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WIKI ANALYSIS
Parker-Hannifin Corporation (NYSE: PH) manufactures motion and fluid control systems, which allow customers to move and position materials, machines, and equipment during manufacturing processes. While it is incorporated in the United States, Parker-Hannifin has focused on its international growth -- slightly more than half of its revenue comes from overseas.[1] The company earned $10.3 billion in revenue and $508 million in net income in 2009.[2]
Due to the global economic downturn, Parker's North American Industrial businesses has suffered from lower sales. This decrease is a result of lower demand in their automotive, heavy-duty truck, semiconductor and construction equipment markets. In 2009, the company's net sales fell by 15%.[2] While Parker's businesses have been affected by the slowdown, the weakening U.S. Dollar (USD) , primarily versus the Euro (EUR), has helped offset the losses.
Company Overview
Parker Hannifin is a worldwide manufacturer of motion and control systems, including fluid power systems, electromechanical controls and their related components. It also sells fluid purification, fluid and fuel control, process instrumentation, air conditioning, refrigeration, electromagnetic shielding and thermal management products and systems. Parker has expanded and grown its product line and international business through the acquisitions of complementary businesses. Some of the recent companies acquired were Nexgen Hose Inc., a Canadian manufacturer of PVC hose and tubing, Aqua Pro Inc., a U.S. manufacturer of reverse osmosis filtration systems for marine applications, and EmiTherm Sdn Bhd, a provider of electromagnetic interference (EMI) shielding and thermal management products from Kuala Lumpur, Malaysia. Slightly more than half of the company's sales come from overseas.[1]
Business Segments[3][4]
Parker Hannifin operates in three principal business segments: Industrial; Aerospace; and Climate & Industrial Controls.
Industrial (73% of sales)
The Industrial business segment manufactures Parker's motion control and fluid power system components. It is also the primary source of revenues for Parker's international operations, as it provides products and services to 45 foreign countries.
Aerospace (18% of sales)
The Aerospace segment produces hydraulic, fuel and pneumatic systems and components which are used in commercial, military and general aviation aircraft. It also provides products and systems for naval vessels and land-based weapons system. Even though sales volume was lower in the military aftermarket, net sales grew because of increasing volume in both the commercial original equipment manufacturer(OEM) market and aftermarket.
Climate & Industrial Control (8% of sales)
Parker's Climate & Industrial Control business manufactures motion-control systems and components for use in the refrigeration, air conditioning, and transportation industries.
Business Growth
FY 2009 (ended June 30, 2009)[2]
- Net sales fell 15% to $10.3 billion.
- Net income fell 46% to $508 million.
Trends and Forces
Weak Dollar boosts net sales
Slightly more than half of Parker-Hannifin's revenues are earned outside of the United States. With almost half of its business occurring in foreign markets, the effects of currency exchange rates can be significant on Parker's net sales numbers. Changes in foreign currency exchange rates, due to a weakening U.S. dollar, increases the company's net sales. The increased sales are not due to increasing volume but rather due to the changing exchange rate, as the dollar weakens. Parker's international businesses sell their products in their local foreign currencies. However, since Parker records its revenues in U.S. dollars, it must convert its foreign sales numbers accordingly.
Global economic downturn decreases demand for Parker's businesses
A slow economic environment has an impact on Parker due to lower end-user demand in the heavy-duty truck, automotive, semiconductor, and construction equipment markets. Subsequently, Parker has begun to layoff workers in North America as it tries to cut its costs in the face of decreased demand for its products. Two economic indicators of future manufacturing activity are the Institute of Supply Management Index (ISM) and the Eurozone Purchasing Managers Index (PMI). Numbers above 50 generally indicate that the manufacturing economy is expanding.
Demand for Parker's Aerospace products and systems have also decreased as the number of aircraft miles flown and revenue passenger miles have decreased.
Competition
Parker-Hannifin does not compete with one single manufacturer with respect to all of its products and systems. However, Parker's closest competitors are Eaton Corporation (ETN) , Honeywell International (HON) , and ITT Corporation (ITT).
- Eaton (ETN) - Eaton is a global manufacturer of electrical power and control systems for use in agriculture, trucks, aerospace, and automobiles. Like Parker, it also manufactures fluid power and hydraulic systems. Eaton competes with Parker-Hannifin in the U.S. and internationally, as it operates in over 150 countries. Eaton consists of five business segments: Electrical, Hydraulics, Aerospace, Truck, and Automotive.
- Honeywell International (HON) -Honeywell is a worldwide technology and manufacturing company that operates in four main business segments: Aerospace, Automation and Control Solutions, Specialty Materials, and Transportation Systems. 61% of Honeywell's revenues are earned in the United States, but like Parker it is aggressively trying to expand its international operations.
- ITT Corporation (ITT) - ITT designs and manufactures various products and systems in the United States and internationally. It operates in three main segments: Defense Electronics and Services, Fluid Technology, and Motion and Flow Control. It largely competes with Parker with regards to its fluid systems and its motion and flow control systems. Like Parker, it provides systems and services to the aerospace, industrial, and transportation markets.
References
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