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Good morning, everyone. Welcome to Parker Hannifin Corporation's Fiscal 2027 First 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 would like to remove yourself from the queue, please press star 2. Please be advised that today's conference is being recorded. And lastly, if you should need operator assistance today, please press star 0. I would now like to turn the call over to our host, Mr. Todd Leombruno, Chief Financial Officer. Please go ahead, sir.

Thank you so much, Bo. Good morning, everyone, and welcome to Parker's Fiscal Year 2027 First Quarter Earnings Release Webcast. This is Todd Leombruno, Chief Financial Officer, speaking. And as usual, with me today is Jenny Parmentier, our Chairman and Chief Executive Officer. As always, we appreciate your interest in Parker, and we thank you all for joining us today. On Flight 2, we're going to address our disclosures on forward-looking projections on non-GAAP financial measures. The items we have listed here could cause actual results to vary from what we have forecasted. Our press release, this presentation and reconciliations for all the non-GAAP measures were released this morning and are available under the investor section on our website at Parker.com. Today we have Jenny starting with an overview of our record FY27 first quarter performance. She's also going to provide some details on the recently completed acquisition of the Filtration Group Corporation. Following Jenny, I will go a little bit more in depth on the details for our first quarter financial results. And then we're both going to give a little color on the increase to our FY27 full year guide that we increased this morning. We will conclude the call with the normal question and answer session, and we will try to address as many calls as we possibly can. So now, if I could move your attention to slide three, Jenny, I'll turn it over to you.

Thank you, Todd, and thank you to everyone for attending the call today. Our global teams delivered impressive first quarter performance. We achieved top quartile safety performance with a 9% reduction in our recordable incident rate. Safety is our top priority every day, and we remain focused on being the safest industrial company in the world. Q1 sales increased 18% to a record $6 billion, Organic growth accelerated to 11.5%, and adjusted segment operating margin expanded 120 basis points to a record 28.6%. Adjusted earnings per share increased 23% to a record $8.90. This marks the first quarter we've delivered double-digit organic sales growth in over three years. And in the quarter, we completed the acquisition of Filtration Group Corporation, continuing our track record of disciplined capital deployment to compound performance. I'd like to thank our team members around the world for a great start to fiscal year 2027. Moving to slide four. We are experiencing increased demand across our key market verticals. Demand is broad-based and rolling 12-month order rates increased to 13% this quarter. This broad-based strength is evidenced by our backlog, which continues to climb higher, setting a new record of $13.7 billion in Q1. Aerospace, industrial, and filtration groups all contributed to this increase in backlog. Parker's portfolio is profoundly different today than it was 10 years ago when we began our portfolio transformation. Our portfolio has been shaped by our strategic positioning initiative in the wind strategy and has been transformed by acquisitions. Acquisitions have more than doubled the size of our aerospace and engineering materials businesses, and we have more than tripled the size of our filtration business. This is clearly a different Parker, one with greater visibility and backlog, resulting in more consistent growth. Slide five, please. We've been looking forward to welcoming the very talented filtration group team members to Parker ever since we announced the transaction nearly one year ago. We were thrilled to complete the transaction in Q1 and continue our longstanding practice for a Parker leader to personally welcome the new team at every location. This slide shows pictures from just a few of our day one events held around the world welcoming the filtration group team to Parker. This is a great day for all of us and we are excited to have filtration group in the Parker portfolio. I'm on slide six. Filtration group brings a diverse portfolio with strong brands, material science capabilities highly engineered products, embedded application engineers, and multiple R&D centers. Filtration Group has a global presence with sales split approximately 60% North America and 40% international. And they have a robust aftermarket business, increasing Parker's overall filtration aftermarket sales by 500 basis points. This acquisition enhances and expands our exposure in markets we know well, including life sciences, HVAC and refrigeration, in-plant and industrial, and transportation. Within life sciences, we have solutions for medical, diagnostic, and test applications that include consumable separation technologies, pharmaceutical protection, special chemistry, and material science solutions. In HVAC and refrigeration, we're adding complementary products and advanced media capabilities that ensure indoor air quality in places like hospitals, schools, museums, and Airports. Moving to in-plant and industrial, we're adding proprietary media for liquid air and gas filtration, increasing safety and productivity. And within transportation, filtration group brings on-vehicle filters and desiccants engineered to an application-specific form factor, increasing cleanliness and efficiency. With this acquisition, we are creating one of the largest industrial filtration businesses in the world, with approximately $5 billion in annual revenue. Much like our previous acquisitions, this is highly complimentary, brings new capabilities in existing applications as well as near adjacencies, thus expanding our addressable market and opportunities to create value for customers globally. Moving to slide seven. Our dedicated integration team is leveraging the Parker Integration Playbook with Filtration Group. We have a proven process and one that we continuously approve with each acquisition. We know from experience that cultural alignment is key to a successful integration. And we see this once again with the combination of Parker and filtration group. Our integration teams are currently focused on the first pillar of the wind strategy, engaged people. In less than a quarter, our teams have already begun Kaizen events focused on safety improvements. This is the first step in building a culture of Kaizen that will later drive lead time reduction that drive customer experience and increase productivity. The chart on the right shows for the first time our expected cumulative cost synergies by year. Our fiscal year 27 guidance now includes filtration group and $40 million of synergies this fiscal year. Acquisition integration is a core competency here at Parker, and we are confident in delivering $220 million of cost synergies as we target taking filtration group's adjusted EBITDA margin to greater than 30%. Now on slide nine, many of you on the call today have seen this slide before, why we WIN. First, the WIN strategy is our business system. We have a decentralized operating structure, 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 Thank you for joining us today. I'll pass it over to you for some first quarter highlights.

Oh, thank you, Jenny. You know, we always talk about finishing strong. Well, this is a quarter where we started the year strong. As Jenny said, I'm on slide 10, and I'm just going to go through a real quick review of the first quarter results. It was a strong quarter, double-digit sales growth resulting in strong margin expansion and 23% EPS growth. Sales were up 18% versus prior year. We reached $6 billion for the first time in the history of the company. Organic Growth, as Jenny mentioned, was 11.5%. Acquisitions all in added 7%. Most of that was from the Filtration Group Corporation, but we do have one last partial quarter of Curtis sales in there that totaled the 7% for all acquisitions. Segment operating margins are up 120 basis points from the prior year, finished at 28.6. That obviously is a record. adjusted EBITDA margin was also a record at 28.5 that's also up 120 basis points from prior year and adjusted net income was a little bit over a billion dollars 1.1 billion dollars which is 18.9 percent return on sales and that's how we get to 890 in adjusted earnings per share that is up 23 percent versus prior like I said it was just a really strong start It's great to start the year with double-digit organic growth and 23% EPS growth. Really glad to see that. On slide 11, this is the walk. You can see it was just a really clean quarter. Essentially, all of our EPS growth came from strength across our operations. Segment operating income dollars are up by $327 million. That happens to also be 23%. That added nearly $2 of EPS growth. to our EPS growth for the quarter. Lower shares outstanding was favorable by 4 cents. Income tax was also slightly favorable, just a penny. And interest expense, as expected, was higher. That is really related to the newly issued debt that we took out to acquire the filtration group. Corporate G&A and other was negative 8, and that was really driven by higher market-based benefits. Nothing really out of the ordinary there. and that's really how we get the 890 in adjusted earnings per share. So really just a great quarter. Thanks to our teams for converting 11.5% organic growth into 23% EPS growth. Just a great operating performance across the company. Now if we move to slide 12 and look at segment performance, rolling orders on a 12 month basis accelerated for the company to plus 13. First prior year, and as you can see, there's double-digit growth across all reported businesses on the 12-12 order report. Organic growth, like I said, was 11.5%. That did exceed our guide. We were guiding 8%. Margins are up 120 basis points, and that is a new record. If we look at the North American businesses, sales are up 20%. That is a record $2.4 billion. Organic growth in North America was 9.4%. We saw positive growth across all market verticals, and that includes distribution. Margins were up 60 basis points versus prior. That finished at a record 27.6% for the North American businesses, and we continue to see margin expansion from executing the wind strategy and really leveraging higher productivity on that sales volume. Orders in North America also increased 200 basis points to 11% compared to prior year, and as Jenny said, strength across all market verticals in the North American business. It's just a great way to start a year for North America. If we slide into the diversified industrial international businesses, what a quarter here. Sales were a record $1.7 billion. That's up 22% versus prior year. Organic growth was 11.6%. and that was really led by outstanding growth in our Asia-Pacific businesses. Organic growth in Asia-Pacific was 23.4%. It was also great to see the EMEA region go positive at plus four. And as you can see, Latin America is just a slight drag at minus one. Margins here are the standout, 270 basis points of margin expansion. First prior year, the 27.7 is a record for the international businesses. Really seeing results from a lot of restructuring activities over the past year or two. Some growth from new business wins and obviously executing the win strategy over and over and over again. On the order front, international orders increased 400 basis points to 14% with sequential increases in both Asia Pacific and EMEA. It was a record quarter across multiple metrics from our international team and they did a great job. starting the year. So thanks to all of our international team members. Moving over to aerospace, just another exceptional quarter of double-digit organic growth. Sales were a record at $1.9 billion. That's up 14% versus prior year. All 14% of that is organic and really strength across both the OEM and aftermarket businesses. You look at margins, they expanded margins 70 basis points versus prior year. They also achieved a new record of 30.7. That margin performance is really a result of great productivity, those higher volumes, and stronger than expected commercial aftermarket growth. Order rates continue to be elevated in aerospace at plus 14, and we could continue to see strong mid-teen commercial aftermarket order growth. Another great performance from our aerospace team. Thank you. On slide 13, we talk about cash flow. Cash flow from operations was $752 million. That's 12.6% of sales. Free cash flow came in at $643. That's 10.7% of sales. That is slightly lower than last year. All of it is related to just bringing in the filtration group acquisition. If you remember last week, our board approved our quarterly dividend of $2 per share. That is the company's $306 consecutive quarterly dividend. And on cash flow, we are committed to achieving 100% conversion for the year. If you remember, our cash flow is second half weighted. We issued the new debt this quarter to acquire the filtration group. Those interest rates on average are just slightly over 4.5%. And that pushed our net debt to adjust the EBITDA to just 2.7%. So those are the details on Q1. Jenny, I'll turn it over to you, and we can start guidance.

Thank you, Todd. I'm on slide 15, our fiscal year 27 organic growth forecast by Key Market Vertical. As previously mentioned, with strong and broad-based demand, we are raising our midpoint organic growth guidance 200 basis points from 7% to 9%. For aerospace and defense, our largest vertical, we are raising guidance to approximately 10% organic growth, Commercial aftermarket orders accelerated and OEM continued strong. We are also raising our growth outlook for in-plant and industrial to high single-digit growth. We continue to see demand broaden and strong orders from our distributors. For our transportation vertical, we now forecast high single-digit growth, led by continued strength in heavy-duty trucks, which has been driven by production rate increases. Moving to off-highway, we are guiding mid-single-digit growth, We see continued strong non-residential growth driving construction. Mining strength continues as well, which is supported by commodity prices. We also expect mid-single digit growth for energy. We see sustained growth from our businesses supporting gas turbine power generation, while we are still expecting oil and gas to be flat this year. Lastly, we are guiding mid-single digit growth in HVAC and refrigeration. This growth is led by commercial HVAC, followed by refrigeration. So in summary, we are raising the organic growth forecast for our three largest market verticals and still expect positive sales growth across all market verticals, resulting in an organic growth forecast of 9% at the midpoint. I'll hand it back to Todd to share more details on guidance.

Thanks, Jenny. I'm on slide 16. And as Jenny said, we are raising our full year guidance. That's obviously based off the strong performance we had in Q1, the robust order levels, and then, of course, including the filtration group in our numbers. On reported sales, we're increasing the range of growth to 16% to 19% or roughly 17.5% at the midpoint. Specifically for the filtration group, we are including $1.85 billion of sales to the guide for FY27. That's obviously a stub year. That's roughly 10.5 months of ownership. If you take that 1.85 plus the little bit that's left over from Curtis, acquisitions will account for roughly 9% of the sales change. Currency is really just a slight drag at 0.5, and that is based on September 30th spot rates. Jenny mentioned this, but we are increasing organic growth to a range of 7.5 to 10.5. That's 9% at the midpoint. Aerospace organic growth, we are increasing that 150 basis points to now 10% at the midpoint. The industrial North American businesses organic growth is being raised by also 150 basis points to 8% at the midpoint. And the industrial international businesses are being raised by 400 basis points to 9.5% organic growth at the midpoint. For the full year, adjusted segment margins are expected to increase by 20 basis points. Versus the prior guide, that would go to 27.9% for the year, and that includes raises in all three reported businesses. That would be a 60 basis points increase for his prior year all in, and that would include incorporating the filtration group into Parker Hannifin numbers. Just a few items to note. Corporate GNA is just up slightly. By $10 million, it was $200. We now expect it to be $210. Other expense is down by $10 million. It was $100. Now we expect it to be $90. And interest expense has been increased. This is all really related to the filtration group debt. We now expect $690 million of interest for the year. Previously, that was $340 without the filtration group acquisition. and really no change to tax rate, 22.5% tax rate. Adjusted EPS has been raised to 36.85, which I will break down a little bit further in the next slide. The range on that is plus or minus 40 cents and the split is as usual, 48%, first half, 52% second half. And as I mentioned before, we are also raising our free cash flow guidance to a range of 3.5 billion to 4 billion. that is $3.75 billion at the midpoint and conversion will be approximately 100% for the year. If we look specifically at Q2, reported sales are forecasted to be nearly $6.2 billion and it's a 19.5% increase versus prior. Organic growth we expect to be about 10% for Q2. For adjusted segment operating margins we are forecasting 27.6% that is all in. and adjusted EPS is now expected to be $8.82 for the quarter. On slide 17, we provided this just to kind of show the increase just with a couple moving pieces with filtration group coming in. You can see our previous guidance here was $34.75 for the year. We are increasing that to $36.85. I just want to point out that $1.70 of that increase is coming from increased segment operating income dollars based on higher organic growth and great incrementals in our legacy business. Just a great quarter to start the year, and we expect that to continue throughout the year. For filtration group, in FY27, we expect this to be adjusted EPS accretive of $0.50. That is for the first 10 1⁄2 months of ownership. There was really no impact in Q1. The segment operating margin was offset by the interest expense, but for the next three quarters, we're expecting $0.50 of accretion. That includes the $40 million of synergies that Jenny mentioned earlier. And then lastly, just corporate interest and others, just a slight bit higher, $0.10 higher, and that brings the total raise for the year to $2.10, or 6%, from what we just initiated three months ago. As usual, we've got additional guidance details in the appendix. Just in summary, FY27 is off to a fantastic start. We're excited to welcome the filtration group team members to Parker Hannifin. And with that, Jenny, I'll hand it back to you.

Thanks, Todd. I'm on slide 19. Today we are excited to announce our 2027 investor meeting on May 13, 2027. Similar to our last investor meeting three years ago, this meeting will be in person and webcast from New York City. Please save the date, and we look forward to sharing more details as we get closer to the event. And moving to our final slide, a reminder of what drives Parker. Safety, engagement, and ownership are the foundation of our culture. It is our team members living up to our purpose every day that drives top quartile performance and allows us to be great generators and deployers of cash.

Okay, so we are ready for the Q&A portion of the call.

Certainly. Thank you, Mr. Leombruno. Ladies and gentlemen, at this time, if you do have any questions, please press star 1. Again, if you do find your question has been addressed, you may remove yourself from the queue by pressing star 2. Additionally, to get to as many questions as time permits, we do ask that you please lend yourself to one question and one follow-up. We'll go first this morning to Andrew Obin of Bank of America.

Yes, good morning, guys. Just a question, Jenny. Congratulations. You know, we've been in meetings for, I think, what seems like eternity, where the team was hoping for the industrial recovery that sort of never seemed to come. It does seem, finally seems to be here. What has changed that, you know, we've now seen to have like two quarters left? Thank you. Yeah, I feel like I've been thanked positive sentiment and gradual recovery for quite some time.

And obviously in Q1, what we saw was a broad name recovery across all the markets. I would tell you that it's been robust electronics and semiconductors growth, double-digit growth. We've been able to raise in-plant and transportation market verticals. Obviously, it's just really been great in all aspects of the markets that we raise. So I think that it's just been that the orders that we've seen and the positive sentiment has turned into some momentum here in shipments and increased as demonstrated through the quarter. I would tell you that there's nothing that we see right now that would cause us to be concerned about the outlook. Obviously, we've raised the guide here. We feel confident in this guide, and we're real pleased with the orders and how the team executed throughout the quarter. We've been talking about all the work we do, no matter what's going on, and the volume really turned into some nice bottom-line performances.

Yeah, great to hear. And maybe a follow-up. You highlighted that in aerospace, commercial aftermarket was a positive surprise. I know a lot of concerns about that starting in the summer. Maybe, you know, clearly you talk to your customers. What's driving the upside there? Thank you.

Yeah, I mean, we saw double-digit growth. We saw, you know, plus 14% in both OEM and aftermarket. It was really the second highest quarter of quarter bookings for us ever. And we do expect this strong demand to continue. So we're not seeing a lot of retiring aircraft, right? So aftermarket continues to be strong.

Thank you very much.

We'll go next now to Mick Dobre with Baird.

Yeah, thank you. Good morning, everyone. Appreciate all the commentary on growth and orders. Things seem to be going well, but just sort of acknowledging what's going on in the capital markets here, especially post-election. There's obviously concerns about the AI infrastructure build-out, and I'm not really asking you to forecast how that's going to go, because who knows? Really, can you help us better understand what your exposure is as you're kind of looking at your business? Because you obviously have some direct exposure, but there's also probably some indirect exposure. So as you sort of think about this vertical and the risk that that poses on a go-forward basis, it would be great to hear your thoughts. And specifically in your age of business where we've seen really very, very strong growth, how much of that do you think is related to this particular vertical?

Just a couple points to make. So data centers does continue to be a high growth driver for us with double digit growth in the quarter. We're continuing to get business in the space and orders and backlog are strong. We have nice exposure and growth, but this is not yet large enough for its own vertical. We finished the fiscal year with data centers making up approximately 1.5% of Parker sales. So this is a great interconnected technology story from all the products that have been in the Parker portfolio for quite some time. And we are working with industry leaders. We have the ability to provide the liquid cooling systems and subsystem components. And the Asia-Pacific orders are strong in electronics and Semicon. And that was just a really strong area for the quarter. So, you know, as I previously mentioned, we feel good about the orders that are out there. And, you know, we think this is going to continue to be a growth area. But again, not quite a market vertical for us.

That's helpful. And then my follow-up, just to maybe double-click on your comments on commercial aftermarket, if you want to kind of think about it by region and think about the Middle East specifically, I'm wondering two things, how that specific region has progressed or gone, and, you know, is there potential for some sort of a catch-up if maybe conditions in the Middle East change sometime in 2027?

You know, I think commercial aftermarket has been strong, and it continues to be strong. So I wouldn't note any diff related to anything that we saw with that conflict. You know, we're raising our guide to high single-digit growth for fiscal year 27. So, you know, strong orders in Q1. You know, as I mentioned before, we're just not seeing a lot of the... The aircraft retiring, so that aging fleet is driving the growth. But I wouldn't say that it went down enough to say there was a reaction to anything going on. And obviously, orders in Q1 were strong.

All right. I'll leave it there. Thank you.

Thanks, Nick.

We'll go next now to David Rosso with Evercore ISI.

Hi. Thank you. I was curious if we can dive into the international guide, the 400 BIPs increase. Which geographies drove that? And obviously, if you can help us a bit, how do you think about the geography guide within the total international organic? And also the margins, they're obviously very high in the first quarter. And while you raised the margin guide, they're still lower than the first quarter. Just curious how you're thinking about that. Why the first quarter would be that much higher than the full year guide. Thank you.

All right. Well, I'll dive into what's going on with the international guidance for you. So full year organic growth is now 9.5%. As Todd said, that's a large increase to the initial guide. And Q2 guidance is approximately 11%. So in EMEA, we have guidance at low single digit to mid single digit growth for the year. That's really mixed market conditions. They have a strong growth in energy, mining and defense, and what we see as a gradual recovery in heavy-duty trucks and construction. In Asia Pacific, this has been very strong. We're raising guidance to mid-teens organic growth. This was previously high single-digit, and we're really seeing continued strong electronics and semiconductor demand. Implant orders and shipments progressed. In Q1, we saw double-digit distribution growth. and we're seeing the orders and the shipments continue to progress. And then mining and energy strength continues in Asia Pacific. Latin America, guidance is at low single-digit organic growth and we're still seeing a broad-based softness across that region.

Hey David, this is Todd. I would just add a little bit. Q1 was stellar, absolutely stellar. And if you look at what we're doing, we have increased the margins really for all businesses North America International and Aerospace for the remainder of the year. We did have filtration group for basically a month and a half in Q1. We're obviously going to have it for three quarters in Q2. Those jumping off margins are lower than our existing businesses. So there's a little bit of a drag there until those synergies really start rolling in there. But if you look at incrementals outside of all of that, You know, we are high 30s, low 40s on incrementals in the guide here. So, you know, we feel like we're being pretty aggressive here on the forward outlook. Just Q1 was just stellar.

And a quick follow-up to the meeting. I know it's many months out, but can you give us a little framework of what prompted calling the meeting and how we should think about, obviously things are operating pretty well right now. Just curious, The reason behind the meeting, we're always happy to meet with you, but just curious what we should expect broadly speaking and why we called the meeting.

Well, we usually in the past have done a meeting every two years. This will be three years. And we expect that we're going to be able to share some information with you and some news with you. But it is a ways out yet, so we're really not in a position today to talk too much about the details of that meeting.

All right. Thank you.

Thanks, Dan.

We'll go next now to Jamie Cook with Truist Securities.

Good morning and congratulations on another nice quarter. I guess just two questions. One, just given filtration group is closed and we understand what the implied guide is for 2027, but can you just give us an update on how that business had been performing in terms of organic growth, and then I guess any incremental insights you have on potential upside to synergies. And then my second question, Jenny, just relates to obviously industrial demand is very strong. We're seeing that in your numbers. I think people are questioning sort of to the durability of the cycle. So in an environment where potentially industrial demand tempers How do you think about your ability to, in a less robust market, achieve the 4% to 6% organic growth that you target just given some of the changes in your portfolio with M&A and the portfolio more positioned towards secular growth, just your confidence in the 4% to 6% assuming doomsday and industrial demand tempers? Thank you.

Okay, Jamie, so starting out with filtration groups. So their Q1 performance was what we had expected. Historically, they've performed at a positive mid-single-digit growth CAGR. Life science business is one of their fastest-growing markets right now. As Todd said, the guide includes $1.85 billion of sales, and Q1 actual was $285 million. We expect this to be accretive, as Todd said, to 10 and a half months, an accretion of 50 cents. So this is a good business. It's a business with complementary technologies to what we have, markets that we know, and we expect that this is going to be a good growth business and fit nicely, especially with the additional 500 basis points of Aftermarket. We feel very confident in the $220 million in synergies. That's 11%, 40 million for this fiscal year. The integration team has been working very hard. They've been, you know, they were planning ahead of the close, and they've worked very closely with Filtration Group. And as I mentioned, Kaizen events are in full swing, and we really, really have had success in the past by focusing on that first pillar of the wind strategy, and we're off and running there. Now as far as international demand and our confidence about targets that we put out there, 46% organic growth, we feel very confident about hitting those targets. We have transformed this portfolio very much on purpose to be able to do that. I think when you look at the durability of the short cycle businesses right now, there's clear signs of positive short cycle demand through orders and shipments. Both OEM and distribution short cycle orders were positive double digits, and this acceleration is just continuing on a broadening recovery. And as I already mentioned, we raised our forecast on in-plant and industrial as well as transportation to high single digits, and the rest of the market verticals remain positive. It's very encouraging, as I mentioned at the very beginning, to see the distributor purchases to really increase and they're driven by strong end demand. And again, as I said for a long time, the sentiment is very positive and now it is really supported not only by the orders but by the shipment.

Thank you. Congrats again.

Thank you. Thanks, Jamie.

We'll go next now to Scott Davis with Milius Research.

Hey, good morning, Jamie and Todd and Jeff.

Good morning.

Congrats on the good, great start. Not a good start, a great start. There's not a lot to pick on or ask, but frankly, things are so clean. But I'm kind of curious to what extent you're willing to share with us where Filtration Group kind of stands today as it relates to on-time delivery, quality, kind of the key metrics that you guys obviously care about. Even if you're not willing to share the exact numbers, some sense of kind of where the opportunity

Yeah, so obviously, you know, part of the integration is, you know, integrating everything into, you know, a lot of the Parker metrics and, you know, indicators. But the thing that we've obviously been most focused on is safety, right? What's very important to us is that People come to work every day and feel safe in their environment and that we have a culture where we're taking care of each other and making sure everyone's safe. That is the foundation for everything when it comes to high-performance teams, successful Kaizen events, and then obviously, as we know, leads to taking care of the customer and growing profitably. So safety is a big focus. We're not ready to disclose any specific numbers. I don't know that we really ever do talk about those metrics with the acquisitions, but we will be putting them into our metrics that are really about making sure that we're on time to the customer's request date and that we're continuously improving upon how we serve the customer. These are good businesses. They have a lot of evidence of having the basics of some of the visual management that Parker believes is key to running any operation. But again, we also see a lot of upside with the Parker Lane system and implementing all the tools in the wind strategy.

And thanks for that, Jenny. But my understanding is Filtration Group was kind of built over time with a bunch of acquisitions and bolt-ons itself. How heavy of a lift is it to integrate? I imagine there's a number of different ERP systems, and obviously you're going to want to integrate it to some extent, I would think. But I'll ask that as part of the question as well. But how heavy of a lift is it overall, and then to what extent do you plan to integrate, I guess, is my question.

Yeah, I mean, obviously you are correct. That's the way it was built over time. These are very decentralized, which is a positive, though, because the leaders of these businesses very used to being held accountable to their P&L statements. So that's a positive, and that feeds right into the Parker culture. So we like that about it. But none of these integrations are quote-unquote easy, right? I would say that there's a heavy list component to each acquisition, and we obviously will want to bring those together and integrate them. And one thing to remember here too is that we've taken these filtration businesses and put them into existing Parker divisions, right? And within those leadership teams, you'll wind up with legacy Parker leaders and filtration group leaders. So that really does help with getting the wind strategy ingrained into the division and bringing everybody on board with the work that needs to be done. Heavy lift, yes, but this is a core competency for us, and we feel very confident about being able to integrate all of these locations and really make this a successful acquisition.

All right. I'll pass it on. Thank you, and best of luck.

Thank you.

We'll go next now to Julian Mitchell with J.P. Morgan.

Hi, good morning. Maybe just my first question around the aerospace segment, organic sales growth outlook for the balance of the year. Maybe just help us understand kind of how you're thinking about commercial, aero, early and aftermarket versus the same for defense and just flesh out sort of how Q1 started for those pieces, please.

Yeah, so if you want to just talk about the guidance for aerospace. So just starting out, the OE aftermarket split for the fiscal year is guided to 53% OE and 47% aftermarket. We did have a mix of 52-48 in Q1. So as we said, you know, stronger commercial aftermarket than we expected. And I would tell you, too, one of the things that is really contributing to our aerospace group's ability to deliver The team has worked very hard on demand and capacity planning in aerospace, as well as partnering with the supply chain and really investing in the supply chain over the last several years. So this full year guide of approximately 10%, we're very confident about that, with the initial guide being 8.5%. We are seeing commercial OEMs. Guide remains at mid-teens growth for fiscal year 27. Commercial transport build rates are increasing. And as we all know, aircraft demand is still greater than supply. For commercial MRO, we are raising Guide to positive high single-digit growth for fiscal year 27. So as I mentioned already, there's an aging fleet driving aftermarket growth. We're not seeing a lot of retirements. Engine repair shop visits and component demand continues. and we're clearly, again, seeing the benefits of our team really working closely with the customers, understanding what the demand is, seeing the increases come, knowing about them before they come and making sure that we're able to help them achieve their production rates. On defense OEM, we're raising the guide to high single-digit growth for fiscal year 27. We see strong demand for global fighter jets. the orders continued strong in the quarter and you know we're raising this guy based on firm demand from our customers and defense MRO guy remains at mid single-digit growth for fiscal year 27 we're still seeing fleet upgrades and service extensions a focus on retrofits and upgrades as the fleet ages and again I would say with both of these this is a long cycle business but We're raising guidance on the demand we see today, and we're focused on making sure that we serve these customers.

That's very helpful. Thank you. And then maybe just a quick follow-up on the second quarter EPS guide. I think it implies a slight, tiny decline sequentially on EPS. Normally that number's up sequentially. I understand maybe some margin effect from filtration group. Is there anything else beyond that? And is there something with filtration group where the margins in international are particularly sort of dilutive to that segment?

No, it's not so much, Julian, the mix between North America and international. I would say the, you know, a full quarter of interest has got a little bit of a drag on EPS there. But, you know, we look at our incrementals, the incrementals that we're guiding to, you know, for the total company is above 30.

If you look at the legacy business, it's much higher.

The math gets a little wonky because we don't have filtration group in the prior year, but I would say there's nothing out of the ordinary other than maybe the additional interest.

Great. Thank you.

and we'll go next now to Joe O'Day with Vertical Research.

Hi, good morning. You made a couple references to seeing some improving demand out of the distribution channel and so was looking for a little bit more color there. I think you've talked for quite some time about The indications of interest being better, but actually now it seems like you're seeing that materialize some more. And so just any perspective on the growth rate you saw in North American International out of that channel, how that compares to some of the recent quarters, just to get a better understanding of acceleration there.

I would say that, you know, we started to see this in Q4. We talked about it during the last call about, you know, seeing increased orders from distribution. and you know what we saw in Q2 was you know positive double digits right so we saw stronger orders in Q2. Now I wouldn't you know I wouldn't call this a restock that's not what we're hearing from the channel but obviously the orders have increased and they're increasing to real demand you know they're participating in a lot of capital investments A lot of infrastructure, automation. So I would say that, you know, it truly is a broadening recovery and distribution is playing very well in it.

And then on the inflationary side of things, when we think about the 200 basis point increase in organic growth guidance, Any contribution to that from pricing that you've had to do? And then as you think about the full year, is the anticipation that price cost is both dollar and margin positive?

Yeah, so, you know, on inflation, we definitely are still seeing increases, you know, across a range of material cost inputs as well as logistics. But, you know, this is a strong muscle for us. We're experts at managing this. You know, our wind strategy supply chain tools They're the best. We work closely with, you know, everybody in the organization is working closely with our pricing team. And, you know, we've taken some action where we've needed to. We'll do that in the future if needed. But we are really, for the most part, back to a very normal pricing environment on the industrial side of the business.

I would say the increase in the organic growth is really demand-related. It's not price-related. It's demand-related.

Got it. Thank you.

We'll go next now to Brett Lindsey with Mizuho.

Hey, good day, y'all. I wanted to come back to the industrial margins obviously move structurally higher here. As volume recovers and orders are picking up, you're generating these new project wins. Is there any additional required capacity investment or reallocations in some of those divisions that would influence the path to those long-term targets?

You know, we have done a really nice job over the last couple of years of increasing capacity where we needed to. We have been able to generate additional capacity through use of Kaizen and the Parker Link system. That's a very strong muscle for us as well. So there is not what I would call any significant investment that will need to be made. We will continue to increase our productivity. We'll continue to use all these tools. And on the higher volume in Q1, obviously the teams were able to deliver that. And we see that that will be the case for the rest of the fiscal year and the foreseeable future.

That's great. And then just one more on OE within aerospace. So on Boeing and Airbus, just wanted to better understand how much of the production rate normalization is actually in the plan versus maybe upside to the guy. What are the build rate cadence that you're thinking about or effectively assuming in the framework?

Well, as I mentioned before, listen, our teams are working, you know, very closely with these big customers and The production rates that they're sharing with us and the demand and capacity planning we're doing, that's what's in our guidance. So, you know, we don't specifically talk about customer build rates, but we don't expect any surprises there, and we know what their plans are.

That's great. Congrats on the quarter.

Thank you.

We'll go next now to Andy Kapowitz with Citigroup.

Good morning, everyone.

Hi, Andy.

Positive mid-single-digit growth. And as you know, energy, the vertical is about 7% of our sales. So we see robust long-cycle power gen demand. That's been very strong. But with oil and gas, the forecast is flat. Upstream remains constrained. There's some benefit in midstream from some infrastructure build-outs, but right now the best view we have is that mid-single-digit growth.

Tough one. I think, Jen, one of the main reasons why you bought the filtration group was it's an aftermarket business, so it's obviously early days in terms of your ownership. But what did they do, if at all, differently than Parker that could help you? And then I think just you mentioned Life Sciences, their biggest business. Are they seeing any improvements in that business, or can you see above mid-single-digit growth in that business going forward?

Yeah, well, there's many reasons why Filtration Group, you know, was very attractive to us and why, you know, we had watched this business for quite some time. And, you know, it's not just one thing. It's very nice to have higher aftermarket, right? That is something that plays right into Parker's success. But, you know, really the complementary and proprietary technologies is really one of those things that, you know, we look for in an acquisition. and it does expand our presence in life science. Life science is an area that is growing higher than the rest for them right now. But it also brings a lot of proprietary media for markets that we already play in. So this is, you know, Andy, this is just a good performing business that we're going to just improve upon and we think that There's plenty to learn here. I would say it's still early days about learning all of how they go to market and how they handle their channels, but we think that we can learn from that, and we also think that there's some things that we do that might fit well within Filtration Group.

Appreciate that, Jenny.

Thanks, Andy.

We'll go next now to Steve Tusa with Wells Fargo.

Hey, thanks for having me in. Appreciate it. Thanks, Steve. Just on this, I guess, any sort of color on, I know you don't disclose price, but any directional color on how that may have impacted the incrementals? I mean, is it the neutral market to margin, just any kind of high-level color on the price-cost situation?

Yeah, Steve, I'll start. If Jenny's got anything to add, I'll let her go there. Really no impact on the incrementals on price. You know, this is something Jenny mentioned earlier. This is something we do all the time. We try to remain margin neutral, so there's no levers that we're pulling to try to make it so that we're improving our incrementals on that. The result was based off great demand, great volumes, and unbelievable execution across every single one of our businesses.

Yep, yep. And then just on the meeting, Jenny, I think you said – I mean, you said expect some news. I know it was, I don't know, it was kind of cryptic.

I changed my words around. I said, we'll have some news for you.

Okay, but I mean, is that, obviously you guys seem like you're, you know, like the long-term targets can be reset. Is there any thought or consideration to like a more holistic portfolio evaluation from that perspective?

You know, Steve, I wouldn't go that deep. I would say, hey, you know, it's a few months out from now. We obviously just closed the filtration group. We will have closed Circor. By the time that comes, you know, the company will be over $25 billion in total revenue. We're going to give you some color on what the company looks like today and what we're planning on doing over the next five years. Yeah, well said.

Okay, perfect. Had to ask. Thanks a lot.

Yep.

Thank you. We'll go next now to Varun Govindaraj with Bernstein.

Good morning, everyone. Thank you for the question. Good morning. To link a little bit to what we just talked about, I mean, as you continue to get larger, do you see a big enough pipeline of complementary M&A assets out there that can materially move the needle, like Megataz Infiltration Group is expected to? Or should we think about this as more bolt-ons going into the future?

So, Varun, there are deals, assets of all sizes in the acquisition pipeline, right? And one of the things that we often talk about is making sure that that pipeline stays active and healthy, and that's something that we've done for quite some time. So we think, you know, a lot of times, we're not, most of the time, we're not in control of the timing of those, but we do believe that the pipeline is still robust. and that there are assets out there that we are interested in, definitely.

Perfect. Appreciate the color. And then just as a follow-up, could you remind us on backlog conversion in general, how much of that tends to convert to revenue over the course of the next 12 months? And should we expect any changes there just given the shift in mix of the business?

You know, we don't expect any dramatic change to that conversion rate over the next year or so. It's roughly 75% of the backlog converts to sales in a 12-month period. But, you know, there's always a lot of move-ins and moves out of there, so that's not something that we really look at when we're looking at, you know, forecasting, but it's roughly 75%.

I appreciate the comment. Thank you. I'll talk it on.

Thank you. Hey, Bo, this is Todd. I think we maybe have time for one more today.

Understood, Mr. Leombruno. We'll take that final question today from Jeff Hammond of KeyBank. Hey, good morning, everyone.

Good morning, Jeff.

Maybe just last one on filtration group. A lot of good color there, Jenny. And I know you don't include revenue synergies, but as you look at the portfolio early on, just any clear opportunities, whether it be distribution complements, market complements, geographic, where there's some clear revenue synergies to think about. Thanks.

And Jeff, you're right. We don't model any revenue synergies, but we are definitely seeing areas of opportunity, areas where we can leverage Parker technologies to filtration group customers and then leverage filtration group technologies to Parker customers. So we are, you know, the integration team, although they're focused on obviously integrating the businesses and achieving the synergies, Our sales and marketing teams are working closely together to identify those opportunities, and we definitely believe that there are some there.

Yeah, Jeff, we also have real early days here, but we've found some capacity opportunities where we've been able to utilize the existing filtration capacity within our legacy businesses to help some of those filtration group businesses.

Yeah, that was discovered early on, like three weeks in, and a lot there.

Super happy to get it closed. Team's working hard, and we're going to do it again, just like we've done it on the last couple of deals.

Great, thanks.

Excellent. Okay, so that concludes our FY27 Q1 earnings release webcast. Thank you all for joining us today. As usual, our team of investor relations, Jeff Miller and Jen Stuckey, will be available for any follow-ups or clarifications if anyone has any. Thank you again, and have a wonderful day.

Thank you, Mr. Leombruno, and thank you, Ms. Parmentier. Again, ladies and gentlemen, that will conclude Parker Hannifin Corporation's earnings conference call. We'd like to thank you all so much for joining us today and wish you all a great remainder of your day. Goodbye.