派克漢尼汾 (PH) 2011 Q1 法說會逐字稿

Good day, Ladies and Gentlemen and welcome to the Q1, 2011 Parker Hannifin Corporation earnings conference call. My name is Michael and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. If at any time during the call you require assistance, please press star followed by zero and a coordinator will be happy to assist you. As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Ms. Pam Huggins, Vice President and Treasurer. You may proceed.

Thanks Michael. Good morning everyone. I'd like to welcome you to Parker Hannifin's first quarter fiscal year 2011 earnings release teleconference. Joining me today is Chairman, Chief Executive Officer and President, Don Washkewicz, and Executive Vice President and Chief Financial Officer Tim Pistell. For those of you who wish to do so, you may follow today's presentation with the PowerPoint slides that have been presented on Parker's website at www.phstock.com. For those of you not online, slides will remain posted on the Company's investor information website for one year after today's call.

At this time, reference slide number two in the slide deck, which is the Safe Harbor disclosure statement addressing forward-looking statements. If you haven't already done so, please take note of this statement in its entirety. Moving to slide number three, this slide is required, indicates that in cases where non-GAAP numbers have been used, they have been reconciled to the appropriate GAAP numbers and are posted on Parker's website. Again, www.phstock.com. To cover the agenda for today on slide number four, the call will be in four parts. First, Don Washkewicz, Chairman, Chief Executive Officer and President will provide highlights for the quarter. Second, I'll provide a review including key performance measures of the first quarter, concluding with the revised fiscal year 2011 guidance. The third part of the call will consist of the standard question-and-answer session, and for the fourth part of the call today, Don will close with some final comments. At this time, I'll turn it over to Don and ask that you refer to slide number five. It's titled first quarter fiscal year 2011 highlights.

Thanks Pam and welcome to everyone on the call. To start off with, what I thought I would do is take a couple minutes here and just highlight some of the significant records that we achieved this quarter, and as you've already seen, we've had an outstanding quarter for the company. Just running down some of the records of diluted earnings per share, at $1.51, the significance of that was that it was an all-time record, quarterly record, for the company, and that's -- when I say all-time record that goes back 92 years. So, pretty spectacular performance from an earnings per share level. Total segment margins of 15.5%, Industrial North American margins at 17.8%, and International margins on the Industrial side of 16.8%. These were all records, again going back in the 92 year history, of the company for any particular quarter. Additionally, our first quarter return on sales of 8.7% was a first quarter record. We just missed all-time record there. The highest quarter we've ever had in the history of the company was 8.9%. Just a couple tenths off. We're pretty excited about that kind of performance at this point in the cycle.

It's certainly evident, I think to everyone, that hard work that we've completed during the downturn and ongoing execution of the win strategy is certainly what's happening to drive these margins to these higher levels. And I might point out one other thing, and that is, in fact, that we're achieving these records despite being about 90% of the volume of levels that we were at, at our fiscal 2008, which was our all-time record high for earnings and in 2008, you may recall, we did about $12.1 billion in sales and that's without acquisitions. We had about $0.5 billion worth of acquisitions, which would bring to you about $12.6 billion. So, when we're comparing year-to-year, we're comparing 2008 year of $12.6 billion to where our guidance is going to guide you to somewhere above $11 billion. So, we're about 10% lower on overall sales and we're hitting these record levels at that, at that sales level, which I think is pretty spectacular for the Company. And it probably will be a little clearer now, as to why we, as we explained in the last quarter, at the beginning of our fiscal year, why we budget the way we do. We budget tight budgets, at the beginning of the year, because we don't want to assume that we're going to have a fantastic year and start spending like we're having a fantastic year before it actually develops. And just like we do with guidance, we have an opportunity every quarter to adjust budgets, if need be, just like we adjust guidance as the year goes on. So, hopefully, that's a little clearer now that we have gone through our first quarter so, you got a better feel for why we budget the way we do.

Just a couple of additional quarterly highlights. We had another strong quarter in order rates, with all segments showing positive comparisons, and a 29% increase in total orders for the company, which is extremely good, extremely strong. And this pretty much, this activity, pretty much supports our updated guidance that I've -- we've just given you. Sales were strong increasing 26% from prior year quarter, with pretty much all of that growth organic. Conditions across most of our markets continues to improve, and we will touch on some of those market segments a little bit later, give you a little more color on that. And pretty exciting numbers here, net income more than tripled from the prior year quarter. Again, a very, very outstanding performance on the bottom line.

We continue to generate top quartile cash flows relative to our peer group. In the first quarter, we took opportunity to use our strong cash position to make a $200 million discretionary contribution for our pension plan and, as a result, the reported cash flow to sales was 4.3% but, in fact, if you exclude that discretionary contribution, we generate 11.4% cash flow, which again, puts us in the top quartile of our peer group. When we look ahead to the full fiscal year 2011, we have increased our guidance for earnings from continuing operations to the range of $5.20 to $5.80 per diluted share. That's up now about $1.50 on nominal. Nominal from last quarter's guidance was $4.00 and we're going up to nominal here of $5.50. We're up about $1.50, per diluted share, and that represents 38% increase from the mid-point of our previous guidance, and a 62% increase year-over-year. As I mentioned before, this mid-point would put us very close to record level of earnings per share we achieved in fiscal 2008, and that level was about $5.53. So, this mid-point puts us right around $5.50, which is a few tenths away -- or few hundredths I should say, and that's despite of the fact that our guidance assumes just 90% of sales, as I indicated before, based on our sales levels of 2008. As I stated before, these are -- this is our guidance for this quarter. As we go forward, we're going to update this guidance, as we said after each quarter, and we'll be making adjustments as needed as we go forward. With that, I'm going to turn it back over to Pam.

Thanks, Don. Now, I will just take a few minutes to walk you through the slides. We'll start at slide number six, beginning with earnings per share for the quarter. Earnings per share for the first quarter, same as in the press release. I'm sure most of you read the press release this morning. We increased earnings per share $1.06 over the same quarter a year ago. Coming in at $1.51, and this represents 236% increase. On a sequential basis the earnings per share of $1.51, this compares to $1.35 last quarter. Realignment expenses in the quarter were $3 million, $2 million net of tax or $0.01, and this compares to $19 million, $12 million net of tax or $0.07 for the same quarter a year ago. Incremental marginal return on sales was 40% for the quarter and, just as a reminder, marginal return on sales is the difference in segment operating profit divided by the change in revenue for the quarter on a year-over-year basis.

Moving to slide number seven. Here, I'm going to layout components of the $1.06 increase in earnings per share from $0.45 last year to $1.51 this year and this is on a segment basis. The significant puts-and-takes are as follows, one, revenues increase 26.5% in the quarter, and this was largely driven by the Industrial segment as well as Climate Industrial Control. Revenues -- increases in revenues were seen in all segments of the business. As a result of higher revenue the benefits of realignment initiatives, and cost controls, operating income was significantly higher, and in all segments, other than Aerospace. This generated a positive impact to EPS of $1.07. Just a note on Aerospace, it was mentioned on the last quarterly call that Aerospace would incur higher research and development costs in the first quarter of this year, and that's exactly what happened. So, while the segment operating income was lower year-over-year, it was in-line with expectations as we laid out at the last call.

So back to the puts-and-takes of the earnings per share year-over-year, corporate general and administrative expenses increased. The impact was $0.03, however it should be noted, that the percent of sales was consistent at 1.2% year-over-year. Other expense increased, impacting EPS by $0.04. This is mainly due to higher pension costs that we talked about last quarter, as well as inventory adjustments. Taxes increased due to higher income. Tax rate was actually lower due to FIN 48 reserve releases in connection with completed audit.

Moving to slide number eight. Addressing sales, looking at the top line, revenues for the quarter increased 26.5% to $2.8 billion, from $2.2 billion last year. The impact of acquisitions, it was minimal in the quarter, and currency negatively impacted revenues by 1%. The resultant organic,or core increase, in revenues therefore was 27%.

Moving to slide number nine and focusing on segments, and I will commence with the North America Industrial segment, the recorded end base revenues in that segment increased 36% in the quarter. Again, this is versus the same quarter a year-ago. Acquisitions. They had no impact and currency had less than a percent impact on revenues this quarter. Operating income increased from $76 million to $189 million. This was 149% increase and this resulted in a marginal return on sales slightly greater than 40%. Operating margins increased 210 basis points sequentially, and 810 basis points above the same quarter last year. The operating margin in this segment is a record for the Corporation, as Don mentioned.

Moving to slide number ten, and continuing with the Industrial segment but moving to International, in this segment reported revenues increased 29% in the quarter. Currency was a deduction to revenues of 3% and acquisitions had no impact on revenues in the quarter. The net result was a base revenue increase of 32%. Incremental marginal return on sales was slightly above 50% and operating margins increased 320 basis points to 16.8% in the quarter from 13.6% last quarter. This compares to a 7.3% for the same quarter a year ago. Again, as Don mentioned, margins in the segment were records for the Corporation.

Moving to slide number 11, and addressing Aerospace. Aerospace reported revenues of an increase of 4.8% in the quarter. There was minimal impact from acquisitions and currencies, and therefore, base revenues increased 4.4%. Margins were down 270 basis points for the quarter, year-over-year, and again, this is due to the research and development that we talked about last quarter, and that I just talked about a little while ago. Just as a reminder, we said that the research and development costs this year would be more heavily weighted to the first quarter.

Moving to slide number 12, Climate Industrial Control segment, year-over-year total reported revenues increased 26% for the quarter. Acquisitions increased revenues by 1% and currency had minimal impact. So, the organic or base revenues increased 25%. Margins as a percent of sales for Climate and Industrial Controls were 9.2% for the quarter, versus 8.5% last quarter, and 5.6% for the same quarter a year ago. So Climate and Industrial Controls making some real improvement in their margins.

Moving to slide number 13. We're going to talk about orders on this slide. These numbers, just as a reminder, represent a trailing three month average and are reported as a percentage increase of absolute dollars year-over-year, excluding acquisitions and currencies, and that is with the exclusion of Aerospace. Aerospace is recorded using the 12 month rolling average. So, you can see from the slide orders are up 29% for the September quarter just ended, and this compares to 35% last quarter and a minus 25% a year ago. North American orders for the quarter just ended increased 31% year-over-year, and this compares to 46% last quarter and minus 27% a year ago. International orders, they increased 34% year-over-year and orders were up 46% last quarter, and down 25% a year ago. Aerospace orders. They're up 16% for the quarter, which compares to a negative 3% last quarter, and a negative 23% a year ago. And then finally, the Climate and Industrial Control segment, our orders are up 23% for the quarter, 35% last quarter, and a negative 17% a year ago. Now it should be noted, that the sequential decrease in order rate improvement representing orders calculated as a percentage increase on a three month rolling basis year-over-year, is due to tougher comps. In absolute dollars, orders have increased in the quarter.

So moving to the balance sheet, Parker's balance sheet remains solid. Cash on the balance sheet at quarter-end was $924 million, and of course, no commercial paper outstanding. Inventory increased by $123 million, however, $53 million of this was currency related. Accounts receivables in terms of DSO is 50, down four days from the same quarter a year ago, and of course Parker continues to make progress on the weighted average days payable outstanding.

So moving to slide number 15, addressing operating cash flow for the quarter. Cash flow was $123 million, Don already mentioned this, representing 4.3% of revenues. This $123 million in cash flow, however, is after making a discretionary contribution to the pension plan of $200 million. Cash flow without this contribution would have been $323 million, representing 11.4% of revenues. The major components of the users of the $323 million in cash flow for the quarter, again, the $200 million pension contribution that we talked about, $53 million, or 1.9% of revenues utilized in connection with capital expenditures, $54 million was returned to the shareholder through share repurchases of $10 million in dividend payments of $44 million. And then, of course, we did a dead issuance, issued some MTMs in the quarter of $295 million that we received proceeds from. Those proceeds, while it is sitting in cash on the balance sheet right now, will be used to pay Eurobonds that are coming due in November. So, cash increased $348 million in the period and $37 million of this increase, again, was due to the effect of the exchange rates on the cash in the quarter.

On slide 16, this is the debt-to-total cap ratio was at 30.4%, up just a little bit as I mentioned, because we issued some MTMs with cash sitting on the balance sheet. We will pay off those Eurobonds in November, but on a net basis, our debt-to-total cap is 19.9%.

So now moving to the guidance. The guidance is shown on slide 17 through 19. On slide 17, the guidance for revenues and operating margin by segment have been provided. And moving to slide 18, guidance has been provided for the items below segment operating income and slide 19 summarizes the guidance on an earnings per share basis. As you can see from this slide, the guidance per fiscal year 2011, for earnings per share is projected to be $5.20 to $5.80. Now please remember, that the forecast excludes any acquisitions that may be made in fiscal year 2011. The full year revised guidance assumes the following at the mid-point, increased revenue year-over-year of approximately 13%, segment operating margins as a percent of sales, approximately 15%, expenses below segment operating income, or as we call them, below the line items which include corporate administration, interest and other expenses, those are assumed to be approximately $411 million, but the guidance incorporates a range of plus or minus 2%. The full-year tax rate projection is 29% now, down from 30% last quarter. Just a couple of points with respect to the guidance. Sales first half, second half, are divided 49%, 51%. Earnings per share first half, second half, are divided 49%, 51%. There is higher pension expense, included in the guidance, which we talked about last quarter. And as most of you know, the second quarter EPS will be less than the first quarter, consistent with the normal cycle of our business. So at this time, we will now commence with the question-and-answer session. Michael?

(Operator Instructions)

Your first question comes from the line of Andy Casey of Wells Fargo Securities. You may proceed.

Good morning, everybody.

Good morning, Andy.

I am trying to understand how conservative this new outlook may be. It looks like you're forecasting revenue growth for the remainder of the year, 8% to 11%. Meaning for the remaining three quarters, and then operating margins of 14.3%. You just reported 27% revenue growth and kind of illustrated it's probably going to cascade down during the year. What sort of visibility do you have, number one, and then could you comment on the acquisition pipeline? Thanks.

Good morning, Andy. Tim Pistell. What we're, what we're telling you here today is that we have recalibrated, based upon the orders that have come through and the order book that is firmed up, what we're giving you is what we feel is a very realistic forecast. We don't consider it conservative nor do we consider it a reach.

So I would say that this is as realistic a forecast as we have. It is based upon all of our bottoms up, updates of the forecast, which we do on a rolling basis, and we ask people to go out through the end of the fiscal year. So this is what they've given us and this is what you have. So, I would say that we feel it is very realistic and it's based upon the most current roll-up that we have of all of the individual units.

Okay. Thanks, Tim. Could you update us on the acquisition pipeline, please?

Well, all I can tell you is that we, like everyone else, will not, don't talk about any specific until it's a done deal. But, as we said recently at the IR date, that all of groups have been authorized to once again go out and rekindle relationships and their interest in pursuing the strategic -- strategic ones we want to go after and I know that they are doing that. They are beginning to bring things in for our evaluation. But, realistically when you turn the pipeline back on, it will take three or four months, probably, to see anything come out the other end of the pipeline. But they are all working and I'm quite certain before the end of the fiscal year, you'll see some transactions consummated.

Okay. Then lastly, just going back to the first question. The margin in the first quarter was -- congratulations on the very high margin. If you look forward to the rest of the year, was there anything unique in the first quarter that would not continue into the rest of the year?

Well, I think nothing unique. It just -- this is the real -- what happens under the cycles. As we say, in the early days of a downturn or an upturn, you should see higher percentage marginal returns, both on the downside and the upside. So, and then they will fade over time. We will start at 50%, then maybe 40%, then 30%. We did have in these -- the quarter, we did have a certain amount of inventory build that was occurring, of course, to get up to these levels. And as you pointed out, or as everyone has picked up on, again, we also had this favorable tax rate thing that occurred this year.

We had one go against us first quarter last year and we had one go in favor of us this year. But mostly, I'd say it's a fact that we were gearing up again and we will see this fade over time. We'll try to drop all we can through the bottom. I think Don did an excellent job earlier explaining to you why we do budget forecasts and staff conservatively, and that usually produces good results for us.

Thank you very much.

Your next question comes from the line of Joel Tiss of Buckingham Research Group. You may proceed

Wow, I'm used to having to wait til the end. Can you talk a little bit about CIC? There was a nice improvement there. And can you talk also about how you got the margin improvement and more about what the customers are saying and what you're seeing in some of the near term trends?

Yes, Joe, this is Pam Huggins speaking. You know, in Climate Industrial Controls, we started with restructuring efforts long and Climate Industrial Controls before we started them with North America and International. Really, that's what you're seeing in terms of the margin. Those restructuring efforts are really starting to come through.

In the HVAC, this isn't anything that you guys wouldn't expect, but obviously, that is cooling and Climate Industrial Controls has a seasonality to their business. And we're -- we just went through the hot season, so the summer was really good. A lot of replacement parts out there because of the hot summer. And so, now obviously, now that's cooling down.

The second quarter is CIC's worst quarter and it's obviously the worst quarter for the entire corporation, but a little more so for the Climate Industrial Controls because this is where people aren't doing anything with air conditioning. I would say that on the automotive side, Climate Industrial Controls is still holding up rather well. Obviously, the cash for clunkers is gone, so, we don't have that benefit that we had before, but still holding up very well. And like I say, it's expected that next quarter, again, it will pick up because they will be starting the new season. So, I think Climate Industrial Controls, you're just really seeing the benefits of all the restructuring that they've done over the last three years.

Okay, great. And then just quick, can you talk a little bit about the kind of cost pressures you're seeing, and more than that, the customers ability to accept the price increases or willingness to go along with higher prices? Thank you.

Yes, Joel, this is Don. Pretty much a continuation of what we saw, or what we explained in the first quarter is continuing on. We're seeing basically costs increases across the full range of commodities, if you want to use that word, of copper, rubber, steel, nickel and all those products, are continuing to increase over the last five to six months. We don't see that subsiding any time soon. What we are planning is, of course, as you understand our methodology is that we monitor these very closely.

We do it at the division level, which is the profit and loss centers of our corporations, 135 of them, and we basically measure what we call purchase price index. And we want to make sure that we offset anything coming through in the way of cost increases on the pricing side, so what we call our sales price index is greater than one. We're running a little bit greater than that now. A little bit greater than one. But if we don't take some actions here soon, then we're going to drop below one and that'll start affecting our margins. We've been extremely good at controlling this whole sequence of events as far as passing through costs over the last, I would say, five years since we started these wind strategy initiatives.

So, we're having an increase in October in Europe and also one in January in North America, is what's planned right now. So I think, again, we're trying to stay on top of it, stay ahead of it if we can. And, at this point in time, like I said, that SPI sales price index is greater than one which indicates that we're recovering and we intend to keep it there.

Thank you.

Thank you.

Your next question comes from the line of Nigel Coe of Deutsche Bank. You may proceed.

Good morning, Nigel. Nigel?

Your next question comes from the line of Jeff Hammond of KeyBanc Capital Markets. You may proceed.

Hi, good morning.

Good morning, Jeff.

I guess it seems like kind of across the board you raised expectation, with the exception of Aero, but maybe, can you speak to what one or two end markets or geography or a business group that was a much bigger outlier on the upside, in terms of your guidance revision and your beat?

Sure.

Well, I would say pretty much everything is across the board, Jeff, as far as the improvement. I'll run you through some of the regions, just to give you kind of a little color on that. First of all, all the order improvements really are stronger across all regions around the world and, as you know, half of our industrial business lies outside of North America, half is here. So the rest of the world is extremely important for us.

If you look regionally, and we like to compare this to 2008 because that's what we've been doing and I think it's a good reference point to use, as far as our order trends. North America, I'm going to run threw the world here, the major region, North America, of course, continues to show signs of recovery. We're at about 104% of where we were in 2008 and last quarter, I think we were at about 95%, is what we reported to you. So you can see the strength of North America is approaching those 2008 levels which we're pretty excited about -- or actually exceeding those 2008 levels which is pretty exciting.

We look at Europe. Europe's recovering at a slower pace, albeit, in a positive direction. We're at about 92% order trends in Europe, compared to where we were in last quarter. Last quarter we were at about 80% of 2008 levels. We're at 92% now. So that's moving in a positive direction, again, a little slower than North America, but pretty typical of what we'd seen in recessions prior to the 2001 recession, if you will. Typically, Europe would lag, North America would go in first, Europe would go in after us and come back out six months, roughly, later. So, this is not too unusual a pattern, if you think back to some of the prior recessions.

Latin America continues to be very strong. We're at about 129% of our 2008 levels. That economy is doing very well and, I think, the number last quarter was around 105%. So you can see the continual improvement in Latin America. I would expect that to level off, and actually looking at the 3-12 index, it looks like it is going to be leveling off which would be expected at these high levels.

Asia is another strong region for us. We're running at about 105%. That was running, if you recall last quarter, about 100%, so we're up there a little bit as well. These numbers when we're at 100%, that's a pretty high level already. So creeping up beyond that is the really that region continues to do very, very well and very strong.

So total, Parker right now, is running on an order trend basis about 102% of where we were in 2008, and that was the year, again, that we posted $12.1 billion plus we acquired about $0.5 billion worth of businesses. And last quarter that was 92%. So, you can see the direction we're headed from a regional standpoint. Just a couple other things that we monitor here, and I'm sure many of you probably do as well, is the ISM indices, and we've got this for pretty much every country around the world.

As you know, or should know, that North America is running about 54%, just slightly down from last month, which is not a problem as we can see it. Euro zone is running at about 54%, just slightly down from last month. Actually China, the PMI actually increased. Purchasing Managers Indices actually increased from September. So, that's going actually up a little bit. Then if you go through Europe, pretty much all the countries -- all the major countries throughout Europe are showing continued strength and all the indices throughout pretty much the entire region is running above 50%. That includes Germany and UK, Switzerland, France and so forth. All those countries.

On the order trends, positive order trends just to kind of run through this, Industrial North America, we see on a 12-12 basis. Looking at 12-12 trends for the last 12 months compared to the prior 12 months, they're increasing. Actually, as I go down through the list, Europe is increasing, Asia on a 12-12 basis is increasing. Latin America is flattening, which we said that was at a high level, so that doesn't surprise us. Distribution, actually, for us is actually a real strong point right now. Both the 3-12 and the 12-12. That would be the last 3 over the prior year 3 and the 12-12 are both increasing. That's a very good sign for us as well. Heavy duty truck is increasing on a 12-12 basis. Refrigeration on a 12-12. Semiconductors is flattening, but at a high level. Processes increasing on a 3-12 and a 12-12 comparison. Aerospace is increasing on a 3-12 and slightly improving on a 12-12 basis, and Ag is increasing on a 12-12. So, you can see that pretty much when we look at the whole world, the whole world is doing pretty well right now compared to last year.

Looking at some specific markets, I would say just about everything I'm looking at is positive, there's a few exceptions. I'm just going to run down through some of the positives very quickly for you. This is the on a sequential market trend basis, okay, a sequentially from month-to-month what's happening. Commercial Aerospace being positive on the OEM side. Military Aerospace, OEM, and aftermarket being positive. Obviously, cars and light trucks are positive, construction equipment, oil and gas, industrial refrigeration are all positive. Semiconductor is positive. Marine, general, industrial and distribution. So, I mean, that's a long list of real positive, sequential market trend data, for all of those market segments. And on the negative side is, really, residential air conditioning. That's tied in with the new home build, pretty much, so that's still a negative. And a little bit negative on the Power Gen side. So, those would be some of the kind of specific markets and what's happening. But as you can see, the list is much longer on the positive than would be on the negative.

Great, thanks for the detail, Don.

Sure.

Your next question comes from the line of Nigel Coe of Deutsche bank. You may proceed.

Thanks, good morning.

Good morning, Nigel.

Good to actually make it this time. Don, I just caught the end of your end-market commentary and, I think, last quarter you called out semiconductor as an area that was showing some signs of weakness. Doesn't sound like it is now. Has there been a change in that vertical for you this quarter?

No, what we're looking at, actually, Nigel, it's pretty consistent. What we're seeing is the 3-12, which would be the most recent three months compared to last year. We see that actually going down a little bit. But that's, what that's doing then is impacting the 12-12 order pressure on a -- making that flat. So actually, it's leveling out pretty much, the semiconductor. We don't see it going up any more at this point. It's gone up quite a bit already. But we don't see it crashing any time soon, either. So it's kind of flattening out the way we see it right now.

Okay, thanks. Then Pam, I think you mentioned you expect TQ earnings to be weaker than the -- well, lower than 1Q earnings, in line with normal seasonality, but then, I think, you called out last quarter that you expect European market to start weakening in the second half to '11 which would cause a flatter profile. Will you still expect 1Q to be the second weakest quarter, and then 3Q and 4Q to be stronger than 1Q?

Yes, I think, -- the second quarter, it's not really seasonality. It's more the natural cycle of our business because of the holidays and that type of thing that takes place in that second quarter. So, we really lose absorption in the plants that really causes the second quarter to be our worst quarter. I think in what we would call a normal time, second quarter will be less than first quarter. I think the way we have it projected right now, if you take out a couple of the unusual items in the first quarter, the third and fourth quarter are pretty much in line with the first quarter.

Okay, then just one more from me. Just want to dig into the margin strength this quarter which was quite phenomenal. If we look at the 4Q performance, this is 1Q, 4Q '10, this is 1Q '11, I think we saw a $43 million pickup in sales, yet a $50 million in segment income. I just want to understand, was 4Q depressed by certain factors or did 1Q benefit from certain items?

Nigel, Tim Pistell. I think the -- we touched on some of the this earlier. There really wasn't anything extraordinary working against us in the last previous quarter. I think, this quarter definitely did benefit from the resurgence in the order and production, and there was a certain amount of inventory building that occurred as well, too. So, but nothing really extraordinary that stood out.

What about restructuring? Was there restructuring in 4Q, was there much in 1Q?

Well actually, -- there was some restructuring we hope to get done in this Q, first Q, which is going to roll over now, looks like now into the second Q. So there, yes, this Q would have been a little bit, probably a little bit lower, and we would be giving you a little better second Q if that had occurred. But that's not huge, but that occurred as well.

There's really not much difference, Nigel.

All right, well that's good leverage.

Now, we had less restructuring in the first quarter than what we thought that we would have versus the guidance, but fourth quarter, the first quarter, there really wasn't that much a difference.

Got it. Thanks, guys.

Your next question comes from the line of David Raso of ISI Group.

Hi, good morning. Looking at the margin guidance. I'm just trying to make sure I understand the sales guidance is roughly 27% growth, slows to 15% growth in the second quarter, back half sales growth down to 7%. But your incremental margins, you're implying the rest of your incrementals are 44% better than the 40% we just posted?

So, I'm just trying to understand the key components that are making you feel that, despite a slower sales growth, your incrementals will be, if anything, a little better than what you just posted? Is there something I'm missing about mix, maybe pensions not as much a head wind as I thought? Currency, I assume, is a little more positive in your view, as a help versus say your thoughts three months ago? Can you take us through some key elements and try to quantify some of them? There's obviously an incremental of 44% the rest of the year is pretty strong guidance.

Yes, I think David, if you just really break down the components of that, what you're going to see is that 44% is really being led by Aerospace. Aerospace has a huge marginal return on sales in the second half. As you recall, we had said that they were going trend better throughout the year because the research and development would be less.

Is that business large enough? Not to crunch numbers here, is that business large enough to allow the normal shrinking --

They have a real high marginal return on sales. Not -- it's not just the largeness of the business, but it is the amount of the incremental that is driving it to some degree.

Sure, but that is all add up with the waiting. So is there something on price versus cost -- essentially, in the channel it doesn't seem like you have raised price yet. Is this implying what some of your cost comments earlier we should expect to hear a January price increase? Is distribution businesses a better mix? Can you quantify currency? I'm just trying to get more basis for why the incremental is better in the next --

We do have more currency. Currency throughout the four quarters as well, it does increase. In the first quarter it was a deduction of about $25 million and then as you work through the year, it trends upwards with -- it's close to $100 million in the fourth quarter. So, definitely, the second half is much higher than the first half. But there's only about a total of 1% of fact, but most of that is in the second half.

David just a comment on pricing. I've read some of the analysts' reports that in the past, that have said that how come the competition is raising pricing and Parker's sleeping at the controls. The real answer to that is that, in fact, we are first and they are about three to six months later. So, when you see that their increases just assume that we -- we're more realtime than anybody in our industry because of what we've down now with the win strategy and these initiatives, the strategic purchasing and a strategic pricing. There's nobody in this industry that is more realtime to understand the impact on their business, in my opinion, than Parker. So, when you see that we raised prices, figure that the competition will probably be about six months later.

And if I could just wrap this up, on this point here, because I think there is nothing, David to your point, there is not a whole bunch of other things that are driving any of that. Pam answered it up front, actually. The biggest swing factor is in Aerospace. Frankly this quarter, they had a negative MROS.

The reason they had a negative ROS, is the NRE, and we were expecting some reimbursements of NRE in this quarter. They were not received so they couldn't be booked. We're expecting those to be received in the second quarter and that will improve their portions quite a bit. So we are looking for some NRE reimbursements and we're also looking just to -- generally, to improve the margins in Aerospace. Again, if you walk through the numbers, it is a fairly significant turn-around for Aerospace over the second half versus the first half and, I think, that's really the primary cause. There isn't anything else kind of hidden there.

Plus there's some higher sales, quite frankly,. You get the benefit of the higher sales.

Last quick one then, on dividend policy, your yields fallen below 1.5%. I know this is a spot in the cycle where your MNA historically picks up and, I would think most deals you do nowadays are pretty accretive given the low returns on your cash, but can you give us an update on your dividend policy?

David, again Tim. We look at that every quarter. We measure it against our peers. We look at our yield versus our peers and we also look at the dividend payout ratio. You know we have a stated goal of 25% payout ratio over a moving five year average. We were way below that for the downturn. We were significantly above it, but nonetheless, we plowed through the recession increasing dividends all the while as we have done for over 50 years. So we are looking at that. Obviously, if Parker is turning the corner here and going to throw out some real strong results, we'll be keeping an eye on that, but as I say, we look at both the payout ratio, where we fit and, frankly, within the 19 peer companies we're almost dead center in the pack on terms of our yield.

Okay. Thank you very much.

Thank you, David.

Your next question comes from the line of Bob Cornell of Barclays Capital.

Thanks everybody. You mentioned that the orders were a effectively up in terms of dollars, even though the rates of gain came down, what about the trend within the three months? Would you see the orders accelerating or decelerating within the quarter on the dollar basis?

Yes, they are actually accelerating, Bob. Just to give you a feel for that, it's accelerating -- there's some markets that, it's a mixed bag, quite frankly, overall it's accelerating. One of the areas that's accelerating more is Aerospace. Distribution is, Industrial, we've gone through some of these markets talking about them. But yes, absolutely sequentially there is an increase in Aerospace definitely, is trending upwards.

You give us a lot of detail on the verticals and, that kind of thing, but if you were to look back up into the macro would you characterize the strength in terms of capital utilization issue, MRO, from the OEM build rates, maybe restocking? Could you characterize the strength you're seeing in any of those buckets particularly?

Well, I can tell that you that I think distribution is coming on strong for us and the industrial side of the business are two factors that are playing the part in this, and as you know, distribution obviously has higher margins for us.

All right. I guess, you mentioned the inventory build a couple times as a factor in the quarter and contributor to the higher margin. Are you expecting that inventory to dissipate in the current quarter or what are you seeing in terms of the inventory, outlook going forward?

The outlook, I think there'll be a -- it might be a little build in the quarter, but not much this quarter, and then definitely the guys are looking to take some dollars out in the second half. I tell you the truth, I don't think that is going to probably happen, dollar wise. I think that the, if the orders continue to peak there will be a question of containing where we are and driving the day sales inventory down that way.

I guess final question from me is, when we're all in Geneva you talked about taking the growth rate up from ten to 12, the organic growth five to seven, part of that being innovation and some other things. Can we trace part of the strength, in this quarter, to some of those longer term programs, innovation, some of the solutions business, retail stores or anything like that?

It is all in there Bob. This is Don. I think, as we've mentioned before, the stores are all contributing. We're adding one a day somewhere in the world. Innovation is generating about 2.4% of sales now coming through that innovation pipeline on an annual basis. We're trying to get that up to 4% So, that's all additive and it's all in the numbers. So it's really a combination of a lot of different factors including, basically a strong tail wind now from pretty much all regions around the world.

Bob, we need to move on to get to the next person.

Absolutely go ahead.

Thank you, thank you.

Your next question comes from the line of Ann Duignan of JPMorgan. You may proceed.

Hi, guys. It's Ann Duignan.

Good morning, Ann.

How are you? My question is a little more fundamental. Don, just taking a step back and what you talked about earlier about your forecasting process, I mean, you said that you build up your outlook and your forecast from the bottoms up, and yet, we see within the space of 12 weeks a significant change in your forecast. Do you ever sit down, as an organization, and say there's something broken with your forecast process? I mean, in a way I guess, the question is, how could you be so wrong in terms of your outlook in the space of one quarter?

Well, I think, I wouldn't say that we were wrong. I think, like we said back in the first quarter, is that we use a budgeting process that is very much controlled. And as a result of that, we have just started the upturn in this business cycle, and we'd like to see some evidence of continued growth, which now we're seeing and we're reflecting that in our guidance. I think, when you ask a company to look out a year in advance, coming out or going into a recession, that's asking a lot.

So, we give it our best shot and the best place to get that information is down in the organization at the division level. They're the ones closest to the customer and they're the ones that give us the information that we roll back up. So I wouldn't be overly critical. I think that we're excited about these results and the fact that we're able to exceed what we came out with originally, which was a pretty nice increase from the prior year, as you might recall. So we're pretty excited about this. I think at this stage in the cycle, we're happy with where we are and I think the forecasting process is working exactly the way we want it to.

Yes, I guess. I just look at somebody else who reported this morning, ITW, where they came in exactly in line with their expectations and with 800 businesses we might expect them to have more forecast variability. But, also what we're trying to get at here is looking at the three month and the 12 month moving averages that you just described. It does seem like now it's the end of Q2, end of Q1, looking towards the rest of the year, there's more upside than downside to your revenue outlook?

Ann, this is sort of reflective of the elections here. Get back to the real issues. The real issues are how Parkers is performing. How are we growing and what are we delivering on the incrementals and what are our metrics, as they say? When we start horribly missing forecasts then I think we have a forecast problem here. When we tell you we forecast conservatively, on purpose, and then we try to beat it and so forth.

Now I'll tell you, the balance of the forecast for the year is not a conservative one. I think we have explained that earlier on too. We -- it was pretty much all in there. It's like the spaghetti sauce, what is it, Prego? It's all in there. So, we'll see. But that's it. I think the important thing we should all focus on is what the numbers the company is producing.

Okay, Michael, can we move to the next question please?

Your next question comes from the line of Alex Blanton of Ingalls & Snyder. You may proceed.

Good morning everyone. Could you just clarify for me, you mentioned total, I think, it was orders, 102% of 2008? Was it orders? Because, earlier you had said sales were 90% of 2008.

Total Parker orders, I think, what we're saying is through September, total orders for total Parker was about 102%, whereas last quarter we're saying they were running about 92% of 2008 levels.

Right. So that's orders, whereas, sales you're expecting about 90%, of 2008?

No, we're expecting about 102%.

No. Sales.

Oh, sales. Okay, I'm sorry.

Yes, Alex this is Tim. The bottom line is we're building back log. We are booking ahead of what we're shipping. It will take some time to come through. But, as you know, especially in Aerospace.

That's the point I was trying to make. Secondly, you mentioned a discretionary payment of $200 million to the pension fund, you're using up some of that cash, do you have record cash now, $938 million? And also, why did you make a discretionary payment of $200 million?

I'm glad you asked that question, Alex, actually. Again, -- that's why we look at the net debt, the total capital. Right now we have extra cash because we went ahead and grabbed some extremely favorable interest rates to prefund the pay down of the Eurobonds that are going to be paid down the beginning of November and so forth. So that's why there's extra cash sitting there.

At this point in time it will be part of that big chunk that'll be gone soon enough. But I'm glad you brought that up because we did this before. You probably recollect coming out of last one. Our most important asset out here at Parker Hannifin's is our people. Absolutely. And, they're not on the balance sheet but they are absolutely our most important asset.

We certainly have the capacity to take care of this, take care of our people, help fund their plans better and, of course, there's some knock on good accounting impacts that goes along with that too, in terms of voiding unfavorable FAS 87 adjustments. But it's the right thing to do. We like to take care of our people first. So that's why we did it.

Okay, fine. And,finally, could you tell us what the -- you know those charts that you usually put up, we didn't have them in the quarterly slide presentation, which is CapEx-to-sales which has been dropping for seven or eight years, and inventory-to-sales, and working capital-to-sales. I understand the inventory had to jump up because of your sales increase, but what's it going to look like at year end? Those trends continuing? What is CapEx and sales going to be and so on?

We're already seeing the CapEx spending increasing and it's hard to say where it is going to be at year end. I'm guessing around 2% of sales. It's definitely dropped off and it is now coming through.

Well, that's pretty good. I mean compared with 5% a few years ago.

Amen. We are -- this is having to adopt lean enterprises is a very, very different company than it was before. So, I think we will, as they say, even in our boldest days here, we weren't much above 3%, 3.5% not the 5%, 6% Alex, that you used to see.

Yes, so you got plenty of capacity.

Yes.

Even though sales are strong.

And Alex, on the inventory, our goal on inventory is still $0.10 per dollar sales, is really our target. We're in the $0.11 range, slightly around $0.11. We still expect to get down to $0.10. So even though we're going through a growth period, yes, we're going to have to build some dollars but on a percent to sales. By the end of the year we had expect to gain something on that percent to sales number. So we haven't given up on that, either. You know, the trend is still going to be going in the right direction on inventory.

Okay, great. Thanks.

Thank you, Alex.

Your next question comes from the line of Stephen Volkmann of Jefferies& Company. You may proceed.

Hi, good morning.

Good morning.

I think most of it has been asked, but what do we think CIC can get to margin wise now?

Well, I think, this is Don, Steve. I think that as you can see, we were up from 5%, now we're heading above 9%, I believe for the quarter it was nine point something. We certainly think that this is double digit business. They can get above 10% longer term. And I think we would use the same kind of incrementals that we've been talking about all along, probably in the 20% to 30% range for that business.

Again, a lot's going to depend on just when the housing cycle starts up again. I think that'll be critical. We're already seeing the pickup on the automotive side. And does this business need to get to 15% for us to be happy around here? I think the answer is no. The reason the right answer is no is the capital intensity of this business is much different than the rest of our Industrial and our Aerospace businesses. So, when we look at trying to get to what our target is as far as return on net assets, we can get to a return on net assets level of target for the company at double digit number, at 10%.

Typically, because the acid intensity is that much lower. We don't always -- we like to compare everything on return on net assets more than return on sales, although, most of the questions I get are on return on sales and not on return on net assets, but that's the more important metric.

Great, that's helpful. And Don, I'm just intrigued by your comments. 102% on the order book of 2008. I think when most of us look around the world, we think of 2008 as a much, much stronger economic period than what we're seeing right now for most of what you guys touch and yet you're there already. I think there is a little bit of struggling with how can it be that good a, and b, does that mean that's all there is? What are your thoughts with respect to that?

Well, what we're projecting here is in this forecast is steady as you go. In other words, we're not forecasting in a great blue sky forecast going forward, nor are we expecting any tragedy to happen going forward either. This is pretty much business continuing at the levels that we're continuing at right now and Parker delivering, like we said that we would deliver. All through this recessionary period we talked about the incrementals that we are going to be targeting, and so forth, and I think what you're seeing now is we're delivering on those, but not because we didn't put a lot hard work and effort in this downturn.

We closed 100 facilities and it cost us between $100 million and $200 million total. We spent a lot of time and effort and money to get to this position. So we're really benefiting from a lot of that right now. I think going forward, yes, I'm happy to be at 102%. I agree with you, Steve, that 2008 was probably a little overheated When you look at what's happening now, we're still in a housing crunch so that segment hasn't come back yet. Maybe it will in the next couple years. That would be a positive.

I think as long as nothing bad happens in November, and the jury is still out on November, we 'll have to see what happens there, I think that we're going to continue strong from here on out. By the way, this is the first year in the last two years, that -- or last three years that we have had 12 -- that we're forecasting 12 reasonable months. In other words, 2009 we had six strong months and then six weak months.

In 2010, we started off with six weak months, as far as activity, and we ended up with six strong months. This year we're starting off right. If we finish with reasonable months, I think we're going to achieve this, achieve this forecast, and hopefully, with the possibility that, as we see in the guidance, there's a possibility of even having some upside.

Okay, great. I guess, let me just try one more time because when we look around the world we see housing and commercial construction, construction equipment, heavy truck industrial production, all this stuff is down meaningfully from 2008 levels, and yet you guys are at 2008 for your order books. So either, I guess, you're gaining a lot of market share or we're seeing a lot of inventory build through the channel. And, I guess, that's what I'm struggling with.

Well, I think, that there's some inventory build that's directly related to the level of activity that's going on out there, which is a natural outcome. So, I don't see anything extraordinary. I think, as we said before, OEMs aren't overloading anything. They live in a just in time philosophy right now.

The distribution isn't going to be at this stage of the cycle over ordering anything, as well, to put into stock. I don't see that. I don't think we're seeing that anywhere in the world. I think that -- we're pretty happy where we're at right now. We think that this is a, this will continue forward.

Great, okay. Thanks.

Thanks, Steve.

Your next question comes from the line of Eli Lustgarten of Longbow. You may proceed.

Good morning. Congratulations on the quarter.

Thanks Eli.

Just a couple follow-up questions. Your guidance of $5.20 to $5.80, is that the only way you can get the lower half of that guidance for some unexpected flow-up? Is that a fair statement? Based on what you're saying, it is hard to get to the that lower end unless there's some real flow-up in activity later on this year that you're not expecting. Is that a fair statement?

Eli, Tim. Yes, I would say it is a fair statement. These are -- let me just say, these are predicated upon the outcome of the elections going as they appear to be going right now. That's part of what -- I guess there's a little more positive built into this. But we -- it is predicated on that. I think if the outcome is maybe not as favorable for business as it could be, then yes indeed, we could be at the the lower end.

That's okay. And as far as I understand the margin guidance, but the fall off from first quarter to second quarter, can you give us some help? We're talking $1.51, $1.45 extra tax benefit or so. You're talking numbers getting down to the low $1.20s to be consistent with your guidance. Are we talking about 150, 200 basis point fall off in the Industrial margins in North America and the rest of the world in this quarter and what would get us to that kind of number?

Yes. You're really seeing a falloff in both. North America and International, but there's a couple unusual items. You mentioned one was the tax. There was also a gain. We had about a $16 million gain on some currency. We needed to purchase some currency and so, we put in place a contract to protect us on that, and we had a gain and that could change. That could reverse itself in the next quarter as well. So there is some of that in there, as well, Eli.

Where is the $16 million reported?

It's in segment operating income. Eli, I don't mean to be rude here, but we need to keep going.

Okay, thank you.

Your next question comes from the line of Jamie Cook of Credit Suisse. You may proceed.

Hi, congratulations. Two quick questions. One, I'm struggling on the, or just a little color on the Aerospace guidance, because your sales forecast is up but you lowered the bottom -- the top end of the margin guidance. Then last, are we, unless I missed this, are we still assuming $50 million, sorry, in realignment costs for 2011, because that is another head wind we'll have in the remaining nine months given the low realignment costs in Q1 when we think about incremental margins on lower sales growth?

Well, Jamie, this is Tim. Yes, as we said, we're expecting a pretty significant improvement in Aerospace in Q2 over Q1 because, again, we were expecting reimbursements to come through and NRE that didn't then and should now. And so, that'll be a nice pop for them.

Then we also expect there will be some other dynamics that will change for us in Q3 and Q4. So, you can see that we are looking at, frankly, at achieving, we're going to have to achieve about 15% margins towards the end of the year in Aerospace to deliver what we have told you on the guidance for the year. So that is built in, but we do have pretty good visibility there. Sometimes we get some prizes, like on this reimbursement on the NRE, but otherwise that should be fairly predictable.

Basically the reimbursement we didn't get in Q1 like we thought.

That's a big boost from Q2 and other things improved as well on a go forward basis.

Then, on the realignment cost, is it still $50 million because that's an incremental head wind we have in the remaining nine months to get to those 40 some percent plus incrementals?

Jamie we think we're pretty much down to what we would call normal realignment cost. I think if you go back, probably before the recession, when we were talking about realignment costs we said that a typical year for Parker Hannifin would be in a $0.10 to $0.12 range. We think that we're pretty much down to that $0.10 to $0.12 range now. We think that's what you need to do on an annual basis if you're just running your business appropriately.

Did that change versus your guidance last quarter to be correct?

Yes, it is down.

It is down? So that's helping you. Okay, thank you.

Your next question is from the line of Henry Kirn of UBS. You may proceed.

Good morning, guys and congratulations.

Thank you.

Wondering? You went through the end markets globally, but wonder if you could pick out a couple end markets that are most driving the growth in Industrial North America? And then, maybe, just categorize how confident your customers are in the economic outlook?

Again, the improvements are across the board. There's just, it's hard to pick one out better than the other, but now Don, you were just at a meeting with a bunch of CEO's and peers and so forth, I guess, what is the sense you came from there?

Yes, I attended a -- this is Don. I attended a meeting recently and it was not too much different than what we're presenting here. I think the general consensus was positive as far as the outlook.

Going forward as far as most of the markets we had an economist talk, or speak, and there was no double dip. I think you can remember last quarter, there was a lot of discussion about double dips okay, and nobody was being to critical of us back then at the (inaudible) level because there was this double dip overhang. But I think, right now, every indication, at least all the experts that I've heard from, that there will not be a double dip, or they're not planning to see a double dip. So when you talk about specific segments, I would say that most everything I mentioned earlier still holds.

I would say if there's one area which represents half of our business that is running stronger than the other segments, it would be the distribution part, which is good news because that tends to be a little higher margin business for us compared to OEM business. So, I think, that would be the one segment that I would point to. If you said, well what specific one-end market segment? It would be in this aftermarket part of our business.

Thanks a lot.

Thank you, Henry. We will take one more question at this time. Then we will begin with a question-and-answer session.

Your next question comes from the line of Terry Darling of Goldman Sachs.

Sorry. One more. We don't want to do this again. One more, thank you.

Okay, thanks. I'll be quick here. I guess everyone is still trying to get at the delta in your Industrial North America and International revenue guidance, which end markets are the key drivers? Don, you said distribution there, that's helpful. Do you think it is fair to say that Ag, construction equipment, truck, auto, those mobile markets would be more than the fair share of that delta in the revenue guidance for just the Industrial businesses?

Well, let me just give you some details. This is what you guys are really trying to get at, so let me tell you. If you look at North America and you look at the distribution in the Industrial and the mobile, they are all up greater than 30%. If you look at it sequentially, again, you have mobile that's up. You have distribution that's up, Industrial is up. So, I think, that's why we're struggling here a little bit to answer your questions because when you really look across it and, I have it detailed by market right in front of me, whether you look year-over-year or sequentially, they are all showing improvements. The only place in North America where you're not showing improvements would be in Power Gen, and Power Gen for us is very lumpy.

Like Don said in North America, semiconductor is starting to flatten sequentially, okay? Telecom is flattening sequentially. Lawn and turf, but that's a very, very portion of our business and then Heavyduty is flattening sequentially.

Okay that is helpful.

Okay.

All this is very much in line with ISM. ISM is running at 54 in most of the regions around the world and many of the countries. That would be indicative of the kind of numbers were giving you.

And then Don, trying to come back to this space between the guidance and what you really think is going to happen and directly, or specifically on the implied sequential revenue pattern sort of absolute dollars for just the Industrial businesses. You had made an earlier comment that you would expect them to be kind of steady state here, so I've got kind of flatish dollars moving forward.

If you think about at least the consensus macro economic forecast, people are looking for things to continue to build, albeit at a slower rate. What -- why would your end markets not continue to build aside from the seasonality in the December quarter, why would you not expect to see some building in the global markets given that outlook?

I'm not sure I understand what you're saying about what I said. I didn't want to imply that things weren't going to continue to grow. As a matter of fact, what we're looking at is a 49%, 51% split on sales from first half to second half and pretty much a comparable earnings per share from first half to second half. I don't want to leave this meeting thinking that things are flat now or going down.

They are absolutely growing. Until we see the ISM dropping well below 50, I wouldn't get cautious at all and that's still in a very positive territory. So, yes, absolutely. I'm sorry, I left you that impression because that was not my intention. I wanted to -- basically what I wanted to say is that it would be steady state, more of the same of what we're seeing now, without any double dip on the downside or anything spectacular happening on the upside, that's kind of what we see. If things continue at the rate they're continuing right now, we think we can comfortably meet that guidance of $5.50, plus or minus.

And just, lastly. Did the incremental pension funding take down the pension expense for the fiscal '11 forecast?

It did.

How much was that?

It did because we originally planned for $150 million. We thought we would make a discretionary contribution of $150 million and we made $200 million. So our pension really is coming down, the expense is about $10 million.

$10 million. Thank you very much.

Thank you. Okay. At this time, we will not have another Q & A session. We will turn it over to Don who has a few closing comments.

I just want to start by thanking everyone for joining us this morning and we're, obviously, you can tell we're pretty excited about what we've been able to accomplish. We really like the performance including, obviously, the numerous records we achieved in the first quarter. We performed at much higher levels in this cycle than at any time in the history.

I think I want to reinforce that point and we've delivered results that really do place us among the top performers in the diversified industrial peer group. I think you have to agree with that as well. With our level of cash flow, as I've indicated, that's running about 11.4%. We're certainly in a very strong position to capitalize on growth opportunities ahead of us, whether that's investing internal growth, or acquisition growth. And, as Tim mentioned earlier, we're looking at a number of different acquisition candidates.

Of course, there's a time lag between when you start looking when things happen. So, -- but we have the cash to make it happen and that's a very enviable position to be in. As we grow, our employees are going to continue to execute on our fundamentals through the deployment of the win strategy, especially initiatives we talked about earlier.

I would like to take this opportunity to thank the Global Team, the entire Parker Team, for their dedication in achieving such strong operating performance and the records that we've talked about today. And also, to their continued commitment to serving our customers and, of course, that's a job number one around here is to make that sure we serve our customers and, hopefully, eat into some more of this market share as a result of being able to deliver products in this turn around time.

Again, once again, thank you for your participation and for your continued interest in Parker. Pam will be around the balance of the day for calls and so, goodbye and have a great day.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.