Baird Industrial Conference

Transcription

1 Baird Industrial Conference November 8, 2006 Chicago, IL Presented by: Jack D. Myslenski Executive VP Sales Marketing & Operations Support

2 2 Forward-Looking Statements: Forward-looking statements contained in this and other written and oral reports are made based on known events and circumstances at the time of release, and as such, are subject in the future to unforeseen uncertainties and risks. All statements regarding future performance, earnings projections, events or developments are forward-looking statements. It is possible that the future performance and earnings projections of the company and individual segments may differ materially from current expectations, depending on economic conditions within both its industrial and aerospace markets, and the company's ability to achieve anticipated benefits associated with announced realignment activities, strategic initiatives to improve operating margins, and growth initiatives. A change in economic conditions in individual markets may have a particularly volatile effect on segment results. Among the other factors which may affect future performance are: changes in business relationships with and purchases by or from major customers or suppliers, including delays or cancellations in shipments; uncertainties surrounding timing, successful completion or integration of acquisitions; threats associated with and efforts to combat terrorism; competitive market conditions and resulting effects on sales and pricing; increases in raw-material costs that cannot be recovered in product pricing; the company s ability to manage costs related to employee retirement and health care benefits and insurance; and global economic factors, including currency exchange rates, difficulties entering new markets and general economic conditions such as inflation and interest rates. The company makes these statements as of the date of this disclosure, and undertakes no obligation to update them.

3 Parker Key Metrics 10% Revenue Growth 15% Operating Margin 20% Market Share = Great Returns for Shareholders 3

4 Today s Agenda Revenue Growth How Parker Grows Operating Margin How Parker Manages Market Share How Parker Wins in the Market The Bottom Line = Great Returns for Shareholders 4

5 Revenue Growth How Parker Grows Operating Margin How Parker Manages Market Share How Parker Wins in the Market The Bottom Line = Great Returns for Shareholders 5

6 How Parker Grows Via Strategic Acquisitions Opportunities in Global Growth Markets Higher Margin Innovative Products Product Line Extensions 10% Revenue Growth 6

7 Parker is the Leader in the Global Motion and Control Market Parker Rexroth/Bosch All Other Smiths/TI Eaton Pall Sauer-Danfoss 7

8 73 Parker Acquisitions in 10 Years Revenues of $4.2 Billion 8

9 Focused and Strategic Acquisitions Core competency - invest in what we know Disciplined methodology Fast integration 180 days Eliminate excess capacity Lose no orders Lose no key people 9

10 How Parker Grows Via Strategic Acquisitions Opportunities in Global Growth Markets Higher Margin Innovative Products Product Line Extensions 10% Revenue Growth 10

11 Sales Growth in Global Markets 3 Year CAGR: Latin America 26.8% Asia Pacific 48.5% Europe 19.3% North America 11.7%.00 7, , , , , , , Latin America 2005 Asia Pacific 2006 Asia Pacific 0.00 Latin America Europe 2005 North America 2006 Europe North Am 11

12 How Parker Grows Via Strategic Acquisitions Opportunities in Global Growth Markets Higher Margin Innovative Products Product Line Extensions 10% Revenue Growth 12

13 Innovative Products Common methodology worldwide Focus on high margin, breakthrough products Increase speed to market & consistency of success 13

14 Do the Right Projects and do the Right Projects Right! Discovery Concept Feasibility Development Qualification. & Launch Pre-Production. 1 3 Gate 1 Gate 2 Gate 3 Gate 4 Gate 5 Each gate provides the opportunity to purchase options on a project or not. Projects 14 Increasing Investment

15 How Parker Grows Via Strategic Acquisitions Opportunities in Global Growth Markets Higher Margin Innovative Products Product Line Extensions 10% Revenue Growth 15

16 Product Line Extensions Parker offers the broadest line of motion and control products available from any single supplier Aerospace Fluid Connectors Hydraulics Automation Climate Controls Seal Filtration Instrumentation 16

17 Revenue Growth How Parker Grows Operating Margin How Parker Manages Market Share How Parker Wins in the Market The Bottom Line = Great Returns for Shareholders 17

18 How Parker Manages Profitably Win Strategy Suppliers Strategic Procurement Operations Lean Customers Strategic Pricing Empowered Employees 15% Operating Margin 18

19 A Clear Operational Strategy - Win Vision The #1 Motion & Control Company Goals #1 Premier Customer Service Financial Performance Profitable Growth S T R A T E G I E S Delivery of Quality Products on Time Value Added Services Best Systems-PHconnect Suppliers STRATEGIC PROCUREMENT Operation LEAN Customers STRATEGIC PRICING European Initiatives Internal Acquisitions Globalization Innovative Products Systems Solutions Strong Distribution Empowered Employees 19

20 How Parker Manages Profitably Win Strategy Suppliers Strategic Procurement Operations Lean Customers Strategic Pricing Empowered Employees 15% Operating Margin 20

21 Strategic Procurement - Suppliers Leverage Parker s multi-billion dollar spend Dramatically reduced supplier base Long term contracts and continuous improvement 21

22 How Parker Manages Profitably Win Strategy Suppliers Strategic Procurement Operations Lean Customers Strategic Pricing Empowered Employees 15% Operating Margin 22

23 Parker s Lean Enterprise The Journey Has Just Begun Pricing IT HR Manufacturing LEAN ENTERPRISE Sales & Marketing Lean Results: Productivity Inventory Engineering Supply Chain Finance Customer Service 23

24 How Parker Manages Profitably Win Strategy Suppliers Strategic Procurement Operations Lean Customers Strategic Pricing Empowered Employees 15% Operating Margin 24

25 Strategic Pricing - Customers Price reflects total value to customer Cost-plus pricing eliminated Common methodology across the company 25

26 How Parker Manages Profitably Win Strategy Suppliers Strategic Procurement Operations Lean Customers Strategic Pricing Empowered Employees 15% Operating Margin 26

27 Empowered Employees Center-lead initiatives, local implementation Decentralized culture Diversity of talents & culture Learning and Development Tools 27

28 Revenue Growth How Parker Grows Operating Margin How Parker Manages Market Share How Parker Wins in the Market The Bottom Line = Great Returns for Shareholders 28

29 How Parker Wins in the Market Premier Customer Service Unrivaled Distribution System Solutions Technology Expertise 20% Market Share 29

30 Premier Customer Service The Customer is #1 30

31 Customer Service Goal: 95% % Service Quality Parts Shipped on Time Fiscal Parker s ability to ship on time when others can t is a key competitive advantage 31

32 How Parker Wins in the Market Premier Customer Service Unrivaled Distribution System Solutions Technology Expertise 20% Market Share 32

33 Unrivaled Distribution Network Fast, local customer service Reduces cyclicality Higher margin sales A major competitive advantage 50% MRO 40% via Independent Distribution 50% OEM 12,000 Worldwide Distributor, Wholesale & Retail Outlets No competitor even comes close 33

34 Global Distribution USA Argentina China Australia Parker Delivers Where Others Can t via 12,000 Distributor Locations Egypt India Ireland Mexico 34

35 How Parker Wins in the Market Premier Customer Service Unrivaled Distribution System Solutions Technology Expertise 20% Market Share 35

36 Systems Solutions Collaborate with customer from project inception Takes advantage of Parker product breadth One stop shopping Difficult for competitors to imitate Locks in aftermarket replacement business 36

37 How Parker Wins in the Market Premier Customer Service Unrivaled Distribution System Solutions Technology Expertise 20% Market Share 37

38 Technology Expertise Focused on Motion and Control Aerospace Hydraulics Filtration Automation Automation Fluid Connectors Electromechanical Pneumatics Climate Control Instrumentation Seal 38

39 Revenue Growth How Parker Grows Operating Margin How Parker Manages Market Share How Parker Wins in the Market The Bottom Line = Great Returns for Shareholders 39

40 The Bottom Line Record Results Sales, Earnings & Cash Flow 50 Consecutive Years of Dividend Increases Strong Operating Income and Margins ROIC Performance Accountability Strong Shareholder Return 40

41 Proven Sales Growth $12.0 $10.0 $9.4 billion in FY % increase - Nearly half of growth was organic Annual Sales in Billions $8.0 in billions $6.0 $4.0 $2.0 $ % 10 Year CAGR 41

42 Increasing Earnings per Share $6.00 $5.28 * Earnings per share - continuing operations $5.00 $4.00 $3.00 $2.00 $1.00 $1.12 $1.62 $2.79 $4.43 $0.00 FY02 FY03 FY04 FY05 FY06 * Includes an $.08 loss from the sale of Thermoplastics 42

43 Strong Cash Flow $1,000 $955M in FY % of sales $800 $600 in millions $400 $200 $ % 10 Year CAGR

44 The Bottom Line Record Results Sales, Earnings & Cash Flow 50 Consecutive Years of Dividend Increases Strong Operating Income and Margins ROIC Performance Accountability Strong Shareholder Return 44

45 50 Consecutive Years of Increased Dividends FY2006 Increase of 18% * Among the top 5 longestrunning dividend increase records in the S&P 500 index. 45

46 The Bottom Line Record Results Sales, Earnings & Cash Flow 50 Consecutive Years of Dividend Increases Strong Operating Income and Margins ROIC Performance Accountability Strong Shareholder Return 46

47 Operating Income $1,255 in FY06 Increase of 24% $1,400 $1,200 $1,000 1,009 1,255 in millions $800 $600 $ $200 $ Fiscal Year 47

48 Operating Margin Comparison FY06 FY05 Industrial NA 15.0% 13.3% Industrial ROW 12.2% 11.1% Aerospace 14.7% 14.7% Climate and Industrial Controls 8.5% 9.4% Total Parker 13.4% 12.5% 48

49 The Bottom Line Record Results Sales, Earnings & Cash Flow 50 Consecutive Years of Dividend Increases Strong Operating Income and Margins ROIC Performance Accountability Strong Shareholder Return 49

50 ROIC History 25% 20% 21% 21% % 15% 10% 10% 14% 5% 7% 0% FY02 FY03 FY04 FY05 FY06 ROIC is defined as: earnings before interest and taxes (EBIT) divided by average capital (avg. of debt and equity at beginning and end of fiscal year). 50

51 2006 ROIC versus Peers ttm P/E 9/15/06 Peer A Peer B Peer C Peer D Peer E PARKER Peer F Peer G Peer H Peer I Peer J Peer K Peer L Peer M Peer N Peer O Peer P Peer Q Peer R 6.9% 8.0% 9.5% 12.6% 12.6% 21.2% 20.9% 20.7% 18.7% 18.1% 16.7% 16.6% 15.8% 15.4% 14.9% 25.9% 28.0% 32.5% 32.1% Parker 21% ROIC 13.7 P/E % 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% ROIC is defined as: earnings before interest and taxes (EBIT) divided by average capital (avg. of debt and equity at beginning and end of fiscal year). Parker data fiscal year ended June 30, 2006, peer data fiscal years ended in PEERS: CAT, CBE, CMI, DE, DHR, DOV, EMR, ETN, FLS, GR, HON, IR, ITT, ITW, PLL, ROK, SPW, TXT

52 The Bottom Line Record Results Sales, Earnings & Cash Flow 50 Consecutive Years of Dividend Increases Strong Operating Income and Margins ROIC Performance Accountability Strong Shareholder Return 52

53 Accountability Management incentives aligned with shareholder value Short Term RONA Cash Flow Long Term Options Revenue EPS ROIC 53

54 The Bottom Line Record Results Sales, Earnings & Cash Flow 50 Consecutive Years of Dividend Increases Strong Operating Income and Margins ROIC Performance Accountability Strong Shareholder Return 54

55 Parker Delivers Strong Returns Total Shareholder Return (Share Appreciation + Dividends) Period Ending June 30, 2006 (Fiscal Year) S&P 500 S&P 500 Parker Industrials 3 Year 11.2% 15.8% 24.3% 5 Year 2.5% 3.6% 14.5% 10 Year 8.3% 9.1% 12.4% Source: Bloomberg 55

56 Key Takeaways Revenue Growth Parker is Growing Operating Margin Market Share Parker is Managing Profitably Parker is Winning in the Market Parker is Providing Great Returns for Shareholders 56

57 The World Leader in Motion and Control Aerospace Hydraulics Filtration Automation Automation Fluid Connectors Electromechanical Climate Control Pneumatics Instrumentation Seal 57

58 Thank you