If you look at our cash flow from operations, that was 10.8% of sales. Free cash flow was 8.8% of sales. Our CapEx did hit 2% as we have been signaling and free cash flow conversion was 96%. The transaction costs that we've talked about did impact CFOA and free cash flow pretty significantly in the quarter, it's about 450 basis points of impact. Those will minimize as we go on throughout the year, but I just wanted to call it out that, that was a drag in our Q1 cash flow. We do still expect free cash flow for the year to be in the mid-teens, so no worries on that. On Slide 13, I just want to give you a couple of updates on the capital deployment. I'm sure everyone has seen this. Last week, our Board approved a quarterly dividend payout of $1.33 per share. That is our 290th consecutive quarterly dividend payment and our record of continuing to increase the dividends paid is now at 66 years. And I want to address leverage because I know that's a number that's been on people's mind. At the end of Q1, leverage now reflects all Meggitt-related debt for the transaction. If you look at our gross debt to adjusted EBITDA at 3.8%, net debt is 3.6%. And those numbers are presented on a trailing 12-month basis, and they do not include any Meggitt pre-closed EBITDA. So that is basically base Parker adjusted EBITDA, doesn't really include any Meggitt EBITDA, and we fully expect that to improve as we go throughout the year and we start to include that Meggitt EBITDA. We are fully committed to our delevering plan, and I'm really proud to say since we made this announcement last August or really August of 2021, we've applied over $2 billion of cash towards the purchase price of Meggitt. So great work on that. Okay. Looking at guidance, you saw this. We are now including the Meggitt acquisition, and we are excluding the Wheel and Brake divestiture in our guidance. We're providing this on an as-reported and an adjustment basis. And Tom mentioned this, we're increasing the sales growth range now to a range of 11% to 14% or 12.5% at the midpoint. Organic growth forecast has been increased to 6% at the midpoint. Acquisitions net of that divestiture is going to be plus 11. And we do see currency being a larger headwind now. We are now increasing that unfavorable impact of currency of 4.5% and that is using spot rates as of September 30. When you look at adjusted segment operating margins, the range is now 21.7 to 22.1 or 21.9% at the midpoint. So that is all-in, includes Meggitt and excludes Wheel and Brake obviously, our strong Q1 performance. Just a few other items to note. On an adjusted basis, corporate G&A is expected to be $207 million. Interest expense, that's all in, including everything from Meggitt 5 10. And the other income expense line is actually going to be income of $23 million for us. Really no change to the tax rate. We expect that to be 23%. And you can see the full year as reported EPS is now $13.20 at the midpoint or $18.95 adjusted and there's a range of $0.35 on either side of that. And just looking a little bit more forward into Q2, we see adjusted EPS to be $4.46 at the midpoint for our second quarter. Lastly, all the adjustments that we've been talking about on a pretax level are listed in this table, which now includes at least the current estimate we have for the Meggitt-related intangible amortization of 220. So you can see the total is now 520. And it also includes integration costs to achieve, specifically for Meggitt of $70 million for the remainder of the year. Especially with the acquisition expense to date, we've adjusted for all of those. The majority of those are over, but we will adjust those as they come through. Okay. Last, on the guidance bridge, let me just give you some details to that. Obviously, we started the year with our initial guidance of $18.50. We had the call at the end of September, which included Meggitt and excluded Wheel and Brakes. So that was another $0.33 of additional EPS that we saw for the year that got us to the $18.83. Really our strong Q1, there's a little bit of moving pieces here because of Meggitt coming in and Wheel and Brake coming out. We calculate that to be about a $0.54 beat to our original guide. And for the remainder of the year, we've really increased the Q2 organic growth just slightly, and we've held the second half to exactly what we said in our original guidance. We have incorporated the recent currency rates and their estimated impact on the segment operating income. Right now, we feel like that's a $0.42 headwind. Really, there's nothing else notably changed to our guide for the full year. And all in, we increased our full year adjusted EPS guide to $18.95 at the midpoint. So with that, I'll hand it back to you, Tom and it's all yours. Thomas Williams: Thank you, Todd. So on Slide 16, we've got the leadership transition. As you saw last week, we announced several leadership changes. In coordination with the Board, I have been planning my transition for many years. I happen to be turning 64 years old tomorrow. It's my birthday so my early birthday present is my last earnings call. So I've been CEO for 8 years and believe this is the right time to step down from the CEO position effective end of this calendar. I've always had 8 years in my mind. I've used kind of the 2 term as President as kind of the length of tenure that I thought felt about right. And so now is the right time for me to step aside. To help facilitate a smooth transition, I plan to continue as Executive Chairman from January 1 of next year to December 31, 2023. At which time, I plan to intend to retire from Parker and the Board. It's truly been an honor to lead this great company. And if you'll indulge me, I have a few thank yous I want to mention. First, our shareholders that are listening in. Thank you for the confidence you've shown me to lead the company on your behalf. My thanks to the Parker Board of Directors for just creative advice counsel not just to me, but to our management team. To the analysts who pretty soon are going to ask me lots of questions, thank you for an open and constructive and a transparent relationship. I've known a number for many years and have always appreciated the relationship. To all the Parker team members, just incredible people who take ownership in everything that they do. It's our culture, it's our people that are the secret behind our success to the Parker leadership team. Without a doubt, the best leadership team that I've had a chance to work with. It's a very deep and talented team that our shareholders take to create comfort in. And to the office of Chief Executives of people are sitting around the table with me today, Lee, Jenny, Todd and now Andy, thank you for helping me to lead the company. Business leadership is a team sport, and I appreciate their help. And special thanks to Lee. For 19 years, we've been business partners. We talk to each other and together, we hope Parker to be a better company. I really appreciate that's Lee's going to continue on as Vice Chairman and President. Going into the new year, I think it's going to be a big help to the team. If you go to Slide 17, one of the most important responsibilities of the Board and myself is CEO succession planning. As you saw, the Board elected Jenny Parmentier is our next CEO, effective January 1. Jenny will report to the Board of Directors and be a member of the Board as well. Jenny is currently Chief Operating Officer, has been a Group President Twice and General Manager twice. She's a great person and a great leader, proven track record of success, and I have complete confidence in Jenny to lead the company in the future. With that, I'm going to turn it over to Jenny to make a few comments and finish the presentation. Jennifer Parmentier: Thank you, Tom. I am honored and proud to be appointed the next CEO of Parker Hannifin and very excited about our future. I'm grateful to both Tom and Lee for the support and mentorship over the last several years and to our Board of Directors for their confidence in my leadership. Moving to Slide 18. Effective January 1, this is the office of the Chief Executive. Lee, Todd and I have been part of this team for some time, and we welcome Andy to the role of Chief Operating Officer. Andy will report to Lee as I do now in my current role. This is a seasoned leadership team that has been part of the company's transformation and an integral part of developing and implementing Win Strategy 3.0. This team will continue to deliver record results well into the future. Moving to Slide 19. As I look to the new calendar year and the second half of our fiscal year, my priority is to build upon the success of Parker's transformation. We are focused on integrating Meggitt into the Parker family, achieving the synergies we've committed to and delivering a record FY '23. Win Strategy 3.0 will continue to accelerate our performance across the company. and our portfolio transformation, coupled with the secular growth trends, makes us more than confident in achieving our FY '27 goal. Before we go back to Todd for Q&A, Lee has a few comments. Lee Banks: Okay. I know everybody is anxious to get to Q&A. We're going to get there quickly, but we've got 1 more thank you to have happen here. So Tom, on behalf of 60,000-plus teammates around the world, our management team and really from myself, thank you for 8 exceptional years as leadership and our Chief Executive Officer. When you came into that role, you had a great vision. And you boil that vision down to 3 key deliverables. You said we're going to be the safest company in the industry, and we're going to have the highest engaged team that thinks and acts like an owner. Since your time in office, we've reduced our incident rate by 73%, and we annually qualify and measure a s one of the top engaged workforces amongst our peers. You mentioned it in your slides earlier, you drove us to be a top quartile financial performer. Nearly 800 basis points increase in EBITDA margin during your time and a 2.7x increase in adjusted earnings per share. And lastly, I remember us talking about this, we're going to be great generators and great deployers of cash. Excluding today's numbers, your time and office, we've increased the enterprise value of this company by $30 billion, $48.8 billion. Total shareholder return, not including today, 180%. And dividend increase, quarterly dividend increase, a 111% increase from $0.63 to $1.33. Capital deployed during this time period, $25 billion. But I think most importantly, Tom, is you're leaving us with the company, not only in management, talent but portfolio. It's structured to have its best days ahead of it. So with that, thank you very much. Thomas Williams: Thank you. Lee Banks: And now we'll turn it over to Todd. Thomas Williams: Should I have retired sooner? Todd Leombruno: All right. Jonathan, we're going to go to Q&A. I'll let Tom catch his breath here a little bit, but I want to make one clarification. I called out an incorrect number on our Q2 EPS. I read last year's number. The number that we're looking for, for FY '23, Q2 was $4.31 at the midpoint. So with that, Jonathan, we are ready for Q&A. I'll turn it back over to you. Operator: [Operator Instructions]. And our first question comes from the line of Scott Davis from Melius Research. Scott Davis: Congrats, everybody. Tom, a high integrity 8 years. I think that's the greatest compliment I could probably give you. It's just was exceptional. Thomas Williams: Thank you. Excellent. Scott Davis: Jenny, what does the Board want you to do differently, if anything, maybe you can start with that? Jennifer Parmentier: Thank you, Scott. Well, my priority, as I said, is to build upon the success of the Parker transformation that is well underway. Our focus is -- our key focus is integrating Meggitt, bringing them into the family and achieving the synergies that we've committed to. And we're obviously, we're going to continue on our journey to top quartile performance and delivering long-term value for the shareholders. So I don't expect that we're going to see big changes in the day-to-day run of the operations and Tom and I are both committed to a very smooth transition. Scott Davis: Jenny, maybe just to follow-up on that. I mean how would you compare your kind of leadership style or differences or strengths and weaknesses versus Tom, if you will. Jennifer Parmentier: Well, I think that we have a lot of the same leadership style. And I don't know that I want to get into my weaknesses just yet, but I've had 2 good mentors here who have helped me develop some strength over time. But from a leadership perspective, very passionate about safety and our team members, just the same as Tom is. I'm very passionate about providing a customer experience that stands out amongst our competition and very focused on organic growth in the future and delivering the performance that we delivered in that recent past and even more so in the future. Thomas Williams: Scott, it's Tom. If I could just chime in for a second. One of the things that Lee and I did when we were changing the Win Strategy, whether it was 2.0 or recently 3.0, this was very much an inclusive process where it wasn't the 2 of us scrolled away in a corner coming up with all the answers. It was very much bottoms up. Obviously, we had to guide it, but it was very much lots of input and Jenny was part of that. And it was part of all those changes, and she's very capable of driving the ship going forward. Scott Davis: Okay. Well, I'll pass it on. Best of luck to all of you folks and best of luck to in your next chapter. Operator: And our next question comes from the line of Andrew Obin from Bank of America. Andrew Obin: And once again, I want to extend my thanks to Tom and congratulations to Jenny. Thomas Williams: Thank you, Andrew. Jennifer Parmentier: Thank you, Andrew. Andrew Obin: So I'm going to ask sort of more near-term question. There are a couple of companies this earnings season that have called out sort of, I think, some clouds in the horizon in terms of short cycle and frankly, these management teams that I do respect. So how do you think -- and I appreciate you have second quarter guidance. But as you look at your order activity, as you look at lead times, as you look at the backlog, how do you see the interplay of perhaps improving lead times, perhaps improving supply chain, what does it do to the orders? And how do you think about inventory, your inventory and what's happening to the inventory in the channel? Thomas Williams: Andrew, it's Tom. So inventory in the channel went up a little bit, I'm referring to our distributor channel, but nothing really sequentially all that material. I think a lot of our distributors are going to probably wait to see how their fiscal year ends and how the new year begins. But maybe what you're getting in and so many words is kind of what's our thinking about the rest of the guidance period, what gives us confidence, et cetera. We were pleased that the order entry was positive against some very tough comps in the prior year. The dollar volume that we saw through the quarter was pretty consistent across all the regions and segments. We were also really happy that international saw a mid-single-digit order growth. And we saw that in EMEA and in Asia, we have mid-teens in Latin America. So we've got Aerospace in there at around plus 7 as we think about the full year. And the industrial markets are very positive. We had over 90% of our end markets were in a growth phase. So our guidance really utilizes that input, our backlog, the AI model, feedback from obviously customers and distributors. And we still see broad-based growth. However, to the point you're getting at, it's going to moderate as the fiscal year progresses. Yes, supply chain is healing, but I would say it's healing slowly, and it's not really making, I would say, that big a difference on lead times, at least not yet. So as a result, we did bump up our guidance -- I'm referring to organic sales guidance. We took our first half, if I compare to prior guide to now, was 5.5%. We bumped it up to 10.5%. We left the same was the second half, and that the second half basically around 2% organic growth. I think for us, even though we've got the backlog and we've got this broad-based strength, we're cautiously optimistic. And the reason I say that is that we'd like to see how the year-end -- I'm talking about the calendar year ends for our OEMs and how do they start with their order patterns, particularly their demand signals to us in January. Everybody's -- most of our OEMs are fiscal year calendar year type of companies. And so we want to see how they're all running hard to finish. So I think the start of the new year will be a good indicator, which is why we didn't change this. But in general, we're still very positive. And we have a lot of things going for us when we think about the secular trends, the changes we've done from acquisitions. In general, I think there's a decade of better CapEx investments for Industrial. So I feel very bullish in the long term. I think we're just being a little careful in the near term given some of the macro unsurge out there. Andrew Obin: Yes. No, look, our survey work is fairly consistent with what you're seeing, but obviously, you have a live view. My follow-up question is, clearly, cash flow has been one of the strongest suits at Parker for a long, long time, and I know you're laser-focused on cash conversion. With rising interest expense, right, it seems that floor financing is getting more expensive, right, just running inventories as more expensive, both for your customers and your distributors. What things can you do or what things are you doing to continue to have this very strong cash conversion going forward as both your customers and your suppliers and your distributors are probably going to be more conservative with their cash, right, just because it's more expensive to float working capital and inventory, et cetera? Todd Leombruno: Yes, Andrew, I'll take that. This is Todd. Obviously, the cash flow generation profile of the company is something that we all work extremely hard on virtually every day. We feel like we can do better on inventory. We've been vocal about that. We have -- whether the supply chain challenges globally extremely well. But we have tools in place to further reduce that inventory as we go forward. As we bring Meggitt into the company, we see opportunities there on payment terms and receivables terms. So we see activity on that as well. And the other thing that I would note is, we've talked about the ACIP conversion, right, our annual variable incentive plan. the company is now 100% on that plan. So all of our team members across the globe are all incentivized on achieving their cash flow plans for their respective business. So I think you'll see us continue that. I feel confident in telling you that we see free cash flow in the mid-teens number, and that is all part of our commitment to that delevering plan that we spoke about. So I feel really strong about our ability to deliver on that. Andrew Obin: Once again, Lee, thank you and Jenny, congrats -- not Lee, sorry Tom. Tom, thank you. And Jenny, congratulations. Look forward to working with you. . Operator: And our next question comes from the line of Jeff Sprague from Vertical Research. Jeffrey Sprague: Well, I don't want to lay it on too thick. I don't want to tear anybody up here and get all choked up or anything, but Tom really, congrats and thanks. And Jenny best of luck, look forward to watching your tenure here. I wonder if we should... Thomas Williams: Jeff, Jeff. If you don't mind, [indiscernible] thick, it's okay. Jeffrey Sprague: I love my people in Cleveland, as you know. I wonder if we could talk a little bit just about price cost. Where we're at now, I think Tom said, supply chain is healing a little bit, not materially. Kind of just interested in kind of the friction that might still be going on, both on a price cost standpoint? And also just kind of the factory and efficiency side of kind of the ongoing lack of all, how much maybe pain you had to absorb in fiscal '22 and how you think that might play out in '23. Lee Banks: Jeff, it's Lee. I'll take a stab at that. Look, the slope of the curve price/cost has moderated, but cost is still a real issue. There are some commodities that have come down off their peaks. They're still high if you look on a historical level. There's still a lot of friction in the supply chain where even though raw commodities may have peaked, the finishing of those raw commodities before they get to us sometimes a real supply chain issues. And there's still lots of inflation up and down, you name it. You can see it just tier MRO supplies coming into our facilities to food to wages, et cetera. So we're on top of it. As you know, I mean, we measure this like crazy, not only just raw commodity costs but also total inflation costs. And we've got great visibility on how we're doing on pricing to make sure that we stay margin-neutral. I would say in the factories, again, the slope of the complexity has gotten better. But for me to tell you that labor availability is still a non-issue, I would be kidding you. It's still a little bit a deal. I think the thing that helps us through a lot of this is we just use our Parker lean system, and we go in and we just figure out how we're going to reconstruct the value stream and bring out the efficiencies and get better throughput, et cetera. So we're addressing it. I can't put a number on what the difference is going to be, but we're on top of it, and we're making -- you see it in the margins in the company. We're still doing better on a year-over-year basis. Jeffrey Sprague: And also maybe just kind of through this cyclical question or just macro outlook question. Clearly, it's actually impressive. The orders are positive against those comps, but I'm just wondering where the backlog stands these days? Do you have more than kind of a quarter's worth of coverage at this point? And just kind of any other like leading indicators that you're trying to stay on top of here as you kind of look around the corner economically. Thomas Williams: Yes, Jeff, it's Tom. The backlog went up 16% year-over-year. So we're at almost $8 billion on the legacy portion of the company, had another $2 billion plus for Meggitt so it would be a little over $10 billion of backlog. So obviously, we have well more than a quarter for the backlog. I think the thing that we want to watch, we feel very good about Aerospace's backlog. And we feel good about the industrials. My comment I was making to Andrew just want to watch the demand signals to see if anything changes once we get to the new calendar year. But the backlog obviously gives you a lot of confidence that you'll be fine. Operator: And our next question comes from the line of Joe Ritchie from Goldman Sachs. Joseph Ritchie: And Tom, I guess, my comment to you or you're just going to echo what everybody else has already said. I think you've been such a class act. Congratulations on your 2 tenures. Thomas Williams: Thank you. Thank you, Joe. Joseph Ritchie: Okay. So I guess my first question, I know we're all trying to get at this volume question really in the second half of the year. And Tom, I guess, as you kind of look at your curves, it still seems like the environment is healthy. Are you seeing kind of any deterioration across any of your different end markets? I'm just trying to really understand the expectation still for second half volumes to be negative, assuming that is still the expectation across the industrial businesses. Thomas Williams: Yes. So it's interesting, Joe -- it's Tom, that forecast in the second half. Because if we look at backlog and we look at the orders that we saw and what we did in the first quarter, it would tend to make you think, well, we could do more in the second half. And there's a chance we could, and we'll have to wait and see how that turns out. But given the amount of uncertainties that we see in some of the AI model data, which we've been building over time and is that [indiscernible] based on the data, we're projecting that things are going to moderate as we go into the second half. And with the price that's baked in there, the time we get somewhere between the third and the fourth quarter, we probably are going to have some unit volume declines. But when we look at the outlook for '23 on all the end markets, with the exception of aerospace, military and a little bit of weakness in HVAC primarily because of residential, everything is either neutral to strongly positive. Just as we go into the deeper end of the year, we have more end markets guiding to that kind of low single-digit neutral category, which is what makes up our forecast. Joseph Ritchie: Got it. That's helpful and makes sense. I guess the one follow-on. I know you just touched on the backlog increasing. You had another multi-industry company recently seen uptick in cancellation rates out of their backlog. I'm just curious whether you have you seen any of that in the orders that are canceling at this juncture or still kind of steady as you guys? Thomas Williams: Joe, it's Tom. Steady as she goes. We haven't seen any cancellations. That's something else that we'll be paying attention to. Most of the time, our customers want to make a change. They won't cancel per se. They'll just push out delivery dates. That's why my comments about watching demand signals from the OEMs at the beginning of next calendar year will be an important indicator right now, our OEMs are very positive about the future. Joseph Ritchie: Okay. That's great to hear. And Jenny, I look forward to spending more time with you as well. Congratulations. Operator: And our next question comes from the line of David Raso from Evercore ISI. David Raso: I was curious for the quarter, the orders in North America, can you give us a little split between the order patterns from distributors versus OEM? Thomas Williams: David, it's Tom. We don't split them out, but given it's such a big part of the company, it would have been the orders that we reported for the 312. David Raso: And then when it comes to the second half of the fiscal year, I appreciate all the commentary about just being prudent. I'm just curious, though, if you didn't see cancellations in your backlog -- I guess essentially, I'm asking, are you expecting some cancellations in the backlog? Just given the size of the backlog, how it looks like you're going to start at least fiscal second half with a pretty healthy backlog. I'm just curious, what are you factoring in when you have down volumes in your base case for fiscal second half? Thomas Williams: Yes. So it's not down by much. It's down small. But I guess, it's just the lack of the unknowns very really seeing a monetary policy with this kind of high inflation land the plane softly on the surface of the aircraft carrier. So hopefully, it happens. And maybe it happens after -- maybe if there's any issue that happens after our fiscal year later into calendar '23. But that's -- I think that's what we're being cautious of. We're very positive given that are -- the breadth of the end markets that are strong is pretty much across the board and to your point, the backlog. But they won't necessarily cancel the backlog, they just shift dates to the right if they decide that they don't need it. And that's -- we're pausing to just wait to see that indicator. So when we do our next call, it will be in February, at least have January to reflect on how did the OEMs come back in the end of their fiscal year. If they come back the same way, we'll be looking to update this. And that's the benefit of every quarter getting a chance to talk to you and give you a new insight as to what we're seeing. David Raso: And I apologize if I missed this earlier. But that thought process for the fiscal second half, how does that dovetail into further price increases from here? Thomas Williams: I think on the pricing, and as Lee had mentioned, we'll stay on top of it. A lot of the pricing that we did was we're going to anniversary in the second half. A lot of the big price increases we were catching up the cumulative effect of inflation. It's still there, and we're going to have to continue to look at that and stay on top of them. But as we compare the price increases [indiscernible] '23 [indiscernible] '22, there'll be less. Not necessarily every single part number but in aggregate, a little bit less. David Raso: All right. And obviously, congratulations to everybody. Operator: Our next question comes from the line of Stephen Volkmann from Jefferies. Stephen Volkmann: And Tom, happy Birthday. I cannot imagine a better present and not having to do this with us 4 times a year. Thomas Williams: Thank you, Steve. Look forward to that part of Stephen Volkmann: So maybe this is a Jenny question, and I apologize, it may be a little bit too early, but sort of one of the feedback things that I hear relative to other sort of premier industrials is that Parker doesn't have at least quite as much an obvious sort of recurring revenue story or SaaS-type revenue story. And secondarily, that you guys don't really do much in the way of divestitures, which have become kind of I guess, fashionable amongst these industrial companies. So I'm curious if maybe those might be a couple of areas where there could be some sort of modest change in the strategy going forward? Thomas Williams: Steve, it's Tom. So on the recurring revenue, you're right, maybe a Software as a Service, but if you look at our recurring revenue, with half of our industrial business going through distribution, and that's almost all aftermarket. So that's a recurring revenue stream. With Meggitt and the additions that we made there on the Aerospace side, our aftermarket piece is going to go from 36% to 41%, so that's 500 basis points of improvement that we talked about Meggitt brings. We've significantly increased the aftermarket. And some of you might remember from the Investor Day, we talked about increasing the international distribution, which we bumped up 100 basis points every year. So that's changed that mix. It's been one of the key ingredients, International's margins are now at parity with North America, which most people that have tracked us for a long time, never thought that would happen. On the divestitures, we like -- I've always used this tree analogy. We like the tree. There are some branches that we'd like to trim off, and we're working on that as we speak. And when we're ready, we'll announce those, but they're not going to be materially significant. But we'll continue to look at that. We do best on a review internally, and then we share that with the Board. So we'll do divestitures, but we -- this portfolio has been very thoughtfully built and that these technologies are very well interconnected. The fact that 2/3 of our customers buy from 4 more technologies speaks to interconnected technologies. So they like that we can come in with a strong bill of material, drive their cost ownership down and help them with their sustainability issues. And we couldn't do that if we were a one-trick pony. But you'll see us do more on the divestiture side, but it won't be materially significant. Operator: Our next question comes from the line of Mig Dobre from RW Baird. Mircea Dobre: Congratulations to everyone. Tom, it has been an honor working with you through all these years. So thanks again. Thomas Williams: I remember the first dinner we had together. Mircea Dobre: So do I. So do I. And I look forward to seeing you in Chicago next week. I just -- my first question on your Industrial segment, Q1 came in better than you expected, and I'm trying to understand what the sources of upside were here. Is it that there's something going on with your customers in terms of the supply chain getting better and production rates increasing for -- what was really the variance sources of your expectations? Thomas Williams: Well, I think in Q1, we had a lot of help pretty much across the board. I'm looking at all the inter markets, I'm not going to read all of them to you. But everything was pretty much north of 10%. So it was -- I think we had guided North America to 10. And so we're a little bit off on that. So it just turned out to be -- there's no single market that pulled it forward. Obviously, when distribution comes in, it came in at 15% to 20% range. It has, by the size of it, it automatically pulls a lot of the industrial numbers up. But it was broad-based. And everything was north of 10% that we had a few that were greater than 20. So we were pleasantly surprised and that was a good thing. We kind of guided a little bit lower than a reality. Mircea Dobre: Okay. But you're not really pointing to something going on in the channel in terms of stocking or something of that nature. And I kind of ask because, again, going back to that second half discussion, it seems to me like a lot of your OEM customers have significant backlogs. And if anything, they're actually trying to increase production volumes in calendar '23 which is a little bit at odds with how you have your guidance structured. Thomas Williams: Yes. So on your question about distribution, so that is end market-related, maybe a minor inventory. But back to the point of next year, that's a possibility of what you just described. Part of what we've factored in, especially when we put all the elements into the AI calculation, is just some risk around what does the macro economy do as interest rates go up higher and higher? And does it eventually start to temper demand. And so that's why we forecasted the way we did. If it doesn't, and maybe it doesn't start to temper within our fiscal year, and we'll update that guidance in February when we have more current data. But that was the thinking now that we're forecast, and we're not any smart than anybody else other than we just want to get a little closer to the target before we get a little more bullish on the second half. Mircea Dobre: All right. Fair enough. And congrats again. . Operator: And our next question comes from the line of Nigel Coe from Wolfe Research. Nigel Coe: And Tom, you've had a hell of a run. So congratulations and Jenny, congratulations as well. So my question really is on the guidance. I think you took down industrial margins by 40 basis points in both North America and international. And normally, 1Q would be sort of the lower point of the -- for both segments. And that's not the way that this year is playing out. So just wondering, maybe Todd, if you could just address sort of like the thinking on the margin cadence here. Todd Leombruno: Yes. No, it's a great question. Obviously, we -- specifically, we are including the Meggitt acquisition. There's -- roughly 20% of that goes into the Industrial segment. 80% of it goes into Aerospace. That does have a slight negative impact to our margin just for this first year as we get through the integration as we start to realize some of the synergies. Also a little bit on the international side. Currency has been a fairly large headwind. We expect that to get a little bit bigger. But that is essentially the only real adjustments that we made to margins going forward. Thomas Williams: Nigel, is a -- it's the legacy portion of the company actually goes up 20 bps on margins and the legacy portion of the company is at mid-30s incremental MROS. So it's all the factors that Todd described, which is causing the slight decline versus the prior year. Nigel Coe: No, that's really helpful. That makes a lot of sense. And then just switching to Meggitt. There's obviously hedges in place for U.S. dollar and euro versus British pound, which makes a ton of sense as a British company. But as a subsidiary of a U.S. company with the majority of its revenues in U.S. dollars, maybe not. So I'm just wondering, are you -- have you executed or are you competing any changes to the hedging policy for Meggitt? Todd Leombruno: Yes. Nigel, that's a great question. We're learning exactly what the Meggitt process was as we get through this. It's a little bit over a month now. We most likely will do something different. We're not rushing to exit out of anything that they have in place. But overall, we're happy with that structure, right? We called it out 70% of the sales dollars are in U.S. dollars. So we feel good about that. And we feel really confident in our macro hedging program across the legacy business, we will obviously integrate Meggitt into that process as well. Jonathan, just in -- taking the time, I think we have time for one more question. Operator: Certainly. Then our final question for today comes from the line of Jamie Cook from Credit Suisse. Jamie Cook: Tom, I'm sure you stick of this. Congrats, well done. Thanks for making a lot of us look smart. And congrats to you, Jenny, as well. We look forward to working with you. Thomas Williams: Maybe [indiscernible] you never get quite sick of this enough. Jamie Cook: I guess just to, I don't think you've commented on trends specifically that you're seeing in Europe or in China. I think I get some pushback on you guys on just concerns over European exposure? And then my second question, obviously, a lot of concerns around the macro, but I'm just wondering even if the macro is a little weaker than you think, is there enough sort of cushion as you think about perhaps supply chain ends up being better, you hold more price cost or just synergies assumptions with Meggitt that if the top line is a little weaker, there's other ways to make up so you can still maintain the guide? Thomas Williams: Yes. So the -- Jamie, it's Tom. The comments on China, China in Q1 was a positive approximately 10% organic and the rest of Asia, it was about the same, 10% organic. And we've kind of guide Asia very similar to how we described company moderating to or those low single digits as we go to the end of the year. We have a lot of things we can do. To your point, if the macros were to weaken, we've got backlog, we could use supply chain. I don't think supply chain can get worse, so that's probably going to be a positive side. We've done this before. We've created an organization that's more nimble and flexible and structured differently. You've seen how we've been improving each recession. At one chart, just for people that have said is my favorite one chart, that was over 2 industrial recessions of pandemic in the current supply chain issues. So this team is pretty good at being flexible and more on its toes than it's on its heels when it comes to -- and so we're already working on those things we can do to be ready in case they got worse. But we're still pretty positive as will be okay. Todd Leombruno: Okay. Thanks, Jamie. This concludes our FY '23 Q1 webcast. Obviously, we do appreciate all the thanks and congratulations for Tom. He's obviously so very deserving of that. Congratulations to Jenny and Andy as well. But I also want to remind everyone of an announcement we made back in May, and that was Robin Davenport retiring, right? So this is Robin's last earnings call as well. And she's been a big voice of our investment story really for the entire tenure that Tom has been CEO. So Robin, we thank you for everything that you've done, and we wish you nothing but the best in your next chapter. A familiar face to everyone. I think everyone knows Jeff Miller, who was our Director of Investor Relations. Jeff has agreed to take the position of Vice President of Investor Relations starting in January. And he will lead our IR program going forward. So congratulations to both Robin and Jeff on those changes as well. And both Robin and Jeff will be here if you have questions or you mean kind of clarification on anything we discuss today. So thank you. Thanks, everyone, for joining us and anything we discuss today and interest in Parker. Thank you. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Operator: Good day, and thank you for standing by. Welcome to the Parker-Hannifin Fiscal 2022 Fourth Quarter and Full Year Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Todd Leombruno, Chief Financial Officer. Please go ahead. Todd Leombruno: Thank you, Carmen. Good morning, everyone, and thank you for joining Parker's fiscal year 2022 Q4 earnings release webcast. As Carmen said, this is Todd Leombruno, Chief Financial Officer speaking. And as usual, with me today are Tom Williams, Chairman and Chief Executive Officer; and Lee Banks, Vice Chairman and President. Today, our discussion will address forward projections and non-GAAP financial measures. Slide 2 of the presentation provides details to our disclosure statement in these areas. Actual results may differ from our projections due to uncertainties listed in these forward-looking statements and detailed in our SEC filings. Reconciliations for all non-GAAP measures, along with this presentation, have been made available under the Investors section at parker.com and will remain available for one year. In respect to the Meggitt transaction, while we expect this transaction to close in of fiscal year 2023, that's our current quarter, we are still down by the requirements of the UK Takeover Code in respect to discussing certain details. We do plan to hold an investor call shortly after the close to provide expanded color on the transaction once the regulations allow. For the call today, we will start with Tom discussing the fourth quarter and our fiscal year 2022 full year results. And I'll follow with a brief financial summary and review some of the assumptions around our initial fiscal 2023 guidance that we issued this morning. After that, we'll finish the call with the Q&A section for any questions you have for Tom, Lee or myself. So with that, Tom, I'll turn it over to you and ask everyone to refer to Slide number 3. Tom Williams: Thank you, Todd, and good morning, everybody, and let me welcome everybody as well to the call. Starting with Slide 3, we had a great quarter. It was absolutely a dynamite record performance, great execution by the team around the world. The first two bullets really is what drove our success. Safety has always been our top priority. We're leveraging high-performance teams. Think of that as how we are organized around the world and how we engage and involve our people. Lean is how we run the factories and kaizen is our culture of continuous improvement in how we go about making things better. We also just conducted our 2022 engagement survey. We were able to capture over 90% participation of our people around the world, asked them questions around empowerment and engagement. And we got great results. We got results that put us in the top 8% of industrial companies. And it's really these first two bullets that's driving an ownership culture within the company, driving an ownership of results and our business performance. Going down to the third bullet, sales were $4.2 billion. It's an increase of 6% versus the prior year. Organic growth was 10% versus the prior year, with excellent quarter organically. Segment operating margins was 20.9% as reported or 22.9% adjusted. So that's a 70 basis points better than prior year. This is really excellent margin expansion in the face of all the challenges that you're fully aware of, supply chain inefficiencies, inflation, and of course, the China COVID lockdowns. So just really outstanding performance in a very difficult environment. Lots of records and my thanks to the global team for all their hard work. If we move to Slide 4, talking about the full year, came in at $15.9 billion in sales, 12% organic growth versus the prior year. So a really big year for us organically. Record segment operating margin, 20.1% as reported or 22.3% adjusted. That was 120 basis points better than the prior year. It really speaks to the robustness and the agility of our business model. Operating cash flow was $2.4 billion, and that represented 15.4% of sales. So a mid-teens CFOA with growing sales, which was very commendable. And then, of course, all of you hopefully are aware we announced our FY '27 targets in the March Investor Day, and I'll just summarize it was bigger growth, bigger margins, bigger cash flow targets, and we're confident in our ability to get there in the future. So a transformed company with a promising future. What drives us is on Slide 5. It's what's been driving us in the past, President and will drive us in the future. First is living up to our purpose, enabling engineering breakthroughs that lead to a better tomorrow, being great generators of cash as evidenced by the mid-teens and see if a way that you saw and great deployers of cash by our pending Meggitt acquisition. And then being a top quartile company, how we perform versus our peers. Which really goes to Slide 6, which I'd like to show to this slide, it's updated now for FY '22 numbers. And really the reason for showing its objective evidence that our company is significantly different, significantly better than it's been in the past. On the left-hand side is adjusted EPS, and on the right-hand side is adjusted EBITDA margin. And I think the pace of improvement speaks for itself. You can look at this chart, everything is moving high and to the right and it's really great progress. In particular, if you look at '21 versus '22 on EPS, going from $15.04 to $18.72. That's a gain of $3.68. It's the largest year-over-year dollar gain we've had on EPS in the history of the company. So it was a 24% improvement. On the right-hand side, almost 800 bps of EBITDA margin improvement, which is fantastic. And if you look at these two improvement trends side by side, arguably the most improved industrial company out there over this time period, and I'm hoping for the shareholders, a great company to invest in as well. Going to Slide 7. I like the picture here, we're trying to symbolize that we're coming in for a landing here on Meggitt. We're close to the end. We expect to close some time in Q1, our current quarter FY '23. The only remaining regulatory approval is the U.S. Department of Justice, which we expect to complete sometime in the quarter. And following the U.S. DOJ, it's customary to go to court in the UK to get final approval, which we expect also in the current quarter. The timing here is perfect. We're adding a transformational acquisition, doubling aerospace at the beginning of a commercial aerospace recovery and with the synergies in front of us to help us grow the top line on the bottom line. And as Todd mentioned, we'll host a call after this closes to bring it to day on Meggitt and to update our guidance. Moving to Slide 8. We're going to talk a lot in the Q&A about FY '23 sales guidance, I'm sure. But I wanted to highlight the future growth drivers that we talked about in the March Investor Day, these growth drivers remain intact. I'm just going to walk you briefly through the five columns that you see here. The first is our business system, the Win Strategy. It's about the things we can do ourselves to grow differently organically. It's about innovation, strategic positioning, distribution growth, incentive plan changes that we're making and simplify design. Go to the next column, the CapEx changes that we expect over this time period, we think this will be a very constructive time for industrials. There's going to be a need to invest in supply chain development, tool sourcing, automation, all things that are going to be very helpful and need marker products regarding channel restocking, and particularly here, I'm referring to the distribution channel, it's improving, but there's still a ways to go. And I think our partners will probably be somewhat cautious as they add inventory. But as we go out the next several years, they're clearly not at the inventory levels they'd like to be, so that's additional tailwind. The acquisitions are transformational. They've reshaped the portfolio doubling filtration, doubling Engineered Materials, doubling our aerospace business once Meggitt closes and really reshaping the portfolio to be much more longer cycle, accretive, more resilient. And then our linkage to the secular trends around the world, aerospace, digital, electrifications and clean technologies are all going to help us grow it differently. So there's targeted organic growth by FY '27, 4% to 6%. We think industrials and Parker in particular is going to be a very attractive space over the upcoming years. And with that, I'll turn it back to Todd to talk more about the quarter. Todd Leombruno : Okay. Thanks, Tom. I'm going to start on Slide 10. This is just a year-over-year comparison of our Q4 financial results. And as Tom said, really proud of our team members for just delivering across-the-board record results against the backdrop of several continued global challenges. So as Tom mentioned, the sales was up 6%. We did hit a record sales number of $4.2 billion in the quarter. Organic growth was double-digit at 10%. I think everyone is following these currency rates, the strong dollar drove currency headwinds for us. It was minus 4% impact to sales. Our backlog remains healthy. It did increase 21% versus the prior year, and over 90% of our markets are in growth phase. So we're very happy with that. Two markets to note, commercial aerospace and North American industrial markets are two that really remain very robust. Adjusted segment operating margin was 22.9% for the quarter. That's a 70 basis point increase versus the prior year. And our adjusted EBITDA margin was 23.1%. That's a 100 basis point increase from prior year in the quarter. Both these margin numbers segment operating and EBITDA margins exited the year at the highest levels of our fiscal year. So really happy with the strong finish that the team put forth in Q4. When you move down to net income, adjusted net income was $671 million. That's a 16% ROS. It just also happens to be a 60% improvement from prior year. And again, I'll just note due to the continued strengthening of the dollar, specifically versus the pound, we did record a pretax noncash charge in the quarter for $619 million. That is related to the Meggitt deal-contingent currency contracts. And I just want to remind everyone that these contracts, we entered into these contracts really to eliminate currency exchange rate risk associated with the purchase price of the Meggitt acquisition. And the total expected U.S. dollar outlay related to the transaction included in these contracts is neutral to the transaction consideration we announced last year. So moving on to EPS. EPS is great, $5.16 on an adjusted basis. That is a record is an increase of $0.78 or $0.18 -- or 18% versus prior year, really strong results there. And I really just commend our team for the strong finish for the fiscal year. If you move to Slide 11, this is just a bridge. This details some of those elements of the $0.78 improvement. We did generate 35% incremental margins. That was really aided by our margin expansion, but more significantly, just very solid execution across every one of our businesses. Adjusted segment operating income increased by $80 million or 9% versus the same quarter last year. That accounts for over 60% or $0.47 of the EPS improvement that we had in Q4. If you net corporate G&A, interest expense and other, all that amounts to just $0.01 favorable. And we did have a few discrete tax settlements in the quarter that drove a lower income tax expense that did calculate to a $0.24 positive impact to EPS, and that was specifically in our fourth quarter. And then finally, just a slight reduction in the number of shares outstanding accounted for a favorable $0.06 to EPS. So all in, that's the 18% increase in adjusted EPS or our $5.16. If you move to Slide 12, I'll talk a little bit about the segments. Across the board, very strong performance here, 35% incremental margins. We increased segment operating income really across the board, and it's really just nice to see positive organic growth in every segment. That growth continues to be very broad-based. Orders for the total company ended up positive 3%. And that really is against a backdrop of increasingly more challenging comps. And the team really remains agile in this current supply chain and inflationary environment. We're happy with our actions. It is materializing in results in the financial statements and just really proud of all the effort that's going on here. All of this gives us performance or confidence in our performance that we will achieve our FY '27 targets that Tom mentioned, we just announced just back in March. So if I jump into the businesses in North America, very strong organic growth, 15% versus prior year. Sales reached $2.1 billion. Adjusted operating margins increased 40 basis points. Our North American team achieved 22.9% ROS. And really, we've talked about this all year. They continue to manage well through a more difficult regional supply chain environment, so just kudos to them. Incrementals in this segment was about 25%. So we're happy with that, with all the headwinds. And really, orders continue to impress at plus 10%. In the North American segment, our backlog is up 50% versus prior year, and it did grow 5% sequentially from Q3. Moving on to international. International sales, $1.4 billion, organic growth just above 5% for that segment. Organic growth in EMEA and Latin America was mid-teens positive with Asia Pacific mid-single digits negative. Obviously, that was driven by the shutdowns in China based on the COVID outbreak. But margins, if you look at margins, margins were 22.4% and still increased 30 basis points from prior year despite all that -- all those challenges and really just tremendous effort from our Asia Pacific team. We forecasted $100 million negative sales impact based on the shutdowns at the time we talked last quarter. The team really outachieved and that ended up being only a $50 million impact for the quarter, and it was really a strong month in June. So much appreciation to our super dedicated Asia Pacific team. They really went above and beyond to serve our customers. International order rates did inflect to a minus 4%, which did reflect some short-term impact from those shutdowns in China. But great overall performance by the international team. Looking at Aerospace and another strong quarter from Aerospace, this is the best organic growth and margin performance that, that segment has had all year. Sales were $676 million. Organic growth is about 8%. Commercial businesses in both the OEM and MRO markets are very, very strong. And the operational margins increased 260 basis points and finish it in impressive 24.2%. Those Q4 margins did benefit from a favorable mix, aftermarket mix and lower-than-expected NRE expenses that were really just due to some program timing. So this is really a record margin performance for that segment, and I still note that we are still below pre-COVID sales level. So we're very happy with the cost controls and the execution in our aerospace business. A note on orders. Aerospace orders are showing flat. But if you remember, we've talked about this. We did have some very significant military orders that we booked in Q2 of our FY '22 and that continues to make our 12-year comparisons difficult. If we exclude those items, aerospace orders were positive 24% for the quarter. And our aerospace dollars in respect to orders continue to main really strong. So overall, segment performance, very, very strong, and I'm proud of our teams. It's really a testament to our strategy and our purpose. So if we jump to Slide 13, cash, we had an unbelievable cash flow generation quarter in Q4. It was really stellar. We did exceed the forecast that we gave at Investor Day for both cash flow from operations and free cash flow by about $100 million for the full fiscal year. Tom mentioned this, but we generated $2.4 billion in cash flow from ops. That was 15.4% of sales. Free cash flow was $2.2 billion or 13.9% of sales. And obviously, the conversion is 168%. We really have been managing working capital very diligently throughout the year. As our year progressed, that use of working capital began to normalize across the company. If you look at this year, the change in working capital was a 1.6% of sales use of cash. If you're comparing that to prior year, last year that was a 1.0 source of cash. So we are very disciplined. Our teams are focused on generating top quartile cash flow performance. And again, we're really confident that we can achieve that FY '27 target of 16%. Just a few comments on leverage. At the end of the quarter, gross debt to EBITDA was 4.7, net debt-to-EBITDA was 4.5. That increase from last quarter is really a result of our issuance of $3.6 billion of bonds that we will use to fund the Meggitt transaction. That cash is sitting in escrow. It is on our balance sheet listed as restricted cash. If we exclude that restricted cash, our net debt to EBITDA at the end of June was 2.0x. So happy with the reduction there. The spike is just really preparing for the Meggitt transaction. And just one final note on our strong cash flow performance. We've already used $1.5 billion of cash that we've generated this year to fund the Meggitt transaction. So we are really happy with our position on that. And we're looking forward to getting to close and welcoming all the team members into Parker-Hannifin. Okay. If we go to Slide 14, guidance, this is just some detail on the guidance we released this morning. As usual, we're providing this on an as reported and an adjusted basis. And I think everyone got this, but just to be very clear, while we expect that Meggitt transaction to close in this quarter, we have not included any sales or earnings in our guidance number. However, we have given you color on the interest expense that is already committed for Q1. And I'll give you some more color on that in a second. So no sales and earnings, just the Q1 interest that we have already committed to in our Q1. So if you look at sales, reported sales growth for the year is forecasted to be flat to 3% or 1.5% positive at the midpoint. Organic growth is obviously better than that. It's expected to be 3.5% at the midpoint with a range of 2% to 5% on that. As usual, we're using currency rates as of June 30. We do forecast currency to be a headwind this year. It will be about a 2% headwind to sales versus the prior year. And as usual, if you look at the split, our sales are 48% first half, 52% in the second half. Moving on to segment operating margins. As reported, segment operating margin guidance is 20.4%. On an adjusted basis, that's 22.5%. That's at the midpoint. We have a range of 20 basis points on either side of that. And the split of segment operating income is 47% first half, 53% second half. We are forecasting incremental margins to be 30% for the full year. And just to give a little bit more clarity on a few additional items. Corporate G&A, we expect to be $204 million in FY '23. The interest related to the legacy company, so this is excluding Meggitt interest is expected to be $228 million and that Meggitt related interest that will cover Q1 only is $42 million or roughly $0.25 of EPS. We will give you an updated interest expense number once we schedule that update call that we have post close on Meggitt. Other income and expense is expected to be $14 million and as usual, any acquisition-related expenses that are associated with the Meggitt transaction, we'll continue to book those as incurred. We're not going to guide for those, we will just adjust those out as they incurred. We do expect the tax rate from continuing ops to be 23% next year, that is essentially what our continuing ops rate was this year. That does not include any discrete items that may be favorable or unfavorable. And finally, we expect full year EPS on an as-reported basis to be $16.53 at the midpoint or $18.50 adjusted. And the range on both of those figures is plus or minus $0.40. EPS has split 46% first half, 54% second half. And just a little color on Q1. We foresee Q1 adjusted EPS to be $4.13, and that's right at the midpoint. And then just a little color on those adjustments. It's really just the acquired intangible asset amortization which is now $300 million, and expected business realignment charges of $35 million. So we tried to give a lot of color there. We hope that, that was helpful. Slide 15 might give a little bit more color. This is just the bridge and really, the highlights here. It's really just continued strength and demand across the board. Obviously, our productivity initiatives and our expectations across all of our operations, increases segment operating income on a year-over-year basis. The total is $0.49 EPS have increased. And I just want to note that, that does include an estimated headwind of approximately $0.40 based on currency. So in a constant currency, obviously, that $0.49 would be $0.89, but we're incorporating that $0.40 currency headwind, so we get a $0.49 increase in segment operating margin. When you look at corporate G&A, that legacy interest and any other items, those are all forecasted to be favorable to prior, those actually help us by $0.09. And then again, that forecasted tax rate of $0.23 creates a $0.55 headwind compared to that lower tax rate that our actual rate was in FY '22. And I just would note there on that, our FY '22, we always have discretes. We don't try to forecast them because they move around so much. But our FY '22 did have a higher-than-normal amount of discrete items. So that's just a little color on there. And as I mentioned earlier, we've included that interest expense. You can see the bridge there. It's $0.25, it's $42 million. That is the Q1 amount only, and that's how we walk from our FY '22 finish to legacy $18.75 or including that $0.25 of Meggitt $18.50. So with that, that's my color on guidance. Tom, I'll hand it back to you and ask everyone to move to Slide 16. Tom Williams : So just to wrap things up before we open up Q&A. It was a record FY '22, probably easier to say, well, it was not a record. There were so many records to speak of. a challenging environment, just my congratulations to the entire global team for just a job well done. It's been our people, the portfolio changes and the second bullet there, the changes we made on the Win Strategy specifically on Strategy 3.0 that have driven over this period of time, 800 basis points, almost 800 basis points of EBITDA margin expansion. We're positioned to perform well in FY '23, and it's really because of the remaining items you see on this page the last three bullets. The portfolio is dramatically different, reshaped from where it was in the past with Meggitt closing in this quarter. Very few companies are going to be in a position to add a great company tied to future growth and synergies that we will be able to do. And then we're positioned for growth with the secular trends, aero, digital, clean tech and electrification. So hopefully, you feel, as you've seen in our numbers, a transformed company with a promising future. And with that, I'll turn it over to Carmen to open up to Q&A. Operator: [Operator Instructions] Our first question comes from Jeff Sprague with Vertical Research Partners. Jeff Sprague : I'm not sure if I'm going to cross any lines with this Meggitt question, but I'll just give it a try. They reported today, as I'm sure you well know. And they put up a 17% EBITDA margin. Just thinking about the trajectory from your slides last year, right? You had at mid-19% in 2019, dipping to 14% in 2020, clearly, on the upswing now. Are you able to, in any way, address whether kind of the aggregate results there are, in fact, in line with your original deal case? Tom Williams: Jeff, it's Tom. Thank you for the question. Yes, we feel very good about Meggitt's results. They're growing faster actually than we had expected in faster than Parker Aerospace. They grew at 11% for the last six months. Their EBITDA held in there at 17%, as you mentioned, -- and we projected as we looked at this, as they get back to pre-COVID levels, that would put them into 19% and hopefully may be better and then with the $300 million of synergies. So there's still in a trajectory when we put the two companies together to get that back to that 30% EBITDA for Meggitt. So we feel very good about what the job that they're doing. And frankly, we can't wait to say welcome them to the team. Jeff Sprague : And just then on, I guess, for Todd on this interest expense. Just to be totally clear, this $0.25 or $42 million just ties to the permanent financing you did, right? So on close, obviously, there's going to be additional interest expense in the equation. It sounds like you're going to kind of fine-tune that for us when you do close. But I just want to be kind of clear on that and any other color you could provide there. Todd Leombruno : Yes, it's a good question. You're right. The majority of that $0.25 is related to the longer-term debt that we issued, there is a slice of some CP in there, but the vast majority of that is the bonds that we issued in peat. And you're right, we will give you a full look at the financing and the interest of layout post close, and we'll fill in the rest of the quarters for the year on that. Jeff Sprague : Can I just sneak one more in? Are we still looking at kind of a $70 million gap, so to speak, between GAAP accounting and IFRS accounting as it relates to R&D and other items? Todd Leombruno : Yes, Jeff, I think -- I don't know if we can answer that, Jeff. We're still kind of looking at that. Obviously, post close, that will be part of what we give color on. Operator: Our next question is from Joe Ritchie with Goldman Sachs. Joe Ritchie : Maybe I'll just kind of start, maybe parse out a little bit more the guidance that you just gave for 1Q, the $4.13 number, obviously, adjusted for the interest expense would have been kind of more like $4.38. Can you maybe just give us a little bit of details on the trends that you saw exiting the quarter and what the expectation is either from growth or for margins for the core business in 1Q? Tom Williams: Joe, it's Tom. So I'll talk about the first quarter, but I'd like to lift it up and we talk about the whole year as well because it kind of goes hand in hand with our thinking there. And maybe if I could start with we always relish and I'm being a little bit sarcastic being 1 of the first companies to talk about calendar '23, it's a difficult spot to be put in. And this forecast period is probably a little more complex than others because we have a lot of unprecedented actions that have somewhat unknown consequences, things that you're all familiar with quantitative tightening, rising interest rates, inflation, the dollar strengthening energy costs and availability in the Ukraine more. So it's a list that we really haven't faced and forecasted into. But we've got strong backlogs we've got resilient order entry. We are very pleased with the order entry that we showed for the quarter. And actually, we saw even though international was minus for the quarter, and that was really influenced by EMEA and Asia in the month of June in particular Asia, with the COVID shutdown. We saw international orders come back quite nicely in July, kind of in that mid to upper single digits. So our guidance really includes our AI model, the inputs from the divisions, customers and distributors. And we still see broad-based growth across almost all of our end markets. We've got almost all the end markets positive. If I could maybe go deeper into some of the secular areas, Aerospace, which you saw at the midpoint is at 6.5%. We've got greater than 10% for commercial OEM and military MRO high single digits for commercial MRO. But we're soft on military OEM versus some of the initial provisioning of the pull forward that happened on F-35 and that will turn around in FY '24. So Aerospace, in general, really, really positive for the whole year. That whole digital thread to the company is going to grow in that mid-single to high single digits in whatever ferns in markets like semiconductor, heavy-duty truck, which is obviously needed to transport all these digital goods lift trucks for 5G type of things, data centers, telecom. And then if I look at clean tech, electrification kind of in aggregate, and if I look at automotive, ag, mining and construction, and you just cut the sliver of electrification that cuts through those, that's all growing at greater than 10%. I'm going to get to your Q1, Joe, ain’t going anywhere. Powergen is going to grow mid-single digits. That's a combination of renewables and conventional. And oil and gas, which has been soft the last couple of years, it's going to turn positive greater than 10%. So we've got LNG, CNG and really kind of a return to investment here with, I think, the world recognizing as we journey from brown to green or not all shades the colors in between if we're going to need oil and gas for many, many years. The other part I would remind people is not only are the growth rates of these secular trends faster, the bill of material content is higher. So bill of material tends to be 1.5x to 2x traditional ICE application. So now if I get closer to your question now, the first half, second half split. First half -- I'm talking about total company, 5.5% organic, second half 2% organic. And we've got Q1 at a little higher organic growth rate, kind of, say, high single digits, 7%, give or take, for that Q1. And that's what's coming off of the current orders that we've got, the fact that we saw international get better in the month of July is what really kind of framed our thinking for Q1. Todd Leombruno : Joe, I'll just add a little bit of color on Q1. Obviously, you called out the additional interest expense that we try to highlight there. But tax rate is a big issue. If you look at our Q4 tax rate it had those discrete items in there. We are guiding to 23%. And then you know this is a normal thing, but we do recognize a higher amount of equity-based comp in Q1. So if you're doing a walk that other line is higher than what we normally have in Q4. Operator: Comes from the line of Scott Davis with Melius Research. Scott Davis : You're one of the few companies we cover that's generated real cash flow this quarter, and you didn't seem to have a whole lot of supply chain problems. I mean what -- is there anything that supply chain or that you would call out as an issue? Tom Williams: Scott, it's Tom. First part of why we've done is maybe better than most, has been that strategy we've been utilizing for years that local-for-local. We've been focused on dual sourcing before dual sourcing became popular. And so that has clearly helped us weather this. But we're not immune. We felt that our team has done a great job, I think, scheduling their shops working with suppliers. I think the use of our lean techniques and kaizen are all things that have maybe helped us perform better than others. If I was to characterize supply chain going forward, I would -- let's take the chips out of it for a second. It has stabilized. And in our forecast period coming up FY '23, we're going to see slow gradual improvement I wouldn't characterize that we're going to be back to normal by the end of FY '23, but making a small improvement, which will be good as in this year, it was more of a struggle for the whole year. But chips is a different story. We're fortunate we're maybe not quite as chip dependent. Obviously, as our OEM customers are, but certainly, our Aerospace business, Motion Systems, in particular, those two businesses have a fair amount of electrical electronic content. And that one, we're not forecasting really any improvement. We've done an awful lot of work with our engineering team qualifying alternative suppliers, alternate materials across the board. And a lot of credit goes to them. We've been able to be very nimble and agile with expanding our available materials and supplies to satisfy demand. And we did that on ships, but chips is still a struggle. And for FY '23, we're not forecasting any help on chips. I think it will take beyond that time period to get better. Todd Leombruno : Yes. Tom, I would just add on capital -- working capital as a focus. We talk about it every week. Our teams are very dedicated to it and really did a fantastic job in Q4. Scott Davis : Clearly, I must have confidence in supply chain to be able to have working capital improved like that. But, yes, I just wanted to clarify on guidance, the 2% to 5% organic guidance, is that [audio gap] I would imagine that just based on pricing you did this year alone, you probably have a few points of price in there. But can you clarify on that, please? Tom Williams: Scott, you broke up about midway there, but I think you were asking about the guidance. You're probably asking volume versus price, is that your question? Scott Davis : That's correct, Tom. Sorry if I break up. Tom Williams: Okay. All right. So as you know, we don't get into segmenting price for all the commercial reasons and the downfalls and pitfalls of doing it. I just suffice it to say as we go from that 5.5 in the first half to 2 in the second half, that volume is going to mimic that. And probably when we look at a volume standpoint, Aerospace is going to be fine all year, good organic growth, organic growth actually expands in their second half versus the first half. But on the industrial side, the second half will be weaker for all the things that we see out in the world. And so somewhere in our Q3 and we will probably get to flat volume slightly negative, somewhere in that time period. So we do -- that is in our forecast period. Operator: Comes from the line of Stephen Volkmann with Jefferies. Stephen Volkmann : I'm wondering maybe somewhat on the same topic here. presumably despite the fact that you've really done a great job with margins and incrementals, I'm guessing there's still been some sort of productivity headwinds from these supplier kind of issues. And I'm wondering if that's true and if maybe you can ballpark what sort of headwind you've seen? Tom Williams: Yes, Steve, it's Tom. It's really hard to do that to give that kind of that detailed. And just you're right, it's in there. We had to overcome it. We overcame it with all the things we were doing the supply chain win strategy, pricing, et cetera, but it's really hard to quantify. It will be something that will gradually help us as we go into this year. But as I mentioned, we're projecting gradual improvement, not some big step change in the supply chain improvement. Stephen Volkmann : Got it. Okay. I guess what I'm trying to think about this is that if supply chain were to normalize, and it doesn't sound like that's really totally your view. But if it were, my guess is that the incremental margins would be kind of higher than what you've laid out. Tom Williams: Well, certainly, it would help us. I mean the incrementals in the guide are pretty respectable. North America is at around numbers 30, international is at a decremental upper 20s and aerospace in the mid-20s. Recognize that Aerospace has a unique challenge this year as we compare it to the prior, our mix shift is going to be much more commercial. We've got commercial growing 2x commercial MRO, which is what the exact inverse we had in FY '22, we have commercial MRO growing twice at commercial. And I think everybody understands the difference in margins on MRO versus that. So that's probably the inverse, we had in FY '22, we had commercial MRO growing twice of what commercial OE. And I think everybody understands the difference in margins on MRO versus OE on that. So that's probably the biggest headwind there, but still putting it mid-20s incrementals. But to your point, chips, Steve, if we were to end up having even quicker supply chain improvements, yes, that's a potential upside for us, potential upside for us. Stephen Volkmann : Super. And then just on the final one on supply chain is just we do hear Hydraulics as a bottleneck for a lot of the customers that we speak with still. And I don't know whether they're just using the wrong supplier or whether that's kind of an area of issue. But are there opportunities for kind of share gains here if you're able to manage this more effectively? Tom Williams: Again, Steve, it's Tom. Absolutely. And I would not want to pretend that we are little white in that because we have opportunities because I know our customers listen to this, and that's 1 of the top things that they talked to me about. But we do have a distinct advantage that we’re typically much better than our competitors when you look at lead times and our ability to deliver. So we always look at these times where it's kind of a struggle that we can become the go-to supplier of choice and have an opportunity. And once a customer makes that kind of commitment, it tends to be pretty sticky. They're not going to switch back after making the effort to switch to us. So again, that's a potential upside. Operator: Comes from Jamie Cook with Credit Suisse. Jamie Cook : I guess my first question, Tom, can you just talk to your assumptions within North America and Industrial organic growth first half versus second half? And then just sort of your organic growth is below your targeted range of the 4% to 6%. So just your view on the macro? I mean, like how does Europe in China come out of this? And why is North America sort of more resilient? Tom Williams: Yes, Jamie. So the 4% to 6% remember is over the cycle with an FY '27 target. And actually being 2% to 5% in the current climate with all the things I said at the beginning, quantitative tightening, high inflation, high interest rates, the dollars growing, I mean, I actually think it's pretty remarkable that we're putting in that kind of a number, given all the conditions we're facing. So I'll make that comment on the 4% to 6%. But specifically in North America, first half is more like 7.5%, second half goes to 1.5%. And international is first half, 2.5% versus kind of a flat second half. As far as end markets, I gave color around [secular] ones, but if I just was to bucket and I don't want to read this giant list and bore everybody to tears. But we have a couple on the greater than 10%. And I would say this is pretty indicative as I described these the world. Obviously, some of the regions have a little bit of more softness. In particular, I think maybe to get before I go to that and some of your question around maybe the difference between regions. We see EMEA have probably -- and given everything that's going on there between the war and energy challenges being the regions that in the second half is probably going to go negative. So that's in our guide. Asia Pacific, we've got not weaker than North America, obviously, it's going to be in that low-single digits throughout the whole year. But in the first half, we've got China somewhat flat, rest of Asia mid-single digits in the second half. Both China and the rest of Asia gets in that low to mid-single digits. Recognizing that Asia gets a chance to compare to the current quarter last Q4, which was really a tough quarter given all the shutdowns. So North America, more resilient on order entry. We've seen that in the last quarter or two as we rejecting that trend for the whole year. And maybe I'll just stop there and see if you have any follow-up to that. Jamie Cook : No. I mean that's good color. I guess my only other question is I know you don't want to comment specifically on pricing and what your assumptions are. But to what degree should we think your pricing is fairly sticky so that if we do get into a deflationary market, that potentially is a positive for you? And I guess sort of what's embedded on price cost in the 2023 guide? Lee Banks : Jamie, it's Lee. I would say as you look at pricing across the enterprise, it's fairly sticky. I mean there are material contracts on the OEM level that flex based on what's happening with commodities, but that's a small part of what's going on. So I'm not really concerned about price rollback inside the company. Operator: Comes from David Raso with Evercore ISI. David Raso : Looking at the split, it looks like despite you have higher organic in the first half than the second half, the margin improvement in the first half and second half year-over-year is about the same, right? It's about 20 bps in the first half year-over-year and 10 bps in the second half. So I'm just making sure we understand despite the slower organic growth in the second half of the year, the margin performance year-over-year will be similar. And again, is that a price cost is inherently better in calendar first half of '23 than back half? Tom Williams: Dave, it's Tom. Yes, that's part of it. Yes, definitely, pricing was better in the second half of '22, which will help us as we go into '23. But I think we've proven in slowing top line areas to do pretty good at margin control. So I'd look for us to continue to do that. David Raso : And then lastly, the comment about July. I think you said all of international orders went back to up -- I think you said mid to upper single digit. Was that a year-over-year order comment for July for all of international? And if you can give us a little more color on that would be great. Tom Williams: Yes. David, thank you for -- this is Tom again. Thank you for asking because it allows me to clarify. So it's just a one month, so it's a [1.12] July versus July. So it's not our typical [3.12], which is why I don't typically quote that number, but given coming off the negative [3.12], international. Of course, when you get to forecast into a new calendar year, we look for every single piece of data we can get our hands on. And that was a nice indicator for us because we saw really all three regions. Latin America held up well in Q4, but Latin America continued to do well in July. We had both EMEA and Asia turned back positive in July. It's one month. So it's not a long data trend, but it was a good indicator. David Raso : I think China getting better in July from June to a little bit of reopening. I don't think would surprise people, but that Europe reaccelerated in July. I'll leave it at this. Any color on that? Is that distribution? Is it OEM? I think that's a pleasant surprise that Europe reaccelerated last month. Tom Williams: Yes. One month, I don't have my typical segmented market type of comparison, but I would just say across both distribution and OEM. Todd Leombruno : David, I would just add on the margin walk throughout the year, currency does come into effect that a little bit, right? So we have a little bit more headwind in the first half and it kind of normalizes as we get to the second half just because the comps become a little bit easier on those currency changes. I'm just looking at the margin walk, it's a very similar progression Q1 to Q4 versus what we did this year as well. Operator: Comes from the line of Nigel Coe with Wolfe Research. Nigel Coe : So it does feel like July was a bit stronger than June or certainly in the second quarter calendar of course. I mean you're very broad and you touch pretty much every single part of the industrial economy. I’d just be curious if you could give you a perspective on what's going on outside of China, obviously, which is a bit more of its own beat. But -- so maybe Tom, you might want to take that. But just in terms of the financing for Meggitt, it looks like we've got about $6 billion already financed on the balance sheet. I'm just wondering, just based on whatever cash you got on collateral with the derivative contract, et cetera, how much more is to be raised to get to that $9.9 billion? Todd Leombruno : Yes. Nigel, this is Todd. We are complete with the financing program for that. The one element of that is that $2 billion delayed draw term loan that we will pull once we get more clarity on the close date. So that's really the last piece -- and it's already set. We just have to wait until we get some clarity on close. Nigel Coe : So the $42 million in 1Q, so we can analyze that, add on the $2 billion for the play draw and that gets us in the ballpark of the current interest rates for -- interest expense for Meggitt. Todd Leombruno : Yes. Nigel, it's a good question. What our plan on that is to come back to you once we close, and we've got some clarity on what the rates happen to be. We will lay that all out for you in very good detail. Operator: Comes from Joseph O'Dea with Wells Fargo. Joseph O'Dea : I wanted to start on backlog. I imagine it was flat to up a little bit sequentially. I think running at something like 2x what would be normal levels relative to demand. And so as you're thinking about the upcoming year, what do you expect in terms of backlog trends? Do you think this is something that sort of normalizes relative to demand over the course of the year? Or based on what you're hearing from customers that they still want to order kind of well in advance, and just generally how you're preparing for that? Tom Williams: Joe, it's Tom. So is up significantly year-over-year, about 21%, backlog was $7.8 billion on June 30. But sequentially, it was pretty flat. And so I think this is kind of the peak in the backlog. I would expect it to moderate to the years slowly declining, probably not getting back to what I would call normal backlogs in the course of the whole year, but starting to moderate. And this backlog, in addition to our order entry patterns, the secular trends, the portfolio changes. These are all part of why we felt good about the 2% to 5% organic growth guide. Joseph O'Dea : Got it. And then related to market share gains, do you have any perspective on what you think you achieved in terms of share gains last fiscal year I imagine North America was a bigger opportunity with presumably some of the tougher supply chain dynamic in that region. So I don't know specifically if you could comment on that as well, really all of this related to the industrial businesses. Tom Williams: Joe, it's Tom again. So I would characterize it, yes, we did gain some share, calculating market share by region and all that is really difficult. There's -- you don't get the degree of accuracy. We track share by account. And obviously, I'm not going to quote any accounts here. But that's where you can actually get good accuracy because you know what potential is for an account and you know what your sales is into it. And you have good gauge [R&R] and repeatability of that. So we've seen where we've been able to make some improvements and not in every single account, but on some accounts. And so I would use that as an indicator that we had made some progress, but obviously, more to come. Todd Leombruno : Carmen, just -- I think we maybe have time for one more question. Operator: Excellent. One moment for our last question, please? Comes from the line of Julian Mitchell with Barclays. Julian Mitchell : Maybe just the first quick one around the free cash flow margin assumption. And you had a very strong sort of 14% margin in the year just finished. As you look at the sort of the current business ex Meggitt, how should we think about that free cash flow margin in the upcoming fiscal year? Should that sort of move up slightly with operating margins? Or do you get a big sort of hit still from working cap in the first half or something? Todd Leombruno : Julian, this is Todd. It's a great question. We obviously are very proud of our cash flow performance that we just finished in FY '22. We do see a little upside of that in FY '23. Obviously, the growth isn't as great as the growth period that came through. teams continue to manage working capital. So I think you'll see a slight increase in that. We'll give you a little bit more color once we get some of the Meggitt details on what it does for the whole company. Obviously, on the integration here the stub here, there will be some pressure on the total company free cash flow just as we get through the acquisition. But core company will be very similar to what we did last year with a little upside. Julian Mitchell : That's good to hear. And then a quick follow-up. Aerospace guidance, I think, Tom, you had said that the organic sales growth assumption for Aerospace is higher growth in the second half, I think, year-on-year than the first half. Any color around that? Is it to do with sort of easing supply chain constraints in commercial OE, lumpiness in military? And then commercial MRO, I think you said up high single, which may look low versus what some other companies have talked about for the next year or two. Tom Williams: Yes. So maybe I'll just give you the splits on -- not the split with the segment. So our guide assumes a mid-teens commercial OEM, a high single-digit decline in military OEM. That's again the pull forward provisioning on the F135 and the 135 engine. High single digits on commercial MRO, remember that's comparing against what we just did last year, which was a plus 36%. So that's you get this really big difficult comp on the commercial MRO, but it continues to grow. And the military MRO positive mid-teens do that math, those 4 segment gets you to 6.5. These first half, second half is just kind of the normal pattern. Aerospace tends to be stronger growth in the second half. You'll have some of the military MRO probably hitting stronger in the second half as well. Todd Leombruno : All right. This concludes our FY '22 Q4 earnings webcast. We really do appreciate all your support, all your interest in Parker. Like we said, we will do another one of these shortly once we get through close. Robin and Jeff are obviously here all day. If you have any further questions once again, I thank everyone for joining, and we will talk to you soon. . Operator: With that, ladies and gentlemen, we conclude today's conference. Thank you for your participation, and you may now disconnect.

Operator: Good day and thank you for standing by. Welcome to the Parker Hannifin Corporation's Fiscal Year 2022 Third Quarter Earnings Webcast and Conference Call. At this time, all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] And now it is my pleasure to hand the conference over to your first speaker today, Todd Leombruno, Chief Financial Officer. Thank you. Please go ahead. Todd Leombruno: Thank you, Paul. Good morning and thanks to everyone for joining. This is our fiscal year 2022 Q3 earnings release webcast. As Paul said, this is Todd Leombruno, I am Chief Financial Officer. And as usual, with me today are Tom Williams, our Chairman and Chief Executive Officer; and Lee Banks, our Vice Chairman and President. Today, we are going to discuss forward-looking projections and also, we will discuss some non-GAAP financial measures. Slide 2 in our deck details our disclosure statement on these areas. Actual results may differ from our projections due to uncertainties listed in these forward-looking statements, and those are detailed in all of our SEC filings. Reconciliations for all the non-GAAP measures, along with this presentation, have been made available under the Investors section on parker.com, and those will remain available for one year. I'd like to remind everyone before we begin that we are still bound by the requirements of the UK Takeover Code in respect to discussing certain details of the pending Meggitt transaction. As for the call today, as usual, we'll start with Tom discussing some key items for the quarter. I'll follow up with some additional color on our Q3 results and detail the increase to our guide that we issued this morning with all of our press releases. We'll finish the call with any questions you have for Tom, Lee or myself. And with that, we are now on slide 3. And Tom, I'll hand it over to you. Tom Williams: Thank you, Todd. Welcome, everybody, to the call today. Appreciate your participation. It was a record quarter, record quarter for the quarter and record quarter for all time in a lot of key metrics and was delivered against very difficult circumstances that required exceptional agility and performance by our global team. I know we all lived through it, but just as a refresher of what happened in Q3, we had the Omicron spikes, which drove absenteeism. We had supply chain challenges, inflation, China COVID shutdowns and the Ukraine war. So just your basic average quarter. Obviously, I'm being sarcastic, but obviously, not ideal conditions. And what was remarkable against that backdrop, we turned in a number of all-time records, as I mentioned, and my thanks to the entire team for just great performance and resilience in these times. So a couple of comments about the quarter on dside 3. Safety is our top priority. We continue to be top quartile when you look at our performance on safety incidents versus our peers. We're doing that through our high-performance teams, which is how we run the factories and the warehouses, and a culture of Kaizen. And as I've mentioned before to shareholders, there's a very strong linkage between safety, engagement and business performance. If you look at those three metrics for us over the last seven years, they're all going in the same direction. Our sales growth was 9% versus the prior year. Organic was a positive 11%, so that was very nice. We eclipsed $4 billion in sales for the first time in the history of the company, first time over $4 billion in a quarter. That was a great milestone. We had strong demand against virtually all of our end markets. Segment operating margin was 20.3% as reported or 22.7% adjusted. That was 130 basis points better than prior year. So expanded margins, 130 basis points in the kind of conditions that I started the call with, just remarkable performance. We increased the quarterly dividend 29%. That is the largest increase in our history and clearly signals the confidence that we have about Parker for the future. We have some temporary things, which we highlighted in the future slides here, that Todd will go over about the Q4 impact related to China COVID shutdowns. The comment here I just want to make is that that's a temporary thing. How long it goes? It's hard to predict. Hope, we expect to come up to full production sometime in Q1, and that will make up this delta that we're experiencing in Q4 during the course of the rest of FY 2023. And maybe to clarify, if you're looking at our -- what we're talking about China versus what some of our peers are, we only have 60 days left in our fiscal year. So it's very hard for us to make that up in rest of the fiscal year. But we clearly feel confident that we'll make it up in FY 2023. If you look at these results, the Win Strategy, as the portfolio changes, it's the fact that the company is now much longer cycle and a better performing company. On slide 4, what drives us is really three things: living up to our purpose, which is enabling engineering breakthroughs that lead to a better tomorrow; being great generators and deployers of cash; and being a top-quartile performer. And I want to give you one example on slide 5, probably our purpose in action related to clean technologies. As the world migrates to a more carbon-friendly environment and applications, we're going to be there to help. One very topical and current area given the inflation pressures in the Russia-Ukraine war is the topic of energy and the availability of energy and inflation of energy prices around the world. And as the world moves from brown sources of energy to greener sources of energy, it's pretty clear that we're going to need to use all shades of color between brown to green as we walk to the cleaner tomorrow. And clearly, a big part of that bridge to that cleaner tomorrow is going to be natural gas. And we wanted to talk about really natural gas, where we play in it and just how we're going to be able to help society, our purpose and action here. So upstream, just four main components here: upstream; midstream; liquefaction, storage and regasification; and power generation. On the bottom of this slide, you see the six Parker technologies that we utilize to go into there and a couple of anecdotal comments for each one. So in upstream, we've got fluid power controls for the rig equipment. We have instrumentation. Valves and controls in there as well. And midstream is primarily gas filtration. On the liquefaction, storage and regasification, that will be our pumps, our valves, ceiling technologies, glucan vance. And this is all under cryogenic conditions, so ultra-low temperatures. And then Power Gen, I'm going to cover on the next slide. So a lot of what we do for society on compressed natural gas and liquid natural gas is going to be directly applicable as the world moves to hydrogen, which is on slide 6. So that last value chain as part of natural gas, I think, core is the power generation piece. And clearly, what's obvious here and what's really helpful for us, and I think our customers, is all the technologies that we have on CNG and LNG are directly applicable into hydrogen. You can see in the middle of the page, the applications, those five bullets we have in the middle. On the right-hand side are our various technologies and similar technologies for both fuel sources with the exception of our sand technology will need to be even more sophisticated and which we're working on as we speak to be able to seal hydrogen, which is a smaller molecule and more difficult to seal. But we'll be a big part of this bridge with natural gas, and we'll be there to help when society's ready for hydrogen as well. If you go to Slide 7, which happens to be one of my favorite slides. And while you may be tired of me showing this slide, I think it's the simplest way for shareholders and people that maybe aren't familiar with us to understand how different the company is over the last seven years. It's been our people, which is really their engagement, their ownership, those top-quartile results that we see from our people driving top-quartile performance. So in the portfolio, and I would just summarize it, we're going to -- when we close Meggitt, we will deploy $20 billion of money into acquisitions reshaping the portfolio. We will have doubled engineered materials, doubled aerospace and doubled our filtration businesses over this period of time, dramatically reshaping the company and the future of the company. And then on the strategy side, you have the Win Strategy 2.0 and 3.0 now over this period of time. And you've seen what it's done to margins. EPS are just phenomenal. This is high into the right type of metrics on this page, which is hard to do. I can assure you that. So hopefully, you see from this progress, in addition to the alignment we have with the positive secular trends in aerospace, digital electrification and clean tech, that our business is poised for a very promising future over the next five years. I wanted to close my opening comments with giving you an update on Slide 8 with where we stand with the regulatory clearances regarding to the Meggitt transaction. So on the antitrust side, we're already cleared without any conditions from the following countries: Australia, China, Saudi Arabia, Singapore and Turkey. Brazil has given us unconditional approval subject to their usual 15-day waiting period, so that's in good shape. We've received conditional antitrust clearance from the European Commission subject to our commitment to divest of our aircraft mill and brake business, which is in process. And then on the foreign investment side of things, the transaction has been cleared by Australia, Denmark, Germany and Italy. So probably the simplest way for me to describe it what remains and what's left are antitrust clearances for the US. and the UK and the national security clearances for the UK. and France. So we're making good progress, and we continue to expect the transaction will close sometime during Q3 of this calendar year. And we're very excited. We're going to put two great companies together. We're going to double the size of aerospace, and we're going to have great synergies as we work together. And we're going to do all this at the beginning of an aerospace recovery, so the timing is perfect. And with that, I'll turn it over to Todd to give you more details on the quarter. Todd Leombruno: Okay. Thanks, Tom. I'm going to start on Slide 10. This is just a year-over-year comparison of our Q3 financial results. And Tom mentioned this, really all the credit goes to our team members, really demonstrating stellar execution to generate a number of record results in a quarter that, as Tom mentioned, had a lot of disruptions. Sales increased 9%. We did eclipse $4 billion for the first time in our history. Organic growth was 11%. Currency was a drag at two points. So that's how we get to the 9% growth. I just want to make a comment. Our backlog levels are unbelievably strong. They're up 25% from this time last year, and over 90% of our end markets are in growing state. We continue to see all regions perform extremely well. Commercial aerospace and really all of the North American markets are really the most robust, but it is broad-based across the company. Tom mentioned this, but we did expand segment operating margins 130 basis points. In the quarter, we finished at 22.7% on an adjusted basis. And I'll go through the segments in a couple of slides, but really every segment, every region contributed to this performance. The inflationary and supply chain issues, they are persistent. They remain, yet our team members are really showing their resiliency as we leverage the Win Strategy to really achieve our goal, which is top-quartile performance. When you look at EBITDA, our EBITDA margins expanded 70 basis points. We finished at 22.6 for the quarter. And net income -- adjusted net income grew by 16% in the quarter, and we finished at $630 million or 15.4% return on sales. That -- net income grew 16% versus prior year, very, very impressive. I think we've mentioned this multiple times before, but Tom was talking about Meggitt. The currency deal-contingent hedge we have on the pound to dollar requires mark-to-market accounting treatment. Due to what's going on with currency rates and really the strengthening of the dollar versus the pound, we did record a pre-tax non-cash charge in the quarter of $247 million, and that really accounts for the major difference between the as-reported and the adjusted numbers this quarter. When you look at EPS, we did $4.83. That is $0.71 greater than prior year. That's up 17% from the $4.12 we did last year, so just really solid performance across the board. And again, I can't thank our team enough. If you go to slide 11, what we did here is we just put a graph together that displays really the elements of that $0.71 or 17% increase in EPS. And again, once again, this quarter, we continue to outperform. It's really driven by volume. Of course, the margin expansion that Tom and I talked about. But really, what I like about this is it really displays our solid operating performance. The majority of the change, all of it is showing up in segment operating income, $0.75 of the $0.71 increase is all segment operating income. If you look at everything else, that's the $0.04 of a drag, but really proud that we were able to not only improve EPS, but do it at the operating line. If we jump into slide 12, this is our segment performance. Growth continues to be broad-based across every segment and every region. Demand is continues to be robust. Our orders are up 14%. The team has taken prudent actions to manage the inflationary environment. And that really has positioned us to continue to maintain margin-neutral on all of these price cost issues that are fairly well documented across the world. That and the operating execution that I talked about, really allowed us to improve margins in every segment. If you look at our incrementals, 37%, we've talked about this a couple of times, but we still are going up against pandemic-level comps. We had $25 million of discretionary savings in Q3. If you account for that, incrementals would have been 44% for the quarter, so just really solid incremental performance. It really highlights the power of the Win Strategy, and it demonstrates the transformation that we spoke about at our Investor Day, just March 8th. If you jump into the segments, North America surpassed sales of $2 billion. Organic growth was almost 15% versus prior year. And adjusted operating margins expanded by 100 basis points and reached 22.9% for the quarter. That led the company this quarter, right, which is really impressive. North America has certainly had challenges across the supply chain. It's great to see them rebound and lead the company again. Their incrementals improved in the quarter, and they're the best incrementals they generated all fiscal year. And even more importantly, order rates accelerated to 23% and backlog, of course, grew even stronger. Just very great execution, broad-based demand in the North American segment. If we move to international, sales were about $1.4 billion. Organic growth there is almost 9% from prior year. EMEA and Latin America combined was mid-teens positive, and Asia-Pacific was low single digit, but all regions are positive in the international segment. Again, here, operating margins expanded 110 basis points in international and finished really at a high level of 22.7%. Really satisfied to see the consistent performance our international teams continue to post. And we've talked about this. It's been a long-term effort for a long time. And I'm really happy that we're seeing the results out of our international segment. Order rates in international are plus 9%. If we look at aerospace, aerospace continues to rebound. Sales were $632 million. Organic growth was almost 6%. Very strong demand in our commercial markets, both OEM and MRO. And operating margins, a great points of improvement, came in at 21.9%. And I just want to remind everyone, with this great margin performance, we are still operating at below pre-COVID, the baseline, when it comes to sales. Orders in aerospace are minus 4%. But if you remember, we talked about this last quarter. There were a few large military orders in the prior period that really just kind of make a tough comp in aerospace. If you exclude those items, aerospace orders were positive 20. And again, aerospace dollars in the quarter are the largest dollar level that we've had in the last four quarters. So, it just really gives us confidence in the aerospace recovery. Really proud to be able to share these results across all of our segments. And like Tom says, it really demonstrates the power of the performance and portfolio change that a lot of all of our team members have been working on for some time. So, if we go to slide 13, cash flow generation, right? Tom talked about being great generators and great deployers of cash. Year-to-date, we've exceeded $1. 5 billion in cash flow from operations, that's 13.3% of sales. Our free cash flow is about $1.4 billion. That's almost 12% of sales and our year-to-date conversion is 117%. We continue to still manage this diligently in a growth environment, right, which is not the easiest thing to do. If you look at year-to-date, working capital is a use of cash of about 3% versus last year, it was a source of cash of about 1.2%. Q4 is our strongest quarter for cash. If you followed us for a long time, you know that. We still continue to forecast mid-teens CFOA [ph] and obviously greater than 100% conversion when it comes to cash flow conversion. Tom called out the 29% dividend increase that we announced. This really reflects the confidence we have in our ability to generate cash not just in the short-term, but in the long-term as we look to achieving those FY 2027 goals. Just a few notes on leverage. Our gross debt to EBITDA was 2.8, our net debt was 2.6. But if you remember, we have about $2.5 billion of cash in escrow to pay for the Meggitt transaction. We are classifying that as restricted cash. If you exclude that $2.5 billion, our net debt to EBITDA would be 1.8. Now let's look at the guidance. If I go to slide 14, on the guidance, we obviously announced an increase to our guidance this morning. I'm going to give it to you on an as-reported and adjusted basis. We're raising full year EPS by $0.10. Last quarter, we were projecting $18.05 per share. We are now at $18.15 per share at the midpoint. We've also narrowed the range to $0.15 on either side. Sales growth for the full year is forecasted to be about 10%. We did increase the organic guide 50 basis points from 10.5% to 11%, so 11% full year organic growth. And while currency remains a headwind in the quarter, for the full year, we think it will be about a 1% drag to the top line. Just a reminder on currency for our guide, we are using March 31 rates to calculate our estimate. If you look at the segment operating margins, full year guidance is 22.1%. I just want to call out, if you look at that versus last year's actuals, that's a 100 basis point increase in segment operating margins. So I'm glad to be able to speak to that. The corporate G&A interest and other is really expected to be $947 million on an as-reported basis and $459 million on an adjusted basis. And the adjusted – we've kind of – the adjustments we've detailed out for everybody. The acquired intangible asset amortization is $315 million. Business, realignment charges are $20 million. LORD cost to achieve is $5 million. And of course, we closed our Russian operations. That is a charge of $20 million. If you're curious, that was $13 million in the segment line and $7 million below the segment operating income line. Meggitt acquisition-related expenses that we've incurred to date is $84 million and finally, that deal contingent hedge that I mentioned on a full year basis, it's $396 million. We will continue to adjust transaction-related expenses as they are incurred, all the way up until we get to close. And a note on tax, our full year tax rate is down a little bit. We expect that to be about 21.5% for the full year. And when you do all the math, for us, that equates to an EPS – adjusted EPS guide for Q4 of $4.60. This quarter, we actually put another slide in here. It's a bridge on our guidance reconciliation. The Q3 performance that we had, we really outperformed our guide significantly. We beat our guide by $0.29. We've rolled that into our full year guide here. And based on really strong backlog and order rates, in North America specifically, we have increased our Q4 North American organic growth guide by 300 basis points versus what we thought last quarter. And that really is generating about $0.08 of segment operating income in Q4. Tom has mentioned this, but the COVID-related shutdowns in China are a near-term temporary headwind for us in Q4. Obviously, Q4 is the end of our fiscal year here. We are estimating that to impact Q4 sales by $100 million. We're using a 40% decremental on this $100 million, which is greater than what we normally operate at, simply because a number of our facilities are fully shut down. So we are confident that the facilities that are operating in China and those others in the international segment are going to be able to perform, but we're using a 40% decremental on just that $100 million of near-term headwind. That equates to a $0.24 EPS headwind going into Q4. All the other items net to a slight EPS reduction of $0.03, and that really is the walk on how we get to our new guide of $18.15. So before I turn it back over to Tom, I just want to make sure everyone saw the press release that we issued on Tuesday with Robin announcing her retirement plans after what will be almost two decades with Parker-Hannifin. And Robin has really been a driving force within the company, really helping us to transform our M&A processes, our long-range planning and, of course, serving as our voice and our biggest fan with the investment community. She has put forth a timeless effort to champion Peer W, which is our first business resource group that is focusing on developing women leaders, and that will leave a lapping imprint on Parker. So, Robin, all of us here, we couldn't be happier for you, for your husband, Scott, as you transition into the best phase, the next phase of your life, and we thank you very much. Tom Williams: So I'm going to just pile on, while we have Robin blushing and embarrass her even more. She's just done a great job. I've had a chance to work with her for 20 years. If I think about her deal-making skills and what she did when she led M&A, her ability to finance all these transactions, which isn't the easiest thing. And like Todd said, the Investor Relations and you've all experienced it, her ability to be the top spokesperson for the company, just outstanding. We're going to miss her. But thankfully, she's given us lots of lead time here, and she's not leaving until the end of the year. And we'll get every ounce out of her that we possibly can on these next several months. She's nodding her head in agreement. So last slide, slide 16. We have a highly engaged team. They're the people behind these results. Their ownership, their engagement that drove the -- is driving our success. You saw the EPS and the margin expansion, just phenomenal, speaks to the Win Strategy, speaks to the portfolio changes. We are a longer-cycle, more resilient company. And we've got great alignment to the secular trends that I referred to earlier. And we're going to help the world, as it moves to the clean technologies to be more sustainable. We gave you a new guide -- new feedback on where we’re headed for FY 2027, with the continued improvement across the board and really a transformed company with a bright promising future. Again, my thanks to everybody in the global team, just a fantastic quarter, fantastic year-to-date. And I'm going to turn it back to Paul to start the Q&A. Operator: Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] Your first question is from Scott Davis with Melius Research. Please, go ahead. Scott Davis: Good morning, everybody and congrats, Robin. I did not see the announcement. You will be missed. And we appreciate your help over the years. I wanted to talk a little bit about your results. I mean, it doesn't seem like supply chains hurt you guys really at all. I mean, you had 11% core growth in a zero GDP world. So was there a tangible impact to supply chains on being able to get stuff out the door in the quarter? It sure didn't seem like it could have been much. Tom Williams : Scott, it's Tom. Supply chain is still a challenge. I would characterize it, if I take chips, I'll come back to chips in a second, that has stabilized, but stabilized still at a fairly inefficient level. It really hasn't shown much improvement over the last several quarters nor are we forecasting that. Obviously, we're not forecasting very far out here as the rest of our fiscal year. But I think it's going to be a challenge as we go into the calendar -- rest of the calendar year. What we did see worsen was chips, and that continues to be a challenge. But I think why you've seen us perform maybe better than most has been our ability to -- we're local for local. Our supply chain has been built around that for years. And while we continue to want to localize even more, we kind of had a running start against a lot of this. We've been active on trying to increase tool sourcing. And our engineers -- we spent a fair amount of time with our engineers working to develop alternative materials that would be qualified with our customers. Our materials are either more readily available, especially in the chipset qualifying alternative chips, and some of our engineered materials products or some of the chemicals, et cetera, were difficult to get. We've been qualifying alternative materials there. So I would put saying doing all of the above and just an awful lot of elbow grease and work in the factories, in the warehouses to make this work. This is not the easiest environment, but the team did a great job with it. Scott Davis : Yes. Certainly seems so. The example you gave on natural gas to hydrogen was kind of interesting. And I -- it begs the question of, does the competitive landscape change as you go to the more complex hydrogen applications? I mean, my understanding is that it's -- the specs have to be pretty darn tight, and hydrogen, it's a highly volatile material. But does the competitive landscape change at all, or is it -- do you think the competitors will be there -- the similar competitors would be there? Tom Williams: Scott, it's Tom again. I think it does change a little bit. I think it thins out because I think there's fewer people that can do the kind of things that we can do in that area. The fact that we've already developed a lot of these cryogenic solutions puts us in a running start with that. Yes, we had to look at hydrogen birdman to make sure that there's material compatibility, which we're doing. And then our -- the advancement we've had in engineering materials and the fact that we have that technology in addition to all the other technologies, because the big -- like I mentioned, the big challenge with hydrogen is sealing a molecule because it's much smaller and prone to leaking and to a point volatile. And so we're doing investments as we speak. We just looked at that early this week. We had a clean tech review with all of our groups. And we're investing right now so we can be ready for when that does come to market. Scott Davis : Okay. Sounds good. I’ll pass it on. Thank you. Appreciate it. And good luck guys. Tom Williams: Thanks, Scott. Operator: Your next question is from Mig Dobre with Baird. Please go ahead. Mig Dobre: All right. Thank you and Robin, all the best. Congrats. Tom, I want to go back to your comments on North America. You really kind of highlighted this geography as accelerating maybe relative to the others. And I'm wondering, what are you seeing that's differentiated or special here? And let's leave the China COVID lockdowns to the side, because that part is pretty obvious. And I'm curious, when we're looking at the sequential acceleration in order intake, are you actually seeing better volumes, or is this just a function of higher pricing given everything that's happening on the commodity side? Tom Williams: Well, I think in North America -- Mig, it's Tom. I think North America -- Mig, it's Tom. I think North America has gotten on top of the horse, so to speak. The supply chain challenges we had were the most pronounced in North America. They had more work to do, more work to do on logistics, on dual sourcing, on qualifying alternative materials versus the other regions. And I think you see the benefit of sometime and good work by all the teams, which was evidenced in their MROS is improving as you go through the course of the year and then having their best ROS quarter to date and leading really all the segments. So, North America clearly has gotten on top of that, made a lot of progress to that vantage point. There is good volume improvement really across the world. Obviously, I think most of that volume improvement has been in North America and in aerospace. Because aerospace with their long-term contracts were somewhat shielded from the inflation pressures there. So, they benefit from the volume as well. Mig Dobre: Okay. And then my follow-up, I'm curious, as you're looking at your international business, maybe Europe specifically, are you sort of seeing any change in the pace of business, customer confidence or whatever you want to call it as a result of this situation in Russia and Ukraine? How did April progress for you maybe relative to March? If you can comment on that. Thanks. Tom Williams: Well, on EMEA, I would say -- again, it's Tom. It's probably too soon to know for sure how the whole rush Ukraine process is going to play through. Obviously, Russia and our hearts go out to the Ukrainian people. And we've done an awful lot of our philanthropic work has been to help all the people that are involved in there. But it's small sales for us. It's immaterial from a -- of course, the human toll is huge. Sales tolls is immaterial. But our orders for -- if I look at Q3 versus Q2, we're roughly the same. They were in the low teens. I'm talking about EMEA. We do forecast sales -- sales, you break out the international piece in EMEA was 13% for Q3. We are forecasting it to soften in Q4 to 5%. So, we do anticipate some moderation there. Some of it is comp, some of it is based on what we're seeing with the orders, and that's all baked into our guide. But I think to fully understand what the second derivative is of all the Ukrainian war, I think we're going to need more time to see how that plays through. Mig Dobre: Understood. Thank you. Operator: Your next question is from Jeff Sprague with Vertical Research. Please go ahead. Jeff Sprague: Thank you. Good morning everyone. Congrats, Robin. Just a couple Meggitt-related questions, if I could. First, Todd, on the FX hedge, are you completely economically neutral at close on this? Obviously, the dollar has strengthened a lot against the pound, which impacts the ultimate out-of-pocket. If you could just clarify that. And also, any color on whether or not your funding costs to ultimately consummate the deal have moved materially here? Todd Leombruno: Yes. Jeff, thanks for that question. On the deal contingent hedge, what we did is we locked in a pound-dollar rate. I think we did that in September time period. Obviously, a lot has changed across the world and the economic landscape since then. We still are confident that, that was the right thing to do. It has made our certain fund process as we go through the transaction certainly much clearer and much easier. Most recently and you've seen the pound to the dollar, really the pound weakened and the dollar strengthened. That has created these accounting transactions that we have to record each quarter. So from an economic value standpoint, we're working through that right now. Obviously, there's a lot of moving pieces with the valuation of the purchase price accounting of all that stuff. But we're confident that we're going to like the results that we have. As far as the financing goes, we've done a lot of work on this with our team, with our advisers on this. And really, what we found is the increasing interest rate environment is pretty much priced into the market. So just on a high level, the way we are attaching that is really based on our strong cash flows. We are just leaning towards more of a mix of serviceable debt on the transaction. So, when you look at this compared to the last large deals that we've done, the financing plan is basically using the same methodology, and they're about the same costs in total. So more to come on that, Jeff, but we feel good with where we're at in respect to financing and the pending transaction. Jeff Sprague: Great. And then what -- thanks for the color on the approvals and what remains. Would the UK national security be the longest pole in the tent here, or should we think about the remaining items as roughly equivalent and on the same time line? Tom Williams: Jeff, it's Tom. It's hard to predict that. But we've had a lot of discussions with the UK government. There's a couple of tracks there. There's the economic considerations, which are really the things we had at 2.7, the national security considerations that were in [indiscernible] in a number of discussions with them. And then you have their antitrust process as well. And I can't predict who will go first, just that the list of who's in the outbox is increasing. And this all bodes well that we're getting closer to the end. And I think you'll see them probably all kind of go roughly in about the same time frame would be my guess. Jeff Sprague: Great. Thanks for the color. Good luck with that. Operator: Your next question is from Jamie Cook with Credit Suisse. Please go ahead. Jamie Cook: Hi, good morning and congrats on a nice quarter. I guess, first, just a modeling question. It looks like the aerospace margins get a nice bump in the next quarter. So is there anything unusual driving that, or I'm just trying to understand what that could potentially mean for the trajectory into 2023 as aerospace starts to improve. So that's my first question. And then I guess my second question, again, very good organic growth. Tom, the market is very concerned about a slowdown, and people are using the R word. Just wondering if you could talk to how you think your portfolio could perform. In a slowdown, some of the market share gains -- are you getting market share? And could that -- and the pricing dynamics, could that help make your sales more resilient, assuming we're going into a downturn over the next six to 12 months? Thanks. Tom Williams: Jamie, it's Tom. So I'll start with the first one, Q4 is nationally our highest margin in aerospace, typically based on shop visits and the exposure with the summer, et cetera, for aircraft and engines. And then also, it's been driven by the commercial MRO activity increasing because it's growing at the fastest rate. That happens to be our highest margins, which is why you see that performing like they do. Now coming back to -- this question happens all the time as far as, well, how will Parker do during the next recession. And I'm hoping if you go to that slide that I mentioned in my prepared remarks, it's my favorite slide that shows the margin and EPS expansion. That has two note recessions: the pandemic, and of course, everything we're experiencing today, all in it. And you've seen us move pretty much at a 45-degree angle. So I think you could rest assured that this team has proven its resilience to weather any recession. And we'll -- if it happens, we'll weather it the same way we have in the past. But I would argue to your point that the company is significantly different. In Investor Day, we went through the longer view of the company between the Win Strategy and how the portfolio has dramatically changed. Now we doubled the size of engineered materials, filtration and aerospace, and that's going to allow us to grow differently. And when we showed you that five-year vision, if you -- those who maybe didn't see it, there was a mix of short, long and aftermarket. And when we get out to FY 2027, I add up the long and aftermarket, it's roughly 85% of our sales mix. So that's going to have us operate much differently. Now if you go to civil time, I don't care about five years. I'm worried about what's happened in the next 12 months or so. I think I would come back to our ability to perform is proven in good times and bad times. And we have the benefit of the beginning of our commercial aerospace recovery, which is going to help us. We have that linkage to the secular trends much more so than we have in the past, which is, okay, they could get impact, and I'm talking about electrification, digital, aerospace and clean tech, but they're probably not going to get impacted the same as any of the traditional end markets. We have Meggitt coming on board, so we get a lift from the acquisition just from an incremental revenue there. We're going to have the synergies, et cetera. And we have a company that is dramatically leaner or agile proven by what we've done the last seven years. So we're ready -- the last quarter, I was being sarcastic when I was referring to it as a normal quarter. I think, if anything, we've proven to be very resilient team and the ability to be flexible, nimble and I think you'll see that going forward. Jamie Cook: Okay. Thanks and congratulations, Robin. Thanks for all the help you've been fantastic. Tom Williams: Thanks, Jamie. Operator: Your next question is from David Raso with Evercore ISI. Please go ahead. David Raso: Hi, thank you and best of luck, Robin. A quick question on the China getting back to full production in July. Can you just give us a little more color on your confidence in that? And then also, I mean, historically, you've sort of gone through 312 pressure curves through the key markets. Obviously, the North American orders are strong. But I'm just curious, are there any areas that you're seeing the book-to-bill or the 312 pressure curves that you track that are starting to show? Those are some of the short-cycle businesses that maybe are showing a little bit of cracks. Or are we just not seeing any cracks anywhere in the North American market at this stage? Thank you. Tom Williams: David, it's Tom. So I'll start with the full production comment in China. If you notice, we put Q1. We didn't say July. We said Q1. And the first thing I'll say is it's an educated guess. Obviously, I'm no smarter than anybody else. And only President Sheen [ph] knows when those lockdowns are going to turn around. However, a couple of things. Just part of what we have to do when we forecast is use some pragmatic thinking a little bit of history. So we go back to when China went through it, the beginning of COVID, it had a pretty rapid rebound compared to the other regions. So some of that was factoring equation. And then just thinking about the practicality, how long can you practically keep people locked up in their apartments and their homes, and it started middle of March. And so there's a point of diminishing returns here, where people are going to have to come back, the factories are going to have to come back. And so our best guess is sometime in Q1 of FY 2022 that seen its July, could be August, it could be September, and I could be wrong. And it took we had to pick a time. The whole point I was making about that comment is that it's temporary. This is not a permanent situation in China. Then if we look at FY 2023 and if we look at China, we would make up whatever happens here in the next several months because we have another 12 months ahead of us to make up with that. Now in your comment related to end markets, we have over 90% of the end markets positive. And virtually, with the exception -- everything is positive with the exception of aerospace, military and power gen. And that's our outlook for Q4, feels the same. And the pressure curves look good, we still feel very good about what's going on. Broad-based, I would describe it. David Raso: And last quick clarification. The aerospace, it's rolling 12 months. I appreciate that. When does that large order that's making for the difficult comps roll-off in that calc? Todd Leombruno: Yeah. David, I can take that one. This is Todd. We probably still have another two quarters to get through that. If you remember, we just started calling that out last quarter. This is the second quarter we've called it out. So we've got two more quarters to go. David Raso: All right. Thank you. Operator: Your next question is from Joe Ritchie with Goldman Sachs. Please go ahead. Joe Ritchie: Thanks. Good morning everyone. Would echo all the comments about Robin, really, really great working with you and wish you the best. First question on industrial, on the global business. So just looking through the guidance, it looks like you're kind of forecasting a mid single-digit decline. And you had a pretty high decremental, call it, high 30s decremental. I know that the comps are tough in 4Q, but is there anything else that you want to call out for the 4Q number? Tom Williams: Joe, so are you referring to sales or margins? Joe Ritchie: Yeah. So if my math is right, it looks like sales are expected to be down year-over-year, margins also down, call it, more than 100 basis points. I'm just trying to parse it out and see whether there's some conservatism in there or you guys are seeing something specific to 4Q for the international business? Tom Williams: Okay. So well, margins total for the company 22.2% is what the effective Q4 guide is. We did 22.2% last year, last Q4. And we see expansion in North America. North American markets expand. Aerospace margin expands. And then Asia, international margins expand -- declined a little bit, still coming in our implied guidance right around 21%, and that's because of the China shutdown. So really good margin expansion in the areas outside of the China shutdown. And then on the top line, Todd preferred to this that we bumped up North America organic guide by 300 bps of going prior guide to new guide, bumped up aerospace by 50. And of course, we took down international. So maybe to calibrate people, the effect of the China shutdowns, we would throw -- we would increase total guide from Q4 by 250 bps, if that was running normal. And the total international will go up 650 bps. So it's a pretty big impact, which is weighing down international. Joe Ritchie: Got it. Okay. That makes a lot of sense. And then also, I kind of wanted to ask about aero also, more from a near-term perspective. I recognize you guys are calling for some good growth year-over-year on the margins as well. Sequentially, though, it doesn't really seem like the margins are expected to pick up in the fourth quarter just based on the full year guide. Is there anything like you would call out from a mix standpoint in the fourth quarter versus the third quarter, or still seeing good mix coming through in 4Q as well? Todd Leombruno: Hey Joe, this is Todd. I could take that one. What we've got in the fourth quarter guide, you're talking specifically for aerospace, right? Joe Ritchie: Yes. That's right. Todd Leombruno: Yeah. We actually are improving margins from Q3 to Q4. We did 21.9% in Q3, and we're right at 22.2% for Q4. So there is expansion there. Joe Ritchie: Okay. All right, great. Thanks guys. I’ll get back in queue. Todd Leombruno: Okay. Thank you. Operator: Your next question is from Stephen Volkmann with Jefferies. Please go ahead. Stephen Volkmann: Great. Thanks for taking the question. And congrats, Robin. For me, I'm very impressed with the incremental margin performance accelerating here. And I'm wondering just kind of directionally how we should be thinking about that for 2023. Is there some reason that it would revert to a long-term average, or do we get to enjoy a longer period of a little bit higher incrementals? Tom Williams: Steve, it's Tom. I'm going to probably not make any specific comments about 2023. I think you can appreciate there's a lot of things that changed. We're one of the first companies to get -- has the good fortune to talk about 2023, and so I won't talk about it a month sooner than I need to. However, in general, when I've articulated incrementals, they tend to inflect at your highest point at the beginning of an upturn. They start to moderate, and then you use 30% over-the-cycle type of number. And then once you're deeper in the cycle, it would go below 30%. So we'll see as the numbers roll up and as we forecast. But I continue to -- we gave you our five-year look. I think we had incrementals in that low 30s over the course of the next five years to get to those five-year targets. And so that's -- we need to do that consistently somewhere over the next five years to hit those five-year targets. And you've seen our track record on doing that. We are pretty good about our say-do ratio on the five-year targets. So we'll see what happens, but the company is clearly in better shape and better condition to generate those incrementals. Stephen Volkmann: Okay. Yes, agreed. Well, it's worth to try. Maybe I'll shift to ask you about distribution. And I'm curious if there's any interesting trends you're seeing in distribution that are worth calling out as we try to think about the direction of everything here. And maybe you can add a comment on distributor inventory when you do that? Lee Banks: Steve, it's Lee. Just -- so distribution as a whole, I would say, is going very well. I'll break it down a little bit. North America, all markets are very positive. There's -- for those distributors that are covering the natural resource industries that business is coming back quickly and specifically. Internationally, we continue to grow distribution, despite all, the term loan about 100 basis points a year. So we've been making great progress on that. And I would say on inventory, everybody could use more. I mean, there's a great pull taking place. We're able to satisfy customers. But as a whole, distribution, if they could build more inventories, I think they would. Stephen Volkmann: And are you seeing more, price in the distributor channel relative to the rest? Lee Banks: Well, we've been -- as you know, we've been very proactive, on making sure we cover material cost and do the pricing that's necessary with that. And those distributors have been passing those price increases along. Stephen Volkmann: Okay. I appreciate you guys. Lee Banks: Thanks, Steve. Operator: Your next question is from Nigel Coe with Wolfe Research. Please go ahead. Nigel Coe: Thanks. Good morning, and Robin, congratulations. Thanks for the help. Going back to Meggitt and some of these currency moves, the -- I'm guessing that the bulk of the functional currency for Meggitt is U.S. dollar. I'm guessing that the bulk of the cost base is sterling. Is that correct? And -- because that, then implies that if we do have a sort of a structurally weaker sterling going forward that should be, helpful to margins, so just wondering, if you can maybe comment on that. Todd Leombruno: Yeah. Nigel, this is Todd. I don't think I could comment on that. We are bound by the code. We did mention, I believe, on the call, there's a significant mix of the Meggitt business that is in the U.S. That obviously is dollar-based. So I think I'll leave it at that. But I... Nigel Coe: Okay. Yeah. The move is significant, so it's worth exploring. And then just thinking about international, so it looks like ex-China, the -- so the kind of the ex-China business is low-single digits in 4Q. So I'm just wondering if maybe you could just talk about, what you're seeing geographically in international markets. And then, would you encourage us to model the recovery of that $100 million of lost sales through FY 2023 at this point? Tom Williams: Hi Nigel, its Tom, yes, $100 million, we will recover sometime in FY 2023. And obviously, we'll embed that when we give you the guide here in August. But when I think about the markets across the regions in Q3, I'll just give you the reasons. This is all organic numbers, I've given you. In both North America and EMEA, in mid-teens; Latin America, upper teens; aerospace, 6%; and then, Asia was in the low single digits. And Asia Pacific was impacted because of China. China was down mid-single digits. The rest of Asia was up high-single digits. And that's how you get to the Asian number. But when you look at end-markets, it's pretty much across the board. As I mentioned on David's question, we have strength in 90% of our end markets. The only market decline was aerospace, military and power gen. So it's very broad-based. If I looked at even higher, distribution and industrial both growing about the same rate and a little bit slower, but it's been across all the segments. Nigel Coe: Great. Well. Thanks Tom. Good luck. Tom Williams: Thanks, Nigel. Stephan I think we've got for more question? Operator: Thank you. For our final question, it's from Julian Mitchell with Barclays. Please, go ahead. Julian Mitchell: Thanks very much. Good morning. And appreciate all the help, Robin. So, yes, I guess my final question really just on the aerospace business. I guess, two aspects. One is, I think, you toned down the sales guide a little bit for the year. So just trying to understand what drove that and whether you think on the revenue side, the military headwinds abate entering fiscal 2023. And then, the margin performance for the year as a whole in aerospace is kind of exceptional on the operating leverage this year. Is there any way you could parse out drivers within that around maybe synergies or lower R&D, just so we can sort of use our own math to get to the sort of forward incrementals next year? Tom Williams: So, Julian, it's Tom. What's driving aerospace, if I just give you the two key components, is the commercial recovery. Our growth in Q3 commercial MRO was plus 31%, and commercial OEM was plus 21%. So those two, we get to the full year, plus 27% for commercial MRO, plus 17% for commercial OEM. And I think actually, when I look at my numbers, we bumped aerospace up 50 bps in Q4 versus the prior guide. So we see aerospace as positive. The order entry, again, once we cycle over the multiyear military order, which we've been trying to give you visibility to that, that was plus 20%. I mean the orders we had, commercial OEM was over 100%, commercial MRO was 60%, so gigantic orders. And what you get right now offsetting that is the military piece, which everybody tracks out the companies. The military piece for supplier health, a lot of the OEMs pulled in military business into FY 2021, which makes the comparable in 2022 difficult. But we'll cycle through that, and military will eventually get back to kind of a low single-digit type of growth. So I'm very bullish on aerospace. Obviously, we don't have any of the Meggitt synergies and that kind of stuff into it now. But we have the same goal for aerospace as we do for everybody else, trying to get to 25% ROS over the next five years. And we've got a great acquisition in Meggitt, which we've shown what that synergies brings that Meggitt business up to 100% EBITDA once we get the end of those synergies. So we have a lot of things that will help us with aerospace. Julian Mitchell: And -- thanks. Is there any kind of outsized mix or R&D tailwind you'd call out for the margin performance in fiscal 2022 just overall in aerospace? Tom Williams: Well, in the current quarter, it was light, mainly due to timing, nothing unique there. I would say, in general, it's a tad light or it's going to be 2.5% to 3% for this fiscal year. It's going to probably be more in that 3% to 4% range, if I go over that 5-year period of time. But you won't see that hit in any material quarter -- material way, like a specific quarter or specific year. It's going to -- over that period of time, we'll grow the MRO. And we're on still the R&D. And so by historical standards, that's a pretty efficient R&D spend versus what we were at the beginning of the super cycle for aerospace. Todd Leombruno: Hey, Julian, I would just add to that. If you remember, at the pandemic when we made our adjustments, aerospace made the most aggressive adjustments from a cost basis. So we have obviously benefited from that throughout this year. Those costs are not coming back. So that would be another change from this year versus pre-pandemic levels. Julian Mitchell: That’s great. Thank you. Tom Williams: Yes. Todd Leombruno: Okay. That concludes our Q3 earnings call. I'd like to thank everyone for joining us today. Robin and Jeff are going to be here today if you have any further questions or if you'd like to congratulate Robin personally. I would just like to make sure everyone knows, Robin will be here through December 31 of this calendar year. So you definitely have time to congratulate her, hopefully in person, as we go throughout the year, and she'll be here for the next couple of calls as well. So that is it. I'd like to thank everyone for their interest in Parker, and thanks again for joining us today. Thank you. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for joining. You may now disconnect. Stay safe and well. Have a good day.

Operator: Thank you for standing by and welcome to the Parker-Hannifin Corporation Fiscal Year 2022 Second Quarter Conference Call and Webcast. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, this call may be recorded. I would now like to introduce your host for today's program, Todd Leombruno, Chief Financial Officer. Please go ahead, sir. Todd Leombruno: Thank you, Jonathan and good morning everyone. Welcome to Parker's fiscal year 2022 Q2 earnings release. As Jonathan said, this is Todd Leombruno, Chief Financial Officer speaking. Tom Williams, our Chairman and Chief Executive Officer; and Lee Banks, our Vice Chairman and President, are both with me here today for the webcast. I'd like to direct you to slide number two, which details our disclosure statement addressing forward-looking statements and non-GAAP financial measures. Reconciliations for all non-GAAP financial measures are included in today's materials. Those materials, those reconciliations, along with this presentation, are accessible under the Investors section at parker.com and will be available for one year. As usual, today, Tom is going to begin with highlights of the quarter and a few comments on the company's transformation. I'll follow-up with a brief financial summary and review the increase to our full year guidance that we announced this morning. Tom is going to handle closing comments, and then we'll open up the lines for your questions. Two comments before we begin today. First, as a reminder, regarding the pending Meggitt acquisition, we are still bound by the requirements of the UK Takeover Code in respect to discussing certain transaction details. And secondly, we are announcing a date and time change to our upcoming virtual Investor Day due to a scheduling conflict with another company's Investor Day. Our meeting will now be held on Tuesday, March 8th, from 9:00 A.M. to 12:00 P.M. Eastern. It will be a virtual event, and among the topics that we'll cover will be the release of our new long-term financial targets. So, with that, I'll ask you to move to slide three, and I'll turn it over to you, Tom. Tom Williams: Thank you, Todd and welcome everybody. Thanks for your participation today. I want to start with the title of this slide, which is exceptional execution in a challenging environment. When you look at the performance of the company in aggregate safety, sales growth, the margin expansion, EPS, it was an extremely strong quarter. This is against arguably one of the most difficult operating environments that we've all faced in our careers when you add up the cumulative effect of inflation, supply chain challenges and the Omicron virus. My thanks to the global team for just a great job execution in this quarter and really the execution for many, many quarters as we go through this presentation. Let's start with the first bullet. Focus on safety continues. It is our number one goal. We're leveraging our high-performance teams, the combination of the natural work teams that we have in our plants and warehouses as well as the Star Point teams and kaizen. And it's really this combination this team structure plus kaizen that is driving an ownership culture within the company. So, ownership of safety, but also ownership of quality, cost, delivery and engagement. Sales growth was 12% year-over-year. Organic growth was 13%. It was nice across all the external reporting segments as well as every region participating. Total sales was the second quarter record as well as total segment operating margin. EBITDA margin was 18.2% as reported or 22.7% adjusted. It was 180 basis points. It's a big move versus prior year. Robust demand environment continues. We had over 90% of our end markets in the growth phase, which we're very excited about. And this execution, what you're seeing is really the cumulative effect of One Strategy 2.0 and 3.0 driving this kind of performance. When you add the strategy changes on top of the portfolio, things we've done, adding those great acquisitions that we've done over the last number of years, and a powerful secular trends that I'm going to talk about it here momentarily, we see a future as a much longer cycle and more resilient and faster growing. So if you go to the next slide, slide 4. I've touched on this before. This kind of frames all of our thinking and our strategies for the company to around trying to achieve these three key drivers; living up to our purpose that higher calling, that North Star that we're driving for; to be great generators and deployers of cash, to be a top quartile performer versus our proxy peers. If you go to slide 5, which is the little expression that picture is worth a thousand words. This kind of sums up how the company has changed over the last number of years. We've updated this slide for FY 2022 numbers. And I'm going to just reframe the slide for you. On the left-hand side is adjusted EBITDA -- adjusted EPS, and on the right-hand side is adjusted EBITDA margin. So if you look on the left, and you go to FY 2016, so we work real hard as a company for 100 years to get to $6.99 EPS. And then the last six years, we've grown it by 2.5 times to a little over $18 in our current guide. If you just look at the gain that we've had since the pandemic, FY 2020 to FY 2022 guide, it's almost another $6 just in those two years. It happens to be, and I don't think it's coincidental although we launched Win Strategy 3.0 at the beginning of FY 2020. And you can see what it's doing to propel performance. If you look on the right-hand side, we don't guide on EBITDA margin, but we put in our EBITDA margin year-to-date to 22.4%. If you look at that from FY 2016 to that, it's 770 basis points improvement, just remarkable improvement. Really the how behind these results, it's been our people, portfolio changes that we've done and has been, again, a cumulative effect of Win Strategy 2.0, 3.0. So if you go to the next slide, give you a quick update on the Meggitt transaction. We continue to make progress. There's really four main work streams that we're working. There's two -- the economic and national security review that we're working on with the UK government. I would characterize those as constructive and positive and on track. And then the antitrust and FDI filings are proceeding as we had anticipated. We're still anticipating a Q3 calendar 2022 close and we're really excited about this. This is obviously a compelling combination. It doubles the size of our aerospace business, highly complementary technologies. And we're at the beginning of a commercial aerospace recovery with great synergies as we put these two companies together. Again, coming -- bringing this on with everything else we've been doing, a much longer cycle, less cyclical, faster growing companies. And then on slide 7, in addition to the strategic acquisitions that we've been making, we are uniquely positioned with our eight motion control technologies to benefit from the four secular trends that you see on this page. Now I touched on aerospace and the recovery and momentum of Meggitt plus Parker. But if you look at electrification, ESG, digitization, what you have here, our long-term multiyear growth enablers and content growth for us is going to grow both on-board as well as infrastructure. And we're excited this is going to be a big part of what we'll talk about at Investor Day, and we look forward to sharing more about these secular trends on March 8th with you. And with that, I'm going to turn it over to Todd for more details on the quarter. Todd Leombruno: Okay. Thanks, Tom. I'll ask everyone to move to slide 9, and I'll start with our FY '22 Q2 results. As Tom mentioned, this was just an outstanding quarter. Just another reminder that our operations leaders are really driving the company to significantly higher levels of performance. Our sales increased 12% versus the prior year. We did hit a record level of $3.8 billion. Tom mentioned this, but organic sales were very healthy at 13%. Currency was about a 1 point drag on sales. That's how we got to the 12% reported sales increase. Demand just remains robust. Our backlogs are healthy. Our growth remains very broad-based across all of our industrial businesses. If you look into the Aerospace business, commercial demand continue to trend positive. And we talked about this before, but the acquisitions of CLARCOR, LORD and Exotic continue to outperform our expectations. When you look at the segment operating margins, it's a Q2 record on an adjusted basis. We did 21.6% segment operating margin, that's 120 basis points improvement from prior year. And our teams are really managing through the well-documented supply chain issues, the inflationary environment. I really just want to commend them on our team's swift actions to manage these costs and inflationary actions, still while achieving record sales in the quarter. Tom mentioned this, but adjusted EBITDA margin was 22.7%. That's up 180 basis points from last year. Both our adjusted net income and our adjusted EPS has improved by 29% versus prior year. Net income is $582 million or 15.2% return on sales. And adjusted EPS was $4.46. That's $1.01 increase versus the prior year of $3.45, just a really solid quarter. If we jump to Slide 10. This is just a bridge on adjusted EPS, and I'll just detail some of the components that generated the $1.01 increase in EPS. And as you can see, really, operating execution is the major driver in this increase. Adjusted segment operating income did increase by $132 million. That's 19% greater than prior year. And that really accounts for 80% of the increase in our EPS this quarter. We did have some other favorable items that was $0.19 favorable. There were some currency gains that were favorable. We did sell a few facilities that we restructured those closed in the quarter, and we do have reduced pension expense versus prior year. All of that added up to $0.19. And then you could see the other items on the slide that all netted to $0.04 favorable. But really, the story here is just a very strong operating quarter. If we go to Slide 11, I'll make a few comments on our segment performance. Tom mentioned those secular trends, we are seeing growth from those trends across our segments. Every single one of the segments has a record adjusted segment operating margin this quarter. We did maintain a cost/price neutral position. We're very proud of that. Incrementals were 32% versus prior year. I just want to remind everybody that is against a headwind of $65 million of discretionary savings that we had in the prior year. If you exclude those discretionary savings, our incrementals were 48%. So really fantastic performance across the board from our teams. It really highlights the power of the One Strategy and really demonstrates our ability to perform through this current climate. If you look at orders, orders are plus 12 and really the demand continues to be robust across our businesses. Just a little color on Diversified Industrial North America, sales reached $1.8 billion. Organic growth in that segment was 15% versus prior year. And listen, we're really pleased with the performance in this region. We've talked a lot -- I've read -- I know everyone is familiar with the well-documented supply chain issues. Tom mentioned the Omicron spike, we are not immune to that. But we did keep operating margins at a very high level of 21.3% in this segment and we're proud of that. Order rates continued to be very high at plus 17. Our backlog is strong. And Tom mentioned this, 91% of our markets are in growth mode. So great things in the North American businesses. Industrial International is a great story. Sales are $1.4 billion. Organic growth is up 14% in this segment. And I want to note that across all the regions within our International segment, organic growth was mid-teen positive in every region. So really robust activity there. Maybe more impressive is the adjusted operating margins, 22.4%. This is an increase of 210 basis points versus the prior year. And certainly, we have volume. We've talked a lot about our growth in distribution internationally. We are benefiting from some product mix. And really, the team is doing a great job controlling cost. And this has been a really long-term effort over a long period of time from that team. So I'm really happy that they're able to put up these continued high level of margin performance. Order rates there were plus 14%, ample backlog and really solid international performance. If we look at Aerospace Systems, really continued signs of a rebound there. Sale were $618 million. Organic sales are positive at almost 6%. And we did see very strong demand in our commercial OEM and MRO markets. Great margin performance here as well. Operating margins have increased 270 basis points that finished the quarter at 20.7. And again, I just want to remind everyone that, that is still at pre-COVID volume levels. So great margin performance from our Aerospace team. Aerospace orders on a 12-month rolling rate did decline 7%. But one item I want to make clear for everybody is, we did have a few large multi-year military orders in the prior period that really created a tough comp, just in Aerospace. If we exclude those orders, Aerospace orders would be plus mid-teens positive. So we're seeing continued signs of steady improvement in Aerospace. Our order dollars in Aerospace in the quarter were at the highest level they've been in the last three quarters. So great quarter out of Aerospace. But if you really look at the segments, it's really outstanding operating performance. We've got positive growth, strong order dollars robust backlogs, record margins and really just solid execution across the board. So great segment performance. If I take you to slide 12 and talk about cash flow on a year-to-date basis, we did exceed $1 billion in cash flow from operations. That is 13.3% of sales. Free cash flow is $900 million or almost 12% of sales and conversion on a year-to-date basis is now 107%. We still continue to diligently manage working capital across the company. We really are just responding to these increased demand levels that we have. The working capital change did improve in the quarter as we forecasted. In the quarter, it was a 1.9% use of cash, versus last year it was a 4.1% source of cash. So for the full year, I just want to reiterate, we continue to forecast mid-teens cash flow from operations and free cash flow for the full year will exceed 100%. If we go to slide 13 now, I just want to make a few comments on our capital deployment activity. I'm sure many people have seen this, but last week, our Board approved a dividend declaration of $1.03 per share. That is fully supportive of our long-standing 65-year record of increasing dividends paid. And I want to give an update on the Meggitt financing. We continue to make progress on our financing plan. Our plan is flexible. It is efficient, it is risk-mitigating. I did mention on the last call that we secured a deal contingent forward hedge contract in the amount of £6.4 billion. Accounting rules require us to mark those contracts to market. That impact in the quarter was a non-cash charge of $149 million. We booked that in the other expense line, and we are treating that as an adjusted item. We now have $2.5 billion US dollars of cash deposited in escrow to fund the Meggitt transaction. That is listed on our balance sheet as restricted cash. And that was funded from a combination of commercial paper and some cash on hand. A result of that, our gross debt-to-EBITDA ended up being 2.7 times in the quarter. Net debt was 2.5 times. If you account for the $2.5 billion of restricted cash, net debt-to-EBITDA would be 1.8. Okay. So if we go to slide 14, I just want to give some details on the increase to guidance that we announced this morning, and of course, we're giving this on an as-reported and an adjusted basis. Full year adjusted EPS is raised by $0.75. We did guide to $17.30 at the midpoint last quarter. We have moved that to $18.05 and that is at the midpoint. We've also narrowed the range. Range is now $0.25, up or down and sales is also raised. We're raising the midpoint to a range of 10% at the midpoint. We've got a range of 9% to 11%. And the breakdown of that sales change at the midpoint is organic growth is 10.5%. Currency will be about 1 point unfavorable. And of course, there's no impact from acquisitions. As Tom said, we don't expect Meggitt to close in our fiscal year. If we look at the full year adjusted segment operating margin, we're also raising that 20 basis points from the prior guide. Full year now, we expect that to be 22.1% at the midpoint. There is a 20 basis point range on either side of that. And corporate G&A and Other is expected to be 6.56 on an as-reported basis, but 4.35 on an adjusted basis. So of course, there's a couple of adjusted items in there. The acquisition-related intangible assets that is a standard adjustment, the realignment expenses, standard adjustment, lowered cost to achieve, standard adjustment, but we are adjusting these transaction-related expenses for Meggitt. Year-to-date, we've got $71 million worth of transaction costs, and of course, that $149 million non-cash mark-to-market loss that I just mentioned. We're going to continue to adjust for the transaction-related expenses as they are incurred. If you look at tax rate, tax rate is now going to be slightly lower than what we had forecasted just based on first half activity. We expect that to be 22% now. And finally, guidance for the full year assumes sales, adjusted operating income and EPS all split, 48%, first half; 52% in the second half. And just a little bit more color, Q3 – FY 2022 Q3 adjusted EPS guide, we have at $4.54. So with that, Tom, I'll hand it back to you for closing comments, and I'll ask everyone to go to slide 15 Tom Williams: Thank you, Todd. We've got a highly engaged team around the world living up to our purpose, which is enabling engineering breakthroughs that lead to a better tomorrow. You've seen what 3.0 has done as I referenced in that EPS that's driving our current performance what's going to drive our future performance. It's early days of Win Strategy 3.0, and I would characterize it as having long legs, lots of potential ahead with Win Strategy 3.0. The portfolio transformation continues. We've acquired three great companies, are in the process of a fourth that will make us longer cycle, more resilient. And if you put that on top of the secular trends that I highlighted, we feel very, very positive about the future. So it's been our portfolio changes. It's been the strategy changes, but it really starts with our people, 55,000 team members that are thinking and acting like an owner, so 55,000 owners that are driving this transformation. So my thanks to all of them for what we did in the quarter, but really for what we've done in the last number of years. And then I'm going to hand it back to Todd for a quick comment just to set up the Q&A before we get started. Todd Leombruno: Yeah. Jonathan, I just wanted to ask the participants on the call, just as a reminder to ask one question, a follow-up, if needed, and then jump back in the queue. Just so we can try to get everyone on the call to have a shot at answering the question. We do appreciate your cooperation. So Jonathan, I'll turn it over to you for Q&A. Operator: Certainly [Operator Instructions] Our first question comes from the line of Joe Ritchie from Goldman Sachs. Your question please. Joe Ritchie: Hi. Good morning everybody. Nice quarter. Tom Williams: Thanks Joe. Joe Ritchie: So Tom, you mentioned in your prepared comments that 90% of your end markets are growing. I think that there's still some concern just around like this like hyper growth that we're seeing this year, and that we’re kind of closer to peak. Can you maybe just tell us a little bit more about, kind of, like the sustainability of growth even beyond this year and maybe some commentary around inventory balances as well? Tom Williams: Yeah, kind of, what I would characterize as some rebound off the bottom, Joe, but you've got a lot of things that are positive. The secular trends that I mentioned during my prepared remarks, aerospace recovery, ESG electrification, digitization, are all what I would call longer cycle. I mean the whole electrification trend is going to be years, you could suggest decades. It's what's going to happen to the, ESG, digitization, et cetera. The content that we've seen and the potential bill material changes, both on board and then adding the infrastructure that's going to be needed to support that is big, and it's going to allow us to grow differently, I think, than in the past. You've got a couple of other things that are going to underpin, I think, a more constructive industrial business cycle going forward. You've got, I think, the CapEx needs where -- are two-fold. One, you're going to need to reinvest in areas that you haven't invested in the last 10 years, because I don't think we're any different than most of my industrial peers, especially the last eight years, where we've had two industrial recessions in the pandemic. You typically probably underinvested during that time period because there's a need to catch back up to that. And then there's also the need around supply chain. Everybody is going to need to put a more robust supply chain systems, add multiple sources, et cetera, that's going to require infrastructure, extra equipment, et cetera. So you're going to have kind of two bites of the apple on CapEx needs that's going to happen. And then you're going to need to get back to normal inventory levels in the system. And today, inventory is basically nonexistent outside of the suppliers like us. But when you go into our customers and take larger distributors, you're going to need an inventory replenishment cycle. So there's a lot of things that are going to foreshadow a much more constructive future. Then, if you look at what we – the companies we've been buying, we've been buying companies that are longer cycle with accretive growth rates than what we've done historically. So again, you have the things we've done with the balance sheet, capital deployment help ourselves as well. So I think this is a different cycle. I mean, it clearly feels different to me. There's always all of those unknowns, the geopolitical unknowns and the virus, et cetera. But I think, if you – if we look at it, we were able to look forward, the next seven or eight years is going to, I think, be better for industrials in the last seven or eight. Joe Ritchie: Yeah. That's super helpful. Thank you, Tom. Maybe my follow-on there is again, stand out from a margin standpoint, this quarter was Aero, and it seems like we're still so far off the bottom in that business. I'm just – I'm just curious, maybe just kind of peel back the onion a little bit on what's really kind of driving the strong margins and then sustainability of those margins moving higher from here? Tom Williams: The big help with Aerospace is twofold. One, we were very aggressive in establishing, again, Joe, it's Tom. Establishing a fixed cost structure that was going to be designed to withstand to current conditions and flexible enough to withstand the commercial recovery. So we've done that. And we were – probably, I'd say, one of the more aggressive and quick to do that of our other peers are in the aerospace industry. So we have a fixed cost structure that is in a great position to leverage this additional volume. And then in the near-term, you're seeing significantly higher volume from commercial MRO. And that piece is obviously more higher margins. I mean, commercial MRO in the last quarter grew 47%. So those would be the two big things. We had moderate R&D in that low 3% type of level. So you get additional volume over a great cost structure and additional volume being the higher-margin piece of the portfolio is driving the margins. Just for people, I mentioned this in the last quarter, but it's even more pronounced now. We're guiding to 21.4 for the full year and that's against an all-time peak pre-COVID of 20.5. So that's fantastic. It's 90 bps higher than our previous high, and we're nowhere near previous high on revenue for Aerospace. You've got – so what's going to help, Joe, going forward, you've got ASKs, they're going to recover. You got departures, they're going to recover. Omicron is probably the silver lining to helping all of us get out of this pandemic. And the Aerospace industry will be the first to recover and you can look at – there's a lot of different people forecast in the future. When we get back to pre-COVID, I think you can say anywhere from 2023 to 2025 calendar year. If you kind of look at the median – middle of that, what most forecast were saying that puts you kind of in 2024. But there's a – you're going to have a lot of positives going forward. You've got the recovery, we've got Meggitt, and the continued good things we're doing in aerospace as a whole, so we're very positive. If we weren't so positive, we obviously wouldn't have bought Meggitt. We think there's a great space to invest in. Joe Ritchie: Makes a lot of sense. Thanks, Tom. Tom Williams: Yeah. I appreciate the questions, Joe. Operator: Thank you. Our next question comes from the line of Nigel Coe from Wolfe Research. Your question, please. Nigel Coe: Thanks. Good morning. Hi, guys. Just wanted to maybe just pick up on your investment comments, Tom. You talked about CapEx, but I'm just wondering about OpEx investments. And so just wondering if there's a need to catch up on engineering spending, R&D within aerospace, any comments there would be helpful. Tom Williams: Yes. Nigel, it's Tom. I think on the OpEx part of things, I think we're in good shape. What we've learned over the time is that innovation is not a function purely a dollar. Yes, you need to invest enough there. It's more a function of org structure, the talent and the processes that you put in place to drive that innovation. So, we think we're at a very good level. We're focusing a lot of our R&D, if I just take aerospace as an example, more on future component technologies and additive and trying to be ready for our customers when the RFPs come out. If you wait for the request for proposal to come out and start to do your R&D, you're too late. So, you have to look at where the market is going and anticipate those type of things. Our simplify design process is allowing us to innovate much more efficiently. Every new product that we develop is going through the simplify design process so that's going to help us as well. I think you weren't asking about CapEx. I think we'll have to add a little CapEx, but it will be immaterial. It would be probably just getting us into the upper 1s or closer to 2.0 on the CapEx side for productivity, for organic growth and all those kind of things. And a good example of this and how this has been happening, and I don't disclose the total numbers. But if you look at -- we added a new metric with One Strategy 3.0 called PVI, product vitality index, and it's the percent of our sales that are coming from new products, new technologies that have been developed in the last five years. And that percentage, in the last -- I'd go five years, has doubled. So, the percent of the portfolio that is more innovative is doubled. It's one of the things that's going to help us with sustainable growth. And it's one of the things that is helping us with margins because the new products are designed with a more attractive value proposition and higher margins. And so that's -- I think that's a good indicator, Nigel, that as long as you invest efficiently, you can get nice rewards for that. Nigel Coe: Okay. So, it sounds like no big investment cycle on OpEx. And then just my follow-on is Industrial versus North American -- International versus North America Industrial margins. Having covered Parker-Hannifin for a long time, Industrial has always lagged North America. And within the guide, international 50 bps above North America. So, I just wondering, going forward, do we think that international and North American structural margins will be very similar going forward? Tom Williams: Yes, Nigel, it's Tom again. Yes. Yes. I mean they're there now, and we think they basically should run the same. And they're great positive about this and for all my international colleagues that are listening, this has been years in the making, a fantastic run rate really from all the regions outside of North America have contributed to this. We're seeing margin expansion across all three regions. And the short answer, Nigel, is yes, North America and international, should basically be about the same as we go forward. Nigel Coe: Great. Thanks Tom. Operator: Thank you. Our next question comes from the line of Joel Tiss from BMO. Your question please. Tom Williams: Joel -- welcome, Joel. Congratulations on your retirement. Glad you made it. Joel Tiss: Thanks. Well, you see, after I ask my question, you might not feel that way. No, just kidding. So, I have one short-term, one about net pricing for 2022? Do you think that's going to be positive, or you think it's going to continue to be neutral? Lee Banks: Yes. Joel, it's Lee, also congratulations. Maybe just taking a step back for everybody on the call. I think the one thing that we've established inside this company is a great culture of value-based pricing. So always pricing products for kind of the – how we make or save money for our customers. When we have times of inflation, we've got great processes internally to gauge pricing, but also what's happening with material costs. And as you know and I've said in the past, our goal is always to be margin-neutral, and we've been able to accomplish that for a long period of time. I will tell you what's happening now is just looking at material cost is not enough. Inflation is incredibly broad-based. And we've just had to take a very comprehensive look to maintain that margin neutrality. And we're very active in this last quarter. I mean, we saw things ramp up quickly. But to answer your question, I expect to maintain that margin neutrality going forward. Joel Tiss: And then a longer-term question, probably maybe beyond Tom's scope or whatever, one we're on Wind 5.0. Do you think by 2030, we could see 30% EBITDA margin potential? And the reason, I'm asking the question is maybe just a little bit of thought process about some of the some of the big strides, you have in front of you to get the margins higher than where they are now? Tom Williams: Joel, it's Tom. And I'll add my congratulations as well. And I'm going to maybe just expand for a second. We have always appreciated your honesty, your intelligence and your sense of humor, just like you started this -- your questions. And that's refreshing. And it's not always -- you don't always get that. And so on behalf of all of us, we thank you and congratulate you for a great career. On the long side, so 23, you're right, that will be beyond my time. But we're not a company that views that there's any kind of mile marker we can't go past. And so, I won't say that, that's a number we could never achieve. We're going to give you the first look at our 5-year when we get together on March 8. And I think that will give you visibility of where we think we can take the company. But just as you've seen that chart at the beginning of my remarks, what's happened with EBITDA margin, it's at like a 45-degree line. And as long as, we keep developing technologies and products that create the distinguishing value that Lee referenced, we can attract that kind of margin attainment. So that's not an overnight and you weren't suggesting it's an overnight at 2030. But I view this as we go down the highway of continuous improvement there's no exit ramps. We're just going to continue to go and keep trying to get better and aspire -- as I mentioned at the beginning, aspire to be the best industrial company that we can. Joel Tiss: Thank you very much. Todd Leombruno: Joel, we greatly appreciate it. You have a wonderful retirement. Operator: Our next question comes from the line of Jamie Cook from Credit Suisse. Your question please. Jamie Cook: Hi good morning and congrats on a nice quarter. Tom, I guess, my question, again, it relates to the margin performance in the first half of the year and what's implied in the back half of the year. I'm just sort of wondering, while you're putting up better margins than everyone expects, can you sort of talk through the supply chain, the labor inefficiencies, some of the headwinds that you're seeing in the margins, because it just makes me think, obviously, the underlying margins could be much stronger as some of these short-term issues go away. And I guess, as I think about that, does that set up Parker to put up above-average incrementals as we think about 2023, assuming sort of the world goes back to normal? Thanks. Tom Williams : Yes, Jamie, it's Tom. I'll start, and Lee can tag on, because Lee's leaving us as we speak. I mentioned this in the beginning that arguably the toughest environment in my career, and I've been around a long time. This is really a tough environment. If you're a general manager, you're an ops manager, supply chain leisure between inflation, COVID supply chain disruption, really difficult to schedule the shop. It's difficult to schedule your suppliers. It's difficult to schedule your team members and apply them. Omicron has been -- well, I think it's going to be a blessing overall, has been a blessing if we didn't have any of this. It's going to get us out of it. It's really kind of peaking in January, and will start to decline, hopefully, here as we go through February, but it has impacted absenteeism rates significantly. We felt some of that in the second quarter. We're feeling much higher absenteeism rates in the beginning of Q3. The reason why I go through that, is it just to your point, Jamie, it underlines how impressive these numbers are. If you run a factory and you're trying to hire a bunch of people, train them, and you've got absenteeism significantly higher than you used to, and you're having to redeploy people, retrain them, cross train them. You can imagine how difficult it is in any given day you’re not sure whether the material you want is coming in, you can just guess how hard that is. And so these numbers are impressive, to your point, as we get through this and it becomes more normal times, that's helpful, and we'll kind of indicate that when we get to IR day. But the implied guidance in our second half is quite a bit better than the first half. So 22.3 is what we're implying for total op margin in the second half. We did 21.8 in the second half of 2021. So it's a 50 bps higher than prior year. And ironically, it's the same 50 bps higher than what we did in the first half. So you see some of that sequential growth. I would just help to remind, you guys cover so many companies. We came out of the -- when we started the pandemic, we were very aggressive on taking out cost. And so it kind of fall no good decost and punished. We were one of the best companies putting up MROSs at the beginning of the pandemic. But we now have to compare against those years, and we've been trying to give you apples-for-apples. This last quarter, the apples-for-apples was a 48% incremental. The guidance for the second half is around 40% for Q3. This is making apples-for-apples taking out those discretionary costs in Q4 around 35, again, a full year, not counting those things, it turned out to be 30. I think that's a great number. In this kind of environment that you can put up a 30 incremental, you're doing some spectacular work. And again, I want to emphasize, Todd said this earlier, a big thank you to Lee and Jenny and all the group present and all the people around the world that did such a great job run our factories. But we'll get more, Jamie, into what we think we could do in a more normalized world and show you the targets in IR day. Jamie Cook : Okay. Thank you. I appreciate it. Tom Williams : Thanks, Jamie. Operator: Thank you. Our next question comes from the line of Mig Dobre from Baird. Your question please. Mig Dobre: Thank you. Good morning, everyone. Tom, I remember on the last earnings call, you were talking about supply chain disruptions, maybe not so much impacting you, but impacting your customers and their ability to frankly produce and thus, purchase or get deliveries of components from you. I'm wondering if you can maybe give us an update here in terms of how things have evolved. And as you're looking at the back half of your fiscal year, how you think your own customers’ output/throughput is going to progress? Tom Williams: Yes, Mig, it's Tom. Yes, that is still the case. If you look at the whole value chain, our customers, us, our suppliers and our suppliers' suppliers, everybody is feeling it. Everybody's feeling it. I would say our customers are feeling it the worst, because they're at the top of the food chain, our customers or the OEMs, they have a more complicated build material. They have more ship dependency. And so they have more difficult time. And so, that is still -- while everybody is feeling it, and we are clearly not immune, we're feeling it as well and our suppliers are feeling it, the long pole in the tent is still our customers and their ability to manage a more complex build material coming their way. That's part of what makes forecasting sales difficult for us, is we look at our own inputs, our AI model and feedback from customers and divisions and, et cetera. But we do have to factor in, our customers are careful that they're not able to take everything that we could provide them because -- and I understand why they would do this, why would they want to take our material, if they can't put it to use. We're doing the same with our suppliers. That really hasn't changed much since our last conversation. I think, in a lot of cases, the chip issues, at least the chips that our industry, our customers and our products use are still feeling the pinch point. As a matter of fact, probably got to hear worse as we started Q3. We're not forecasting any help on that. Of course, we have the benefit being a different fiscal year company. We've only got five months left to talk about, but we don't see any help within our fiscal year. And if it helps going to come on that, it's going to be more towards the end of this calendar year. Mig Dobre: Understood. You talked earlier about the robustness of this industrial cycle. But, I guess, one of the concerns out there is that, the robust orders that you've seen thus far could potentially be a factor of customers trying to make sure that they do have available components in an environment in which there are shortages out there. So what is your science as to whether or not this resulted in some unnatural boost to demand or double ordering, however you want to characterize it? Tom Williams: Yes. Again, Mig, it's Tom. I would say that from what we can tell, is still predominantly all underlying demand and not people trying to worry about getting in line or double ordering to your point. Is that happening? I would guarantee, it probably is happening somewhere because there's no way we can 100% predict that. But my comment is the beginning of the Q&A was more longer term, this industrial cycle feels like it has stronger legs from just the recovery dynamics, CapEx and the underlying -- for us, the underlying linkage of those secular trends. I think most of what our customers are doing now is just trying to be pragmatic. They're laying in orders that are over multiple time periods than they historically would have done, which I think net-net is a good thing for the whole supply chain. Mig Dobre: Thanks for the call. Tom Williams: Appreciated it, Mig. Operator: Thank you. Our next question comes from the line of David Raso from Evercore. Your question, please. David Raso: Thanks for the time. One question a little longer-term and one more near-term. With the meeting coming up, last meeting, the margin expansion was really focused on simplification and then a better mix as distribution grows. And within simplification, obviously, we had org structure, operational complexity and particularly simple by design. I was just curious, can you give us at least a little insight on how to think about approaching this meeting? Is this the ability to drive those initiatives further, get a further update on those? Are there other things that we should consider? And then I'll follow up with my near-term question. Tom Williams: Yes, David, this is Tom. It's going to be a combination of what were the latest on 3.0 and really keep updating on all the changes to 3.0. It's very hard in an earnings call and just even a normal roadshow that we might be doing to take people through all the different elements of Win Strategy 3.0. So we're going to try to do a more comprehensive job of taking you through that and how it can help both growth and our margin expansion. Talk about some incentive changes that we've made, they're going to help change the behavior and motivation for our team. We're going to give you an update on the secular trends, which are really unique. I mean when Lee and I started our respective jobs, this whole ESG phenomena, the electrification, digitization, they were there, but not at the same kind of extent with the same kind of momentum and CapEx investment that's going to happen around there. And we really -- and we want to try to give people a better understanding of how our portfolio is going to change and how the content changes because of those trends. So there will be a lot of time on that. And then it will all come out in a forecast of what we think the five-year goals are going to be. So that's a not show kind of the high-level time line of our agenda for the meeting. David Raso: That's helpful. Thank you. And just real quick, I know the guide, we can debate conservative or not on the revenue. But in particular, the international revenues for the back half of the year implied only growing 1% despite the order it just came in 2014. And I suspect some of it's currency weighing on it. But anything we should be thoughtful about on why if you look at where the guide in the back half seems a little, at least raises an eyebrow, why would international slow that much? Tom Williams : Okay, David, it's Tom and Todd, tag on if I missed something here. So I'll give you what I have. I don't know where you're getting to 1%, but I'll give you what we're seeing for the second half. I'm going to give you the organic numbers. So we are raising the guide, it was 6% for the second half, all-in total company to 7%. And just to kind of provide context, that 7% is against the 10% that we did in the prior second half. So again, it's kind of the two-year stack, it's 7% on top of 10%. But if I split out the segments for you to get to the 7% North America second half is around 8.5%, International is 5%, so it's not 1%, it's 5% organic. And then Aerospace is approaching 7%, and that's how you get to the total number of 7%. I don't know, Todd, do you have to... Todd Leombruno: Yes, Dave, I would just add, you're right. You mentioned currency. We're forecasting between 3.5 and 4 points of negative impact in the International segment just from where the currency rates are today. We're not trying to forecast those going forward. It's just a year-over-year comparison. To kind of put that in perspective, we had less than one in the first half. So that's probably a little bit of a – David Raso: So that's the gap between the five and one essentially? Tom Williams: Correct. Yeah. David Raso: Okay. I appreciate it. Thank you so much. Tom Williams: Thanks, David. Operator: Thank you. Our question comes from the line of Jeff Sprague from Vertical Research. Your question please. Jeff Sprague: Thank you. Good morning. Tom Williams: Good morning, Jeff. Jeff Sprague: Good morning. Hey, Todd, you laid out how your FX hedge on financing for Meggitt. Could you just update us on what, if any, interest rate risk you have just on the actual financing cost itself? Todd Leombruno: Yeah. We've got a very flexible plan here. We've talked a little bit about that. It's going to be a mix of commercial paper, a mix of cash. We did take out a deferred throughout term loan, and then the remaining of that is yet to be determined. We've looked at it. We feel good with the rates that we're seeing. So I guess, we could give you more info that as we get a little bit closer to taking action on that. But we've got the team looking at it, and we feel really good with the total cost of debt for this transaction. Jeff Sprague: You're not proactively locking anything else in front of the transaction? Todd Leombruno: No, we've looked at that, because the close timing is uncertain, the breakeven on that just becomes a little bit challenging. Jeff Sprague: Understood. And then, Lee, you mentioned we need to think more about raw mats and I totally agree. I just wonder, if you could address labor a little bit more? Tom mentioned how hard people are working in the factories and the like. Can you just maybe give us a little bit of a context of how significant labor is in terms of your direct cost in COGS or any other kind of way to frame up the labor component of the cost structure? Lee Banks: Yeah, I'm not sure I can be that specific for you. But I think the one thing I was thinking about when Tom was talking, the one reason we've been able to come through this two years of pandemic is really the culture around our high-performance teams driving all these processes that are embedded inside the company around lean, talent, supply chain, and the way there is just this culture of ownership. And what's been rewarding for me to see is we have had a spike in absenteeism rate, but our teams figure it out. They prioritize what needs to get done. Our local teams figure it out. There's certainly an increase in cost in different markets, inflation – to sum it up in one number, I can't do that for you. But I can tell you, costs are going up and all the support costs that go with it. But bottom line is it's really our team that keeps working all the way through this to help us achieve these results. Jeff Sprague: Thanks a lot. I’ll leave it there. Lee Banks: Appreciate it, Jeff. Operator: Thank you. Our next question comes from the line of Joe O'Dea from Wells Fargo. Your question, please. Joe O'Dea: Hi. Good morning, everyone. I wanted to start on supply chain and experience over the past few months, and your confidence in kind of stabilization of peak pain, if you think we see that kind of this past quarter and the quarter we're in right now? Anything you have in terms of visibility on things getting better? And then within that, any characterization of differences you see on the North America side versus the international side on supply chain? Tom Williams: Yeah, Joe, it's Tom. I would say that, I don't see it getting better, as I mentioned earlier within the fiscal year. If I had to say, it's probably this current quarter we're in, is probably the toughest that we're going to experience. At least, I'm hoping, it's the toughest with all things considered. I think we've weathered it pretty well and probably the best indicator of our ability to weather has been that incremental margin conversion and our margin expansion that's really the punch line. Are you able to digest inflation, supply chain disruptions, absenteeism, everything. It all ends up in, well, how are you doing on margins? Are you expanding margins? Are you converting incremental revenue at the right kind of pace? And we've been able to do that. Part of our success on supply chain is historical. We've taken the approach historically that we want to make, buy, and sell local for local. Yes, we have global supply chains, and we look at augmenting local sources. But we've always been, from a service and a customer experience standpoint, trying to be local, too, and speed-to-market, et cetera. So, that localization has helped us a lot and a lot of -- because a lot of the pain points are tied to logistics as we're all aware of. And then we've had a pretty good risk mitigation strategy around dual sources, but we're spending a lot of time on that. So, I would tell you going forward, we're going to add more dual sources, which I'm not the only CEO in the world that's thinking that. So, that's a good infrastructure thing for us, equipment needs, et cetera, building needs. We're going to do that. We're also going to be deploying simplify design at our suppliers because as we help them with designs that are easy for them to make, obviously, that makes it easier for them to produce and at a better cost, et cetera. North America is more challenged, in general, because it has tougher logistic challenges. That would be first. And then second, it has tougher labor challenges. I think Europe in particular, did a better job of retaining people during the pandemic. There are various different number of programs that they had varied by country, but where they didn't people off and retain people and we did a lot of that as well. And so I think their labor availability and their logistics are running smooth in North America, and that's how we'd characterize the differences. Joe O'Dea: Got it. And then a related one on the incrementals when you talk about adjusted incrementals and a stronger first half of the year than the back half of the year, what within that change is operational versus how much of that is more a function of comps and mix and factors like that, that we would consider more non-operational elements of a step-down in the incremental in the back half? Tom Williams: Well, incrementals are -- incrementals based on operating margins. So, they're all operating. The difference would be what I mentioned to one of the questions was we put out some incredible incrementals in that first reset -- of pandemic. If you could go back at benchmark, we were clearly top quartile, maybe not one of the best incrementals of any industrial company. So, we're comparing against that. So, that's a difficult comparison. And then of course, we've tried to take you through making an apples-to-apples. We had description one-offs that we've savings all the people taking pay cuts beginning to pandemic is not repeating. And so the apples-for-apples, I mean, our first half this year is in the upper 40s. When you do apples-for-apples incrementals, which is absolutely fantastic. That's fantastic in normal times and everything is running smoothly and to do it in these kind of times is just incredible. Todd Leombruno: Yes, Joe, I would just add, it does get -- because those discretionary savings kind of ramped down as we went back to normal operations. The adjustment does get lower in the second half. So, we're -- the comparable is $25 million in Q3 and goes down to $10 million in Q4. So Q1 was $125 million. Q2 was $65 million. So, you could see that start to ramp down there. Joe O'Dea: But you're not saying that there's something about supply chain that's getting tougher or that labor is driving some meaningful change within those incrementals in the back half? Tom Williams: No. Joe O'Dea: All right. Thank you. Operator: Thank you. Our next question comes from the line of Scott Davis from Melius Research. Your question please. Scott Davis: Good morning. Congrats on a great -- another big result here. Todd Leombruno: We appreciate that. Scott Davis: I've got from -- I got a couple of things. First, just hearing all these questions, I mean it kind of raises the -- your question, I mean is working capital needed almost be permanently higher the next 2, 3, even potentially 4 or 5 years because of all these dislocations and such? And that kind of threw a little bit of a monkey wrench into some of your traditional lean practices? Todd Leombruno: No, Scott, we don't believe it is. We believe that this is a short-term response to the spike in demand. If you look at us over the longer period of time, you can see that we have done a wonderful job managing working capital. It still is early days on some of the recent acquisitions. So, I do think we have some upside there as well. But the other thing I would say is, if you look at our second half, historically, the second half is really where we've started to get a little bit more leverage from the working capital side of the fence, and that's exactly what expect to see in the second half of '22. It's always a little bit tougher in a growth environment, but that's a good problem to have. And I'm really happy with the way the teams are managing this across the entire company. Tom Williams: Scott, it's Tom, if I would add on, our inventory levels right now we have lots of opportunity. And as we go forward, that will be a source of cash for us once we get through the more normal supply chain conditions. Scott Davis: Okay. That's helpful. And then this is kind of a little bit big picture. I mean, if you went back and you looked at your original deal models in CLARCOR, LORD and Exotic, I mean where -- I hate to have you rank your children, but where have you been most kind of pleased with the upside? I know there's a little bit different duration on each of these, so it's a little unfair to compare it. But when you think about trying to normalize the trajectory, I mean, what's standing out? Anything in particular that you would note on those 3 big deals? Tom Williams: So Scott, I'll try -- I'm recognizing them up against the time, but we try to be quick with this. We could not be happier with all 3. You're right, it's kind of like, well, picking for your 3 children, what you deal like best, you like them all. They've all achieved their margin targets that we wanted, have all done, we would expect as far as growth resilience and being accretive to growth. I think LORD, in particular, brought some unique best practices around how we do commercial strategies, which we're applying across the company. And they've all been accretive on growth, accretive on margins and accretive on EPS. And so the design intent when we started, they lived up to their billing. A lot of times, it's not the case. So we are happy about that. Todd Leombruno: Yes. Jonathan, just to be respectful of everyone's time, I don't think we have time for another question, so I apologize to those that didn't get on the call. This really concludes our FY '22, Q2 earnings webcast. As always, Robin and Jeff are going to be available for the rest of the day. if you need any clarifications or questions. And I just ask everyone that try to stay warm, stay safe, and have a great afternoon. Thanks for your interest in Parker and thanks for joining us today. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Operator: Good day and thank you for standing by. Welcome to the Parker Hannifin Corporation, Fiscal 2022, first-quarter earnings release, conference call and webcast. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. Thank you. I would now like to hand the conference over to your first speaker today, our Chief Financial Officer, Todd Leombruno. Sir, please go ahead. Todd Leombruno : Thank you Rachel. And good morning, everyone. And thanks for joining our FY 22 Q1 earnings release webcast. As Rachel said, this is Todd Leombruno our Chief Financial Officer. And joining me today is Tom Williams, our Chairman and Chief Executive Officer, and Lee Banks, our Vice Chairman and President. If I could direct you to Slide 2, you will see our disclosure statement addressing our forward-looking statements and Non-GAAP financial measures. As usual, we've included all reconciliations for any Non-GAAP measures in today's materials. Those reconciliations and our presentation are accessible under the investor section on Parker.com. and will remain available for 1 year. The agenda is as usual, Tom is going to begin with some highlights on the quarter. He's got a few strategic comments to you that he'd like to add. And then I'll follow-up with a very brief financial summary of our quarter and provide some color to the details on the increase in our guidance that we released this morning. Tom will close with a few closing summary comments, and then we'll open up the lines and take your questions. Just one reminder regarding the pending mega acquisition. We are still bound by the requirements of the UK takeover code. And respect to discussing certain transaction details. So that's just a reminder for everyone with now, I'll ask you to move to slide 3. And I'll hand it up to Tom. Thomas Williams: Thank you, Todd. And good morning, everybody. And welcome to the call. We turned into an outstanding quarter and it's a great start to FY '22. My thanks to the global team for delivering such a record quarter against the backdrop of strong demand, inflation, and supply chain disruptions. So a couple I'll highlights, safety performance continued to improve 17% reduction or equivalents and a rolling 12-month basis, very strong growth, in particular, organic growth is 16% year-over-year. Was an extensive list of records. We had seven first quarter records, sales, total Company operating margin, net income, and EPS. And then each reporting segment, all 3 of them had all-time operating margin records. EBITDA margin, you can see the reported number was 22.1% adjusted. We're 210 basis points higher than the prior year. And then down at the bottom, last rows segment operating margin adjusted was 22. Again, a 210 basis points improvement versus the prior year. Just a great quarter. I'm very proud of the team and thank you for your hard work. Going to Slide 4, there's really 3 things that drive the Company Living up to our purpose, and create generators and deploy us the cash, and being a top quartile performer. If you go to Slide 5, I wanted to spend a minute, you're familiar with our purpose statement, enabling engineering breakthroughs that lead to a better tomorrow. And we've been trying to show you examples of our purpose in action after the Company come to life. And one of the secular trends that the pandemic is accelerating is standardization. And in investor day, we're going to highlight our content as you look at the whole digital supply chain. As example, things like 5G, infrastructure, electronics, manufacturing, clean rooms, data centers, electronic devices, shielding and thermal management that we do there. And of course, transportation to get these products around the world. But the application on a monitor to cover today is semiconductors, given especially the importance of chip demand around the worlds, if you go to slide 6. There's going to be a significant amount of investment as we all aware of in the semiconductor space. And that's going to drive for us double-digit growth over the next several years. Now, we are -- we have strong expertise in semiconductor manufacturing about a quarter of our divisions shipped some kind of content in the semiconductor space. So the orientation on the slide, on the left-hand side, or the applications that we go into. In the right-hand side are our technologies for just a second on applications. Those 6 bullets that you see there are really -- are made up of a combination of what we call fabs and tools. The fabs would be the infrastructure or the transportation part of the process. And then tools are the various tools that are in the factory helping to make the semiconductors. On the left-hand side is picture of a wafer and on the center there that's picture of an etch tool, a 6-chamber etch tool. On the right are our technologies that we bring to create a distinct value for our customers. First segment is process controls. Think of that as precise control of gases and liquids in the process. Fluid and gas handling provides cooling system for the tools, electro -mechanical is helping with a wafer movement, and then engineering materials is doing shielding and ceiling. The shielding is helping to protect the wafer from electromagnetic static issues which would destroy the chips. So we are essential to supply chain in this supply chain and related technologies and markets around digital. If you combine that will be part of four major secular trends for the Company driving long-term growth. That'd be aerospace, ESG, electrification, and digitization. If you go to Slide 7, speaking of the breadth of technologies, these 8 motion control technologies, 2/3, as you heard me talk about in the past of our revenue, come from customers who buy for 4 more of these technology. So again speaks to the interconnectedness the technologies, the value proposition system and subsystem work that we do. But then, and coincidently, 2/3 of our portfolio is also helping to enable our customers with our clean technology journey. And that 2/3 is going to continue to evolve to virtually a 100% over time. I'll give you a classic example. The seal work that we did today, a combustion engine for transmissions of Parker sales, eventually gets replaced for sales promoters, and batteries and electric vehicles. So the takeaway on the bottom here is really our brand promise, helping our customers increase their productivity and their profitability. And we do that really in two ways. It's that interconnected tissue, in the value proposition that we offer. And we're going to be a big part of helping our customers on their sustainability journey as we helped with our clean technologies. Go to the next slide, Slide 8 of our favorite slides. It's kind of -- you wanted to know whether profits were really different or not, a picture's worth a thousand words. On the left hand side is the EPS trend that we've updated that now for our current guidance for FY '22. And you can see that's virtually a 45 degree angle there. Tremendous amount of year-over-year improvement and a 2.5 times EPS growth from the $7 we were doing in FY '16. On our right-hand side is EBITDA margin. Again, you can see an almost 45 degree angle to that trajectory. And while we don't guide on EBITDA margin, our performance in the actual quarter just completed for EBITDA margin was 22.1%. So you can see that will continue to show the expansion we're doing on margins. So the question might be how? The how is really in the header there. It's been our people, their engagement, the ownerships that they are taking, the portfolio changes that we made, and then strategy changes. One strategy is 2.0, and now most recently 3.0. If you go to Slide 9, just a quick update on the mega transaction. We had a very strongly favorable shareholder vote. We're working with the UK government on both economic and national securities; they are underway. The anti-trust and FTI filings are proceeding as planned, and we still anticipate a Q3 calendar 2022 close. And this is as we've described before as a really compelling combination that's going to double the size of our aerospace business. And when you couple this with the other acquisitions we've done, CLARCOR, LORD, Exotic, and now Meggitt. Our portfolio is now much more long-cycle, less cyclical, and faster growing. And with that I will hand it over to Todd for more details on the quarter. Todd Leombruno : Okay. Thank you, Tom. I'll ask you to go to Slide 11. I know Tom mentioned a number of these numbers, so I'll try to move quick. The quarter was fantastic, right? 7 records. Sales were up almost 17% versus prior year. We finished at $3.8 billion in sales. Organic sales are roughly 16%, that's almost all of the total. And currency had a small favorable impact of less than 1%. The growth this quarter was really driven across-the-board strong, broad-based demand across all our industrial businesses. And really a rebound in the commercial aerospace market. So we were happy to see that. And as Tom mentioned, we continue to benefit from strong growth from those recent portfolio additions we didn't CLARCOR lord and exotic, Both segment operating margins and adjusted EBITDA margins expanded by 210 basis points from prior year. We're really proud of that number. The adjusted segment operating margin came in at 22%., and really just another strong quarter of margin performance. Really proud of our teams, not only responding to the increased demand, but also executing through a number of various well documented supply chain challenges. And I want to give them credit. There was a great effort to maintain costs in the quarter and you could see that in our results. Incrementals are 35% year-over-year, which is really impressive, but even more impressive considering last year, we had a $125 million of discretionary savings, really, based on the actions we took during the pandemic. So if you account for that, the difference in Incrementals would be 58%. So we're very proud of those results. If you look at adjusted net income and adjusted EPS, both of those numbers increased by 40% versus prior year. Adjusted net income is $557 million, that's a 14.8% return on sales. And adjusted EPS were $4.26. That's a $1.21 increase from prior year where we finished at $3.05. If you jump to Slide 12, this is really just that breakdown of the $1.21 increase in adjusted EPS. And really the story here is just very strong, solid operating performance across every segment. Adjusted segment operating income increased by a $184 million or almost 30% from prior year. That really is the first leg in this bridge that's $1.10 or 91% of the increase in earnings per share. All the other items netted to another $0.11 of favorable items and interest expense. Other expense and tax were all favorable and that helped us to offset just a slightly higher corporate G&A that was really based off of some of those temporary savings we took action with last year. If you go to Slide 13, just looking at the segments. The takeaway on this page is every segment generated record margins in the quarter. The other big thing I want to note is we were able -- we've always talked about trying to maintain our neutral price cost position. We were able to do that in the quarter across all of the segments. And I already mentioned Incrementals are already, but I think it really highlights our efforts on covering inflation costs and really managing through the supply chain inefficiencies. So 35% is the MROS, but 58% if you exclude those discretionary savings. And demand continued to be very robust. Orders for the total Company are up 26% from prior year. Just diving into the segments really quickly, Diversified Industrial North America sales were $1.8 billion, that's up 17% from prior year. Adjusted operating margins did improve by 30 basis points from prior year and finished at 21.3%. Really sound performance in that segment considering it's pretty clear that the supply chain challenges are more difficult in the North American region. Order rates also very healthy at 32% positive, And it's really just continuing to show a strong rebound off of those prior year incomes. If I look at our international businesses and diversified industrial international, great quarter here for that team. Even higher organic growth, 21% organic growth. Their sales came in just under $1.4 billion and adjusted operating margins, significant expansion, 360 basis points improvement from prior year and they did reach 22.8%. I'm very proud of that team, volume obviously was a big driver here, but also, we've talked about this before our focus on international distribution that helped our mix, that continues to expand. And really some disciplined price cost management across that segment, very important drivers for the quarter. And order rates also very strong at 25% plus prior year. If we move to Aerospace Systems, fantastic quarter from that team, sales were almost $600 million. Organic sales did turn positive for the segment 3.4%, but it did turn positive. And we were very pleased to see that commercial markets are trending pop. And notably the commercial aftermarket came in very strong at 33% over prior year. So it's glad to see some rebound in those markets. Operating margins, a great story here, 400 basis points improvement. That segment came in at 22.1%. And I just want to note, it's really nice to see that level of performance. We are still well below pre-COVID volume levels. So there is room to grow here, at that volume returns. So we're looking forward to see that as well. And an order rate turned positive plus 16%, that is on a 12-month rolling basis. But if you remember last quarter it was minus 7, so we did see a fraction to positive orders in the aerospace segment. And that's really this is further proof of a slow but steady recovery in that segment. So it really, thanks to all of our global team, very great execution and really just continuing to live up to our purpose and performed extremely well. I've asked you to go slide 14. This is just, I will touch on cash flow. Cash flow from operations was $424 million or 11.3% of sales, free cash flow was $376 million or 10% of sales, and our conversion for the quarter was 83%. So I just want everyone to know working capital management continues to be a very strong story here. We continue to tightly manage this and really we're just responding to the inflection and growth here. The increased level of demand, coupled with really our efforts to provide continuity of supply for our customers, drove working capital be a use of cash in the quarter. It accounted to be at 3.6% use of cash in the quarter. And if you just look at that compared to prior year, prior year we were in the second quarter of a significant downturn. Today we are in the second quarter of a significant upturn. Last year, working capital was 6.1%, source of cash last year. But just importantly, I want to be clear on this for the full year, we are forecasting mid-teens cash flow from operations and our free cash flow will be well over 100%. So you'll see that strong cash flow performance for us as we go throughout the year. On slide 15, just really a quick update on capital deployment. I think everyone saw this, but last week our board approved a dividend payout of $1.03 per share. That is our 286 consecutive quarterly dividend. And then payout is in line with our announced target of 30% to 35% of 5 year average of Net Income. And on share repurchases, we did purchase $50 million in the quarter through our 10B51 program, But we also deployed an additional $180 million to purchase shares on a discretionary basis. And essentially, what that does is that discretionary purchase makes up for the 3 quarters that we paused the 10B51 program from FY '20 Q4 through FY '21 Q2. and our goal there is to eliminate dilution in FY '22. And then I just want to give a final update on the Meggitt financing. In the quarter, we did secure a $2 billion deferred drop term loan, that together with $215 million cash deposit into escrow positioned us to take down our initial bridge facility, so that was successful. And I want to be clear here. In October, after the quarter end, we also deposited another $2.3 billion into escrow from a combination of proceeds from commercial paper, issuance and also some cash on hand. And that really allowed us to further reduce that bridge to 3.2 billion pounds. Lastly, on Meggitt financing, we did complete a deal contingent forward hedge contract in the amount of $6.4 billion. And that really was just a lock in our pound to dollar rate as we continue to work through financing on the Meggitt acquisition. So great work by the team there. If I go to Slide 16. Just looking at guidance, obviously you saw we increased our guidance this morning. As usual, we're going to give this to you on an as-reported and an adjusted basis. The sales range now for the year is approximately 6% to 9% or just under 8% at the midpoint. The breakdown of that is really all organic. It's a 8.4% organic growth. We do expect currency to turn on us in Q3 through Q4. And that will create just a minimal drag about a half a point to top-line sales and obviously that's going to impact the international segment. There is no impact from acquisitions. We still do not expect Meggitt to close in our fiscal year. We're targeting Q3 of calendar year 2022, but we have no impact from Meggitt acquisition sales or segment operating income. And the split on sales is 48% first half, 52% second half. If you move down the segment operating margins, we did increase our adjusted segment operating margin forecast for the full year by 30 basis points from our prior guide. And that full-year now gets us to 21.9% at the midpoint. There is a range of 20 basis points on either side of that. And segment operating margin is split 47% first half, 53% in the second half. No change to adjustments at a pre -tax level, you see all those numbers, those are exactly the same that we guided last quarter. And in corporate G&A and other expense, we expect that to now be $513 million on as-reported basis. And for 461 million on an adjusted basis. Really the only difference there is some transaction-related costs with the Meggitt acquisition. And just a reminder, we will continue to adjust. transaction related expenses as they are incurred until we get through all of those transactions. No change of tax rate, we expect that to be 23%. And our EPS guidance on an adjusted basis it's now $17.30 it's the midpoint. We did narrow the range a little bit, $0.35 on either side of that. The first half, second half split is 46% first half, 52 -- excuse me or 54% second half. And then finally, I will just say for Q2, we are expecting adjusted EPS to be $3.74 at the midpoint. So that's just the real brief summary of the quarter. With that, I will turn it back over to you, Tom to present his comments. Thank you, Todd. And I think the first floor that kind of sums up our thoughts. A big thank you to the global team a highly engaged team delivering outstanding performance. And couple that with this very bright future, propelled by the wind strategy at 3.0 and our strategic long cycle acquisition as part of our capital deployment strategy. With that kind of a quick comment, he wants to make logistics before we start the Q&A. Yeah, just one comment before we start the Q&A portion of the call, we'd like to respond to as many analysts as we can today on the call. So if you could ask one question, a follow-up, if necessary, and then jump back in the queue, it would be appreciated. So with that, Rachel, I'll turn it back over to you and we can start the Q&A session. Operator: Thank you. . . Please standby while we compile the Q&A roster. Your first question comes from the line of Mig Dobre from Baird. Please proceed with your question. Todd Leombruno : Good morning Mig. Mircea Dobre: Good morning everyone and congrats on a very strong quarter. Tom, I guess where I was thinking we'd start. You highlighted for big trends that benefit your business, aerospace, ESG, electrification, digitization. The first one, Aerospace is perhaps clearest to observe. But I'm curious. The other three, can you give us some context in terms of how all of this plays into your business? How is it driving incremental growth? And more importantly, are all these items driven by new product introduction from Parker, or is this using the existing solutions that you have in new ways that are helping your customer achieve these goals? Thomas Williams: Thank you, Mig. I appreciate you picked up on that comment during on the -- toward my opening comments. But yes. So what I would characterize, these are secular trends that feel longer than a normal business cycle. This is going to take decades to unfold electrification or living kind of a subset of that. And digitization continues to just transform out. We interface with each other and how we interface with the supply chain. So these are things that I view as being bigger, longer than a typical business cycle. For us, it's going to be a combination of infrastructure. So the infrastructure goes around the world to put these in place, things that are also onboard equipment in both of these are bill of material plus type of additions for us. And then also the fact that they should be faster-growing environments as a result of. We are doing innovation in this space but a lot of our portfolio today, which is what I mentioned on that one slide, 2/3 of today is already clean technology-related. Yes, we're adding some motors and motor controllers and software in addition to our current portfolio. But our current portfolio was already designed to be very energy source and be able to respond to these changing dynamics. We will try to give a little more context of this in Investor Day. But we just started before the call to try to last couple of days, quantify digital and the threat that it cuts to the Company and it's surprisingly large. And we'll give you more context on that with some actual numbers when we get to Investor Day, but, it has an opportunity you with -- you think of the Company is being very diverse. And probably no end markets outside of Aerospace being bigger than 5 or 6% digitals are threat to Custer, so many, it's going to be probably second to Aerospace, the biggest spread the Custer the Company. And ESG's unfolding for the next 20-30 years, as the world tries to get to carbon neutrality. So that's what I like if you've got a prior environment thinking on Liza by watch, 7 years to industrial recessions in a pandemic. I think we're facing a much more constructive environment going forward. Mircea Dobre: Understood. Then my follow-up is on international, which frankly performed quite a bit better than, I guess. Two questions here. One is on the margin side, in terms of Incrementals and maybe some things that might have been unique that helped the quarter. I don't know if there's anything to call that. And on the order front, I'm curious as to how you're seeing the various regions develop, China in particular. I know that geography punches maybe above its weight from a profitability and margin standpoint. So what are you seeing there and what's the impact on a go-forward basis in terms of mix? Thank you. Thomas Williams: So maybe I'll start with that Mig first. It's Tom again. On the orders, they were strong throughout the quarter and to help people, it's easier to look at it from a dollar value basis. It's dollar value was fairly consistent with what we saw on a prior quarters. We had nice consistency. The numbers in the 26% improvement went down from where we were in the mid 50s just because the prior period was improving. But we saw all regions strong internationally, all 3 of the national regions were pretty much the same. We reported our national as 25, but all 3 regions underneath there were pretty much plus or minus 25, give or take some change. On the margin side, I would say there was nothing in particular that is different other than what we've been doing all along which was when Strategy at 2.0 and 3.0 and a rapid resizing of the Company post-pandemic and then being very careful as we move into a higher demand of feathering costs and a very judicious type of fashion And a much more lean and natural fashion we've had ever before because our cost structure is so much better. I do think international has less supply chain disruptions than North America for sure, and you see that reflected in MROS. Mircea Dobre: Thank you. Thomas Williams: Appreciate it, Mig. Operator: Thank you. Your next question comes from the line of Jeff Sprague from Vertical Research. Your line is open. Jeff Sprague: Thank you. Good morning, everyone. Todd Leombruno : Good morning, Jeff. Jeff Sprague: Good morning. Tom, I wonder if you could address a little bit what's going on with your OE customers. The next of my question is, I thought it would be apparent that maybe in the quarter that there would be some more pressures there. I'm sure there were some sale slippage and the like, but it doesn't jump off the page and the numbers, so to speak. So maybe just a little color on what's going on with the OE s, the shape of their inventory? and just your visibility into the remainder of the year. Thomas Williams: Yeah, Jeff, so is Tom. So, I'm going to touch on customers and then a little bit about us because what you're referring to is really supply chain issues. And those would be the 2 fronts that it touches obviously. With our customers, I would say the supply chain has been much more acute in a bigger of an issue versus our own supply chain. What we've seen with orders from customers is that much more longer period duration, staggered release dates. Trying to make sure they have a spot in line, so to speak. We've had push-outs on delivery acceptance. So you may have a date as it's due. And due to other challenges they have as far as supply chain with other suppliers, they may not necessarily want that delivery which we fully understand. They don't want to sit on all this inventory. There has been temporary idling of plants. And this isn't really type the OEs, but you've got to rolling energy shutdown we've had and been experiencing in China, which will continue pretty much all the way to the Olympics. We've done pretty well through all that. If I had to use round numbers, it's probably a $50 to $75 million impact as far as the OE customers filling supply chain, things that feathered it to us. I think overall demand with them continues to be strong, as more just sliding to the right and then trying to manage a more complex supply chain. Their inventory -- they've always been just in time and they are being very careful to not accept other inventory that they don't they need to can put together with holes that they might have in for bill material. Jeff Sprague: Great. Thanks for that. That's very interesting. And then on price costs, it is quite an achievement that not only get the dollar neutrality, but margin rate neutrality, but I wonder if you could just give us a ballpark number of the actual realized price on a year-over-year basis that you're running at. Your nominal price. Lee Banks : Jeff, it's Lee. I can't give you an actual number, but I will tell you the margin neutrality is a lot of hard work by everybody in the Company. And I think it shouldn't be a surprise. We've had two processes embedded in our wind strategy for going on 20 years, and that's around pricing and it's around supply chain. And those processes give us very accurate indices around our selling price index and our purchase price index. So what it does, it aligns the whole Company and it gives us a way to roll things up about what we need to do going forward. And what you're seeing or the benefits of those processes really embedded in the Company and institutionalized. Jeff Sprague: Thanks. I'll leave it there. Take care. Lee Banks : Okay. Thanks. Operator: Thank you. The next question comes from the line of Scott Davis from a Melius Research. Please proceed with your question. Scott Davis : Hi, good. Good morning, guys. Todd Leombruno : Good morning, Scott. Hope you're well. Scott Davis : Well, great results from you guys make our lives a little easier. So thanks for that. Now that we've had a little bit of time, not post - COVID yet, but a little bit of time. Can we take stock of and exotic kind of where they are at versus the deal models on, imagine, perhaps maybe not quite on the top-line, that your deal model, but perhaps better on the margin line, but I'm just guessing. Some color there would be helpful. Thomas Williams: Yes, Scott, it's Tom. We cannot be happier with both of these transactions. LORD has proven to be more resilient and faster growing than legacy Parker, and that's what we had hoped for. Its margins are beating what we had expected in -- at this kind of cash flow that we've reviewed with the board. It's performing in the upper 20s EBITDA, so it's accretive on growth, it's accretive on margins, accretive on cash flow, and is exposed to more longer cycle businesses. Then Exotic has performed remarkably well. Remember, when we bought Exotic, nobody would've anticipated the 737 MAX being grounded for as long as it was. And even with that strength of their portfolio than the team, we've put up mid-20s EBITDA. So it's a little light on the top-line, mainly because of 2 things that match grounding and the pandemic. But its margins have held up very consistent to what we had approved for the port and we know we're at the beginning of a long cycle improvement there with Exotic. The aerospace traffic is going to come back and the max ramp up is coming back. So we've gotten through the worst of it and it's going to be quite an exciting transaction for us. Scott Davis : Sounds good, Tom. Lee Banks : Just hey, I referred CLARCOR. It's been obviously a few years, but that business is also exceeding our expectations from the model standpoint. So a lot of hard work across the team. And that is flowing through in all those numbers that we just talked about. They're a big piece of that as well. So, didn't want to lose sight of that. Scott Davis : That was a great deal, but moving on. I love your Slide 6 of the semiconductor example, but how do you -- can you go to market as one when you're looking at content into a semi fab? Thomas Williams: We do Scott, we have account managers that cover certain accounts and they're representing and looking at the entire business and that's how -- we're so organized operationally around technologies. But our commercial teams are organized around channels to market, either global OEMs, national OEMs, or distribution. And so it's that account management team that brings power -- power of Parker to their customers. Or if we go through our channel partners, these are our distributors. They are bringing the power of Parker and bringing that comprehensive offering together. Scott Davis : Okay. Encouraging. Good luck the rest of the year, guys. Thank you. Todd Leombruno : Thanks, Scott. Operator: Thank you. The next question comes from the line of Ann Duignan from JPMorgan. Please proceed with your question. Ann Duignan: Hi, good morning. Ann Duignan here after 20 years. Todd Leombruno : Yeah. Good morning. Ann Duignan: Maybe first on your guidance for our fiscal Q2, you're guiding to 374 at the midpoint and consensus is that 386. Can you talk about where you think the biggest disconnect is between our sell-side models and what you're guiding to? Where should we be most focused and where do we need to review? Thomas Williams: At this time, I would say it's probably at the top line. So what we tried to do with Q2, you saw that we raised the organic look full-year from 7% to 8.5%, and that was primarily by raising the second half. Our second half in a prior guide was 4.5% and a new guide is 6%. We left Q2, basically the same. And that's really based on what we saw in Q1 and in particular in October, around just supply chain challenges, more around what I was talking about with Jeff, around our customer demand and kind of the uncertainties or difficulty in predicting, delivery dates of time on this. On that, you also have -- you just look at the raw dollars, the dollars flow very much proportionally from Q1 to Q2. So normally in Q2, we would have less work days, which was what we have. In North America typically if you look is over the last 20 years. Our Q2 is typically a 4% lighter Q1 and their national typically 1% lighter. We lowered North America air more minus 5 from a dollar standpoint versus Q1, mainly because that extra 100 bps of some supply chain uncertainties. And part of what we're looking at is those temporary idling that customers have been doing. And in particular, we haven't had any customers announced yet. You've got the holidays and it would be very easy for them just to extend a day or 1/2 day, those types of things. And so we're just trying to be pragmatic as to what Q2 would look like given the natural progression for Q1 and Q2, putting on a little bit of price changes. And so I think the difference would be on the top line because the incrementals for Q2, if you look at it on an apples-to-apples. again, taking out the discretionary basis that we had in prior Q2, it's another upper 50s, just like Q1. So when you look at the operational excellence, upper 50s incrementals is pretty hard to beat. And so really the only difference you could have is top-line assumptions. I'm giving you the context of how we came up with our Q2. Ann Duignan: Very helpful in there. I guess if I had time to back into all your first half -- back half I would have figured that out. So I appreciate you taking the time to give us that color. Just as a follow-up then. If I look at your sales in diversified industrial North America up 19% versus orders up 32%, which suggests that your lead times are extending. A, can you just confirm that. And B, is that what gives you confidence in the back half revenues or is there still some uncertainty when you're not known for having long lead times. So they have confidence in the back-half and make no change to your revenue outlook for half too. Is some of that back-half contingent on all of these supply chains getting better through the course of Q2 and off to the races thereafter or is there still some lack of visibility -- per back-half for you guys. And I'll leave it there, thanks. Thomas Williams: And it's Tom, again. So yes, we don't always have complete visibility, but our backlog is increasing sequentially. North America, went up 14% and international went up 6%. So that's part of it. We're also just recognizing that the second half, we don't see -- significant improvement from supply chain. We think you'll get a little bit of most of those supply chain improvements will be more so into our FY '23. We have not been impacted a lot of that, but I think the difference you're seeing between orders and organic growth is what I was referring to earlier as customers putting in orders and having it be over multi-quarters release dates, whereas in the past they would give us orders that were much shorter cycle. These are longer cycle by industrial standards with release dates over multiple quarters. Ann Duignan: Okay. That's helpful color. I appreciate that. Thank you. I'll get back in queue. Todd Leombruno : Thanks, Ann. Operator: Thank you. Your next question comes from the line of David Raso from Evercore. Please proceed with your question. David Raso : Hi, thank you. Obviously been covering the Company for some years and the international margins have really been impressive now running ahead of North America. And part of it lately maybe it's been a supply-chain issues are a little more acute in North America. But can you help us better understand how we should think about that notable improvement international margins, be it geographic, be it obviously building out more Parker stores, whatever it maybe, bigger distribution there. Just trying to understand. So when we think about -- if you say the upcoming March meeting and we think about margin improvement from here. It just was a major issue years ago about can International get close or equal North America. And now it's been many quarters in a row it's running ahead. And I'm just curious about the drivers and how to think about that going forward. Thank you. Thomas Williams: Good, David, it's Tom, we could not be happier obviously, because it has been sort of companies been working on for a long time on international margins. So I would say it's started a while even before the changes still wind strategy. At least in my watch, it started with our team working very hard to change the cost structure in all international, in particular in EMEA. And just recognizing that all those different countries and different infrastructures, there was an opportunity to try to simplify that. So that's been going on for multiple years, having a more agile lower cost structure than a concerted effort to grow international distribution from where we started at 35% -- at 35-65% split. Now to 40 and we'll give you the latest when we get to Investor Day, but it's north of 40 now, so you getting some mix help there. We've had -- Asia is always historically been a very strong performer. We really kind of set that region up that we think you can think about over the last 30 years, we set that region up. The latest and so we took all the best practices that we had from everywhere around the world when we set that region up from a cost structure standpoint. But what's helped us a lot the last couple of years is the Europe team and Latin America being small for us, but both of those teams have made a marked improvement. And when we think going forward your other part of your question, David, we see no reason why they can't continue. We'll give you new targets when we get to March. But you see right now our full-year guide. basically North America international margins conversion. We had always hoped that they be basically the same. And so going forward, we don't see any reason why they can't be and they both have equal opportunity to grow to higher levels and we'll give you that vision in March. David Raso : A quick follow-up. The back-half for the year fiscally speaking, if revenue is only up 4% and I have to believe pricing is running probably at least that. So the idea of volume being essentially flat or down in the back-half of the year. Is that simply a conservatism around the supply chain or just trying to understand why volumes want to be able to grow in the back half. Thomas Williams: As so just for clarification, the back half organic is 6%. You have about 1% currency headwind. So probably net's to around 5. And there is some -- we're being, what I mentioned earlier, pragmatic about the uncertainties on supply chain or so on our customers. But then we're not immune. We have some of our own challenges. But I think our team has done a particular job weathering it. And probably the best evidence of our ability to weather supply chain is just our ability at the MROS, because if you're struggling with your supply chain initiative, will it ultimately shows up in your marginal return on sales but that's how I'd characterize the second half. David Raso : Alright, thank you very much. Todd Leombruno : Thanks for the questions David. Operator: Thank you. The next question comes from the line of Nathan Jones from Stifel. Please proceed with your question. Nathan Jones : Good morning, everyone. Todd Leombruno : Good morning, Nathan. Nathan Jones : Parker has, over the years, continued to move towards and has always maintained a local for local sourcing and manufacturing structure. Has that given you guys better supply chain here that's allowed you to pick up any market share versus competitors who might have longer supply chains? And do you think that that market share gain will be sticky or trendy when supply chains normalize? Lee Banks : Yeah, Nathan, it's Lee. Just -- maybe I'll touch the first part. You're right. Our strategy always has been to build and source local, which has been incredibly helpful. And I think the other thing that's benefited us through these disruptions, we worked hard on dual-sourcing strategy where appropriate, which has given us some flexibility. And one of the things it -- is weaved itself into this are simple by design efforts and some key areas where it's been easier for us to do material substitutions than we've done in the past. So all that together is really, I'm not saying we're immune, but has made us to be able to work through the supply chain disruptions. I would say the market share that we pick up is very sticky. 1. You're talking about a lot of engineered products. So I mean, when people take the effort to engineer the product, and it's not something that you quickly change, 2. The reality is if we're taking on new business, we're looking for commitments both -- from both of us to be committed to the volume going forward. And to that's standpoint, I think it's sticky. Nathan Jones : Thanks. And my follow-up, Tom, was to one of your comments where you talked about customers giving you I guess, orders over multiple quarters, rather than maybe orders over just one quarter. Did that have a meaningful impact on the order rates in the quarter you've just reported first-quarter '22. And should we expect that to have maybe a little bit of a negative impact on the order rates as we go forward with that increased visibility that customers are giving you at the moment or is it not a significant amount? Thomas Williams: This is Thomas. Hard to quantify if you take the orders and try to some how dissect and separate all of the ones that are multi-quarters, I'd be hazard and just a guess, I don't think it's material. It just -- it's different as far as in the past, at least on industrial and normal business conditions, say normal supply chains and normal order entry patterns, you had a fairly consistent input-output, quarter-to-quarter, maybe a little bit going into the next quarter. This is clearly more over multi-quarters. And actually it's good, it's customers trying to plan for longer, trying to make sure they get their ticket in line, and in a way that help us from a plans point. So when things do stabilize if they continue that way, I think that's a good thing for scheduling our factors and scheduling our supply chain. Nathan Jones : Great. Thanks for taking my questions. Todd Leombruno : Thanks, Nathan. Take care. Operator: Thank you. The next question comes from the line of Nigel Coe from Wolfe Research. Please proceed with your questions. Nigel Coe: Thanks. Good morning. Thanks for the question. So Aerospace. I wanted to -- maybe unpack the our performance a little bit and maybe focus a little bit more on a military because that's been an area where we've seen, especially in the U.S. market, some noise from some of your competitors in defense. And I'm just curious how you see military over the next fiscal year compared to previous Thomas Williams: Nigel it's Tom. So on military OEMs, and that's one we mentioned in the last call, we do see that being slightly solved mid-single-digit's decline. And that's primarily because of the repositioning that our customers thankfully did to try to strengthen the supply chain and protect the supply-chain during the pandemic. They didn't want people to go wonder. And so they kind of pull forward demand into last fiscal year, leaving this fiscal year lighter. As you're adjusting inventory. So that should come back into FY '23 and beyond. And I would see that being a lower to mid-single bit. Probably more towards a low-single-digit growth on the military OE side. And then our military MRO, we had some softness in the quarter. We're still forecasting mid-single-digits positive for the full-year. Some -- the only weakness that we're really experiencing for the full-year would be the military OEM based on this supply chain, things I'd mentioned. Nigel Coe: Okay. That's great. Thanks, Tom. And then you raised your margin by a points at the midpoint of Aerospace. I think the revenue numbers stayed unchanged. So just curious, what's changed since you gave guidance back in August. Thomas Williams: The Aerospace team has done a fantastic job. There's a couple of factors, Nigel it's Tom again. First of all, a nice commercial MRO uptake. So Todd mentioned that commercial MRO up 33% for the quarter and order entry on a 312 was over 70%. So you're starting to see that replenishment of commercial aftermarket, which is up the 4 elements, the highest margin than, than we would have. And then within that kind of favorable mix of that, within that favorable mix, the spare to repair mix was favorable. So at the beginning that was just typical when customers were trying to maintain assets and minimize costs, they'll do more repair work. And then once that's exhausted and they have to put back in spares. So we've seen an uptake in spare activity. And then the aerospace team has done a great job. If you go back to the beginning of pandemic, we moved very aggressively at the beginning to resize the business for the long cycle. And what's really remarkable here is we're going to put up -- these margins were putting up the guide at 20.9% will be higher than our previous all-time high pre - COVID. And so this business is not even that 80% volume of COVID. And it's putting up margins that are higher than the best we've ever done pre-COVID. This is fantastic job. And to your point, Nigel, if you were to go compare that aerospace performance against other aerospace peers, I think we would do quite well with that. Nigel Coe: Without to the question on whether you can get some mid-20s longer-term. But I think we'll leave that one for March. But thanks, Tom. Good color. Todd Leombruno : Thanks, Nigel, take care. Operator: Thank you. The next question comes from the line of Stephen Volkmann from Jefferies. Please proceed with your question. Lee Banks : Good morning, Steve. Stephen Volkmann: Good morning, guys. Thanks for fitting me in here. You mentioned, Tom, some of your OE customers were sort of delaying some of their deliveries, certainly understandable. But what are you seeing in the distribution side? our inventory is also really low there. And would they -- rather be building them a little if they could. Thomas Williams: Absolutely, Steve, as Thomas Williams, I can let Lee Chime in if there's anything extra. Our distributors are flying the same challenges when you talk to them, they would love to be building inventory. This is what would be strategic use of cash for them as they could but they are having a hard time. All of our suppliers are getting out to where they would like them to be. So there's pretty much running hand about. And so that -- when I think about the longer-term opportunities for us on growth here, you've got the pent-up demand that reflects off the towards the bottom. But there will be an inventory replenishment back to normal levels for distribution, which will be -- will help us. And if you go out longer than that, you've got CapEx reinvestment. Two things there, under-investment in I think this whole localization as a giant burner underneath it now, because of this lack of product availability, is going to drive customers and suppliers to add capacity and to create dual capacities which has infrastructure opportunities for us, ESG, and then just the capital deployments. So I think there's long-term secular growth trajectory, but to get to your more near-term question, Yes, the distributors are in desperate need of more material, and we're doing everything that we can to get it to them. Stephen Volkmann: Okay, great. And maybe just my quick follow-up. You guys obviously did much better this quarter than I think most of us expected, and I think maybe then you even expected, and yet for most of our companies, things are actually deteriorated through the quarter. So I guess I'm just curious really what changed for you from 3 months ago that allowed you to kind of come in with such a strong result? Todd Leombruno : Well, 3 months ago we we're doing an annual guide, so we're careful of the annual guide, again as Tom, as to getting too far over our skis. We try to factor in an element of uncertainties with supply chain because we were experiencing them already when we did the August guide. I think we weathered the supply chain issues better than we had anticipated, allowing us to generate higher organic growth. And then the operating margins are I think indicative of really multiple years of effort. It's a combination of when 2.0, when 3.0, the capital deployment, buying Thomas Williams: companies that are accretive on margins and cash and growth. So it's not an overnight sensation it's really you go to that one slide that shows the EBITDA trend it's been building on the pace of that improvement on top of some very quick cost actions that we did in the pandemic. And thankfully, not a lot of those costs have come back. We've been able to run the business differently in a more digital fashion, which is clearly helped us on some of those variable costs. Stephen Volkmann: Great. Thank you guys. Todd Leombruno : Thanks, Steve. Rachel, I think we have time for at least one more question. So could you take who's next in line? Operator: Sure. The next question comes from the line of Jeff Hammond from KeyBanc Capital Market. Your line is open. Jeff Hammond: Good morning, guys. Todd Leombruno : Good morning, Jeff. Jeff Hammond: Appreciate you fitting me in. I know you can't say much on the mega deal, but I just wanted to understand if in Europe, from your perspective, if the review process or the gating factors around getting the deal closed or the timing has changed any -- in any way. Thomas Williams: Jeff, it's Tom. No, not at all. We're -- we're on schedule. We're always kind of anticipated third quarter, next calendar year. The reviews we're doing with the government on economic, and national security will conclude well before that. And then really the pacing item will be just the anti-trust and FTI filings which are proceeding as planned, but you just can't predict every country as the different process and timing. And it's difficult to project that outcome. So that's our best guess, but everything is on schedule. Jeff Hammond: Okay, great. And then Tom, I like the slide on the clean tech as well, 2/3 of the product enabling clean tech. But I'm just wondering if you have a sense of what you think your revenue mix is today to clean tech or ESG markets and what you think that might look like 3 to 5 years out. Thomas Williams: Yeah, it's Tom again. So it's basically that 2/3 numbers. That's how we came up with it, it's 2/3. Our revenue today would be supporting clean tech. I would argue everything we do supports sustainability, even if you take, say, engine and mobile filtration that we've be doing for heavy-duty trucks is helping that fuel run more efficiently and better emissions So even today, we just try to be very conservative in that number, recognizing that that was still a fossil fuel related technology. But it's going to morph into a 100% of the portfolio because everything is -- if you take construction equipment fossil fuel moves to more electric, all you're really doing is changing the power source. You're going from say engine at and a getting engine, diesel engine, to higher Gen Energen or FuelCell or battery or some combination thereof. And all of our technologies are still needed to facilitate the work functions and the propel functions. And if anything, like I had mentioned before, our build material gets bigger because there's much more heat, and you've got a management of all of our engineering materials, technologies. We do have, I think, a bigger bill of material that we'll have -- with our motion technologies as we add more motor content and more software, etc. So we're very excited. It came back to those secular trend for us: Aerospace, ESG, electrification and digitization. I think you're going to see a different Parker if you look at for the next 5. Jeff Hammond: Thanks so much. Todd Leombruno : Thanks for the question, Jeff. Alright. I think that concludes our FY '22 Q1 earnings webcast. Thank you to everyone for joining us today. As usual, Robin and Jeff are going to be here for follow-ups if anyone needs any. And I wish everyone has a great remainder of the day. Thanks again. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Good day, and thank you for standing by. Welcome to the Parker-Hannifin Fiscal 2021 Fourth Quarter and Full Year Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Parker's Chief Financial Officer, Todd Leombruno. Todd Leombruno: Thank you, Dawn. And good morning, everyone. Thanks for joining our FY '21 Q4 earnings release webcast. As Dawn said, this is Todd Leombruno, Chief Financial Officer speaking. I'm here today with Tom Williams, our Chairman and Chief Executive Officer; and Lee Banks, our President and Chief Operating Officer. If you could focus on slide two, this is the company's safe harbor disclosure statement addressing forward-looking statements and non-GAAP financial measures. Reconciliations for any non-GAAP measures are included in today's materials. Those reconciliations and our presentation are accessible under the Investors section at parker.com and will remain available for 1 year. As usual, we'll start today with Tom providing some highlights for the quarter and our record fiscal year, as well as some color on Parker's transformation. Following Tom's comments, I'll provide a brief financial summary and provide some details on our FY '22 guidance that we just released this morning. I'll then hand it back to Tom for closing comments. And then Tom, Lee and I will open the lines for Q&A. And just one reminder, in respect to the announcement we made Monday, concerning the Meggitt acquisition, we are still down by the requirement of the UK takeover code. With that, I'll ask you to move to slide three, and I'll hand it off to Tom. Tom Williams: Thank you, Todd. Good morning, everybody. Thanks for joining us today. This marks the end of FY '21 for us, and it was a difficult year personally and professionally for everybody due to COVID, but it was a year where the Parker team really shined. We delivered outstanding results and lived up to our purpose in enabling a better tomorrow, and my thanks goes out to the global team for just a great year, great quarter. So let's start with the quarter. It was dynamite. Top quartile safety performance, 29% reduction in reportable incidents. The sales growth in the quarter was 25% approximately. Organic was almost 22 and the industrial portion of the company grew at almost 27% in the quarter. We have six all-time quarterly records, sales, net income, EPS, segment margins for total Parker, as well as North America and international. The EBITDA margins were very strong at 21.8% as reported or 22.1% adjusted, that was 190 basis points improvement versus prior. On the segment operating margin, on an adjusted basis, if you go to that last row, 22.2% or a 230 basis point improvement versus prior. Just a great quarter and a really great team effort by everybody around the world. Go to slide four, we'll move to the full year. It was a year of records, and I won't read all of these to you, but you can see eight all-time fiscal year records. And just - that's in the history of the company, so that's 104 years to put up a record. So it speaks to how well the team performed in this last fiscal year. Sales growth came in almost 5% year-over-year. Organic was flat, but clear momentum building on orders and organic growth in the second half of the year, as you see from our order rates. FY '23 margin targets, we hit them at full two years early, and we'll be announcing new targets once we have Investor Day, March of next year, and we're going to go out for a new five year target, so we'll be going out to FY '26. We look forward to a discussion at that time. Operating cash flow was $2.6 billion, a record, that was almost 18% of sales. Free cash flow conversion rate was 135%. And we were very pleased to be able to announce the offer to acquire Meggitt Plc, which greatly enhances our aerospace portfolio, and I'll touch on that briefly here in a few minutes. So if you go to slide five, I want to talk about the transformation of the company, give you a little bit of color behind what's driving it and the progress we're making on the results. And slide six speaks to those three drivers, living up to our purpose, being great generators and deployers of cash; and being a top quartile performer. I'm going to touch on each one of these over the next several slides. When it comes to purpose, enabling engineering breakthroughs that lead to a better tomorrow. This is something that really resonates with our people. It represents a higher calling to your work, and it acts as our North Star. In the next few slides, I'm going to talk about and highlight our purpose in action, specifically our technologies and how they're helping health care and how they're helping the climate and create a more clean technology world for everybody. So on slide eight, we're going to talk about vaccine production, in particular, something that's obviously very pertinent for today, COVID-19 production. On the left hand side speaks to the challenges that drug manufacturers have today. This is a batch process typically with extensive inventories, long lead times to produce these products. They take huge space requirements, large footprints for storage, large footprints with the manufacturing processes and very difficult changeovers. The cleaning cycles between the batch processes is very complicated. So the idea here is a simple concept that most of us can relate to. All those have been in some kind of a restaurant with a soda fountain, where you can pick your beverage of choice. And of course, the technology behind that is a concentrated syrup and carbonated water and you get to pick the soft drink of your choice. So the idea here instead of soft drinks, could we deliver sterile vaccine ingredients with a similar type of process? And slide nine is that process. So that's our inline dilution system. It's a proprietary point-of-use process for combining the purified vaccine ingredients. So if you look at that piece of equipment, you can see it's on wheels, so it's modular, easy to move around, easy to deploy. As mixing and sensing combined, it has two way communications via the IoT-enabled, so it can talk to the manufacturer's enterprise system to enable scheduling it just in time. It uses, very importantly, intellectual property-protected single use consumables. So instead of these massive batch processes, huge cleaning events for changeovers, this is a giant productivity improvement for the drug manufacturers on the speed of the change, but also just reducing contamination tied to the changeover. Then our software and automation helps control the amount and the flow of these various ingredients. So this applies obviously to COVID-19 and apply to other vaccines that are being developed and that we can use this for other drugs as well. So this is a really attractive business opportunity for us. But more importantly, it's a great help to customers and society is a great example of our purpose in action. Move to slide 10, move to the climate and the clean technology portion of our purpose. We just recently announced last month new sustainability targets. You see on the right hand side of this page is our new sustainability report, which you can reach electronically, where we announced a 50% reduction in emissions by 2030. So that would be Scope 1 and 2 emissions, direct and indirect. And by 2040, same things go pointing to be carbon neutral. So enabling a more sustainable future with what we do with our plants, our operations, our supply chain. But in addition, if you go to slide 11, and actually, more importantly, how can we help our customers. Like how can we help society with the sustainability journey? And so in this page you see, the eight motion control technologies across the top and that this portfolio, approximately two thirds of this portfolio is a very much part of the enabling of clean technologies for our customers. The exciting part is an expanding bill of material on automobiles, construction equipment, on forestry and mining, basically almost every piece of equipment on airplanes, engines, everything is feeling this impact for more electric applications. So there's onboard opportunities, but there's also infrastructure opportunities as the world has to build in infrastructure to support that growth. Our technologies can help with that infrastructure move. And then I want to move to slide 12, which illustrates the top quartile performance portion of those three drivers. And you can see we're using two metrics to illustrate this, adjusted EPS on the left, and adjusted EBITDA margin on the right. It's really been our people, the strategic portfolio changes we made, the capital deployment decisions that we made over the last seven years and The Win Strategy that's transformative of this performance. And when you step back and look at this, this is just a remarkable improvement. On the left is a more than doubling of our EPS. And that's hard to do. I can assure you that's really hard to do. This is a fantastic progress, a little less than $7 in FY '16 and over $15 as we closed last year. And the EBITDA margin, which has clearly been propelling that from 14.7% to 21.3%, so a 660 basis point improvement there. And then the last part on transformation and the drivers is cash generation and deployment. We touched on the cash generation piece in my opening comments, but clearly, in the deployment is how to deploy capital and buying effective companies. And we're very excited to put two high quality companies together, an aerospace combination that we announced Monday, Parker with Meggitt nearly doubles the size of our Aerospace Systems segment with highly complementary technologies, 70% sole source, a strong recurring revenue, excellent growth potential combination of commercial aerospace recovery, as well as the synergies, and this will be accretive to our organic sales growth margins, EPS and cash flow. This deal makes sense for all stakeholders, the shareholders of Parker and Meggitt. The team members of both of our companies, their parishioners, pensioners and of course, both of our customers. Following the announcement on Monday, we've introduced ourselves to the key stakeholders in the UK, reinforcing why we are the best home for Meggitt. Our long great track record in the UK, a clear strategic rationale for the deal including a premium we are offered to the Meggitt shareholders, our shared interest to continue to innovate and invest, that we are committed to being a responsible steward of Meggitt. And that is why we've agreed with Meggitt to offer the UK government a number of legally binding commitments about how we're going to operate going forward. These type of transactions, but we are pleased with the reception so far. And we look forward to constructive discussions with the key people in the UK government. And we'll keep you updated as the process unfolds and we go to the planned completion of this in approximate 12 months. And with that, I'll hand it back to Todd for more details on the quarter. Todd Leombruno: Yeah. Thanks, Tom. I guess I would like to direct everyone's attention to slide 15. And I'll just, real quickly, walk through the FY '21 Q4 results. As Tom mentioned earlier, we have some outstanding results to share here. Sales increased over 25% in Q4 versus prior year and finished at $3.9 billion. As we said, that's an all-time record for the company. And we're really particularly proud of this due to the fact that our aerospace markets are still challenged. It really demonstrates the strength of the portfolio additions that we've spoken about, CLARCOR, LORD & Exotic, and really is driven by strong broad-based demand across all of our industrial businesses. Organic sales are up 22% in the quarter. So basically, the majority of that 25% change is all organic. This is the first time organic sales have been positive for the company in over two years. Currency also was favorable with a 3.5% impact to total sales. Moving to adjusted segment margins. That 22.2% is an improvement, like Tom said, a 230 basis points from prior year, and it's also 80 basis points improved sequentially from Q3. Just another strong quarter of margin performance, as really our teams around the world pivoted to the increased demand levels and managed through a number of challenges, very proud of our team for that margin performance. Incrementals are also commendable at 31% year-over-year, really impressive considering last year with the depth of the pandemic. And our decrementals last year were fantastic at plus - or excuse me, minus 13%. And if you remember, that included approximately $175 million of temporary savings in that FY '20 Q4. So we're really happy with the 31% incrementals. EBITDA margins also expanded 190 basis points from prior year, finishing the quarter at 22.1%. And if you look at that net income number, $577 million, that's an ROS of 14.6%, and that's an increase of nearly 50% from prior year. All of those great results translated to an adjusted EPS of $4.38. That's an increase of $1.39 per share or 46% compared to the prior year number on this slide of $2.99. Just one point I want to reference to the prior year numbers, and I'm really speaking to net income and the EPS numbers only. We have been planning for some time to convert our remaining US locations that used to use LIFO for inventory evaluation to standardize that across the company and move to FIFO inventory valuation purposes. We made that voluntary change in FY '21 Q4, and we've retrospectively applied that change to prior years, and we've attached the impact of those prior years to this press release in the table section. So the impact to the previously reported quarter last year was minimal. It was only $0.04 last year. So the $2.99 on this page, if you're looking back to prior year, that would have been $3.03 [ph] in FY '20. So one other note I want to make, LIFO, we've always booked this at the corporate level. This has no impact to our segment operating margins or the incrementals that I just mentioned to and now 100% of the company's inventory is valued using the FIFO method. So just one last comment on the quarter. Really proud of our team globally. It's just a tremendous effort the team put forth to put up just such a solid quarter to finish really, as Tom said, a record year. So if we can move to slide 16, this is just a bridge of that $1.39 increase to adjusted EPS that I just mentioned, and what I love here is the largest bar on the page, signals the strong operating performance that the teams put together. Our segment operating income on an adjusted basis increased $250 million or 40% from prior year Q4. That accounts to $1.50 of the increase in EPS that we just put up for the quarter of $1.39, so it's really strong execution really everywhere across the company. All the other items you see on the slide, if you net it, it's $0.11 unfavorable. Corporate G&A, income tax and shares were slightly unfavorable, but lower interest and lower other expense partially offset the impact there. So again, most of this is really fantastic due to comparing back to our COVID-impacted quarter of the prior year. If you go to slide 17, just some color on our segment performance. Really, the message here is our industrial businesses delivered outstanding results across the board. We've spoken in the past about the impact of these portfolio changes have had on the company, and you can see it here in these margin numbers. Diversified North America sales were $1.8 billion in the quarter. Organic sales improved again in this segment sequentially up and are up 26% versus prior year. Operating margins improved an impressive 300 basis points versus prior year and really finished at 22.5% for the quarter. Obviously, volume helped us a little bit there, but really the disciplined operating performance and cost control really continue to drive the sizable increase to margins. Margins in this segment are a record, all-time record. And incrementals were also were very healthy at 34%. And again, I keep referencing the comparables back to last year, which is just a very tough comparison. If you look at order rates, order rates are robust at plus 56%. This is up sequentially from last quarter where we reported plus 11% and really just strong across the board. If I move to the International, Diversified International segment, really same story here, a little bit higher organic growth of 20.5% [ph] And sales just reached $1.5 billion in that segment. And again, another story here, adjusted segment operating margins expanded 300 basis points versus prior year and finished at 22.1% in the International segment. Just really, again, strong organic growth in that volume, coupled with that cost containment and productivity initiatives really generated this record margin performance in this segment as well. Order rates again here, tremendous, up a little bit higher than North America at plus 58% versus 14% positive in the last quarter. So really just a great performance out of our industrial businesses. I'll just touch on Aerospace Systems, really slightly. Very sound performance in the current market. Sales here were $630 million for the quarter. And I'm happy to report organic sales have turned positive in this segment, they are up 1%. We saw strength in commercial and military aftermarkets with strong sequential growth again in Q4 and we're happy to start seeing rate increases from OEMs, particularly in the narrow body and business jet platforms. Aerospace orders also got less negative and improved to minus 7% this quarter on a rolling 12 basis versus minus 19% last quarter and further proof that we are seeing signs of recovery in this area. Operating margins also very strong, 21.6% that improved sequentially from Q3 and really finished the year at the highest level they've had in the entire fiscal year. So very proud of our aerospace team there. So just looking at the company as a whole, we're really pleased with these results. It's a solid finish to the fiscal year. Our total incrementals were 31%. I'm really proud about that. And really just a comment, if I look at just our industrial businesses, if I go back to pre-pandemic FY '19 and on a like-for-like basis, if I include LORD in those FY '19 numbers, in the industrial businesses, our sales volume has surpassed pre-COVID levels. So we're really proud about that. Orders, you can see in total are plus 43%. And as Tom mentioned, not only did we achieve our FY '23 margin targets, but we surpassed them, and we did that two years earlier. So if I go to the next slide, slide 18, cash flow. We're obviously very proud of this. Tom mentioned this earlier, full year cash flow from operations was $2.6 billion, that's an all-time record for the company. 17.9% of sales, just outstanding top quartile performance. If you look at that compared to prior year, we generated over $500 million more cash. That's 24% more cash than we did prior year. And like I said, that CFOA at $2.6 billion is a record. Working capital, really solid performance here. And I want to just really thank our teams everywhere around the world for focusing on this. We asked them to focus on this through the pandemic and they delivered soundly. So I want to thank you all for your focus on that. Free cash flow, also fantastic, 16.5%. That's up 310 basis points versus prior year, and the free cash flow conversion for the year, 135%. So with that, this now marks the 20th year that free cash flow conversion has been greater than 100% and cash flow from operations have been greater than 10%, 20 years running. All of these allowed us to significantly pay down our serviceable debt. We've been vocal about that for the last couple of months. If you look at the last 20 months, we've paid down $3.4 billion of debt and our gross debt-to-EBITDA finished the year at 2.1%, net debt is 1.9%. So again, the similar story here, we achieved these leverage levels a full one year sooner than we have originally forecast, and it's just an outstanding cash position. It's top quartile execution and really impressive considering the backdrop of the global pandemic. So 19, I will ask you to focus on 19, just flipping to FY '22 and our guidance. You saw that we released this morning. As usual, we're going to provide this on an as-reported and adjusted basis. And I'll just start at the top. Sales. We're forecasting sales to increase in the range of 5% to 9%, really 7% at the mid-point. And really the breakdown of that sales growth is essentially all organic. We do not expect the Meggitt transaction to close in FY '22. Both LORD and Exotic have anniversary [ph], so those are no longer considered acquisition sales. Therefore, we are forecasting no impact sales from acquisitions. And currency is just a minimal drag at 0.2% of sales. And just like we always do, we have calculated the impact of currency to spot rates at the end of June 30, and we've held those rates study as we forecast FY '22. One thing I'll note, the sales split for the guide is 48% first half, 52% second half. The next item I'll talk about is segment operating margin. On an as-reported basis, the guidance for the full year is 19.3% at the mid-point, and there's a range of 20 basis points on either side of that. But more importantly, on an adjusted basis, segment operating margin guidance for the full year is 21.6% at the mid-point, same range of 20 basis points on either side of that. This adjusted segment operating margin guide is 50 basis points higher than what we just finished our record FY '21 app. Just some color on adjustments. At a pretax level, business realignment charges are expected to be $35 million for FY '22. LORD cost to achieve are only $7 million for the forecasted year and acquisition related intangible amortization is $320 million. Just a note on the split, adjusted segment operating margins, 46% first half, 52%, second half. If you look at the corporate G&A interest and other, $480 million is our forecast. That is the same on an adjusted and an as-reported basis. Tax rate, we are forecasting full year to be 23%. And finally, EPS on an as-reported basis, our guidance is $14.48 at the midpoint. There's a $0.40 range on either side of that. And our adjusted EPS guidance is $16.60 at the mid-point, same $0.40 range on either side of that. Adjusted EPS split: first half is 45%, second half is 55%. And a little color on Q1, we are forecasting adjusted EPS to be $3.60 at the mid-point. Slide 20 is the bridge. And again, this is very similar to Q4. Main driver of the $1.56 or 10% increase to adjusted earnings per share is just our continued strong execution across the enterprise. Segment operating margin is accounting for $1.76 of that change. And then again, just slightly higher corporate G&A, tax and average shares outstanding are a little bit of a drag. But all in, a $1.56 increase in earnings per share, increasing earnings per share by 10%. Lastly, I will just talk about capital deployment. For FY '22, we are committed to our capital deployment strategies. We have a strong 65-year of record of consistently consecutively increasing the annual dividends paid. We're going to continue with that record. Our payout target has not changed. It remains 30% to 35% of the five year average of net income. And of course, we're going to continue to fund organic growth and productivity across our global locations. We expect capital expenditures to be 2% for the year. Our 10b5-1 share repurchase program, we reinstated that this year. We are committed to continuing that in FY '22. And as I mentioned, when I was talking about cash flow, we have extinguished all of our serviceable debt, and we are now in a cash building position. So our focus for FY '22 will be to continue our record of strong cash flow generation and accumulation in preparation for the closing of the Meggitt transaction. So with that, Tom, I'll turn it back to you, and I'll ask the audience to focus on slide 22. Tom Williams: Thank you, Todd. Just closing there. So just, you know, what drive these results, the engine on company’s are people, our engage team, great culture, higher levels of ownership driving this performance very [indiscernible] results as you’ve seen. Living up to our purpose, the vaccine production is a class of chain puller, top quartile performance the more than doubling of EPS, the 660 basis points improvement in EBITDA margin for the last six years, getting the margin targets that we laid out for you two years early. And obviously, we're going to keep improving upon that. And the strategic deployment of capital and change in the portfolio, CLARCOR, LORD, Exotic, and now Meggitt. You put that together with The Win Strategy 2.0 and now 3.0, and it really spells for a bright future, and we'll continue to accelerate this performance. And with that, I'll turn it over to Dawn to open up to Q&A. Operator: Thank you. [Operator Instructions] And your first question comes from the line of Scott Davis with Melius Research. Scott Davis: Hi. Good morning, guys. And congrats on a great year. Tom Williams: Thank you, Scott. Scott Davis: I don't always say that, but I mean it. Guys, you've had a few days for this to marinate the Meggitt deal at least. What's been the customer response and feedback to the announcement? Tom Williams: Scott, it's Tom. We're early days on reaching out to customers. General view is very positive. They like the fact that this is a stronger bill of material opportunity to create more value, the highly complementary technologies and really the track record of both companies. Both companies have a great reputation, great innovators, great engineering led companies. So the response so far is very positive. Scott Davis: Good to hear. And not to get too nitty-gritty here, but you didn't really talk much about some of the challenges out there on the cost side, supply chain disruptions, logistics, all of that. I mean clearly, with 31% incrementals, it couldn't have been too big of a deal for you guys. But perhaps you could help us understand how you've managed through that? And how are you thinking about that as it relates to guidance over the next 12 months as well? Lee Banks: Hey, Scott. It's Lee. I'll take a shot at answering this. I think the first thing on the supply chain side is just to kind of step back, I recognize how we're structured, which is a huge benefit for the company. So as you know, we make, sell and source in the region for the region. So it allows us to be close to the customers and get away from a lot of international shipments. Having said that, we're not immune to what's going on in any of the regions. But I would characterize it internally as being manageable but not without hard work. Now I would say the biggest challenges we're dealing with is just our customers. So I mean, I think automotive is very public on what's happening. But I probably don't have a large OEM that hasn't had some kind of disruption where lands have been down, people have been sent home, et cetera. So we're working with our customers to work through that. It's just creating a lot of chatter in the channel and it's just, I would say, best is a lot of choppy production. Scott Davis: Yeah. Makes sense. Okay. Thanks, Lee. Lee Banks: Yeah. You bet. Operator: I am sorry. Your next question comes from the line of Jamie Cook with Credit Suisse. Jamie Cook: Hi, good morning. And nice quarter. I guess just a couple of questions. Can you help us understand the - what you're assuming for organic growth in the first half versus the second half? And what you're assuming sort of price versus volume? And then I guess the aerospace, like the top line guide to me seemed like you know, with what's going on, understanding we have the Delta variant, but there could be some level of conservatism there, as we think about sort of the top line. So if you can just help me understand what your assumptions are on the aerospace guide? Thank you. Tom Williams: Jamie, it's Tom. I'm going to take the guide, and I'll take a few minutes to describe that. I'll go through the aerospace piece. I'll let Lee touch on the price cost aspect. So this is probably the question that everybody is on everybody's mind, and how do we come up with the guidance and some of the context behind it. So first of all, there is a number of tailwinds, and I'll highlight some of the headwinds. But on the tailwind side, clearly, the order trends, the macro environment, I think there's a CapEx under-spend that happened for a number of years. So I think there's some CapEx demand that's coming back for manufacturing companies. Clearly, governments being more prone to put in stimuluses, the rebound from the great shutdown and of course, rebound of activity. The commercial aerospace recovery, which I'll touch on, to answer your question here in a minute, Jamie. Low interest rates and then a climate investment, which with our clean technology portfolio is a very attractive positive for us in the future. On the headwind side is the Delta variant and COVID hasn't gone away and is creating uncertainties throughout the world. The supply chain disruptions in particular, our customers and how that might impact demand patterns, which Lee touched on than inflation, both on the material side and wages. But we've built a pretty sophisticated AI model over the last 18 months. It's not perfect, nothing is when it comes to forecasting. But in my time at the company, it's the best tool we've had to date, and we factored in all this inputs and came up with what the best forecast is. And I’ll give a little more detail behind it. The first half, that we're looking is up a little over 9% organically, and the second half up mid single digit, that’s why you get to 7% overall. And important part, so if you look at the industrial piece, both North America and industrial approximately the same, up 11% in the first half and up mid single digits in the second half. When you think about aerospace and several of the pre-reports that came out, didn't have the insight that I'm going to share with you right now. So we have aerospace with a gradual recovery, up 3% in the first half, up 5% in the second half, that's where you get the 4% at the mid-point. But what's underneath that and will help give you some context is as to why that number is what it is. On the commercial side, both OEM and MRO, that's going to grow low teens, so nice recovery there. Military MRO is growing mid single digits. What is down is military OEM, it's down mid single digits. And the reason for that, and thankfully, our customers thought as our customers accelerated deliveries last year, we were up 19% as an example. They did this to protect the supply chain to protect supplier health because a lot of suppliers have commercial exposure, as well as military exposure, and they accelerated the military exposure to help everybody. So this year that we're in now, '22 is a reset of the inventory through that supply chain. So we will be down. And of course, then we'll go back to more normal levels in FY '23. If you would take out that acceleration in the prior period, our FY '22 military OEM would be about a plus three. So then when you add - when you would factor that in, aerospace growth would be more like 8%. So that 4% is being weighted down by the military OEM segment, that reset of inventory. So hopefully, that helps everybody with why the aerospace number is what it is. Just comparing that growth rate to 7% to GIPI, Global Industrial Production Index, that's going to be within our fiscal year '22, that's a 4.8% forecast. And you've heard us talk externally, we want to grow 150 basis points faster than that, so that our number of 7% would do that. Then maybe while I've got kind of talking about guidance, I want to just touch for a second on operating margin, and I'll let Lee comment about price cost. So our operating margin guide is at 21.6% at the mid-point. So it's approximately 30% or more less for the full year. If you were to take out the discretionaries in the prior period, it made this an apples-to-apples, the underlying MROS is a positive 50%. And a good indicator is what we did in Q4, we did over 50% in Q4, so that was actual results. The reason why I mentioned that is that underlying MROS is being hidden because of the year-over-year comparisons being awkward and really speaks to the operational excellence from the team just because it's hard to do an underlying 50% from where it was, I think everybody can appreciate that. So Lee, if you want to comment on the price. Lee Banks: Yeah. Jamie, I'll just add on, maybe finish up here with price, cost. So at last earnings call, the question came up, and I talked about how we track all the commodities on quarterly trends and the year-over-year trends. And I said back then, it was a sea of red. In other words, everything was up. And I would tell you here a quarter later, it's still a sea of red. But having said that, we're able to see this coming very well because of the processes we have internally, by measuring what we call our purchase price index and then also maintaining margin neutrality by our selling price index. So we're on top of it. And our goal, as we've always said, is to be margin neutral. We're actively working price both with direct customers and distribution. But it is a - there is a lot of inflation in the commodity side right now, no doubt about it. Jamie Cook: Okay. Thank you. I appreciate the color. Tom Williams: Thanks, Jamie. Operator: Your next question comes from the line of Mig Dobre with Baird. Tom Williams: Good morning, Mig. Mig Dobre: Good morning, everyone. Thank you for taking the question. Tom, I guess I'm looking for a little more context from you vis-à-vis industrial order strength, both North America and International. I don't know what your expectations were for the quarter, but I'll tell you, versus ours, these orders were much stronger. And I'm also looking to understand what backlog must look like at this point? Because obviously, your order intake was higher than organic growth. And are there any challenges with regards to converting this backlog to actual revenues either on your side or maybe potentially your customers? So let's start with that, maybe. Tom Williams: So Mig, let me talk about orders. This is Tom. I think just to maybe help clarify things for people. People, you're doing two year stacks, you might say, hey, geez, it seems like the organic growth might be like compared to the two year stack. The one thing that you have to look at is in current period, we have acquisitions in prior period. We do not have LORD exactly go the way back to '19. When you do apples-to-apples on orders, '19 to '21 and exclude the acquisitions, our industrial orders are up low teens. And I just mentioned, as I was answering to Jamie's question, our forecast for the first half on industrial is low teens at 11% organic growth. So there's a clear correlation between what we're seeing versus '19, again, apples-to-apples on order entry. And that's how we - in addition to AIMO [ph] how we laid out the year. The backlogs are increasing. Again, you got to remember that the prior periods has uniquely low comps. It's probably an inflated number that you can't get too excited about. Our on-time delivery is holding up nicely. Obviously, my customs would like to see us do better on that, but it's holding up very well compared to comparable times. And I'd say the impact that we've seen has been more on customer push-outs of schedules, particularly in automotive, where the automobile OEMs are having trouble with chips as everybody knows, and they're taking really targeted shutdowns and that will push-out our various orders and that impacted North America a little bit in Q4. But as Todd had mentioned, our Q4 sales were up about 10% industrial versus Q4 FY '19. So everything is kind of coalescing between orders and sales when you compare to '19 around that low teens type of growth rate. Mig Dobre: Okay. And then I guess I want to follow up on Jamie's question on pricing and trying to see if we can get maybe a more specific answer. When I'm looking at various PPIs of some of the product categories that you guys are involved with, it's pretty common seeing these PPIs somewhere in plus 4%, 4.5% year-over-year. And I'm just sort of wondering if you're seeing a similar level of price increases in your industrial business. And if there are differences at all in terms of OE versus your distributor partners? Thank you. Lee Banks: So I would say it's a range, some lower and some higher. Whether it averages out to that or not, I can't really say. But with our OEM customers, we've got direct contracts with many of them and what we're benefiting from is a lot of them have material clauses in them. So it allows us to capture that pricing as we go forward. On the distribution side, that's typically just a list price increase. But what you're seeing is kind of our best guess and it's all in the guide right now. Mig Dobre: Thank you. Tom Williams\: Thanks, Mig. Operator: Your next question comes from the line of Nicole DeBlase with Deutsche Bank. Tom Williams\: Good morning, Nicole. Nicole DeBlase: Thanks. Good morning, guys. Can we just - maybe, I know you went through the one half dynamics, Tom, but can you just narrow that view a little bit to what's baked in to 1Q, both with respect to organic growth and incremental margin? Thanks. Tom Williams\: Yeah. So Nicole, it's Tom. So first quarter would be up kind of low to mid-teens for Industrials, Aerospace, low single digits; and really our first half from an MROS is going to be in the upper 20s. Again, I would just point to, again, the comparison, if you did apples-to-apples, would still be in that 50% range. So it's really outstanding performance by the operating team being masked by the prior period, all the discretionary cost savings that we had. Nicole DeBlase: Got it. Okay. Thanks, Tom. And then can we just clarify on the change to FIFO accounting in the US. I guess, what was the impetus to do this now? And is there any benefit to the 2022 guidance related to the FIFO change? Todd Leombruno: Nicole, I'll take that. This is Todd. We've been talking about this internally for quite some time, and it really started with the recent acquisitions, CLARCOR, LORD and Exotic, those companies always use the FIFO valuation method. We do not use it in our Aerospace business. We really only used it in our traditional US locations. All of our international locations by rule had to use the FIFO valuation method. So we took a look at it and said, hey, maybe this year is an opportunity to convert, and that's essentially what we did. We converted early in the quarter. We worked tirelessly across our teams and with our internal - or excuse me, our external auditors and that we felt it was the best time to do it. There really is no impact to the quarter since we converted. We essentially reported the quarter in the FIFO method. We did go back and restate prior years just to show you what the impact was. And I just want to make sure everybody realizes that. If you look at this historically, it's $0.01 or $0.02 per quarter. It's a very immaterial impact. We always book that at corporate, so it had no impact to our segment margins or anywhere incrementals, and it really just now standardizes our inventory valuation across the entire company. So we're happy with the results. In respect to FY '22, there's nothing in the guidance for a benefit for converting to FIFO. Nicole DeBlase: Okay. Thanks for clarifying Todd. I’ll pass it on. Todd Leombruno: Okay. Thank you. Operator: Your next question comes from the line of Nathan Jones from Stifel. Tom Williams: Hi, Nathan. Nathan Jones: Good morning, everyone. Todd Leombruno: Morning. Nathan Jones: I wanted to follow up on the MROS comment, Tom. 50% if you'd normalize both years for all of the discrete costs and charges and benefits, which I think is you would normally see a high MROS in the first real year of recovery here, which would then glide back down to something more normalized. Can you talk - but I think the 50 was probably higher than you would normally get in the first year. Can you talk about what you think that MROS kind of progression would be over time? And what a normalized average kind of incremental margin MROS would be for you guys? Tom Williams: Yeah. Nathan, it's Tom. And you're right. I think this underlying MROs of 50% for a whole year, and it would be also counting Q4 and probably Q3 of last year, so 18 months will be higher and longer than we normally expect. I think what speaks to the changes from The Win Strategy and the fixed cost changes we made and maybe the efficiencies on top of those changes that came out of the pandemic is just a more efficient way of working. But I think, going forward, especially when we get to FY '23, you won't have these anniversaries to worry about with the discretionary on - you're not in the next year. I think - and I would just use for people modeling, 30%. As we've looked at it in benchmark, that continues to be a best-in-class number. And I think with all the changes we've made, I think that's a good number of you over a cycle to use 30%. Nathan Jones: All right. Thanks for that. I want to ask a question on the ESG report that you guys put out the other day. There is clearly some very significant reductions that Parker has made over the last decade or so and some good aggressive targets over the next 10 to 20 years. Can you talk just a little bit about - it's probably a very long answer. Is some of the mechanism that you guys used, some domain initiatives that you're going to use to achieve those goals? Tom Williams: Yeah. [indiscernible] So we've been this already and we've had since 2010 44% reduction, I’ve got the report actually [indiscernible] these different time periods 30% since 2010. So we’ve been on this for a while. And it's energy things that we do within the plants, renewables, different lighting, some of this will happen from indirect emissions, as the various utility companies change over to using renewables. We automatically get credit for that as well. We're going to be working with our suppliers what they can do to reduce it. All the Kaizen [ph] work we do or we just utilize the equipment better, smaller footprints, better flow, less distances traveled all those kind of things helps in this reduction. So we have every group signed up for their - have their prospective greenhouse targets that they're working on. They know exactly where they are, and that gets cascaded down plant by plant. And then we've also have - envisioned every group having a list of greenhouse gas emissions reductions, all the things they're doing, recycling things they're doing, that's in the way we know how to do. We drive it down in the respective divisions. And then at the group level, we have each group on their technology road map, developing their clean technology portfolio and how it needs to change for more EVs or fuel cell EVs or hydrogen, et cetera, and the groups have been actively doing it. The good thing about this is we formed the Motion Technology Center about 3 years ago, and for people who aren't familiar with it, this was taking the best and brightest that we could between aerospace and our Motion Systems Group. So taking all the motion-related technology of the company, having a center of excellence spread. And in particular, focusing on electrification. And a lot of the technologies that we developed in the '90s on the F-35, so the flight surfaces on the F-35 fighter are electro-hydraulically actuated and we've taken a lot of those learnings and applied it into the industrial portion of the company and has developed a suite of motors and motor controllers and software that we're offering on the industrial companies, OEMs in particular, where their platform changes as they look more electric. And when you add in acquisitions like LORD on top of the engineered materials applications that we have from legacy Parker, we have a really strong material science portfolio to help with that transformation as well. So our sustainability message is twofold, things we're going to do internally, which we have good line of sight to, and we put out two major targets 2030, 2040, but we're looking for year-over-year things to get there; and then what we're doing to help our customers because our customers at Scope 3, that's us helping our customers, and we'll be all over doing that. Nathan Jones: Great. Thanks for taking my questions. Tom Williams: Thanks, Nathan. Operator: Your next question comes from the line of Joe Ritchie with Goldman Sachs. Joe Ritchie: Thanks. Good morning, everyone. Tom Williams: Good morning, Joe. Joe Ritchie: Todd, maybe a first question on free cash flow. Clearly, really nice job this year at 16.5% of sales. I guess as you think about the free cash flow margin going forward, should we be thinking that there's going to be a little bit more like a working capital drain going forward, just given that growth is inflecting here on the industrial side? Todd Leombruno: Well, yeah, absolutely, Joe. There's been a step change in our cash flow performance. And I think everyone has seen that over the last couple of years. It's always a little bit tougher in a growth environment. So we'll be ready for that. I still think there's some opportunity across our enterprise. Some of the recent acquisitions, I think we've got some upside on inventory, and really I [Technical Difficulty] on receivables and payables throughout the last 20 months. So I still think we've got room to grow here. So we're not expecting much of a impact. Joe Ritchie: Okay, great. Great, to hear. And then my one follow up, Tom, obviously, clearly big announcement this week, I am curious, you know, maybe on the flip side of things, are you thinking maybe a little bit more aggressively around like portfolio divesture side, can help with the potential deleveraging from this large acquisition and how you're thinking about divestitures and holistically, that would be helpful. Tom Williams: Yeah, Joe, it's Tom. We look at it all the time, not just when we have a large acquisition, but this is something we have standard workaround that we look at the office of the Chief Executive. So Lee, Todd and myself, as well as we do it annually with the Board. And I would characterize that I've used this visual for people. I think the portfolio of the company has been very thoughtfully put together. Think of it as a tree trunk with the various branches. Two thirds of our revenue comes from customers that buy from four or more of the eight technologies we have. So my predecessors and everybody that built this company did a very thoughtful job of putting together interconnected pieces that make sense. So when we do that portfolio analysis, there's very little we see that we'd want to divest. It's something we look at all the time. It doesn't mean that we wouldn't divest anything. But if you use the tree analogy, it would be a small branch. There's going to be no major trunks that gets lopped off. But we look at it all the time, but I wouldn't see any big announcements from those regarding divestitures. Joe Ritchie: Okay. Thanks for taking my questions. Tom Williams: Appreciate it, Joe. Operator: Your next question comes from the line of Joel Tiss with BMO. Joel Tiss: Hey, guys. Tom Williams: Good morning, Joe. Joel Tiss: Just a different angle on that last question. Are there any internal actions you guys can take? Or that would really help you to get ready for the Meggitt acquisition? Or that's not how you work? Tom Williams: Well, I would characterize it as - Joel, it's Tom. Those internal actions have been happening every day since I joined the company and every day that everybody else that works here. I mean, we're all about continuous improvement. And I think the slide we showed earlier on the 660 basis points improvement in EBITDA margin is what's positioned us to be able to do a deal of this size. If you think about a couple of things regarding Meggitt, and just using that as an example. The multiples that we're going to do are very similar or less than what we have at CLARCOR. The synergies, while the dollars are big, the percent synergies are very similar to what we did with CLARCOR and LORD. And what's interesting is we're going to do a deal that has over 2x the purchase price of our largest transaction, but our starting leverage will be about the same point that we were when we did LORD and Exotic, so that's what might be how. The reason for that is because EBITDA has grown dramatically, the cash flow generation of the company, the EBITDA margins have grown so dramatically that we can take this size and it looks very similar to what we did in the past. And so we will get ready everyday and as we keep it [indiscernible] be ready to do something even better as we go into the future. When we had reach [ph] in our FY ’26 targets, we're going to be higher then what we are today and when Win Strategy 3.0 just started and it has tremendous firepower behind it to continue to propel the company. So we're preparing for the future every day. And I think what we did really the last 10 years is what's positioned us to do the Meggitt acquisition. Joel Tiss: Does that take away your kind of potential as we get to Investor Day to have some kind of bigger levers that really drive margin forward? Is it really just a series of small things? And can you give us a couple of examples of some of the things you're working on that could really continue to transform this company? And then I'm finished. Thank you. Tom Williams: Well, there is a couple of things I'd talk about on the top line. It would be the portfolio changes we've made, but there's also things organically, we're doing differently the whole strategic positioning, which I'll try to give more color on that on IR Day and how our divisions are taking a real step change in ownership of how they position themselves versus their competitors. The innovation changes we've made on PVI and new product printing, simplify design, which is a growth propellant as well as a margin engine, international distribution growth, the digital leadership and the new incentive plan change, ACIP replacing RONA. All those things are going to help on the top line with several of those help on the margin side as well. So as the portfolio becomes more innovative, and it has over the last number of years, those carry higher margins. Simplify design, as some of you maybe heard me talk about will be the single largest margin enhancement the company has ever done, and it's just starting. International distribution as we move that mix, that's a margin enhancement. We found what digital leadership that we continue to get more efficient with the use of AI. And then probably last but not least the most important, the things we've done around engagement. If I had to pick one single thing that propelled the company, it's been the engagement of our team members, the engagement scores, the ownership. And it's hard to put a number to that, which you know when you have people that think and act like an owner that use Lean and Kaizen which is part of their normal thinking, that spirit of continuous improvement is a big part of what's driven our success to date. You can plot our Kaizen activity and our engagement scores and they're working hand in hand. They're locked on a parallel path driving success. So - it's not one single thing, Joel. It's a number of things. And I guess that one slide that we showed you earlier showed the compounding effect of improvement year-over-year. The compounding on EPS, doubling at the compound of margins, and that's going to keep going. We're not going to stop. Joel Tiss: That’s great. Thank you. Todd Leombruno: Thanks, Joel. Hey, Dawn, I think we have time for one more question. So whoever is next in queue, we'll take one more question. Operator: Okay. We have a question from the line of David Raso with Evercore ISI. David Raso: Thank you very much. I apologize. I didn't follow the order commentary. You said that the current quarter orders were running, I think, you said 17%. Can you first clarify that? Was that industrial? Was it the whole company? I'm just trying to understand that comment. Tom Williams: David, this is Tom. So the comment I mentioned on orders was contrasting '19 to '21, where we were, if you made it apples-for-apples. And because we didn't have acquisitions, two last acquisitions in '19. And that has orders growing versus '19 at around low teens. And I was just making that correlation because we got order entry coming in low teens versus '19. And we've got sales growth in Q4 was right around 10% versus '19. And our forecast for organic growth the first half for the industrial piece of the company was around 11%. So they all kind of coalescing around that 10% to 11% low teen type of level. David Raso: I appreciate that. But we're not - right, we're not really comparing it versus '19. Your guide is '22 versus '21. And if the orders were over 50% industrial in last quarter, if you look at the more challenging comps, single stack, maybe its you know, 17%, so the orders will be like 40 or you want to double stack it, and see less of degradation. So I am just trying to understand, what are the actual order trends right now versus a year ago, just so we understand, are you saying a slowdown? Or are we just confusing the commentary about versus '19? Just to be clear, because the first half industrial growth is the correlations breaking significantly versus orders leading sales and how you're guiding. Tom Williams: Right. I was trying to give you back to something that was more normalized activity because the year-over-year is what we've announced. It was over 50 plus percent for international and minus 7 for Aerospace, plus 43. Because you can't extrapolate that against normal conditions because that was against a quarter ago, which is on when the great shutdown happened. So you can't take that number and extrapolate it into organic growth. You got to come back to kind of some other benchmark so we went back to when activity was more normalized, and that's the data that came up with. This is what I - all the various inputs that we put into that. So there's a lot of science that went into this number. And I'm just trying to contrast why you can't take a 43% order entry and so you're going to have a 43% organic growth. David Raso: But would you be able to help us with how the orders are trending currently versus a year ago? Tom Williams: Well, orders continued to grow through the quarter. I mean, if I take North America, it was 11% at Q3 and it went to 56%, and it sequentially got better every month through the quarter, same thing happened in international. So we saw momentum building through the quarter. Things are definitely not slowing down, David. I don't want anybody to take that thought process, things built through the quarter. David Raso: That's what I want to be clear, I mean, Tom, if you've got 50 in this past quarter, that usually is right, somewhat have a correlation for the next quarter, but the comps not exactly a normal comp. But the fact is if you look at the comps, this current quarter, the industrial orders should still be up north of 30 or so. And then when you have two quarters running 50, then 30, it doesn't make a lot of sense to be thinking the first half industrial is kind of low teens. And I'm just - I know it's a little tricky on the conversion, maybe some things were taking a little longer to ship. I'm just making sure we don't walk away thinking that's a pretty dramatic slowdown. So you're saying you're not seeing a slowdown at the end of the day? Tom Williams: I'm going to be very clear, there's absolutely no slowdown. You can't take a 50% order entry rate and draw a linear curve there and say it's a 50% organic growth. David Raso: I hear you. Lastly, to the March meeting, when we think about the comment about Simple by Design, still you feel pretty early in the journey. Any way you can frame for us how you perceive margin improvement from here versus kind of the journey we've been on the last five years? Just to kind of frame it a little bit for us, given Simple by Design. Tom Williams: I want to do that in full context of going through all the strategies and how we're going to do it, and given you a fully baked explanation. But I would just say that we're going to continue to get better. And if the future is - if the past is an indicator, you can draw that into the future. David Raso: No, I appreciate that. Okay, thank you very much. Todd Leombruno: Appreciate it, David. All right. I just want to say thank you to everyone for joining us today. This does conclude our FY '21 Q4 earnings webcast. And again, just consistent with the comments made on Monday regarding the requirements of the UK takeover code and our pending Meggitt transaction, a representative of Citibank will continue to participate on all of our analysts and investor calls for the foreseeable future. Robin and Jeff are obviously available here all day if you have further questions or need any further clarification. And always thank you for your interest in Parker. And I hope everyone has a great day and a great weekend. Take care.

Operator: Ladies and gentlemen, thank you for standing by. And welcome to the Parker-Hannifin Fiscal 2021 Third Quarter Earnings Conference Call and Presentation. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] The opening speaker for today's call is Parker's Chief Financial Officer, Mr. Todd Leombruno. Please go ahead, sir. Todd Leombruno: Thank you, Elaine. And, good morning everyone. Thanks for joining our FY'21 Q3 Earnings Release Webcast. As Elaine said, this is Todd Leombruno, Chief Financial Officer speaking. Here with me today are Chairman and Chief Executive Officer, Tom Williams; and President and Chief Operating Officer, Lee Banks. On Slide two, you will find the company's Safe Harbor disclosure statement addressing forward-looking statements as well as non-GAAP financial measures. Reconciliations for all non-GAAP measures are included in today's materials. These reconciliations and our presentation are accessible under the Investors Section at parker.com and will remain available for one year. We'll start the call today with Tom providing some quarter highlights and some strategic commentary, and I will provide a summary of the quarter, financial results and review the increased guidance that we announced this morning. Tom will then close with key messages and then Tom, Lee and I will take any questions that the Group may have. With that, I'll direct you to Slide three, and I'll hand it off to Tom. Tom Williams: Thank you, Todd. And good morning everybody. Before I jump into Slide three in the quarter, I want to say thank you to all the Parker team members around the world for an outstanding quarter. It's really more than just this quarter, it's really been the whole year and the performance to the pandemic, and also the transformation of the company into a top quartile to pursue of company. These results are all because of your efforts. So, let's look at the quarter on top of Slide three. Starting with Safety as we always do, had a 33% reduction in recordable incidents, we're still in the top quartile, the combination of safety, lean our high-performance team structure in Kaizen, all driving high engagement and high performance, you see that show up in our results. Sales grow grew about 1%, the organic decline was minus 1, but in particular, if you take out Aerospace and look at the industrial only, industrial segment grew organically, almost 4% that was significant. We had word [ph] records. You can see that net income EPS in the segment for Parker North American International EBITDA margin was very strong at 21.6 as reported 21.8 adjusted a huge increase versus prior 250 basis points. Year-to-date cash flow was an all-time record of 1.9 billion and 18 for a little over 18% of sales. If you go to the very last row of this page, you see segment operating margin on an adjusted basis 21.4%. Again, a significant improvement versus prior plus 240 basis points. So, a terrific quarter and really tough conditions. So if you go to the next slide, I want to talk about the transformation of the company, the old adage that a picture is worth a thousand words. And, so I want to take you to Slide five, and this is really the picture that speaks to the transformation of the company. Let me explain the chart here for a minute. So you've got in gold bars the adjusted EPS, the blue line is global PMI plotted on a quarterly basis. If you look at the last six years and look at that dotted green line and compare that with the blue global PMI line, you see they are much less correlated, in fact they are diverging and there's been a step change in performance of the EPS over this time period, is more than doubled from $7 to our guidance of $14.80, so approaching $15 and was propelled it over the time period an EBITDA margin that's grown 600 basis points. So you might ask how that happened, that's really that blue take away in the bottom of the page, it's our people, that focus, the alignment, the engagement that comes when you have people thinking like an owner, the portfolio, which is a combination of our interconnected technologies and the value they bring and the capital deployment we've done buying some great companies that have added to the strength of the company. Then our performance, which really sits with the strategy of the company, 132.0 come at the beginning of this journey, strategy 3.0 most recently in FY '20. So this combination has really transformed the company you see that as a business slide and we're very proud of it. But if you go to slide six, so that's what's kind of in the rearview mirror but going forward, we're equally excited about where the company is going to go and I've called this a convergence of positive inflection point, so in the left-hand side it is kind of those external inflection points, you're familiar with a lot of these - macro environment momentum, you see that in our positive orders and positive organic growth industrial, we showed in this quarter. Aerospace is going to recover, question is just what the trajectory will be in the timing, vaccines to make a progress around the world. There's going to be a significant amount of climate investment. If you put all that on top of, right all these down but low interest rates pent-up CapEx demand of fiscal spending, you have a very attractive environment for industrials for the next several years. On the right-hand side, it is really the internal things we've been doing when it shows 3.0 particular, but at the last line, I just went through spoke to all those internal actions because that's what's been propelling us. Remember that last period - last six years really had very little help from a macro standpoint. So, if you look at the three major things, I highlighted here performance becoming top quartile, strategies to grow fast in the market you've seen our margin expansion, great cash flow generation consistently over the cycle, portfolio, we've added three great companies are accretive on growth cash margins, and with the rapid debt pay down that we've done, we're positioned to do future capital deployment, which is very exciting. The technology will get into in the next Slide, but the interconnected technology is really distinctive for us. And then with a climate investment, we are very well positioned with our suite of clean technology to take advantage of that. So, I would tell you that my view and the team's view, this is about as good an environment as we've seen in a number of years. Go to Slide seven, you've heard me talk about this page, the power of this interconnection of the technology brings that value accretive for customers, what I want to do today in light of the Clean Technology discussion is give you forward samples and how this suite of technologies helps with - were clean environment clean technology world. So, the first would be electrification and we've got a full portfolio technologies here hydraulic, electro hydraulic, electromechanical low competitors got that breadth of technologies and we formed about four years ago the Motion Technology Center, which put the best and brightest of engineers doing Motion Technologies and things of Slide as well as things with wheels underneath even so we put the motion and the aerospace teams together and this team has come up with a great listing of products around motors and burners and controllers, but there's also in addition to the typical motion opportunities, there's other challenges of our electrification like light weighting, thermal management, shielding, structural adhesives, noise vibration all of these to the combination we have a legacy Engineered Materials and with LORD acquisition, we're well positioned to take advantage of those. Secondary is batteries and fuel cells that utilize most of technology see on this page. Thirdly, clean power sources and that kind of falls into two word [ph] renewables, which we do a lot and always have done a lot of wind and solar. Then the hydrogen, we just recently joined the Hydrogen Council and it's going to be both on board as well as infrastructure opportunities as you go up for the next many years and it's really building in our high pressure in our cryogenic applications that we have today. And then we've been and more sustainable company for a long time - the clean technology example for us, that started a lot of things is filtration and our filtration business protection purifies assets and equipment for people for more sustainable environments. So we feel very good about this portfolio is more climate investment in the future. Going to Slide eight, just want to remind you of our purpose statement enabling engineering breakthroughs that lead to a better tomorrow. It's been very inspirational for our team, and I think it comes more into light, when we give you examples of the purpose and action, which is on Slide nine. And again, kind of following with a clean technology discussion when I'd highlight electrification, I'm going to highlight in particular electric vehicles. On the left-hand side, you see applications that have changed because of an AGV an EV versus a combustion engine. On the right-hand side, you see the various technologies of Parker has that addresses those applications, I won't read all those [indiscernible] major categories safety related technologies, things would say wait thermal management variety of things we do for critical protection. The big opportunity for us, we will obviously are in the fact is helping to make these vehicles, and we'll always do that, but the big opportunity for us is the word [ph] content around engineered materials. Our build material for an EV or an HEV is Ten-X what it was on a combustion engine and it's one of the key reasons why our LORD business has grown so nicely even despite the pandemic, we grew 11% organically in Q3 for Board. So we're very happy with the progress so far. And our purpose and action around electrification as an example. So with that, I'll turn it over to Todd for more details on the quarter. Todd Leombruno: Okay. Thanks, Tom. I'll just word [ph] everyone to Slide 11 and I'll do a quick review of the financial results for the quarter. Tom mentioned some of these. So I'll try to move quickly. Sales for the quarter were $3.746 billion that is an increase of 1.2% versus prior year. We are proud of the fact that the diversified industrial segment did turn positive organically. Industrial segment organic growth was 3.7, obviously that was offset by the Aerospace, Systems segment there organic decline was 19.7%. So, all in that drove total organic sales to minus 1.0. Currency was a favorable impact this quarter of 2.2%. And just a note in respect to acquisition, this is the first full quarter that we report both LORD and Exotic in our organic growth numbers. So therefore the acquisition impact was zero. Moving to segment operating margins, you saw the number 21.4%. That's an improvement of 240 basis points from prior year. It's also an improvement of 130 basis points sequentially. Strong margin performance there. And that really was the result of just broad-based execution of the Win Strategy. We continue to manage our cost in a disciplined manner. The portfolio additions in core for LORD and Exotic are all performing soundly and you've all been familiar with the restructuring activities that we've done in FY '20 and in FY '21 those are on track and unplanned and generating the savings that we expected. Adjusted EBITDA margins did expand 250 basis points from prior year finished the quarter at 21.8% and net income is $540 million, which is a 14.4%, ROF that's increased by 22% from prior year. Adjusted EPS was $4.11, that is a $0.72 or 21% increase compared to prior year's results of $3.39. And as Tom said, it's just really outstanding performance, and I'd also to like to commend our global team members for generating these results. If you Slide to Slide 12, this was really a bridge of that $0.72 increase in adjusted EPS versus prior year and the story here across the board is the strong execution from all of our businesses. This produced robust incrementals in our diversified industrial segment and really commendable decrementals in the Aerospace Systems segment. Adjusted segment operating income did increased by $98 million or 14% versus prior year. That equates to $0.58 of EPS and really is the primary driver of the increase in our adjusted EPS number. Interest expense was favorable to prior by $0.12 as we posted yet another quarter of sizable repayment of our serviceable debt and that is really benefiting from our strong cash flow generation. Other expense, income tax and shares netted to a $0.02 favorable impact compared to prior year. Moving to Slide 13, this is just an update on our discretionary and permanent cost out actions, and this is just a reminder, these represent both savings recognized in the current fiscal year from our discretionary actions in response to the pandemic and our permanent realignment actions that were taken at the end of FY '20 and throughout FY '21. Discretionary savings came in exactly as we guided at $25 million for Q3 and now totaled $215 million year-to-date, there is no change to our discretionary savings forecast for Q4, that remains $10 million and we continue to forecast the total year to be $225 million in full-year savings. Just to note with the increased demand levels that we're seeing from our positive order entry, our teams have really pivoted to grow and really now these discretionary actions that we knew would diminish across the calendar year have now really been based in reduced travel expenses. If you move to permanent savings, we realized $65 million in Q3, our total year-to-date is $190 million, the full-year forecast again here remains as previously communicated at $250 million, one item to note, we did guide that the cost of the FY '21 restructuring would come in around $60 million, it's now expected to be $10 million less or $50 million but there is no change to the expected savings that we are forecasting. Total incremental impact for the year from both permanent and discretionary savings is $260 million. And just one other thing to note this will probably be the last quarter that we detail these items as we anniversary, the pandemic induced volume declines and really focus our attention on growth. So the takeaway is savings are on track, no changes other than the expense to be a little bit less. If you go to Slide 14, this is just highlighting some items from our segment performance for the third quarter in our diversified North America business, sales were $1.76 billion that is an improvement in organic sales sequentially from Q2, it still is down 1.2% from prior year, but if you look at the adjusted operating margins, we did increase those operating margins by 190 basis points versus prior year and reached 21.9% for the quarter. We were able to increase these margins despite that sales decline due to our disciplined cost management, those portfolio improvements we've talked about and really margins in this segment are at a record level. If you Slide over to order rates, another positive here, they improved significantly from plus one last quarter and they are now, ending the quarter at plus 11. Looking at the Diversified Industrial International sales, robust organic growth here of 11.1%, total sales came in at 1.39 billion and another great story here adjusted operating margins expanded substantially and reached 21.6%, an improvement of 400 basis points versus prior year, clearly the double-digit organic growth coupled with the cost containment and the effort from our global team really generated this level of record margin performance as well. And again, another plus here is order rates accelerated in this segment and are now plus 14% for the quarter. If you look at Aerospace Systems, they continue to really perform soundly in the current environment, sales were 599 million for the quarter, organic sales showed a slight sequential improvement from Q2, but are still down basically 20% from prior year. Commercial end markets are still under pressure. However, there is a strength in our military end markets. What's nice here is operating margins were 19.4%, 30 basis points better than prior year despite that 20% decline in volume and if you look at our fiscal year, that performance of 19.4% is the highest they've done all year. So we're really proud about that. Decremental margins are also impressive here in this segment this quarter there 18% decremental margins. Order rates appear to a bottom and finished at minus 19 for this quarter. And just a reminder that is on a rolling 12-month basis. So, overall we're pleased about a number of things this quarter that Diversified Industrial segment organic growth of 3.7 as a positive total segment margins improved 240 basis points from prior year and at record levels, orders have turned positive in plus 6 and our team is really continuing to leverage the Win Strategy to drive significant improvements in our business and increased productivity and generate strong cash flow. So with that, I'll ask you to go to Slide 15, just to give some details on our cash flow year-to-date cash flow from operations is now $1.9 billion that's 18.1% of sales, that's up 45% from prior year and it is a year-to-date record. Improved net income margin as we've talked about before is really a key driver in this it's created a step change in our cash flow generation. But I also like to commend our team members intense focus on our working capital metrics. Each of our working capital metrics is improving and showing positive results and I'm really proud about that. Moving to free cash flow at 16.8% of sales that's an increase of 630 basis points over prior year and our free cash flow conversion is now 141%, which compares to 122% in the prior year. So, great cash flow generation there. Moving to Slide 16, I just want to mention some things we've done on our capital deployment, we did pay down $426 million of debt this quarter that brings our total debt reduction to a little over $3.2 billion in the last 17 months since the LORD acquisition closed. This reduced our gross debt to EBITDA to 2.4 it was 3.8 in the prior year and net debt to EBITDA is now 2.2. And that's down from 3.5% in the prior year. Looking at dividends last week, you saw our Board of Directors approved a quarterly dividend increase of $0.15 or 17%. This raises our quarterly dividend from $0.88 to $1.3 per share and extended our record of increasing the annual dividends paid per share to 65 consecutive years. And finally, as we mentioned at the Q2 earnings release, we've reinstated our 10b5 program and repurchased $50 million of shares in the quarter. All right. So if you go to Slide 17, I'll just provide some color to the increase in guidance that we gave this morning really the strong year-to-date performance and these order trends have positioned us to increase our full year outlook for sales to a year-over-year increase of 4.5% at the midpoint and the breakdown of that sales change is this organic sales are now expected to be flat year-over-year. Acquisitions will add 3% and the full year currency impact is expected to be 1.5%. We've calculated the impact of currency to spot rates as of the quarter ended March 31 and we held those rates constant to estimate the Q4 '21 impact. Moving to segment operating margins, our guidance for the full year is raised to 20.8% and that would equate to an increase of 190 basis points versus prior year. And just some additional color some things to note corporate G&A interest and other is expected to be $381 million on an as reported basis and a $479 million on an adjusted basis, the main difference between those two numbers is that $101 million pre-tax or $76 million after-tax gain on real estate that we recognized and adjusted in the other income line in Q2. That's the main item. If you look at our tax rates down just a little bit. We're now expecting the full year tax rate to be 22.5% and moving to EPS on a full year basis, our as-reported EPS guidance range is increased from 12.96 to 13.26 that's $13.11 at the midpoint. And then on an adjusted basis, we're increasing the range from 14.65 to 14.95 that's 14.80% at the midpoint. For Q4, adjusted EPS was projected to be $4.18 per share, that excludes $0.54 or $93 million of acquisition related amortization expense, the finishing of our business reliant expenses and integration costs. If you look at Slide 18, this is just a bridge of our increase to our adjusted EPS guidance. Now, these results that we just reviewed, you can see the outperformance that we had in Q3 that increases our previous guide by $0.57, the order strength that we just reviewed and really the exceptional operation and execution by our teams have allowed us to increase Q4 guide by an additional $0.33 and that is exclusively based on increase segment operating income. This raises our full year EPS guide by about 6.5% from prior guide. And with that, I'll turn it over to Tom for some summary comments and ask you to move to Slide 19. Tom Williams: Thanks, Todd. So we've got a highly engaged team. You see that this was driving our results. The ownership culture that we're building, record performance in difficult times, these numbers are historical all-time highs for us and not the best of times. The convergence of positive inflection points we feel points very bright future and the cash generation and deployment as evidenced by the rapid debt pay down acquisition performance and our dividend increase, which I would just highlight the first time we've been over $1 at $1.3 on a quarterly dividend, which we're very proud. So the Win Strategy 3.0 and our Purpose Statement is well positioned in addition to inflection points for a very strong future. I'll turn it back to Elaine for to start the Q&A. Operator: [Operator Instructions] And your first question comes from the line of Jamie Cook from Credit Suisse. Jamie Cook: Hi, good morning and nice quarter. I guess just two questions, one, understanding you don't want to talk about 2022. But I'm trying to understand the setup for incrementals and to what degree if volumes are still there. Can we have above average sort of incrementals and how that discretionary cost sort of factor back in and impact incremental margins? And then I guess my second question, as regards to your longer-term margin targets, which you're on already starting to beat those targets. So, in particular if volume is not really showing up in your numbers, I'm just trying to think about how we position your margins longer term, potentially to be at a higher structural level? Thank you. Tom Williams: Jamie. This is Tom. So I'll start with the incrementals. The one thing I would point out is our guidance for Q4 is incrementals of about 30% and if you were to do like for like take out the discretionary savings, we had in Q4 prior periods, maybe about a 50% incremental. So would be at the incrementals that we feel based on the cost structure and all the things we've done with when 2.0 when 3.0 that we would generate at this point in the cycle. So that's - we would continue to do 30%, I think as we go into 22, obviously we're not guiding to that yet. So I think just a good round number to use for us, but I'll highlight Q4 because it is impacted by the prior period discretionary which we don't have now are not as much, and that difference is pretty significantly go from the 30 to plus 50 incremental. So, it speaks to the underlying power of the business is there. And then on your question on long-term margin targets; yes, this is a good problem that we have that we basically beat our targets by about two years, our guide of 20.0 needed to midpoint on op margin is within spitting distance of the '21 and then our EBITDA but we don't guide on EBITDA margins will be at the 21% for the full year on EBITDA, so we're actively working on what this new set of targets will be and I'm sure this is a question everybody had, so we are going to disclose at IR Day, which will be March of next year and we think that's the appropriate form to do that, the rest assured, we're working on it and we're not going to settle or be happy was stopping where we're going to continue to march forward and we'll give you that vision when we have Investor Day. Jamie Cook: Okay. Congrats. Thank you. Tom Williams: Thanks, Jamie. Operator: And your next question comes from the line of Andrew Obin from Bank of America. Tom Williams: Hi, Andrew. Andrew Obin: Yeah, I guess I'll follow Jamie, I'll ask one question. But it will have two parts, it seems you guys are getting ready for some of the best growth you've seen in a long, long time. And, the two-part question that I have for you is how do you think about your supply chain and manufacturing footprint to meet demand and meet growth over the next three, four or five years in North America? So that's part one. And part two, for the past decade, at least we didn't really have a lot of growth in North America structurally and in terms of your distribution channel, do you need - what do you need to do to optimize your distributors for this new growth environment? Do they need to be better capitalized? there has been some consolidation, do you need to continue or consolidating your dealers? So, part one manufacturing getting ready for this multi-year upturn and part two, what do you need to do on the distribution side? Thank you. Tom Williams: Okay. This is Tom, I'll start maybe Lee can pile on with the manufacturing structure of the company. But we feel that we're well positioned to take advantage of this growth in one of our strengths historically is when there is a spike in demand our supply chain and the fact that we make-buy-sell local for local and our manufacturing footprint which is diversified around the world. Typically been more responsive than our competitors. And then what we've done with 3.0 and adding Kaizen, and so I stated with my opening comments when you links safety performance, Lean Kaizen in the high performance teams the structure how we run the various cells of value streams, you've got a very powerful combination as we do Kaizen we keep finding ways to free up capacity pre-up floor space, free up capacity in our equipment, we're able to do - what we call more simple automation category, which is uses the only free thing in life, which is gravity and if you saw these are gravity induced material handling things in some automation in the factories, has allowed us to be responsive to this demand. So, I think we're well positioned. Obviously, we're going to have to continue to invest, which we will we just found ways to do it more efficiently and Kaizen has been kind of great liberator for us to be able to do that. On the channel, the channel has been to your point, has been consolidating over the last number of years. I think it's better position than it's ever been to respond, we did see nice growth in distribution sequentially and our distributors are investing and some inventory for the future. And I think will be positioned to respond absolutely take share through them as well as through our OEMs going direct and we've got a great distribution team, our partners are strong, we've got a great distribution sales force, have been investing and application engineers and they're relying on us to be better on supply chain. And word [ph] we could continue to do better, but we have made quite a bit is on that. So I think both of those will be well our position to take advantage of this upturn. Andrew Obin: Thank you, Tom. Tom Williams: Thanks, Andrew. Operator: And your next question comes from Scott Davis from Melius Research. Scott Davis: Hi, good morning everybody. Thanks for including me. Kind of fascinated by Slide nine. I know you've shown it before, but I don't think you guys have disclosed kind of the opportunity, difference between the electric vehicle and potential content versus ICE. Is there any way that you can quantify the opportunity for us? Tom Williams: Hello Scott. This is Tom. So, for competitive reasons and for sensitivities with customers, I won't get into the dollar content, which is why you heard me describe it in terms of just size versus ICE, a Ten-X build material. Our build material board is primarily almost exclusively all engineered materials. So, but then when you go down that list on the right-hand side of Slide nine. These are all engineered materials and this would be a combination of a pretty strong portfolio that we had before we did Lord but then Board added quite a bit to that. And really the combination we've got there is really given us a very attractive offering for customers and the debate is how fast it's going to grow and what percentage of total fleet will take over. But for us every time there's a new EV, it's an upside opportunity recognized as I mentioned as more growing 11% in the quarter towards the third Aerospace, so large Aerospace business is doing a little better than legacy Parker's because they have a pretty big exposure, but it's feeling pressure just like legacy is and for LORD as a whole to show a plus 11% to shows you the growth you got on the EV in EHV side. Scott Davis: Okay, fair enough. And what - just again, looking at Slide 13 and the discretionary cost versus that permanent, how do you think about this going forward, and kind of passed the middle of the year - will expenses kind of go back to pre-COVID levels, is that something that you guys are starting to model in or is there some sort of an improvement to discretionary that's even that almost becomes permanent, if you will like people will travel a little bit less or there's you find that you don't need to send 30 people do a trade show you can send 20. I mean, or is that in the numbers already and open any question, I guess, Tom? Tom Williams: Scott, this is Tom, I'll take that question. You're right on all accounts there, when we talked about this last year because the decline in volume came so quickly, we bought a number of levers on discretionary expenses. A lot of this was in response to the volume declines. Right. And we talked about our permanent actions in that eventually our permanent actions would right size the business we feel like we're there now, but we have found a new way to do business. Right. 'I don't think we will go back to the way we did things, travel, trade shows, those are all great examples. But there will be some right we're stopped - still trying to figure out what that is, but it will not be like it was before. So that will be essentially a change that will be structural going forward. Scott Davis: Okay, perfect. Good luck, and congrats guys. Thank you. Tom Williams: Thanks, Scott. Operator: And you have a question from Joel Tiss from BMO. Joel Tiss: I'm glad you started off with the safety talk. Tom, I've got my mask and my safety glasses on and I get all my shots and everything I'm ready for it. Tom Williams: Probably Joel, stay safe Joel, stay safe. Joel Tiss: Can you talk a little bit about the inventories in the channel and in Aerospace and just sort of maybe more generically how the industry is setting up for '22 and '23 like what are you hearing from your customers and your distributors and things like that? Todd Leombruno: Joel, this is Todd. So on distribution, we saw really nice improvement versus Q2 so distribution came in at plus two overall for the quarter versus a minus 6 in the prior period. So when 800 basis point improvement in distribution. We saw really good growth in Asia Pacific and Latin America, and that 15% to 20% range. EMEA was flat in North America, just slightly negative low-single digits. But, pretty much across all our distributors, we saw a combination of actual activity driving demand and then investing in inventory coming front. So I think the channel has turned from you know last quarter I talked about selective restocking, I think it's pretty much across the board, people planning for the future is an aerospace, we still need time, I think we're bouncing along the bottom there and we've sized the company to put operating margins in more now. We have the advantage of being very diversified in our segments between engines military, commercial helicopters, et cetera going down the line that's helped us quite a bit. We're about 50 50 on military and OE, so we're well positioned, but quite a question mark there is just what the trajectory be and how long do we bounce along the bottom, clearly, I think the military side will continue to be strong for us. It was strong this quarter and will continue to be strong going forward both we. And over on the right programs there. And then commercial side, will be all based on that we will be based on line rates from the OEMs, the airframers. And then on the MRO side for commercial it's all about air traffic shop business you see positives with airlines hiring pilots back and departure rates are improving and that will speak well to shop as done growth. Joel Tiss: All right. It's great. Thank you. Todd Leombruno: Thanks, Joel. Operator: And you have a question from Joe Ritchie from Goldman Sachs. Tom Williams: Good morning, Joe. Joe Ritchie: Hi, thanks. Hey, good morning guys. So I'll ask a multi-part one question. But really around free cash flow because that's been a great story for you guys as well. And so as we think about next year and the inflection that you're going to see in growth, how do we think about you having to build working capital within your own distribution and the impact that that could have on 2022 free cash flow margins. And then beyond that, like longer term, what's kind of like the right entitlement if margins are going to be going up longer term, what can free cash flow margin for quite long term for the company. Todd Leombruno: Hey, Joe. This is Todd. I'll take that question and thanks for noting our superb free cash flow. We are really proud about that. As you know, we don't guide on free cash flow. We're really happy with our results. There has been a step change. If you look back over time. I kind of alluded to that and in the slides there. It's really driven by our increased margin performance, but not only that I mentioned, our working capital. Our team really have put intense focus on this. And that's one of the areas that, that we really have improved with these recent acquisitions kind of bringing them into Parker type terms and Parker type policies. So we're not done with that. We still have room to go on that on every single one of those metrics. So we do see that improving. Will there be some pressure as growth comes, absolutely, but it will not adversely affect those numbers, we see a positive future for cash flow. Joe Ritchie: Got it. Okay, thank you very much. Operator: And we have a question from Nathan Jones from Stifel. Nathan Jones: Good morning everyone. Todd Leombruno: Good morning. Nathan Jones: I'd like to follow up on the aerospace side. Tom specifically on commercial aerospace and even more specifically on the aftermarket side, that's where you guys are going to see the pickup on the commercial side, but have you seen sequentially that get any better as we're really seeing the front end of air traffic start to pick up and if not, what's the typical kind of lag you see from when that recovery in air traffic starts to when you actually see the recovery of your aftermarket orders? Todd Leombruno: Yeah, Nathan, it's Todd. So sequentially and sales for commercial MRO. We saw a 13% improvement call from Q2 to Q3 and the lag is sometimes hard to predict, but the sequence of the increase in available seat-kilometers increase in departure rates drive shop visits to go up at some period of time after that, and that's always the hard part is depends on what the routes are in the cycles and particular engine, etcetera, but those will start to improve and they want to shop visits go up then. Our flow-through in the commercial MRO is going to happen. So I can't give you an exact lag because - but I would probably be wrong, but clearly. These are all positive signs being hired departure rates going up available seat-kilometers starting to at least stabilize and start to improve those will all speak the shop as it's going up and will drive higher content of MRO for us. Nathan Jones: Okay. And then on use of cash here, I think you guys had said once we get to about mid this year mid calendar year, you're going to be out of debt to pay off and obviously producing a lot of cash flow, can you talk about your approach to the M&A market now when we might expect to see you back into it and what the maturity of the pipeline looks like right now. Todd Leombruno: This is Todd again. So you're right, our serviceable debt will be paid off this quarter. So we'll enter FY '22 with no serviceable debt in our next payment corporate partner due to September calendar 22. So we have opportunities and wherever always described in the lessons learned from the financial crisis is to continuously work to financial pipeline. The myself just did reviews we do this all the time does it a monthly was presence and so this is something we stay on top of build those relationships. So the pipeline is active, but it's always a matter of finding a willing seller willing buyer. So it's activity necessarily always translate into actual properties in. But we're looking and certainly we're going to continue to buy companies with the same kinds of themes that you've seen before that either are immediately accretive or accretive within our synergy time period, they can help the growth rates of the company. Help margins, help cash flow and you'll continue to see it still consolidator choice. I think we're are still the best home this motion control properties, but we'll also look at the other areas that you've seen us build on in the last several years. And hopefully by now people feel good about our track record we've with the last three, got a lot of fanfare we've been good at this for a long-term, 80 deals last 20 years. And I think you'll see us to continue to be had upon that. First and foremost, for us dividend. We were very excited to clip that dollar mark on a quarterly basis and it and you'll see us stay on top of that. Our net income is going to grow and we're going to stay on top of those dividends to match that. That's income growth will continue to invest in the company organically in productivity and if we don't find the right properties which our preference would be to do deals because it drives cash and EBITDA growth. We think we're create investment and we'll buy shares on a discretionary basis top of 10b51. The pipeline is active and more to come on that. Nathan Jones: Great, thanks for taking my questions. Operator: And you have a question from Julian Mitchell from Barclays. Tom Williams: Hello Julian. Julian Mitchell: Maybe first question around the sort of linked topics of cost inflation and component shortages and the sort of unifying factor of tight supply chains. I mean, I guess two parts, one is, do you think there is much evidence of sort of excess stocking up or accelerated stocking up by your customers or channel partners, given all the headlines around supply chain shortages. And then secondly, when you look at Parker itself. How comfortable do you feel on that pricing outlook to offset cost inflation pressures? Lee Banks: Julien, it's Lee. I was wait for somebody asked the question very material costs and pricing. I'm looking at a commodity chart right now, which has got trends year-over-year, quarter-over-quarter going back the last big inflation period. It's a sea of red, but the thing I would say about our team as we saw this coming early on as we did this. And as you know we've got really two great internal processes inside the company. It's how we track our PPI which our input cost and how we track our selling price index to make sure that we always maintain this margin neutral of kind of role. So, we've been active with price through the distribution channel and we'll continue to do that. We're fortunate to have great contracts in place with many OEMs that have raw material cost escalators in them. But, our goal on the whole pricing side is to be margin neutral. We've done that before; we'll continue to do that. On the supply chain side. I would say just echo what Tom said earlier, the biggest benefit is our business model. So we designed source make sell in the region for the region everything you read about in the paper. We're not immune to that. I mean there's still things that happen day-to-day basis, but I would just tell you from a company standpoint, it's not material. I mean we manage it day in and day out. So on pricing. I think we are active in a good place on the supply chain side, we're managing it the models set up. So I don't think we'll get hurt. And it's really not going to be a material. Julian Mitchell: Thank you. And then, how about on your own sort of customers or channel partners. Do you see them kind of across the board doing any kind of accelerated stocking up because of the supply chain issues being so well publicized or do you think that the activity is kind of normal for what one would expect, as you see a macro inflection positive? Lee Banks: Listen, everybody is very, very busy right now, I would say, supply chain issues aside North America labor is very tight. I mean you read about that is a fact. So a lot of our customers are doing what we're doing. Just really using Kaizen automation where appropriate, et cetera. But I don't look, every time there's a ramp is a little bit of a bull with effect, but this is no different than anything I've seen in the past. It's just people trying to manage the increase in demand. Julian Mitchell: Great, thank you. Todd Leombruno: Thank you. Thanks. Julien. Operator: And you have a question from John Inch from Gordon Haskett. John Inch: Thank you. Good morning, everyone. Hey, maybe to pick up on some of the themes here, what are you seeing in terms of competitive behavior, particularly given the inflationary backdrop how our competitors jockeying jostling and how is that may be modifying your own behavior in this period of post-pandemic or emerging from post pandemic? Lee Banks: I think really the narrative right now. John is around supply. I think everybody's we're structured much differently than many of our competitors, so the issues that you read about every day, maybe you're not as imperative to us. But I think the narrative right now is around supply people were looking for continuity of supply, they can get it everybody understands. What's happening with commodity prices. So I don't really see any negative customer actions taking place. I will tell you is, and we've talked about this for years. This is always an inflection point for us where we tend to do better than the market as we come out of this. It's a combination of two things. We've done a lot of work with OE customers on design during the downturn as we're looking to simplify their designs take cost out. We do that through our application centers, we see the benefit of that as we ramp up. And then second, are our internal distribution systems are really poised to take advantage of disruptions with competitors. John Inch: Well, I was wondering you know like as prices go up and everybody is trying to raise in various aspects of their operations. Our competitor is one of the ways a competitor might instigated price tough to position themselves by not raising commensurately say compared with other people or other companies are players are we seeing any that kind of that behavior. Is it still a little bit too soon to tell? Lee Banks: I haven't seen that kind of behavior and I typically really don't see that for this kind of the cycle. You see more of that you see more of that John when you're at the bottom of the cycle and people trying to fill up factories. John Inch: Yeah, that makes sense. And then, Tom, you know simplified design as it becomes more ingrained as what's call it an operating, competitive advantage for Parker, do you think it to be used to perhaps offensively target companies for M&A picking up on the M&A theme. I was thinking you could maybe provide a bit of an arbitrage opportunity for safe partner to be able to go in and maybe even bid more you can drive more synergies and other bidders that going to have simplified design as part of their arsenal. Tom Williams: Hey, John. so clearly simple. And I would just say, everything that's in win 3.0 is part of our basket of goods that go into evaluating an acquisition. So we look at what the best practices are for the acquisition. This practice that we bring that combination of one plus one equals three generates the synergy plan. And that's the figure, the synergies which you're alluding to, was some of by design the opportunity you have to pay and we really look for is what's the synergized EBITDA multiple we're done. And is that something that makes sense given that where we're trading, the other part aside from acquisitions to get at believe was talking about was competitive dynamics simplify design is an opportunity for share gain as we come up with products that are similar to make that easier supply chains, more reliable et cetera. And maybe in some areas where we weren't don't currently have share allows us to penetrate in account overall got at 11%, 12% market share of this $35 billion space. We've got lots of room to grow so just one of many share gain opportunities. John Inch: Yeah, makes sense. Great, thank you, Raj. Tom Williams: Thanks, John. Operator: And you have a question from Jeff Sprague from Vertical Research. Lee Banks: Morning, Jeff. Jeffrey Sprague: Hey, good morning. Thanks everyone. Hey, I guess two from me just thinking about this idea time of trying to break the gravitational pull of the PMI actually two questions, one just kind of maybe fundamental in the business and maybe a second kind of philosophical first obviously the PMI is a broad industrial benchmark. Have you considered that calling your segments Diversified Industrial just suggest UR in Industrial proxy perhaps some kind of different earnings presentation would make sense you give us global technology platforms, but we don't know anything about the profitability of those sub-segments? So that's more of a philosophical question. I wonder if you've thought about that. And then secondly, although most of your business is short cycle, right. I would argue, it's really a broad mix of early mid and late, and I think to some degree people confuse short with early, I just wonder if you could kind of give us some rough buckets, what percent of your business, you would actually characterize this early cycle versus mid cycle versus late cycle? Tom Williams: Okay. Jeff, it's Tom. So those are - it's a good question, hard one. First of all, the whole PMI gravitational pull that's one of the reasons, besides, I think it's just a great way to describe the company to what we did. Slide five. And that's, Steve, for those users now looking at your slides. That's the whole PMI versus our EPS trend and I hope you people got the point. This company is dramatically and have underlying dramatically different. And yes, we will never be completely detached from PMIs because obviously that represents total manufacturing activity and we will benefit from that, but we didn't get much help in that over the last six years, and you've seen us double EPS and as 600 basis points to EBITDA margins, so we will continue that and hopefully people recognize that we don't need the macros to help us. We have enough self-help with 2.0 3.0 to keep last for many, many years. The current environment is going to get better. So we are going to get some of the - your comment philosophically on reporting segments. Yes, that's been a raging internal debate for many, many years, there is pros and cons to it probably longer discussion than they can do on an earnings call, but we continue to think that represent the way we do today is the best way, because if you go back to those eight technologies and the fact that two-thirds of our revenue comes from customers at Viper technologies. That's exactly how we go to market. We don't go to market, specifically one off technologies, all the time we go to market if you look at our commercial teams leveraging that press technology, so that's how we're presenting the company to shareholders is exactly how we go to Mark Neville early versus mid versus late, I'm not even going to try to do that other than I'm going to reinforce your point, yes, we are a mixture and obviously you can look at Aerospace and characterize that as long, but where do you want to put EV you mean EV we're feeling that now, but the, a long-term change. It's going to happen, where do you want to put all the green technologies, I could add up all the things I've talked about and that one slide related to clean technology and you get a pretty significant percentage of the company. Obviously, hydrogens long very long cycle, what's happening there. Notifications still more near-term. So I think unfairly we've been characterized as early and maybe because I've just historically we pleased to report orders on a monthly basis and people could see those things sooner. I think we're a good mix and I think, hopefully over the last six years people recognize we're good where you want to invest money better on this team. Jeffrey Sprague: Great, thanks for that perspective. Tom Williams: Thanks, Jeff. Operator: And you have a question from David Raso from Evercore ISI. Tom Williams: Good morning, David. David Raso: Curious, it seemed like the January price increases you put through were relatively modest, I think kind of where we were in the cost escalation moment if it made sense. But as the quarter has gone on and we look out to fiscal '22 I'm word [ph] connector group put out an increase, but you don't usually do a lot of increases for July 1, the setup here feels though more accommodative to you putting price increases through. So, two questions. Is it fair to say we should see a lot more mid-year price increases and we've seen in the past? And, second is the lead time issue significant enough where distributors who would normally want to get ahead of that increase are not able to, given the lead times I'm trying to get a sense of how much of the price increase, we could think about for '22 and sales, that kind of capture it versus maybe a little bit of a natural pre-buy that you see some times when you announce an increase? Lee Banks: Yes, David. It's Lee. I'll take that question. So I think it's fair to say you achieve mid-year price increases going after the distribution channels, not only in North America but globally, given where we are with input costs, et cetera. And I would say, by and large are probably pretty correct lead times that a lot of pre-buying while there are some, it's not, we would expect if the level of activity wasn't so strong as it is right now. David Raso: All right, terrific. Thank you very much. Tom Williams: Thanks, David. I know everyone's got a pretty packed schedule today. So Eline, we'll take one more question before we wrap up. Operator: Okay. The last question comes from Joshua Pokrzywinski from Morgan Stanley. Tom Williams: Hello, Josh. How are you? We may have lost Josh. You go to the next one. Operator: We'll go to the next from the line of Nigel Coe of Wolfe Research. Nigel Coe: Thanks. I'm guessing Josh is speechless by the results. Thanks for fitting me in here. So look, I think that, I think, it is very good point on the early cycle points. The fact that you are still negative in two or three segments. I think it's sort of proof that you're not Category cycle. So I think that's an important point. I did want to go back to your comments about incremental margins between '22 and I know that that wasn't guidance, but if you could do 3% incremental margins with the temporary costs coming back and perhaps obviously inflation pretty rampant in the back half of the calendar year. I guess I'm going to ask is, do you think that there is a line of sight based on weighted today to hitting out there. It's an incremental margin for FY '22? Tom Williams: Hai Nigel, it's Tom. So you're right. We will or not a guidance discussion with '22, '22 is hard enough to do and we do it in August. But I think philosophically, our goal and what is best in class is to do a 30% a little. And, I think the evidence that we're going to do about 30% in Q4 even with the tough comps that we have with high, discretionary cost us that we did in Q4 a prior period are evidence that we can do that going into '22. We'll see when we pull the numbers together because it's Q4 is probably one of our tougher comparisons and it will in Q1 probably another tough comparison, but it will get progressively easier as we go through '22 comparisons, but I think a 30% is still on our radar. And, Q4 is good evidence that we can do it in Q4, we can do going forward. Nigel Coe: And then that - the question then, if you can do it in an environment like this, presumably FY '22 a mix isn't there'll be that helpful. I don't think in FY '22 but once Aerospace are kicking back into gear do you think 35% maybe plus could be a good run rate beyond FY '22? Tom Williams: I missed the word, what was before FY '22 there. Nigel Coe: I mean do you think that balance 30% could be a good number to use beyond FY '22? Tom Williams: Yeah, over the business cycle. What we've always told people is if you're modeling us over multi-years used 30% now, clearly and inflections we've done better than that. Down 40% to 50% range, but this isn't we're an inflection now is a little bit masked because the prior period the huge discussion why I gave a number, if you took that out of these 50. So typically go ahead pretty high up at the beginning 30% over the cycle, 10% later in the cycle. You're down into the '20s. But if you're modeling multi here I would use 30%. Nigel Coe: Okay, that's great, thanks. Tom Williams: Thanks, Nigel. All right. That concludes our call today. I'd just like to thank everyone for joining us. As always, we appreciate your interest in Parker. Robin and Jeff will be here all day, if you have further questions or if you need clarification. I hope everyone has a great afternoon, and stay safe everyone. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for participating. You may now disconnect.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Parker Hannifin Corporation Fiscal 2021 Second Quarter Earnings Conference Call and Webcast. At this time, all participant lines are in a listen-only mode. After the speakers' presentation, there will be question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Todd Leombruno, Chief Financial Officer. Thank you. Please go ahead, sir. Todd Leombruno: Thank you, Gigi, and welcome, everyone, to our earnings release webcast. This is Todd Leombruno, Chief Financial Officer. And joining me today are Chairman and Chief Executive Officer, Tom Williams; and President and Chief Operating Officer, Lee Banks. Today's commentary and the slide presentation will be accessible as an on-demand webcast on our investor information website located phstock.com, and will remain available for one year. If you move to Slide 2, you'll see the Company's safe harbor disclosure statement addressing forward-looking statements as well as non-GAAP financial measures. Reconciliations for any reference to any non-GAAP financial measure, is included in today's material and are also posted on our website at phstock.com. If you move to Slide 3, you'll see our agenda. We'll begin with Chairman and Chief Executive Officer, Tom Williams, providing some strategic comments and highlights from our second quarter. Following Tom's comments, I'll provide a more detailed review of our second quarter performance and review the components of our increase to guidance for the remainder of our fiscal year fiscal year '21. Tom will then provide a few summary comments, and we'll open the call to questions from Tom, Lee or myself. And with that, Tom, I'll hand it off to you. Tom Williams: Thank you, Todd, and good morning, everybody. Thanks for your participation today. Now before I move to Slide 4, I want to make a few opening comments. Calendar 2020 was an extremely difficult year to say the least, for all of us, both professionally and personally, and I hope all of you are staying safe. Our global team has come together like no other time in our history and has responded to this combination of a health and economic crisis. We've rallied around our purpose, in the Win Strategy, and we've showed that Parker is an exceptional performer even in the most difficult of environments. I'd like to take this opportunity beginning here to thank our global team for just great performance. And you're going to see evidence of that over the next couple of slides. If you go to Slide 4, one of our key competitive advantages our breadth of motion control technologies. We're now up to two-thirds of our revenue. You heard me talk about this as [indiscernible] 50%. We're now up to two-third of our revenue coms from customers who buy from four or more of these technologies. As these interconnected technologies that enable us to create even more value for our customers and create a distinct competitive advantage versus our competitors. If you move to Slide 5, we just had outstanding performance in the quarter when running through some of the highlights. Top quartile safety performance, we had a 23% reduction of recordable incidents. This now makes 75% reduction for the last five years, which has been phenomenal. Sales decline was 2.5% year-over-year. You can see it was a little over 6% from an organic standpoint. This was significantly better than our guidance and about a 50%-plus improvement from where we were in Q1. Q2 was a record net income at $447 million. The EBITDA margin was a little over 23% as reported or 20.8% adjusted. You can see the significant improvement versus prior 230 basis points. Year-to-date, cash flow from operations was a record at 20.4% of sales. And then the table to bottom there has got segment operating margin both as reported and adjusted basis, I'd call your attention to the adjusted row, 20.4% segment operating margin adjusted. And again, a giant increase versus prior, plus 250 basis points. So, there's a lot of numbers on this page. We have a lot of companies to track. So, the easy way to remember this is just the quarter we put up 320s. And we happen to highlight that in gold. So, greater than 20% EBITDA margin, CFA margin and segment ARPU volume. So, we're pretty proud of that, and those are all great results during a pandemic, so just a fantastic job on the whole team. If you go to Slide 6, we're going to talk about cash flow. Big cash flow quarter, paid down $767 million of debt in the quarter. If you look at the last 14 months, it's $2.8 billion of debt. This is a little over half of the acquisition that we took on with lower excise, which is great progress there. You see the ratios in the middle of the page there. Of significance, if we go back a year ago, we were 4.0 and now we're at 2.7% on a gross debt-to-EBITDA basis. And we've now reinstated effective in this quarter of Q3, our 10b5-1 share repurchase program. So, I'll move to the next slide, which is our transformation of the Company. And hopefully, just the last two slides are indicative of how the Company is transformed. But I'd like to give a little more color and context as to what we're doing. So if you move to Slide 8. This is our strategy summary on a page, and it's flanked on the left side with why we win, which you've heard me talk about this in the past, this is a list of our competitive advantages, and I've highlighted them. So, I'm not going to talk about them this earlier today. But there are historical success factors that will continue on into the future. I want to focus most of the time for my next couple of slides on where we're going. And I've got a slide on each one of these bullets. And the output of really this historical success factors and where we're going is that we want to be a top quartile company, and we want to stand out in the crowd, and we think we're doing that. So if you go to Slide 9. The one strategy and this is 3.0. This is our business system. Pound for pound, this has been the most impactful change we've made to-date to the Win Strategy. And it's going to be Win 3.0 in our purpose statement. They're going to be the powerhouse behind our future performance. Go to 10. You've seen our purpose statement, enabling engineering breakthroughs that lead to a better tomorrow. This is a statement that everybody has really rallied around. It found very expirational within the Company, has enabled everyone to connect their efforts to this higher calling, this higher purpose of life. And really it helps answer the question, how can we help through our customers, create a better tomorrow. And I think given what's going on with the coronavirus and the vaccine, Slide 11, is probably a great highlight of our purpose and action and just how essential we are to the vaccine value chain. And the way to read this slide to go left to right and go in a clockwise fashion was turning upper left-hand corner. So, we're in a development and production phase of these vaccines, mixing, purification, filtration and dispensing. Then you got to get the product moved around. So, we are in sterile transfer containers, especially designed. And then all of our motion control technologies are in both air and ground transportation to move the product around the world. We need to be able to store it locally and that requires low-temperature refrigeration, how our refrigeration technologies are in play there. Then when you administer to the patient, again, you need on-premise refrigeration, and then stoppers and trim seals as part of our engineered materials offering. So we're very proud to be part of this value chain, and through our customers helping to create the better tomorrow than all of us, as I start this call are striving for as we try to exit the pandemic and deliver billions of vaccines to people around the world over the next quarters and years. So if you move to Slide 12. My last slide for my opening comments, want to focus on our strategies to grow faster in the market. And our proxy for the market is global industrial production growth, which is skipping that acronym. So on the left-hand side, it's a series of portfolio of things that you've seen us make transforming a portfolio of the Company buying three great companies, $3 billion of acquired revenue that were all accretive on growth, cash and margins. As a matter of fact, as an example, LORD grew mid-single digits last quarter, while the rest of the Company, total company grew minus 6%. On the right-hand side, there is a list of organic growth strategies. And what's interesting about this list with the exception of international distribution, these are all new with Win Strategy 3.0. So, I'm going to make a quick comment on each one. So strategic positioning is really our effort to focus on stronger divisional strategies. And we have a cadence with every division. We do three a month, and these are extremely productive conversations with our general managers to how they're going to position their division to win versus the competition. Second, both in our innovation, we made two big changes. One is a metric PBI, which is product vitality index. It's a measure of new products as a percent of sales, looking at a five-year period for new product blueprinting, which is that NPP, acronym there, is really a change to our ideation process to create better ideas coming into the innovation funnel. The output of what we're trying to do here is that we want our PBI context a percent of sales, to grow by 600 basis points over the next five years, a more innovative portfolio, better chances to grow, better margins, et cetera. And then simplify design. I've talked a lot about that. It's a speed initiative. It's a cost initiative. It's a customer experience initiative. It's a recognition that 70% of your costs are tied up in how you design a product. And simple by design is all about focusing on design excellence. So when you put together design excellence with operational excellence, it's a dynamic pairing. International distribution is going to continue from the success we've had with 2.0. Digital leadership is really a four-pronged attack, digital customer experience, digital products, digital operations and digital productivity, and digital productivities where we have a concerted effort on artificial intelligence and debt analytics. And then lastly, a new our annual cash incentive plan acronym, ACIP, and that's going to focus our divisions and the whole company on driving growth cash and earnings. So, it's this combination. And it's this combination that's helped us performed better on the top line organically, particularly in the current downturn, and it will be our catapult to growing fast in the market as we go forward. So with that, I'm going to hand it back to Todd with more details for the quarter. Todd Leombruno: Thanks, Tom. I'd like to direct everyone to Slide 14, and I'll just begin summarizing our strong second quarter results. This slide displays as reported and adjusted earnings per share for the second quarter and I'll focus on adjusted earnings per share. We generated $3.44 this quarter, and that compares to $2.98 last year. If you look at the breakdown of the adjustments for the FY '21 as reported numbers, it netted to $0.03 this quarter. And that is made up in the following bucket. Business realignment expenses of $0.14, integration cost to achieve of $0.02; acquisition-related amortization expense of $0.62; and as we communicated last quarter, we are adjusting out the gain on the sale of land that amounted to $0.77. And all in, the net tax impact of all of those adjustments is $0.02. Last year, our second quarter earnings per share were adjusted by $1.41. The details of which are included in the reconciliation tables for non-GAAP financial measures. If you move to Slide 15, this is just a walk from the $2.98 to $3.44 for the quarter, and despite organic sales declining 6% and total sales declining 2.5%, adjusted segment operating income increased by $70 million or $0.11. That equated to $0.42 per share. So a very strong operating beat for the quarter. Decremental margins on a year over basis are favorable, demonstrating the excellent operational execution, robust cost containment by our team members really in every segment and every region. If you continue on the slide, we had a slight headwind from higher corporate G&A, just $0.02 that was a result of market-based adjustments to investment tied to deferred comp. And as Tom mentioned, our strong cash flow allowed us to pay off a significant portion of debt on a year-over-year basis that reduced our interest expense that equated to $0.12 for the quarter. And then, if you look at the remaining items, other expense was just $0.01 slightly higher. We had a higher effective tax rate that impacted us by $0.03. And finally, slightly higher diluted shares resulted in a $0.02 impact, that's how we get to the $3.44. If you move to Slide 16, this is a savings from our cost out actions. I know there's been a lot of questions on this, just from some of the early reports. Just a reminder, these represent savings recognized in the year as a result of our discretionary actions in response to the pandemic and volume declines, plus the savings we realized from our permanent reliant actions taken in FY '20 and also in FY '21. So if you look at this, our second quarter discretionary savings exceeded our forecast and now amount to $190 million on a year-to-date basis. We are now forecasting for the full year that discretionary total will increase to $225 million or an increase of $50 million. The majority of that increase was recognized in the second quarter and roughly amounts to $35 million above our forecast. Just a reminder, as demand continues to increase and our team's pivot to support growth, we expect these discretionary savings to be lower in the second half. Permanent actions remain on track. There's no changes to what we have communicated previously. Our full year forecast will generate savings of $250 million, and that will be $210 million incremental. And we believe that this will help us generate the strong incremental margin that we have in our guide for the second half. If we move to Slide 17, this is just a walk of the total results for the Company, sales and segment operating margin. And as Tom mentioned, organic sales did decline by 6.1% this year. The decline was partially offset by the contributions from acquisitions, that was 2.6%. And currency impact of 1%. And again, despite these lower sales, total adjusted segment operating margins improved to 20.4% versus 17.9% last year. This 250 basis point improvement reflects all the positive impacts from our Win Strategy initiatives, the hard work and dedication to cost containment and productivity improvements as well as savings from those realignment activities I just spoke of and really performance of the recent acquisition, so strong execution really across the entire the Company to get these results. If we jump into the segments, if you go to Slide 18, looking at diversified industrial North America, sales there declined by 5.9%, acquisitions were a plus of 3.1% and currency only slightly negatively impacted sales. But again, even with these lower sales, our operating margin for the second quarter on an adjusted basis increased sizably to 21.3%. Last year, it was 18.2%. So again, another impressive 310 basis point improvement focused on our long-term initiatives around Win Strategy, along with the productivity improvements, diligent cost containment actions and really some increased synergies we're seeing out of the LORD acquisition. So if we go to the next slide, Slide 19, for Diversified Industrial International. Organic sales for the quarter increased by 3.1%, acquisitions added 3.2% and currency accounted for 3.5%, again, strong operating performance here. For the quarter, we reached 20.3% of sales versus 16% in the prior year. And again, same story, Win Strategy initiatives, strong synergy growth and really our teams around the world rally together in light of the pandemic. If we go to Slide 20 and talk about Aerospace Systems Segment, and again, what we'll see here is a decline of 20.9% for the quarter, acquisitions helped us by 0.4%. And again, a small currency impact of 0.1%. Really, declines in the commercial businesses, both in the OEM and aftermarket end markets were the main impact. These were partially offset by higher sales in both military OEM and military aftermarket sales. Operating margins for the second quarter was 18% versus last year's 20.2%. This resulted in a decremental margin of 28.8%, which is in line with our expectations and really the result of all the previous actions we've taken to realign the aerospace business to current market conditions, along with strong cost controls and really helping to offset the pandemic composed of a mix that we're seeing from the commercial and military businesses. Slide 21 is just some highlights on cash flow. Tom already mentioned this, but our operating cash flow activities increased 64% year-over-year to a record of $1.35 billion of cash. This is an impressive 20.4% of sales. Our global teams are really focused on this, very disciplined in managing our working capital across the world, and we're really focused on delivering strong cash flow generation. If you look at free cash flow, year-to-date, we now move to 19%. That's an increase of 78% versus prior year, and our cash flow conversion is now 1.64% versus 130% last year, so just strong cash flow performance from the team, very impressive results. If we wanted to just focus on orders real quick, moving to Slide 22, our orders came in at flat this year or this quarter, I should say, and that was really driven by plus-one in our industrial North American businesses, plus 10 in our diversified industrial businesses and minus 18 on a 12-month basis in aerospace. So all in, we came in flat. And that's the first time in seven quarters I believe that members have been not negative. If we move to Slide 23 and the guidance, obviously, we have a pretty large guidance increase. We are now providing this on an as-reported and an adjusted basis. And based on the strong performance we just spoke of in the first half, all the current indicators that we see right now, we've increased our total outlook for sales to a year-over-year increase of 1.7 at the midpoint. This includes a forecasted organic decline of 3.4%, offset by increases from acquisitions of 2.9% and currency of 2.2%. And again, just a reminder, we've calculated the impact of currency to spot rates based on the quarter ending December 30, and we held those rates steady as we look through the second half of our fiscal year. In respect to margins, for adjusted operating margins by segment, at the midpoint, we are now forecasting to increase margins 150 basis points year-over-year, and that range is expected to be 20.2% to 20.4% for the full year. And if you note for items below segment operating income, there is a fairly significant difference between the as-reported estimate of 3 88, and the adjusted forecast of 4 87. The difference is that land sale that we spoke about, that's $101 million pretax, $76 million after tax. That was recognized as other income in Q2. And since that's an unusual onetime item, we are going to adjust that from -- we have adjusted that from our results. Full year effective tax rate, no change, we still expect that to be 23%. And for the full year, the guidance range for earnings per share on an as-reported basis is now $11.90 to $12.40 or $12.15 at the midpoint. And on an adjusted per share basis, the range is now $13.65 to $14.15 or $13.9 at the midpoint. Adjustments to the as-reported forecast made in this guidance at a pretax level, include business realignment expenses of approximately $60 million for the year associated with savings projected from those actions to be $50 million in the current year. And acquisition and integration costs to achieve $50 million of expense. Synergy savings for the LORD acquisition are now projected to reach $100 million. That is an increase of $20 million from our prior stated numbers of $80 million, and that is included in our guidance. Exotic synergies remain and expected to be $2 million for the full year. Just a reminder, acquisition-related intangible asset amortization expense is forecasted to be $322 million for the year and some assumptions that we have baked into the guidance here. At the midpoint, our sales are divided 48% first half, 52% second half. And both adjusted segment operating income and adjusted EPS is split 47% first half, 53% second half. For the third quarter of FY '21, we are forecasting adjusted earnings per share to be $3.54 at the midpoint. And that excludes $0.57 or $97 million of acquisition-related amortization expense, the business realignment expense and integration costs to achieve for the quarter. So if you look at -- move to Slide 24, this is really just a walk from our previous guide to our revised guide. We had guided at $12 per share last quarter, based on the strong second quarter performance, we exceeded our estimates by $1.06. And we mentioned this, but the improving demand environment, along with the strong operational performance. Some additional extended discretionary savings, the permanent restructuring savings and increased LORD synergies, we feel confident in raising our forecasted margins, which adds $0.85 of segment operating income over the next two quarters for the remainder of the fiscal year. So the majority of this increase is based on operational performance. This calculates to an estimated incremental margin of 41% for the second half. And then some other minor adjustments to the below segment operating income lines are a negative impact of $0.01. And that's a net of interest expense income tax. So that's how we get to the $13.90. That is approximately a 16% increase from our prior guide. So, if I can direct you to Slide 25, I'll turn it back over to Tom for some comments. Todd Leombruno: Thank you, Todd. And just want to wrap things up with these great results don't happen by accident. They're driven by a highly engaged global team. Our focus on safety, high-performance team is Lean and Kaizen, is driving an ownership culture within the Company and its resulting in top quartile engagement as well as top quartile results. We talked about the portfolio. It's a big competitive advantage of us at interconnectivity, a transformation on the three acquisitions and the fact that they're outgrowing and generating more cash and margins than legacy Parker. Our performance over the cycle, but I would just reflect in the last five years and just use round numbers, our margins or up 500 basis points. In a five-year period of time, it was not necessarily the easiest five-year period of time for industrial companies. And then our one Win Strategy, at 3.0, in particular, and the purpose statement, are going to be the powerhouse behind exerting our performance into the future. So, I give my thanks to everybody for all their hard work and the great results. And to you, Jane, I will hand it back to you for start the Q&A. Operator: [Operator Instructions] Our first question comes from the line of Joe Ritchie from Goldman Sachs. Your line is now open. Joe Ritchie: Congratulations on a fantastic quarter. Maybe just kind of just starting off. Tom, obviously, it seems like things are kind of coming off the bottom of here, you're starting to see some improvement in the order trends in your industrial businesses, both domestically and internationally. Can you maybe just like walk us through exactly like what you saw -- what you're currently seeing and what you saw kind of transpire as the quarter went on? Tom Williams: Sure. On the orders Joe, we saw if you look at total Parker from minus 12% to zero, North America to minus 11 to plus 1; International from minus 4 to plus 10, and then Aerospace get improved from minus 25 to minus 18. Pretty much North America and International improved throughout the whole quarter. And from our view, it looks like Aerospace is finding bottom. International piece, in particular, if you look at that plus 10, that was EMEA, plus 7; Asia, plus 13 and Latin America plus 27. So pretty strong rebound across all of the particular regions internationally. When I look at some of the higher level sub-segments, so the major buckets outside of Aerospace. Distribution get better I was minus 14 the prior quarter to minus six this quarter. Industrial, things are stationary, went from minus 7 to plus 1.5. And mobile saw the biggest improvement from minus 13 to plus 2.5. So, we saw all the sub-segments improved nicely with the largest recovery being at mobile. And when you look at our end markets in the four phases of growth, we have roughly about 30% of our end markets are in accelerating growth and about two-thirds are in decelerating in decline. So we continue to move all the various end markets into either bottoming out. And you saw our decline starting to turn for accelerating growth. And maybe I'll pause to, I don't know if you want me to go through all the end markets, but that's the color we saw. In distribution, we saw an entity, which was encouraging. Our distributors, I would say, cautiously optimistic. They are being careful. There is some uncertainty, obviously, in the next six months. And what we're seeing from distribution is selective restocking, in particular, focusing on those longer lead time type of products that they can get ahead of demand and position themselves to take share, which we're happy to help them with that. And in general, what we're seeing from distribution, in some cases, with some of the OEMs is placing a little larger stock orders with scheduled releases over the next several quarters, which are all indicators of people I think trying to plan as a few things are turning and start to get ahead of things. Joe Ritchie: Yes. That's super helpful and great to hear, Tom. If I -- can I just ask one follow-up question and really just focusing on like the sustainability of margin improvement going forward. Clearly, you've got a lot of long-term actions within the Win Strategy that are going to help. But I really want to focus on the temporary cost actions that are benefiting FY '21 to roughly $225 million. How should we think about that beyond 2021? Are you -- is that going to be a headwind beyond this year? Or are there other actions that you can take to mitigate some of those expenses coming back? Todd Leombruno: Joe, this is Todd. I'll take that one. I mean some of these things are volume related. So as volume continues to come back. We expect some of those costs to come back into the business. But really, what we saw in the second quarter was a lot of productivity improvements. This has been based on our focus on Kaizen for a long time. Many elements of our Win Strategy initiatives have helped drive that. But there's been strict cost containment by our teams really around the globe. What did surprise us a little bit was lower travel and lower discretionary expenses. That's why we increased the discretionary expenses for the remainder of the year just based on the current situation that we see in the world right now, but we do see that returning. Nowhere will it go back to the levels that we've seen in the past, but we do see it going up from where we're at now. Operator: Thank you. Our next question comes from the line of Nicole DeBlase from Deutsche Bank. Your line is now open. Nicole DeBlase: Can we start with just looking at the 3Q outlook, what's baked in at the midpoint with respect to organic growth? And if there's any big change or divergence in the incremental margins you're expecting in 3Q relative to 4Q? Tom Williams: Yes, Nicole, this is Tom. So if I take the top line and maybe to help with the guide for the full year. So, we reduced the guide on decline on organic for minus 7.5% to minus 3.5%. But I think what's probably the most interest to analysts and shareholders, is what do we think the second half is going to be. So the second half, our assumptions in the guide is North America and International, both in that kind of that 6% to 7% positive organic growth. And Aerospace at around minus 11% for the second half. When we look at Q3, I'm going to focus on the top, and I'll come back to the decrementals and incrementals. In Q3, we're going to see a slight improvement in the industrial portion of the Company, about 100 basis points as there's still some uncertainty. And those orders I referred to earlier on, have scheduled releases are going out multiple quarters. We see Aerospace about the same as we had in Q2. And when we get to Q4, we've got North America in that upper teens, International of around plus 10% and aerospace getting to flat and that puts total Parker in Q4 in the low teens for Q4. So again, Industrials for the second half, that plus 6% to 7% range and Aerospace at minus 11%, so when we think about the margin side of things, Q3 margins are going to be slightly less than Q2. And that's mainly from the reasons that Todd was describing, we're going to have less discretionary savings in Q2 than we had in Q3. Q3 is going to be around $25 million, and Q2 was $65 million. So you got $40 million less of discretionary savings going into Q3. We'll still have a favorable MROs, and then people aren't familiar with what that term is that's basically you have less sales and you get more earnings. So you can't really calculate an incremental, but it's favorable. And when we get to Q4, we've got approximate 30% MROS. I would just make the comment for Q4, really for the first half of FY '22, that the incremental MROS are going to be a tough comp for us. So the plus 30 this is, again, remember in Q4 prior period, we had the gargantuan discretionary cost out, all the big wage reductions at that time. If you were to make it like-for-like and take out discretionary actions from both periods, this would be greater than 60% incremental. And so, it's -- the business is performing at a very high level, you'll see margins get a little better into Q4. That will be our highest margin quarter. And if you just look at for the second half, we go from 20.1%. That's the first half total company to $20.7 million in the second half, so continued improvement and we're not going to stop there. Obviously, our goal is to keep driving this as we go into FY '22. Nicole DeBlase: Got it. That's super helpful. And then maybe just as a follow-up, can you just talk about any impact you into production, supply chain with respect to COVID and the level of confidence you have as a result in ramping as this recovery does take place? Tom Williams: Nicole, it's Tom again. When we look at COVID and its impact, we're mirroring case rates in the local communities that we're at. We've done a great job of, I would say, almost exclusively, our case is originated from outside of work. And we've tried to take the position. We won't be able to be safe at home and save our work. But we like them to be the safest possible they could be when they're at work. We're not immune to absenteeism, type of things related to this. But it's not been a material impact to us. We've been able to keep up with demand, keep up with our lead times. And if you look at us historically, obviously, a pandemic is a unique phenomena, but we have periods of increased demand, we outservice our competitors. It's something we've proven time in and time out. I would look for us to have the opportunity to take share because our lead times and our customer experience will be better than our competitors. So I feel very good. And on the supply chain side, we purposely laid out a strategy years ago to be local for local. So we make buy and sell in the region for the region. So that supply chain strategy, that operational strategy allows us to be very flexible based on what's happening, do not have all our eggs in one basket in one particular region, not to be overly exposed on trade tariffs and those type of things. So, we feel very good about where we are in supply chain. Operator: Thank you. Our next question comes from the line of Scott Davis from Melius Research. Your line is now open. Scott Davis: And I don't say this very often, but congrats on a great not just a couple of quarters, but great the last two or three years, has been just phenomenal. Impressive, but anyways, I want to talk a little bit about M&A because you've been so successful in that front, which is not -- perhaps not something folks would have expected out of Parker in the old days, you're going to be down to 2.5 turns of debt, as you said, this year. And are you ready to reload on the M&A front? Do you have an interesting backlog at all that you want to talk about? Tom Williams: Yes, Scott, first of all, this is Tom. Thank you for your comment and the recognition of progress it doesn't go unnoticed, and we do appreciate that. On the M&A side, what's been interesting and we're really happy about the cash flow and the ability to pay down debt is clearly ahead of schedule. And we're going to be in a position to come into this fiscal year, where all of our service with debt, the term loans and the CP that we took out with these acquisitions will be all paid off. And our next corporate bond is not due to September of '22, and it's a nominal amount of $300 million. So, we are going to be in a position with a much stronger balance sheet to look at capital deployment across all the veins. Now in particular, you talked about M&A. So the lesson learned for us historically, is to never stop working the M&A pipeline. And so we're continuing to build those relationships. We are building those relationships with across a couple of big themes. We want to be the consolidated choice within our space. We think we are the best -- we're the leader in the space, we think we're the best home, which means we'd like to be looking at anything within our space. In particular, though, if we only had a certain amount of money and all eight of the technologies that I referred to earlier on roll on the table, we like to focus on filtration, engineered materials, instrumentation and aerospace. We think those -- you've seen us focus on those to date. But I would tell you, we saw us do with the last three deals, buy companies that within very quickly or within a reasonable period of time and with synergies. Can outgrow, can outpace margins, can outpace cash flow for the base business, and that's what we did, and that's going to be the flavor you're going to see as we go forward. And if we don't find the right properties, we think we're a great investment, and we're going to invest in Parker and buy our shares. Scott Davis: Makes sense, Tom. Can you talk a little bit about how when you do a deal, how do you integrate it? I mean, how do you bring or how do you bring Win into an asset? Do you come in with all the tools? Do you come in with Lean first? Or is there some sort of a -- or is it case by case? Is there a playbook? I don't think I've ever heard you guys talk about that. I'm just kind of curious. Tom Williams: It's a good question. There's obviously, there's lessons learned that we've learned over the years and how to organize the project management office, what you're going to do on day 1. And there's really two big kind of veins that you're looking at looking at all the integration tasks, those basic tasks of putting the businesses together and then your synergy task. We've learned to make sure you've got a dedicated integration team and you put the best and prides people and those various leadership positions, put a great integration manager. But the key thing to remember is we're buying great companies. And they're bringing good things to us, and we're trying to bring good things to them as we become one team, and it's the concept of one plus one equals three. So we're going to take the best of the acquisition and the best of Parker. And obviously, we work the Win Strategy. But we do give some latitude within the respective acquisitions to how they want to implement the Win Strategy. There's no -- it's not an option that you're going to implement it, but we give them latitude as to how they want to phase it in because, obviously, certain parts might be more applicable faster for respective acquisitions. We have a real robust cadence as far as review. And frankly, I think we've gotten pretty good at this and something we want to keep doing. Operator: Thank you. Our next question comes from the line of Andrew Obin from Bank of America. Your line is now open. Andrew Obin: Yes. Great quarter, great free cash flow conversion as well. Just a couple of questions for me. The first one, you sort of talked about your dealers still being cautious. I mean if you look at our channel checks, if you look what are the publicly traded hydraulics companies or the ones that are still hydraulic companies, sort of talk about what they are seeing in the channel, they just sound a bit more optimistic relative to what you guys are saying and sort of our channel checks, I think, a bit more optimistic on outlook as well. Just trying to understand, is it market-based conservatism? Or are your dealers are more conservative, your channel just knows something that we just don't see across the industry. Tom Williams: Well, you're probably referring to one of our neighbors, and they would be much more heavy mobile than stationary and distribution. And we're not a hydraulics company. We're diversified industrial companies. So that's a big difference. Andrew Obin: But I'm also talking about a small competitor down in Florida, I guess. Tom Williams: Okay. Well, our discovers still feel good but part of what they're doing is placing orders, making scheduled releases over the next couple of quarters. Now we still think that if I look at going into Q3, that we're going to go from a minus 6% to getting to probably flat on North America and EMEA, and we'll be probably in that upper teens when you look at Asia Pacific. Then when you get to Q4, we'll be very strong in North America and EMEA, probably around that plus 10%. And now China has a tough comp in that Q4 because if you remember, that's when they rebounded on the pandemic, so they're probably going to be flat on distribution. But our distributors still feel very good. And when we look at distribution for the whole second half, it will end up being a nice positive. Andrew Obin: Got you. Second question, you sort of talked about China, and I think we've been sort of talking about hydraulics competition emerging out of China for the past 20 years. But it does seem that we finally are at a point where you are sort of seeing Chinese competitors, and particularly the fact that China is leading recovery this time around. How do you see competition in China from the local competitors this time around? And then in this upturn, how different is that? And then also some of them are talking about getting into industrial applications now, even though probably you have a bigger moat there. But just how do you think about Chinese competition coming out of this downturn in the next cycle? Tom Williams: Andrew, it's Tom again. That's been a question really for a while now. And I really don't see it much different coming out of this than it was when we went into it. Just as a reflection, China for us grew about 10% last quarter. So we did quite well in China, Asia Pacific overall grew about 7%. And the way we win in China is we're in China with the same or better cost structure because we have a nice density of plants in China and a very robust supply chain in China. And we have the breadth of our technology. So when we go to compete. And again, that's a distinguishing characteristic that we have around the world. We're not just competing as a Chinese fitting company or a Chinese host company, we can put the whole portfolio technology to get in that discussion with the customer, they can't beat us when we're having a discussion around cost of ownership or the weight of the product or reliability, the ease of assembly, all those type of things that you can do when you're a multi-technology. And obviously, these multi technologies are interconnected or not disparate technologies or interconnected technologies that create a big value proposition for customers. So that's been -- we can beat them on a cost because we're there. We're at the same cost structure or better, and we have a better basket to sell more products to customers. Operator: Thank you. Our next question comes from the line of David Raso from Evercore. Your line is now open. David Raso: My question is on Aerospace, but if you could clarify first. Were you saying the fourth quarter, the fiscal fourth quarter Aerospace organic sales flat? I just want to make sure I heard that correctly? Tom Williams: Yes, David. This is Tom, flat to prior year. David Raso: And I'm not asking for '21 guidance, but can you take us through your thoughts on how you see the cadence of the Aerospace recovery and? Obviously, make color also how you think about M&A in the space as well? So I'm trying to tie those two together and give us a little lay of the land, if you're already at flat in calendar 2Q, fiscal 4Q, how are you thinking of the slope from there? Tom Williams: Yes. David, it's Tom again. So we like this space. This is all of our motion control technologies going into things that fly. We're going to things that fly because there are stationary and things that have wheels under them. And the way we look at Aerospace is that we have its size to win in the current climate. The current climate is finding bottom, and it's going to be a slow turn coming back up. But my view over the next several years is going to gradually show improvement. Now what is that pace of improvement? I think it's going to mirror the pace of vaccine deliveries and the comfort that travelers feel. And I think you'll see resident -- personal travel come back much more aggressively. The business travel will come back, but we'll probably plateau at a certain level based on just the efficiencies of digital tools. But we're positioned to win right now with the kind of op margins in this current climate, and it's only going to get better going forward. So with respect to M&A, I actually think this is a good time to look at M&A in the Aerospace arena, depending on the right property and direct pricing, obviously. But I think the future is bright. Now it's going to be -- it's a long-cycle business, so it will turn slower than industrial turn would be. But again, if you're positioned to win now and you're going to have a gradual upturn, it speaks to nice incrementals and nice positive year-over-year changes for you over the next several years. David Raso: Yes. I'm just trying to balance the dance that doesn't go on with the stock, right? The traditional crowd that looks at the ISM and says, hey, this is fantastic right now. How much better can it get? While the compounded crowd looks at your cash flow, the deleveraging and say, look, we can definitely move the ball forward here. This is not just an old ISM play. And the timing of the M&A, I think it's important to balance that -- those two crowds. And not to get inside your M&A department here, but when you listed those four categories, can you just give us some sense of -- if you had your druthers, identical kind of assets, when you think of where you're positioned, your size, the competitive landscape and then obviously, how you view the cycle playing out. Of those, I mean would you prioritize them at all between filtration and engineered materials, filtration in Aerospace? Tom Williams: I probably won't prioritize not to disappoint you being big and the answer, but we like all those properties. But I will come back to the very first thing and this is -- what I always remind the Board and I'll remind shareholders. We want to be the consolidated choice within our space. So those8 motion control technologies that, I believe, was on Slide 4, is the space we play in it. And we have a big advantage that we're not disparate pieces of businesses. With now two-third of this revenue comes from people that buy from these -- all these technologies for four or more, we like all those technologies. I think the thing you're going to see us look for is -- and the theme that you've seen with the last three deals is within a period of time depending on the synergies, they're going to be growth accretive, margin accretive and cash accretive. And that's a different strategy, I think, for the Company. Our tendency, we would prefer to buy things that are not ultra small. But if you just look at the histogram of the targets, it's more in the midsized category just because of the lay of the land. There's fewer of these really super large targets that you can look at. We will look at them, obviously. When I say midsize, what's changed for us versus the past is our mid-size is now bigger. A midsized target for us would be envisioned an exotic like deal, which, historically, would have been the largest deal in the history of the Company for LORD and CLARCOR. So our appetite is there. If I could go back, David, to a comment you made about the ism, which I thought was a thoughtful comment. The power of this portfolio, besides being interconnected, is that the cycle is somewhat balance each other. So yes, we will see some near term, and we'll see how long near-term turns out to be on the industrial portion of the Company that's going to have much more robust macro conditions. But then following that, the Aerospace business is going to start to be healing. And I think sequentially, that those time periods are going to be complementary to each other. The other part is that this five-year period that I envision going forward, is going to be, I think, much easier for industrial companies in the last five-year period because we went through two industrial recessions and a pandemic. I'm not going on wood here. I guess it's possible to have that happen again. But the odds are low that it would repeat. So I think it's a much better time. And we have enough self-help for all those people that I'd like you to encourage. We are no longer a short-cycle bet. We are bet over the cycle. And we have all kinds of room once Win Strategy 3.0 just started. And those FY '23 targets are not an endpoint. They're a mild market we're going to blow past. Operator: Thank you. Our next question comes from the line of Mig Dobre from Baird. Your line is now open. Mircea Dobre: And maybe just to kind of pick up on this topic here. Tom, you've spent a better part of last year of sort of showcasing how the business is performing different than it has in prior downturns, right? Or entering an upturn, and I'm curious to get your perspective as to how this next upturn might be different than what we have seen historically? Tom Williams: Well, I think it's always hard to predict one cycle versus I think you will continue to see us perform very well on converting on the incremental side. Just I would caution people incrementals for Q4 this year and for the first half of next year are going to be tough comps. We're going to try to flatten the field when we give you the results. So you'll be able to see the real incrementals of the Company. But I think you would expect to see us north of 40% in the first couple of quarters and we glide down in the 30s. But we're going to be in a much -- that stair-step slide that I've showed for the last couple of quarters. Our intention is to keep raising the ceiling and raising the floor. So, this next ceiling, this next cycle, our expectation is going to be higher the last ceiling. We're doing it right now. This isn't even really a necessarily good period right now, and we're breaking records on margins. So I'm bullish because there's a lot of positive factors. If you just look at interest rates and what's happening with global industrial production forecast. In my view, of pent-up need for CapEx, given that there's been two industrial recessions in the last number of years, and Aerospace cycle that will follow an industrial cycle that you get the benefit of those not being right on top of each other, and just a tremendous amount of self help. A lot of what you've seen has propelled these margins to date as prior period restructuring in Win Strategy 2.0. Win Strategy 3.0, and I mentioned not just being biased because I'm a part author, but it's better than 2.0, hands down, and you've only seen about a year of that in play. And so 3.0 is going to get -- has tremendous legs. So we have still a portfolio of self-help. And the big thing is that we're back in the capital deployment gain. So it will be a steady diet of dividends, share repurchase and acquisitions. And obviously, that formula we're going to raise. I can assure all the shareholders listening. There will be a Q4 increase to the dividend. We're not going to break our track record. And then we'll continue to do what we've always done is look at the acquisitions purchase, share repurchase and try to make the best decision of happy shareholders for what is the best long-term return for them. Mircea Dobre: And perhaps, you're going to want to punt on this, but you're pretty close to your stated fiscal '23 targets. At what point do we expect an update to this? And I'm also curious as to how you're thinking about free cash flow margin here. I mean, even taking out the working capital benefit that you had year-to-date, free cash flow margin is quite impressive. How sustainable do you think this is, especially as perhaps we need to see a little more working capital coming back into the business? Thank you. Tom Williams: So Mig, I'll start on the '23 targets. I'm going to let Todd take the free cash flow one. You're right, I am going to punt. But hopefully, you recognize we've not hesitated to change these. So we've gone from -- I'm just going to use segment operating margin. We've gone from 15% to 17% to 19% and now 21%. So, we've not hesitated to update it. We just want to prove for several quarters that we're close or at it. And once we do that, we'll be prepared to give you a better vision of that. And I'll let Todd talk about free cash flow. Todd Leombruno: Yes, Mig, you're right. Our cash flow has been really impressive. And like I said, it's really the work of our global team, really focusing very quickly on working capital management. We know there's going to be some pressure on working capital as growth returns to the business. So we're well aware of that. But as Tom said, we've basically had a step change here. Our margins are a different profile than they used to be, and that obviously feeds the free cash flow. So we think historically, we're going to be better than we've been historically, and we're positive on that going forward. Operator: Thank you. Our next question comes from the line of Nigel Coe from Wolfe. Your line is now open. Nigel Coe: And great job. You make it look easy, but I know it's not, so well done. So we're pretty deep into the Q&A here. We haven't had the end market roll down. So it'd be remiss not to do that, but just one clarification, the lag on distribution -- distributor orders versus -- sorry, versus OE. A little bit surprised with that. Is that normal at this point in the cycle as we turned back up? Or is this a quirk of this pandemic? Tom Williams: Nigel, it's Tom. No, it's very normal. Mobile tends to lead, which is doing now and then industrial and then follow-up disputes. Remember, the distribution, well, we'll service some small to medium-sized OEMs is primarily the aftermarket. And so that tends to lag a hair after you see a sharp return, which is what you're seeing with some of the other end markets. And I will spin you through the end markets quickly. And I'm going to break it into the buckets like I've historically done. I'm starting with the positive end markets. The greater than 10%, this is for the total company was semiconductor, life science, power generation, agriculture, refrigeration, aerospace military OEM and aerospace military MRO. On the positive high single digits was automotive, positive low single digits was construction, heavy-duty truck. And then on the declining markets, they've got four buckets: Low single-digit decline was telecom and tires; high single-digit decline was long and turf, material long and turf, handling, mining, mills and foundries in distribution. Distribution is on a market that's we put in there. The 10% to 20% range is rail, marine and forestry; and the greater than was machine tools, oil and gas, aerospace, commercial OEM and aerospace, commercial MRO. Nigel Coe: Great. That's wonderful. And then just on the margins between International and North America. We now have very close conversions between these margins. Is that really a function of the recovery profile mix perhaps? Or are we in a situation now where these margins going forward are going to be very comparable. Todd Leombruno: Yes, Nigel, we worked with this for many, many, many years to get those margins comparable, and I really give credit to our international team. They've made great progress. So, we're not where we want to be. We still have plans to move it forward, but we see those margins. There's no reason why those margins can't be similar. Tom Williams: Gigi, I think we have time for maybe one more question. Operator: Thank you. Our next question comes from the line of Josh Pokrzywinski from Morgan Stanley. Your line is now open. Josh Pokrzywinski: Just following up on asked a question from earlier, just on PMIP. So I guess is there anything in the business today, Tom, that you're seeing that would that would say that the PMI is maybe not indicative of where the business and your recovery, your customers are in recovery, like maybe things don't feel quite as far along as they normally would with like a 60 PMI, whether it's inventory levels, which we sort of talked about or just the types of end market leadership, anything that would make you feel like maybe this has kind of some longer legs to it than you would normally see at this point? Tom Williams: Josh, this is Tom. I still think that you'll see relatively this similar correlation feared to plot our orders historically against PMI is anywhere from a three to six month lag. I think that pandemic has the potential to maybe influence that a little bit, we'll just have to see as that plays through. But I would just characterize, I feel better about this next several years and I do about what happened in the last six years of leasing my time leading the Company. Because I just think about, we went through a natural resource recession, we went to the most current recession and we had the pandemic. And so, I think there is a need for industrial and infrastructure type of activities. I think Aerospace will return longer-term. So I just think there's a better -- potentially more stable macro environment the next couple of years. Josh Pokrzywinski: Got it. That's helpful. And I agree with that. And I guess just kind of related to that, all the while bringing up the segment operating margins within striking distance of your target even with an arrow still on its back. At what point does gross margin become a limiter and you need to find yourself mixing higher on that front because the distance between the two is narrower than we see in most of our coverage. So at what point does that I mean, more differentiated growth or M&A mix like what you had with the word exotic? Just any observation you would make on what it takes to get to the steps beyond? Tom Williams: Yes, Josh. Again, it's Tom. One clarification, our gross margin might look different than you compare to other companies because we embed a fair amount of SG&A and/or our cost of goods sold. So our gross part has some of that in there versus other people might be booking their SG&A in different categories. But your question is stepping higher levels really. Can margins continue to grow higher? It absolutely can. If you look at what I was referring to earlier on about early days of Win Strategy 3.0 and all the initiatives we have underneath there, I feel very good about our potential there and just very strong legs and where the future can hold. You can put that in place maybe a little macro-environment, yes, you can have little more [indiscernible] leverage. And then we're coming into a period of time where we have a stronger balance sheet, so we can put that to work as well. So what I've told people before, maybe I'll close on this. If you like what's happened in the last six years in the environment we had with basically no macro help, the next several years are going to be fantastic. Tom Williams: All right, everyone. This concludes the Q&A portion of our earnings call. We appreciate all your comments. And as always, thank you for your interest in Parker. Rob and Jeff are going to be available throughout the day and if anyone needs any follow-ups. We thank you again, and everyone stays safe. Thanks. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.