Q3 2026 Earnings Call Transcript

Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0. A member of our team will be happy to help you. Good morning, and welcome to Parker-Hannifin Corporation's Fiscal 2026 Third Quarter Earnings Conference Call and Webcast.

At this time, all participants are in a listen-only mode. After the prepared remarks, there will be a question and answer session. To ask a question during this period, you will need to press star 1 on your telephone keypad. If you want to remove yourself from the queue, please press star 0. Please be advised that today's conference is being recorded.

I would now like to turn the call over to Todd M. Leombruno, Chief Financial Officer. Please go ahead.

Thank you, Chloe. I would like to welcome everyone to Parker-Hannifin Corporation’s fiscal year 2026 third quarter earnings release webcast. As Chloe said, this is Todd M. Leombruno, Chief Financial Officer.

Speaking with me today, as usual, is Jennifer A. Parmentier, our Chairman and Chief Executive Officer. Thank you all for your time and your interest in Parker-Hannifin Corporation. We truly appreciate it.

Let us begin the call on Slide 2 and address our disclosures on forward-looking projections and non-GAAP financial measures. Items listed here could cause our actual results to vary from our forecast. Our press release, this presentation, and reconciliations for any and all non-GAAP measures were released this morning and are available under the Investors section on parker.com. Today’s agenda has Jennifer reviewing our record third quarter performance; then she will highlight two of our largest market verticals, that is aerospace and defense and transportation.

I am going to follow with some details on our third quarter financial results. Then Jennifer and I will provide an update to our FY 2026 outlook, including updates to market verticals and financial performance. As usual, we will conclude with the Q&A session of the call, and we will try to address as many of the questions as possible. With that, please draw your attention to Slide 3. Jennifer, the floor is yours.

Thank you, Todd, and thank you to everyone for attending the call today. Q3 was a quarter of record performance enabled by the strength of our portfolio. We achieved top quartile safety performance with a 12% reduction in our recordable incident rate. This was our safest quarter ever and puts us in line with our goal of being the safest industrial company in the world.

I did want to acknowledge the severe weather events that occurred in Texas earlier this week, where Parker-Hannifin Corporation team members live and work, some of whom may be listening to the call right now. We have a facility in Mineral Wells, Texas, where we employ over 300 team members. Their safety remains our top priority and thankfully those on-site at the time of the severe weather are safe. However, there was damage to our facility, which we are still assessing.

We are thankful to all our team members as well as the responders and service providers who are assisting at our site and in the broader community. With that, let us share our results for the quarter. Our team delivered record Q3 sales of $5.5 billion, organic growth of 6.5%, and 40 basis points of margin expansion, resulting in 26.7% adjusted segment operating margin. Adjusted earnings per share grew 18% and year-to-date cash flow from operations was $2.6 billion.

Orders came in at 9%, with a record backlog of $12.5 billion, and we are continuing to make progress on the Filtration Group acquisition. Integration planning is underway using our proven playbook. Moving to Slide 4, please. Many of you on the call today have seen this slide before: Why We Win.

First, 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 to 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 best in the world. It is truly an extension of our engineering teams providing solutions to all those small to mid-size OEMs that are participating in capital spending and investments. These partners are experts at applying our interconnected technologies. Moving to Slide 5. We have the number one position in the $145 billion motion control industry, a growing space where we continue to gain share.

As a reminder, these six market verticals represent greater than 90% of the company’s revenue. We have a focused portfolio creating distinct value for our customers. Our powerhouse of interconnected solutions cuts across these market verticals and gives 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.

As Todd mentioned, today I would like to talk about the aerospace and defense and transportation market verticals. Now on Slide 6. I would like to highlight how we utilize our focused portfolio of core technologies to solve problems and create value for customers in aerospace and defense—our largest market vertical representing 35% of Parker-Hannifin Corporation sales. We have been a trusted partner since the inception of the aerospace industry and today have products and technologies on every major aircraft program globally. Our portfolio is well balanced with approximately two-thirds of our sales from commercial programs and one-third from defense programs.

We have proprietary designs across commercial transport, defense fixed wing fighter, business jet, and helicopter platforms. With the Meggitt acquisition, we increased our global footprint and are now very well equipped to serve current and future demand from OEM and aftermarket customers in the Americas, EMEA, and Asia. Demand remains robust; orders continue to outpace shipments and we are on track to finish our fourth consecutive year of double-digit organic growth. Parker-Hannifin Corporation is better equipped than ever before with complementary technologies to help shape the future of flight and deliver a compelling value proposition for our customers today and on next-gen commercial and defense programs in the years ahead.

Moving to Slide 7, featuring our transportation market vertical, which represents 15% of Parker-Hannifin Corporation sales. Our suite of differentiated and interconnected components and systems create value for customers across internal combustion, hybrid, and electric vehicles. We are truly energy agnostic and well positioned to meet changing customer needs. Today, we win with a focused portfolio of innovative products and our application engineers who work closely with customers to specify Parker-Hannifin Corporation technologies that improve the safety, reliability, and fuel efficiency of their equipment.

Parker filtration provides protection to the engine and fluid power systems. Our power takeoffs provide reliable power to work functions. Our valves, hose, and fittings control the flow of safety-critical systems. And our engineered materials provide critical sealing, shielding, and thermal management.

In addition, our robust network of channel partners serve the aftermarket needs of end users around the world. Lastly, we are seeing an increase in OEM orders for heavy duty truck—our largest platform within transportation—and as a result are increasing fiscal year 2026 sales guidance for this market. I will turn it back to Todd to review third quarter highlights.

Thank you, Jennifer. We are on Slide 9, and I am going to start with a summary of financial results. As Jennifer said, our team delivered another set of new records this quarter: sales, adjusted segment operating margin, EBITDA, net income, and adjusted EPS. Total sales were up nearly 11%.

Organic growth was 6.5%. Currency was favorable at 2.5% and acquisitions added 1.5% to the total. Adjusted segment operating margins were 26.7%, up 40 basis points from prior year, and adjusted EBITDA was up 20 basis points to reach 27.2%. We achieved two new first-time-ever milestones this quarter.

Adjusted net income surpassed $1 billion for the first time ever, and that is a 19.1% return on sales. In addition, the adjusted earnings per share of $8.17—that is the first time we have been above $8 for a single quarter ever. As Jennifer said, that is a growth of 18% versus prior year. Our teams around the globe did an excellent job this quarter, resulting in another quarter of strong performance: organic growth, records across the board, and then 18% EPS growth.

We are really proud of everyone for their efforts. We are well positioned, and we remain confident in delivering another record year in 2026. If we can move to Slide 10, we will display the walk to the $1.23 of additional EPS—that is that 18% increase. Main driver continues to be increased segment operating income dollars. That added $0.96, or 14% of the growth versus prior year.

If you go to the next bar, income tax was favorable $0.18. There were a couple of discrete items that occurred within the quarter to drive the $0.18 favorable year-over-year comparison. Share count was also favorable; that drove 14% of improvement from prior year. That was based on all the discretionary purchases that we have done over the last year or so. Interest was just $0.02 unfavorable and that was driven by a slightly higher average debt balance that was slightly offset by lower rates.

Corporate G&A and other were a little bit higher, just $0.03, due to some favorable market-based benefits that occurred in the prior year—so not an FY 2026 issue, that was FY 2025. The result is a record $8.17, really driven by strong growth and our team continuing to work the Win Strategy. I appreciate the team’s effort on safety—Jennifer mentioned it was our safest quarter ever—really focusing on our customers, achieving that growth, and strong operating results. Thank you to all. If we go to Slide 11, let us look at the segment performance.

If you look at orders, we were plus 9% in total, with positive order rates across all of our businesses. Backlog increased to a record level of $12.5 billion. We generated record segment operating margins—40 basis points of margin expansion—and overall, just a great Q3. Looking at North America specifically, sales were $2.1 billion with organic growth of nearly 3%. That was slightly better than our expectations.

Strongest markets within North America were in plant and industrial equipment, off-highway, and energy. Adjusted operating margins were up 10 basis points for a Q3 record of 25.3%. Orders remained robust at 7% compared to prior year. Looking at the international businesses, sales were a record $1.5 billion, up 13% versus prior year with organic growth attributing 3% of that.

Asia Pac had another strong quarter of organic growth at plus 10%, EMEA was flat, and Latin America was down versus prior year. Moving to margins, margins were up 20 basis points on the international businesses, achieving a record of 25.3% for the quarter. International orders continued to be plus 6% on some really challenging comps of plus 11% in the prior year. Aerospace—same story here—another fantastic quarter for the aerospace businesses.

Sales of $1.8 billion, up 15.5% versus prior year. Organic growth was 14.2% in aerospace, driven by continued commercial strength in both the OE portions and also the aftermarket. Margins were up 80 basis points and reached 29.5% for the quarter. We had double-digit OEM and aftermarket order growth that resulted in aerospace order rates of plus 14%, and backlog increased 15% in this segment and reached a record of $8.4 billion.

We continue to see strength in the aerospace businesses. Each of our aerospace market segments delivered positive sales growth for the quarter. Just a great quarter for aerospace. If I could draw your attention to Slide 12, you will see our year-to-date cash flow performance.

Year-to-date cash flow from operations was $2.6 billion, or 16.7% of sales—that is up 14% versus prior year. Year-to-date free cash flow increased 17% and came in at $2.3 billion. That is almost 15% of sales—14.9% of sales. Both the CFOA and the free cash flow dollars are all-time records at this point in the year.

We have great confidence in our ability to generate cash and we are committed to actively deploying that cash to create value. You saw last week our Board approved an 11% increase to our quarterly dividend. That quarterly dividend is now $2 per share, and that increase will extend our record of increasing annual dividends paid per share to an impressive 70 years. In addition, in the quarter, we repurchased another $275 million of shares, which brings our year-to-date share repurchases to $825 million.

That is a wrap on Q3 performance. Please draw your attention to Slide 14. Jennifer, I will hand it back to you to talk about the market verticals.

Thank you, Todd. Slide 14 shows our updated fiscal year 2026 organic sales growth by key market vertical. Aerospace is increasing from 11% to 12% organic growth as we continue to see, as Todd said, strength in commercial OEM and aftermarket. In plant industrial remains the same at positive low single-digit organic growth.

Quoting activity remains strong. Customers are prioritizing spending on automation and productivity, and distributor inventories are stable and continuing to order to demand. As I mentioned earlier, we are raising our outlook on transportation from mid-single-digit organic decline to low-single-digit organic decline. This is driven by stronger heavy truck orders while automotive demand challenges persist.

Off-highway remains the same at positive low single-digit organic growth. We see construction growth from capital and infrastructure investment while ag remains under pressure. We are maintaining energy at positive low single-digit growth with strong power gen activity. We see growth in midstream oil and gas but it is offset by upstream, which remains soft.

And we are maintaining HVAC and refrigeration at positive mid single-digit growth. We see strength in commercial HVAC, refrigeration, filtration, and aftermarket. As a result of these changes, we are increasing our organic sales growth guidance from 5% to 5.5% at the midpoint. I will give it back to Todd for some more guidance details.

Thank you, Jennifer. I am on Slide 15. This is just some more details. We have one quarter left in our fiscal year, so I am going to give you some midpoints. Do not read anything into that other than the fact there is one quarter left and the ranges look a little silly when you are just talking one quarter.

For reported sales growth, the forecast has been increased to 7%. Currency, based on March 31 spot rate, is expected to be favorable 1.5%. Acquisitions are 1% and divestitures are also 1%. For the full year, we are increasing organic growth to 5.5%—that is the midpoint.

Aerospace organic growth is increased to 12% and industrial growth is now expected to be 2.5% for both North America and international. Adjusted segment operating margins—we are expecting 27.2% for the year. That is a forecasted increase of 110 basis points versus prior year, with margin expansion across all the businesses. The forecast for incrementals for the full year is 40%.

Assumptions for corporate G&A, interest, and tax are all detailed in the appendix—no changes there. Full-year adjusted EPS has been raised by $0.50 to $31.20 at the midpoint; that would be an increase of 14.2% versus prior. In addition, we are also raising our forecast for full-year free cash flow to $3.3 billion to $3.6 billion—that is $3.45 billion at the midpoint. That would be 16.2% of sales with conversion at approximately 100%.

With respect to Q4 specifically, we are guiding reported sales to be nearly $5.5 billion—that is a 5.5% increase versus prior year. Organic growth will be approximately 4%. Adjusted segment operating margins will be 27.4%. The effective tax rate we are expecting is 22%, and for the second time ever adjusted EPS would be above $8—at $8.16. As usual, we have more details in the appendix.

With that, I will turn it back to you, Jennifer, and ask everyone to turn to Slide 16.

On our final slide, a reminder of what drives Parker-Hannifin Corporation. Safety, engagement, and ownership are the foundation of our culture. It is our people and living up to our purpose that drives top quartile performance and allows us to be great generators and deployers of cash.

Okay. Chloe, we are ready to start the Q&A portion of the call.

Absolutely. We will take our first question from Mig Dobre with Baird. Your line is open.

Thank you. Good morning, and thanks for taking the question here. Maybe I will start with the topical items of late. You have not really called out what has been going on in the Middle East in any way that was material.

If you look at your business, has there been any disruption or anything different that we need to be aware of? And also, there is an updated tariff framework. I am curious if there is any impact to be aware of as far as you are concerned.

First of all, I would say our first concern with the Middle East is the safety of our team members, and we are very happy that they are all safe. Direct revenue in the Middle East is very small and there is really no manufacturing. It is primarily a sales organization. Our teams are doing a fantastic job managing the supply chain, handling logistics, and doing everything they can to minimize the disruption to our customers.

At this point, we are not seeing any material impact to demand. Regarding tariffs, it continues to be very dynamic. As always, our teams are doing a great job managing them to make sure that there is no impact to earnings. Price-cost management has been a core element of the Win Strategy for over 25 years, and we do not expect this to have any impact.

We are very close to it, we analyze it regularly, and there is nothing we are concerned about not taking care of.

Mig, I would just add—this is Todd—it is a complex process. We will not recognize any income on those tariffs until we receive them. We are treating that as a contingency gain. You will not see us forecast or recognize any income until we actually receive any refunds.

Understood. Then my follow-up—sticking with your comments on price-cost—optically, even though this was a very good quarter, the incrementals on the industrial side looked a little bit lower than what we have seen of late. Is there any lag you are experiencing in terms of dealing with tariff dynamics or other inflationary aspects within your business? Any delay relative to implementing pricing to offset?

Thanks.

I will take that, Mig. No delays, no concerns there with price-cost management whatsoever. We were below what we had forecasted in North America and international. In North America, this was driven by stronger OEM growth—notably off-highway and transportation.

Distribution held steady but no real acceleration there yet. While we are not in the excuse-making business, the teams always plan for contingencies. This quarter, we had to recover from more weather-related disruptions than normal, mainly in North America. We are very proud of the teams, as Todd mentioned, for responding and delivering to customers.

We did have a Q3 record margin for North America, and we are going to finish the year strong.

Super. Thank you so much.

Thanks, Mig.

We will move next to Jamie Cook with Truist Securities. Your line is open.

Good morning, and congrats on a nice quarter. Two questions. First, on incremental margins: for the full year, you are still expecting 40% incremental margin, which is above a normalized range or what you laid out at the Analyst Day. While you do not want to talk about 2027, as we think about the setup for next year and over the longer term, is there any reason why we should not believe incremental margins could be in the 40% range, or does mix—unlike the mobile side or whatever—impact that?

Or can incrementals be structurally better? Second, Jennifer, given concerns about the Middle East and macro, your orders in industrial were very strong, in particular international with tough comps. Anything notable on the cadence of orders throughout the quarter or into April, or has your confidence level changed at all relative to last quarter?

Jamie, thanks for the congrats. We have been trained here to finish strong, and we are focused on finishing FY 2026 strong—our focus right now is on Q4. I will tell you we like the setup for FY 2027. You have seen our orders and our margin expansion over time. We are very much focused on creating great incrementals. We hold the team to a target of 30% to 35%, and obviously that varies based on where your business is.

What we are focused on is growing those segment operating income dollars and compounding EPS. That has been very successful for us, and as a factor of that, I think if you just do the math, you are going to get incrementals somewhere where you are thinking. We will talk more about that in a couple of weeks.

For your second question, Jamie, orders were strong throughout the quarter. The industrial recovery continues. We saw more broad-based positivity on both short and long cycle than we did earlier this year. We feel really good about the guidance. As always, we stay close with the customer. We not only feel good about the guidance; we are not seeing anything right now that concerns us.

Thank you. Congrats again.

Thanks, Jamie.

We will take our next question from Jeff Sprague with Vertical Research. Your line is open.

Hey, thanks. Good morning, everyone. Jennifer or Todd, could you spend a little more time on Aero? The organic growth in Q4 will be the slowest of the year against the easiest comp of the year. Are you dialing in some aftermarket pressure, or what is underneath that outlook in the fourth quarter?

I would say the aerospace Q4 forecast is approximately 9%, and that was raised from our previous Q4 guidance of 7.5%. We are not baking in any slowdown. Orders and backlog continue to be very strong—record backlog here in this long-cycle business. This is going to be our fourth year in a row of double-digit organic growth for Aerospace. We are not building in any slowdown.

Is there any indication in orders of a shift between OE and aftermarket?

If you look at how we performed in Q3, commercial OEM was up 22% and aftermarket was up 14%. Strong orders in both areas. We feel good about the mix and the forecast. We were at 51% OEM in Q3 and 49% aftermarket. The teams are doing a great job with the higher OEM mix and still being able to expand margins.

Jeff, I would just add, backlog was up 5% sequentially in dollars. $8.4 billion is the total backlog—that is an all-time record.

Okay, great. Thank you. I will leave it there.

We will move next to Chris Snyder with Morgan Stanley. Your line is open.

Thank you. I understand that as the industrial businesses turn to be more longer-cycle exposure, there is a lag between when the orders convert to revenue. If we see industrial orders sustained in this mid-single-digit, maybe high-single-digit range for several quarters in a row, is there any structural reason why sales would not ultimately get to that same level of growth? Thank you.

Thanks for the question, Chris. I would not say there is any structural reason. In North America, orders have been plus 7% for the past two quarters. We noted in Q2 that these included long-cycle multi-year defense orders.

In Q3, we saw orders due beyond this fiscal year, including defense, energy, and even construction orders scheduled into FY 2027, which is usually shorter cycle. We are guiding 3% organic growth for Q4, which would be the best performance so far this year. As Todd mentioned earlier, we like the way the setup is looking for fiscal year 2027.

When you look across industrial end markets, is the improvement driven by end demand going higher—what is put into the channel being consumed—or are there spots where distributors might be building a little inventory in anticipation of a cycle or supply chain concerns given events in the Middle East?

No, I would not say we are seeing any of that yet. They are still ordering to demand for rather quick consumption. We are not seeing any real acceleration or typical signs of restocking. We have not heard of any supply chain fears within the channel around the industrial side of the business.

Thank you, Jennifer.

We will move next to Amit Mehrotra with UBS. Your line is open.

Thanks, operator. Good morning, everybody. I wanted to follow up on the point around distributors versus OE mix. Jennifer, you made a comment about stable distributor inventories ordering to demand and strong quoting.

I am trying to triangulate those items to understand the psychology around inventory stocking. Are distributors becoming more sophisticated around inventory management, and so maybe there is a mix more toward growth with OE, which has margin consequences?

Over the last several years, our distributors have become very sophisticated in inventory management—even coming out of COVID—managing cash and putting processes in place to order what they need and sell it for consumption. When we talk about ordering to demand, we are not seeing the increase that would tell us there is restocking. Distributors have told us for quite some time that quoting activity is strong and sentiment has been positive, but their customers are being selective with capital investments and focused on automation and productivity. We are seeing an increase in OEM, with the raised transportation outlook and off-highway with construction.

OEM is classically 10 to 15 points below distribution.

Historically, you talked about order strength centered on longer-cycle verticals. You broadened it a bit this quarter. Can you talk more about the true short-cycle piece and your observations over the last few months?

Long-cycle continues to pull strong—that is why we raised our Aerospace and Defense guidance. Power gen—long cycle—is robust. There is lots of activity in midstream oil and gas, and electronics is growing nicely. On the short side, the industrial recovery continues.

We have been talking about a slow, gradual industrial recovery, and that is what we are seeing. Orders were more broad-based and positive on both short and long cycle on the industrial side than we have seen all fiscal year. Construction continues to improve, heavy-duty truck is improving, and in plant and distribution are improving. We are continuing to see positive low single-digit growth, and we are set up for a good fiscal year 2027.

Thank you very much. Appreciate it.

We will take our next question from Andy Kaplowitz with Citigroup. Your line is open.

Good morning, everyone. Jennifer, could you talk about what you are seeing in the aero supply chain? One of your peers continues to have some issues there, but you have continued to execute well and seem to be absorbing a more difficult margin mix while still growing. As we start to transition to FY 2027, is there any reason why you could not continue to grow margin even if mix runs a bit more against you?

I remain confident in our ability to expand margins and committed to that as well. The aerospace supply chain is in much better shape than it has been. We have seen the big airframers increase their rates, which we are participating in. Over the last several years, we have invested quite a bit in our supply chain, and that has proved very beneficial. I do not have any concerns here.

And then continued strong performance in Asia Pac—plus 10% is impressive. Talk about the durability of that growth. EMEA is flat and kind of bouncing along—do you see improvement there or just bouncing along at flat?

The growth is coming primarily from Asia Pacific. Total backlog coverage in industrial increased to the high 20s, and international orders were plus 6% for the third quarter in a row—driven by electronics and some defense bookings. EMEA was slightly negative on a tough comp for orders, but there is strength in aerospace and defense, mining, and in plant industrial. Asia orders are strong, coming from electronics—data center—plus in plant and energy.

Appreciate the color.

Thanks, Andy.

We will take our next question from Julian Mitchell with Barclays. Your line is open.

Hi, good morning. Maybe, Jennifer, could you flesh out the sub-segment assumptions on aerospace—what you are expecting in Q4 for the major pieces year-on-year and how they did in Q3? I think you have the commercial bits for Q3, but not military.

Let me give you a Q3 rundown, then Q4 guidance. In Q3, aerospace organic growth was 14.2%. Commercial OEM was up 22%, driven by production rate increases in both narrow and wide body. Commercial aftermarket was up 14%.

Even though global air traffic growth is beginning to normalize, we still saw nice growth in Q3 and strong spares and repair shipments. Defense OEM was up 13%; demand for legacy programs continues. Defense aftermarket was up 8%—fleet upgrades and service extensions are contributing. Aftermarket mix was 49% and OE 51% in Q3. For Q4 and full-year updates, we are increasing full-year aerospace to 12%.

We are raising commercial OEM to low-20s growth from approximately 20%. We are raising commercial MRO to low-teens growth from low double-digit. We expect defense OEM to be mid-single-digit growth—same as before—and defense MRO low single-digit growth—also the same as our last guidance.

That is very helpful, thank you. And then circling back to industrial orders and sales—several quarters of orders outstripping revenue growth—it looks as if diversified industrial backlog was just over $4 billion at the end of March, with a decent year-on-year and sequential uplift. Should we expect some recoupling of sales to those orders?

Julian, you are absolutely right. Both the industrial and aerospace backlogs improved, and we see that as a good sign.

We will move next to Andrew Obin with Bank of America. Your line is open.

Hi, good morning. Just to check my math on industrials—organically, at the midpoint, does Q4 imply a tad slower than Q3? Is that correct?

No, we have it pretty much the same.

Okay, fine. Maybe a question on pricing. In the quarter, we have been hearing about industry talk around rebates and pushback. This has been before Section 232, and I know maybe not a direct impact for you. Has the conversation on price changed given Section 232, and can you talk about pricing trends in the quarter and what pricing looks like for the remainder of your fiscal year?

Conversations have not changed. When it comes to tariffs, as I mentioned earlier, it is dynamic and requires analysis and coordination; the teams are doing a great job. On the industrial side, especially with distribution, we are back to a normal pricing environment and will do that as we have in the past. In aerospace, there is still some opportunity for pricing and the teams are executing on that.

We have done a great job covering inflation and making sure tariffs have not impacted our earnings, and we will continue to do that.

And on defense aftermarket—why not raise the guide given what is happening in the Middle East? I would imagine a lot of wear and tear on key platforms you are on.

This is long lead-time product—even in defense—anywhere from 9 to 15 months. We guide based on the deliveries that our customers want, and that drives the number.

Terrific. Thank you.

Thanks, Andrew.

We will move next to Tim Thein with Raymond James. Your line is open.

Great, thank you. Good morning. First question on mix dynamics within the industrial businesses in 2026. With distribution’s growth and what you are expecting next year relative to the total—if that business picks up, does that potentially portend a mix tailwind in 2027?

You look at our industrial business, it is exactly 50% OEM and 50% aftermarket. As these things rise and fall depending on the market, there is a nice diversified balance. When we see something pop, like last quarter, there was a slight mix issue, but these are small compared to the total. We look at the positives—orders have been positive in the industrial business for six quarters in a row.

That helps us compound dollars and that leads to EPS growth.

Distribution primarily sits in our in plant industrial market vertical, and our forecast remains the same for the rest of the fiscal year: positive low single-digit growth.

Understood. Then a broader competitive dynamics question. One of your big European-based competitors flagged more competition from some Asian competitors making inroads. Any changes you have seen globally on that?

I would not say I have seen changes, but our teams take all competition very seriously. We have pride in our products and the value they bring to customers. We manufacture in many regions of the world, which allows us to be very competitive locally. Competition is always something to keep an eye on. Our performance ensures that we not only keep what we have but gain share.

We will take our next question from Joe O’Dea with Wells Fargo. Your line is open.

Hi, good morning. Thanks for taking my questions. Can you give a little more color on what you are seeing in Industrial International? We have seen very steady mid-single-digit order growth. You touched on the tough comp in Q3. Europe and Asia—what are you seeing, and any verticals to call out?

We are increasing full-year organic growth to 2.5% for international versus our prior guide of approximately 2%. In EMEA, we are maintaining slightly positive low single-digit. We are seeing gradual improvement in plant and in transportation—primarily heavy-duty truck. We have continued strength in mining and energy—both oil and gas and power gen.

In Asia Pacific, we are increasing full-year to positive high single-digit versus positive mid single-digit in our prior guide. This is continued strength in electronics and semicon demand. In plant orders and shipments progressed but remain a bit mixed. Mining is strong and there have been improvements in energy.

It is a mix between EMEA and Asia Pacific, and we will end this year at 2.5%.

That is helpful. And then on Filtration Group: initially talking about a six- to twelve-month window—some deals have taken a little longer to work through regulatory processes. Are you favoring the twelve-month side of that? And any color on priorities post close?

We still anticipate closing within twelve months of the announcement date. Closing remains subject to customary conditions and receipt of pending regulatory clearances—progress is ongoing. Integration planning is underway. Teams on both sides have been formed and are working together.

We will put our integration playbook into place as soon as we close and get the Win Strategy into the organization as soon as possible. We announced $20 million in synergies by the end of year three—about 11%. The majority will come from the Win Strategy: lean, supply chain, and simplification. We are not providing phasing at this time, but we are very confident in achieving those.

Announcement was last November, and we still anticipate within twelve months.

I would add on funding: we have our funding plan in place. There is no prefunding required, so you will not see any interest before we close the transaction. We will do exactly what we have done on past transactions. A little over half will be serviceable debt; the rest will be short- to medium-term notes.

We do not expect leverage to surpass 3x when we close, and our delevering plan will get us back to around 2x faster than ever before.

That is great. Thank you.

Thanks.

We will move next to Andrew Buscaglia with BNP Paribas. Your line is open.

Hey, good morning, everyone. Looking across broader industrials—what is life like if energy prices persist above $100 going forward? I would think Parker-Hannifin Corporation would benefit. You have direct energy exposure, but also ripple effects—maybe off-highway and in plant. What is the net impact for you if we still see energy prices sitting here six months from now?

It is too hard to forecast right now. What we have in our guide today is representative of the impact today and how it impacts overall Parker-Hannifin Corporation. We will have to see how this plays out, but I do not have any additional forecast to share.

I would add, the diversification of the portfolio is one of the strengths of the company. We often say we are agnostic when it comes to the power source. Looking at the market verticals we call out, there will be pluses and minuses across those, but overall the company will be able to capitalize on any benefits from changes in energy prices.

Fair enough. And on free cash flow—you nudged that up a bit. In light of the Filtration Group deal closing, are you still evaluating M&A into year end, or would you rather preserve some capital to get through the deal and then see where you are?

We have been very active and direct with our commitment to deploy capital. You saw us increase the dividend and do $825 million of share repurchases. Our leverage is very manageable. Even at full funding of Filtration Group, we may get near 3x, but we are not going to cross 3x.

The pipeline is always active, being worked and measured. We are raising our free cash flow; if you look at CFOA, we will be close to $4 billion of cash generation this fiscal year. That gives us a lot of options, and we will be very diligent when deploying that optionality.

I do not think I could have said it any better.

We will move next to Joe Ritchie with Goldman Sachs. Your line is open.

Thanks. Good morning, guys. Todd, maybe a longer-term question on margins within the industrial business. Absent volumes, you have done a great job expanding margins. From here, what are the biggest levers—absent volumes—to continue to expand margins in the industrial segment?

It really is our commitment to lean and continuous improvement—Kaizen across the organization. We were just at some aerospace facilities, and you look at the margin those businesses are putting up, and you listen to our team members, walk the shop floor, and see the Kaizen activity and the efficiency it is driving. It is energizing to see. We are very confident—we have said it before, and Jennifer said it multiple times today—in our ability to continue to expand margins.

That is what you are going to see Parker-Hannifin Corporation do over the long term.

Our team members have a mindset of “we are never done.” In those visits Todd mentioned, you see fantastic improvements they have made, and in the next breath, they are telling you what comes next. Again, our confidence in the team, our tools, and the Win Strategy—and our ability to create shareholder value—remains high.

That is good to hear. I know we will get a guide in early August when you report. As you see your end markets now, you sound pretty sanguine on industrial. Is it fair to say that the expectation for next year would be at least a couple of points better than what you are seeing in 2026?

That is a fair question to try to get a guide. We purposely transformed Parker-Hannifin Corporation into a less cyclical, faster-growing, and more resilient company. Many of our industrial markets turned positive during this fiscal year and orders are strong. The Win Strategy is clearly working and will continue to drive growth, margins, and earnings higher.

We will welcome Filtration Group this fiscal year. I am confident we will be able to guide fiscal year 2027 to another record year.

Chloe, I think we have time for one more question before we hit the top of the hour.

Absolutely. We will take our last question from Nigel Coe with Wolfe Research. Your line is open.

Great. Thanks for letting me in here—appreciate the last question. Lots of questions on orders. Todd, what was the industrial backlog? I am getting $4.0–$4.1 billion. Is that right?

Your math is correct.

That is why you get paid the big bucks, I guess. And then on the Texas facility—really bad news—wondering about the scale of that facility and any disruption you are factoring in for Q4?

We are still assessing the impact, but we do not expect this to have any material impact to overall Parker-Hannifin Corporation.

That is great news. One quick one: the data center business—I know it is small but growing quickly. Is it moving the needle on growth rates? Any updates on size and growth profile?

It is still approximately 1% of our sales, but we have great exposure and it is growing nicely. It is not large enough to have its own vertical right now. This is a great example of how our interconnected technologies come together to provide value for customers. We are working with all the industry leaders.

It is very fast growing; we can provide liquid cooling systems and subsystem components. With the increase in data centers, there is a secondary benefit around power gen, automation, and construction. This is a great overall impact for Parker-Hannifin Corporation.

Great. Thanks, Jennifer. Cheers.

Okay. This concludes our FY 2026 Q3 earnings release. We appreciate your time and attention and thank everyone for joining us today. As usual, our Investor Relations team of Jeff Miller and Jen Istecki will be available for any follow-ups or clarifications that anyone may have. Thank you all and have a wonderful day.

Thank you.

This concludes today’s call. We appreciate your time and you may now disconnect.