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With more than four dozen locations around the world, the Cleveland technology provider manufactures motion and control devices.

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The manufacturing company creates motion and control-related products including adhesives, filters, generators, piping, pumps, and valves, which are sold through its network of 7,500 distributors

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Parker-Hannifin is the world’s leading manufacturer of motion and control technologies for various mobile, industrial, and aerospace markets in over 40 countries. It operates in two segments: diversified industrial and aerospace systems. Founded in 1917 as Parker Appliance Co., the company initially focused on pneumatic brake systems for trucks and buses. It adopted its current name in 1957 after acquiring Hannifin, a major manufacturer of hydraulic and pneumatic cylinders, valves, and presses.

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Parker-Hannifin (PH): Company Profile, Stock Price, News, Rankings

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Parker-Hannifin

parker-hannifin

Good morning and welcome to Parker-Hannifin Corporation's Fiscal 2026 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 want to remove yourself from the queue, please press Star 2. Please be advised that today's conference is being recorded. If you should need operator assistance, please press star 0. I would now like to turn the call over to Todd Leombruno, Chief Financial Officer. Please go ahead.

Thank you, Chloe. Good morning, everyone, and welcome to Parker's Fiscal Year 2026 First Quarter Earnings Release Webcast. This is Todd Leombruno, Chief Financial Officer speaking, and with me today is Jenny Parmentier, our Chairman and Chief Executive Officer. As always, we appreciate your interest in Parker, and thank you for joining us today. We address our disclosures on forward-looking projections and non-GAAP financial measures on Slide 2. Items listed here could cause actual results to vary from our forecast. Our press release was released this morning along with this presentation and reconciliations for all non-GAAP financial measures. Those are available on our website under the Investor Section on Parker.com. The agenda for today has Jenny starting with an overview of our record FY26 First Quarter performance. She will share some highlights from our Day One celebrations, welcoming the Curtis team members to Parker.

Jenny will also then reiterate the strengths of our interconnected portfolio and share an example from our energy market vertical. I will follow Jenny with more details on our strong first quarter results, and then we'll both provide some color on our increase to our FY26 guidance. After that, we will move to the Q&A portion of the call and address as many questions as possible within the hour. I now call your attention to Slide 3, and Jenny, I will hand it over to you.

Thank you, Todd, and thank you to everyone for attending the call today. Q1 was a great start to the fiscal year. Operational excellence was on full display, powered by the win strategy. We achieved top quartile safety performance with a 20% reduction in our recordable incident rate. This performance is aligned with our goal to be the safest industrial company in the world. Our team delivered record Q1 sales of $5.1 billion, organic growth of 5%, and 170 basis points of margin expansion, resulting in 27.4% adjusted segment operating margin. Adjusted earnings per share grew 16%, and cash flow from operations was $782 million. We completed the acquisition of Curtis Instruments. Next slide, please. A longstanding practice within Parker is for a Parker leader to personally welcome the new team at every location.

This slide shows pictures from our Day One events held around the world, welcoming the Curtis team to Parker. This was a great day for all of us, and we are thrilled to have Curtis in the Parker portfolio. Next slide, please. Obviously, we are very proud of the Q1 results delivered by our team and equally excited about our future. Just a reminder on why we win. First, the win strategy is our business system. We have a decentralized operating structure, 85 divisions run by general managers with full P&L responsibility, acting like owners, close to their customers, and executing the win strategy every day. Next, we have innovative products that solve customer problems, 85% covered by intellectual property. Our application engineers provide the expertise that allows us to have a competitive advantage with our interconnected technologies that provide efficient solutions for our customers.

Our distribution network is the envy of the competition and the best in the world. It took us over 60 years to build it, and it is truly an extension of our engineering teams, providing solutions to all of those small to mid-sized OEMs that are participating in capital spending and investments. These partners are experts at applying our interconnected technologies. Next slide, please. We have the number one position in the $145 billion motion and control industry, a growing space where we continue to gain share. These six market verticals represent greater than 90% of the company's revenue. Our interconnected technologies cut across these market verticals and give us a clear competitive advantage. Two-thirds of our revenue comes from customers who buy four or more technologies, and our growth is focused on faster-growing, longer-cycle markets and secular trends. Next slide, please.

This slide focuses on our presence in the energy market vertical. Parker is a significant supplier of products into heavy-duty gas turbines used for electrical power generation. We bring both proprietary designs and world-class manufacturing capabilities to offer a comprehensive suite of interconnected technologies. Parker supports multiple global industry-leading customers, and we are seeing significant growth in this space. This business is long lifecycle with multi-year backlog and durable aftermarket. This is a great example of products and technology that are shared across aerospace and industrial markets. I'll hand it back to Todd to go through our first quarter highlights.

Thank you, Jenny. This was a great start to the fiscal year. I'm on Slide 9, and I will start with a summary of our Q1 results. Once again, and I love saying this, every number in the gold column on this slide is a record. It was just a fantastic quarter where mid-single-digit sales growth combined with strong margin expansion resulting in mid-teens EPS growth. Sales were up 4% versus prior. Organic growth was positive at plus 5%. Currency was favorable at 1%, and divestitures were 2% unfavorable. Those are the divestitures that we previously completed. I would just note this is the last full quarter that we will have a full quarter of divestiture impact. Moving to adjusted segment operating margins, as Jenny said, we did 27.4. That's an increase of 170 basis points versus prior year. Adjusted EBITDA margin was 27.3.

That was up 240 basis points. Adjusted net income was $927 million, or 18.2% return on sales. All of this drove adjusted earnings per share up 16% to reach a record of $7.22 per share. It was a really nice start to the fiscal year with a strong quarter across the board, and it gives us confidence for the remainder of the fiscal year. Our global team members really continue to drive results enabled by the power of the win strategy. If we could jump to Slide 10, you'll see a bridge on the year-over-year improvement in adjusted EPS. The majority of our EPS growth came from continued strength across our operations as segment operating income dollars increased by $132 million, or 10%. That contributed $0.80 to our EPS growth this quarter. Corporate G&A and other were favorable $0.18. That was primarily due to foreign currency exchange.

In the prior period quarter last year. That was unfavorable last year. It created a favorable for this year. Interest expense was also favorable by $0.07, and that's driven by lower average debt balances across the quarter and lower interest rates across the quarter. Share count was $0.13 favorable, and that was driven by the discretionary share repurchases that we completed over the last three quarters. Income tax was unfavorable by $0.16, and that was really simply due to a few favorable discrete items in the prior period that did not repeat. That is basically it, a really clean bridge to the 16% increase in adjusted EPS. This record was really achieved by strong sales growth across the board, margin expansion, and great adherence to cost controls across the company. If we move to Slide 11, we'll just talk about the segment performance.

Orders were strong at plus 8% versus prior year, with order rates increasing across all reported segments. Organic growth came in at plus 5%. This was the first time in two years we've had positive organic growth across all of our businesses. As diversified industrial organic growth turned positive. Every business delivered record-adjusted segment operating margins, resulting in great incrementals and that 170 basis points of margin expansion. Looking specifically at the diversified industrial North America businesses, sales were over $2 billion, with organic growth positive at 2%. That's the first time in seven quarters North America posted a positive organic growth number. That was better than our expectations going into the quarter.

We continue to see gradual improvement across market verticals, with positive growth driven by the aerospace and defense businesses in industrial North America, in the implant and industrial equipment vertical, and also improvement in off-highway that exceeded expectations. If you look at North America, they also had 170 basis points of margin expansion and reached a record 27.0% segment operating margin. That was really driven by higher productivity, some new business wins at great margins, and margin mix with strong aftermarket across all those businesses in North America. North American orders increased sequentially to plus 3 versus prior year. Looking at the diversified industrial international businesses, sales were up. They were a record at $1.4 billion, up 3% versus prior. Organic growth remained positive at plus 1. Looking at Asia-Pacific, that was our strongest region with a plus 6.

EMEA remained down at minus 3%, and Latin America was flat versus prior year. Asia-Pac really drove the outperformance of the growth in the international businesses. Adjusted segment operating margins were also a record at 25.0%. That is a 90 basis point improvement from prior year. I can't say this enough, our international teams continue to show great resilience as they're driving margin expansion, and it's really great cost controls, and they're really executing the win strategy to great success. International orders rebounded. They improved to plus 6% after a flat Q4. Both EMEA and Asia-Pac had positive orders this quarter. Lastly, aerospace systems, just another exceptional quarter. From this group, sales were a record $1.6 billion. That's an increase of 13% versus prior. Organic growth of 13%. That's the 11th quarter in a row that we've had double-digit organic growth for aerospace.

Commercial OEM is the strongest market segment. Growing 24% versus prior year. Adjusted segment operating margins increased by 210 basis points. I'm proud to say reached 30% for the first time ever. Record top-line productivity, continued aftermarket strength, all drove the margin expansion. Aerospace orders continue to be impressive, increasing plus 15%. Backlog also reached a new record level for aerospace. There is just robust demand, and that continues across all of our aero and defense markets. It's great to be in the aerospace business right now. If we move to Slide 12, let's look at our cash flow performance. Cash flow from operations, a record, $782 million. That's 15.4% of sales. That's up 5% versus prior year. Free cash flow is $693 million. That is 13.6% of sales. That is up 7% versus prior year. Cash flow conversion for the quarter is at 86%.

I just want to remind everybody, I think everyone knows this, but our cash flow is historically second-half weighted. We remain committed to free cash flow conversion of greater than 100% for the year. Lastly, on this slide, we did repurchase $475 million of shares on a discretionary basis within the quarter. That is a wrap on Q1. Jenny, I'm going to turn it back to you on Slide 14, and we'll move on to our updated fiscal year guidance.

Thank you, Todd. This slide shows our updated fiscal year 2026 organic sales growth forecast by key market vertical. In aerospace, we're increasing our forecast from 8% to 9.5% organic growth. We continue to see strength in commercial OEM and aftermarket. Implant and industrial remains the same as our initial guidance at positive low single-digit organic growth. The sentiment does remain positive with continued quoting activity, while customer CapEx spending remains selective. Transportation is our most challenged market this year. Forecast stays the same at mid-single-digit organic decline. We are increasing the off-highway forecast from negative low single digit to neutral. We see gradual recovery progress in construction, while the ag challenges do persist. We are maintaining energy at positive low single-digit growth with robust power gen activity offset by oil and gas. We are increasing HVAC and refrigeration from positive low single digit to positive mid-single digit.

We see strength in commercial, refrigeration, and filtration with some nice new business wins with our filtration technologies. As a result of these changes, we are increasing our organic sales growth guidance from 3% to 4% at the midpoint. I'll give it back to Todd for some more guidance details.

Thanks, Jenny. I'm on Slide 15 with just some of those details. In respect to reported sales, we are increasing the range to 7% or 5.5% at the midpoint. Currency is expected to be favorable 1.5 points, and that is based on September 30th spot rates. Now that we have the acquisition of Curtis closed, we are including sales and segment operating income from Curtis in our guide. We have added $235 million to our guide for the remainder of the year. That is approximately 1% of sales. And divestitures that we've already previously completed are 1% unfavorable. If you move to organic growth, the forecast has now increased to a range of 2.5-5.5% or 4% at the midpoint. We have increased aerospace organic growth to 9.5% at the midpoint.

For the diversified industrial segment, we have increased North America organic growth for the year to +2%. For international, we still expect organic growth to be 1% at the midpoint. We are raising adjusted segment operating margins. We are raising that 50 basis points to 27.0% for the year. That is now a forecasted increase of 90 basis points versus prior year. Incrementals are now forecasted to be approximately 40% for the full year. Just a few additional items. Corporate G&A is unchanged at $200 million. Interest expense has been increased by $30 million. We now expect $420 million for the full year, and that is driven solely by the funding of the Curtis acquisition. Other expenses are just slightly up to $90 million from $80 million last quarter. Full year tax rate, we expect 22.5%.

We are raising adjusted earnings per share to an even $30 at the midpoint. That would be a 10% increase versus prior year. The range on that EPS is plus or minus $0.40 on either side. The split is 48-52 for staff second half. In respect to full year free cash flow, we are also raising our guidance there to a range of $3.1 billion-$3.5 billion with conversion, like I said, greater than 100%. Finally, looking specifically at Q2 for FY2026, we expect organic growth to be—excuse me—reported sales are expected to be 6.5%. Organic growth is expected to be 4%. Adjusted segment operating margins, 26.6. EPS for the second quarter on an adjusted basis is $7.10. As usual, we have some additional details in the appendix. Really, just in summary, FY2026 is off to a great start

that gives us confidence to raise full year guidance for sales margin, EPS, and free cash flow. With that, I ask you to move to Slide 16. Jenny, I'll turn it back to you.

Thanks, Todd. A reminder on what drives Parker. Safety, engagement, and ownership are the foundation of our culture. It's our people and living up to our purpose that drives top quartile performance that allows us to be great generators and deployers of cash.

All right, Chloe, we are ready to begin the Q&A session. We will take the first question.

Thank you. As a reminder, to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 2. So others can hear your questions clearly, we ask that you pick up your handset for best sound quality. We'll take our first question from Julian Mitchell with Barclays. Your line is open.

Hi, good morning. Just wanted to start off perhaps with the organic sales picture in the DI North America business. Maybe help us understand a little bit better the cadence of demand. It did seem to surprise you positively, I think, in the quarter. How has demand moved there in recent months? When we're looking at the full year guide, I think your midpoint for DI North America does not embed any acceleration from the September quarter growth rate. Just wondered the thinking there.

Okay. Good morning, Julian. Yes, we're very pleased with the performance. We had guided to a negative 1.5% and came in at a positive 2%. North America performed better than expected with the aerospace and defense business that sits inside of our industrial businesses. Distribution, HVAC, and electronics. Construction continued to outperform versus our expectations. Margin expansion from higher productivity on slightly stronger volume really helped us. We had some project wins at attractive margins, and we're getting a margin mix benefit with the lower industrial OE and a very resilient aftermarket. You are right. We do expect Q2 to be much like Q1, coming in at 2%. That was prior, as Todd stated, for the year, we were looking at a total of 1%.

As I was just talking about what we saw in Q1, we do believe that industrial aerospace and defense will remain strong. We're still talking about a gradual implant industrial recovery. Certainly, positive sentiment from our distribution channel continues. Voting activity is good. As I commented earlier, still, customers are being very selective on their projects and their CapEx spending. We still see transportation challenged in automotive and trucks. We do not expect a truck recovery this fiscal year, but we will see some benefit from the aftermarket. In off-highway, gradual recovery progress in construction, but ag challenges still persist. Energy, power gen, robust, but oil and gas upstream still weak. HVAC and refrigeration, we're coming off a very strong fiscal year, and we have increased that for the rest of the year. While some markets are increasing, not all of them are.

That's why we see Q2 pretty much the same as Q1, but an increase for the total year.

Hey, Julian, I would just add. Jenny covered the organic growth piece perfectly, but I would just add, on a margin standpoint, we did increase. Diversified industrial North America margins, 70 basis points for the full year versus our previous guide. The teams are converting on that. I have great confidence that they're going to do that.

Yeah. Q2's margin is 150 basis points higher than prior year.

That's helpful. Thank you. Just following up on that last point, perhaps. I understand that you've had a higher margin performance year on year for the total company than is guided for the full year. I assume that's just sort of natural conservatism, given we're early in the year. Wondered if there were any other factors to think about. Allied to that, your Q2 EPS guide is a decline sequentially, which is quite unusual in Q2. Any color on that, please?

I think we left the second half pretty much alone. Based on what we see today, we feel really good about Q2. I think we'll have a better line of sight here after the first of the year.

Yeah, Julian, Q2 sequentially, it usually is our softest top line. I think the EPS is just pulling off of that. Nothing out of the normal that we see.

We'll move next to Mick Dobray with Baird. Your line is open.

Thank you for taking the question. Good morning. I would like to talk a little bit about industrial international. The orders there were quite good and, frankly, better than what I would have guessed. A little bit of update in terms of what you're seeing in various geographies. Related to this, if I look at the past four quarters, I think your order intake averaged about 5%. It is quite a bit better than what you have embedded in your forward outlook for organic growth. I am kind of curious, at what point in time do we start to see these higher orders really flow through organic growth in this sector?

Good morning, Mick. With industrial international orders, they've been really choppy, as we often say. If you go back to our Q3, we had a plus 11%. Then Q4, we went flat. That was because we had some one-time long-cycle orders that didn't repeat in Q4. It's really not an average of about 5%. What we're seeing in the region is, if we look at EMEA, we're showing flat to slightly positive organic growth for the fiscal year. There's uncertainty that's remaining, and we're expecting a slow implant industrial recovery. We do expect to see some growth in energy. We are seeing some mining recovery underway. We do think that there'll be some pickup from the stimulus in future defense spending, but that's not something that we think we're going to benefit from this year.

What we see in EMEA is really to remain flat to slightly positive with what we see on the orders right now. In Asia-Pacific, we have positive low single-digit organic growth for the fiscal year. We continue to see strong electronics and semiconductor demand. Implant is mixed as delays continue in China, but we do see some slight growth in India and Japan. Seeing some mining and transportation improvement in China. I think there is still some continued uncertainty from tariffs across this market. This is what we are seeing today on industrial international. I mean, we look forward to the time when this will be a higher organic growth.

Understood. My follow-up, and I do not know if you can answer this question, Jenny. It is kind of in the weeds. You talk about the ag market where challenges persist. I do wonder, in terms of your exposure, if you sort of separate out the large ag equipment, so high horsepower tractors, combines versus midsize and lower horsepower, I am just wondering kind of what your exposure looks like there because I am starting to see a bit of a divergence forming where large ag, as you say, it is challenged, but some of these smaller tractors are starting to grow in terms of volumes. The volumes are actually much higher in lower horsepower equipment than large ag. I am wondering if this end market might turn a little bit sooner than maybe we are thinking about when we are thinking about large ag. Thank you.

Yeah. When we talked about ag last quarter, I made the comment that we thought that market had kind of hit trough. I would say it's broad-based when we look at ag between that equipment. You can certainly follow up with Jeff on maybe some more details in one of the follow-up calls.

Yeah. I would just add, when we look at ag, it's 4% of total company sales. So it's just become a smaller piece of the total pie. It is broad-based. There's aftermarket. There's the OEM side of it. I don't know if I'd read too much into movements there.

We'll take our next question from David Raso with Evercore ISI. Your line is open.

Hi. Thank you. Of the organic guide raise, how much was volume versus a change in price? Of the 50 basis points margin improvement, can you give us a sense of how much is that maybe related to the answer to the first question, volume improvement versus maybe price cost different than you originally expected for the year? Thank you.

Good morning, David. As you know, we do not disclose pricing. Regardless of pricing or volume, I think that we have shown that we can expand margins pretty much in any climate. We have had two years of negative industrial growth. We are seeing the gradual industrial recovery playing out. Industrial organic growth is now positive in Q1. We are definitely seeing the impact of slightly stronger volume.

That's great. Thank you very much. Appreciate it.

We'll move next to Scott Davis with Melius Research. Your line is open.

Hey. Good morning, Jenny and Todd and Jeff.

I've got to ask about M&A. I probably do a lot of quarters, but I'm going to lead with it anyways because it's been a few years since you closed Meggitt and. Obviously, they have such a great deal for you guys. Curtis seems like an interesting deal too. It's just not as big as maybe some of those others. Can you just update us on your pipeline and such?

You bet. Obviously, we're committed to actively deploying our capital. As you mentioned, we did close Curtis Instruments in September, and we're really excited about that. Moving forward, the strategy remains the same with plenty of optionality. When it comes to capital deployment, obviously, we prefer acquisitions, but it has to be strategic and disciplined. You've heard me talk about this criteria before. I would tell you that the pipeline, the relationships, and the analysis continues to be very active. While sometimes timing is hard to predict, we are working it. We want to continue to acquire companies where we're the clear best owner. We feel like we have a strong competitive advantage with our interconnected technologies, and that's what we want to add to the portfolio.

Still looking for those deals that are accretive to growth, resiliency, margins, cash flow, and EPS. As I've said many times before, the pipeline has deals of all sizes.

We'll take our next question from Amit Mehrotra with UBS. Your line is open.

Thanks operator. Hi, everybody. Yeah, still morning. Good morning. Obviously, it was, I guess, nice to see the order improvement. Jenny, quick question about just the broad baseness of that. I mean, are we seeing a broader activity in pickup? You also want, I think I saw this somewhere, you guys won a large contract to supply components for aero-derivative gas turbines. I'm just trying to get a sense of, are we seeing broad-based green shoots here, or is it mostly explained by the longer cycle pockets that kind of have been working for a while?

We have the longer cycle pockets, but then we're also seeing some improvement in some of our other key verticals. When you look at the change that we had in the guide this month, obviously, we took aerospace and defense up. We also moved off-highway from negative low single digit to neutral, and we increased HVAC and refrigeration from low single digit to positive mid-single digit. We are seeing some pockets within those industrial businesses where we're seeing some growth.

Okay. The other question I have is on aerospace margins. Obviously, just really good. One thing I noticed is obviously the incremental margins being so high despite OE revenue up 20%, which I would imagine would be a little bit mixed dilutive. As the OE build cycles continue to improve, can we talk about what the mixed impact is on aero margins going forward? Because it seems to defy gravity in the quarter.

Yeah. We did have 51% OEM and 49% aftermarket in the quarter. We do anticipate that that's going to be the mix for the rest of the year. Aero margins were very strong in Q1. We had a nice bit of spares in Q1, which is really nice margin for us. That helped us reach that record, 30%, hit 30% for the first time. Going forward, we're very confident in our ability to maintain the margins where we've been and go forward with strong margins. If you look at what we did with the guide, we have full year at 29.5% now. That's 100 basis points higher than prior year. That was raised 60 basis points from the initial guide. Q2, we're forecasting 29.1%, and that's 90 basis points higher than previous year. We're in a good spot with aerospace.

Our teams are doing an excellent job executing the win strategy and really benefiting from this volume.

We'll move next to Jeff Sprague with Vertical Research Partners. Your line is open.

Hey, thank you. Good morning, everyone. Hey, can we just cut a little further into aerospace? And also, Jenny, maybe just a little bit of color on kind of how you see the defense side playing out in 2026 versus the commercial side, any change of thinking there?

Jeff, I'm sorry. What was your—you wanted to dig deeper into aero, especially defense, right?

Yeah. Yeah. I wanted to kind of get a sense of defense versus commercial mix and how that's playing and if that's changed versus your initial view.

Yeah. We came out with mid-single digit growth for both defense, OEM, and MRO, and that's the same. We're not forecasting any change there.

Great. And then just on Curtis, I think it comes in a bit margin-dilutive. It's not apparent given kind of all the other execution and everything that's going on. Can you just kind of give us a little color on at the margin rate it comes in at, the work you're doing to integrate it, and any thoughts on kind of how it might be positioned in the next year after you've got it kind of fully digested?

Yeah. Jeff, this is Todd, I can take that. I mentioned earlier we added about $235 million of sales into the guide. You're right. It is slightly dilutive, but it's smaller, so it doesn't really have an impact. You can see we did raise both North America and international margins for the full year, even after including Curtis into the mix.

If you're looking for a number, I would say high teens, low 20s would be a good number to use. It does add. It is EPS accretive in the stub year even. You saw that we added $30 million for interest there. And it's only been a little over a month. The team is super excited about it. Jenny mentioned the welcoming day, and I can tell you they're working really hard to integrate and make this part of Parker just like we have on the last deals.

I would just add that, as Todd said, the integration is well underway. Very similar. We've assembled a dedicated integration leader and a team of high talent team members. And this is how we ensure a very smooth integration.

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

Hey, Jenny and/or Todd. Is there a way that you could maybe size the opportunity on slide seven or give some color just around what the growth rates would look like? I'm just curious how to think about this business for you guys going forward.

I don't think we're in a position to go over the growth rates. What's great about this PowerGen business is that we do have this suite of interconnected technologies for PowerGen applications. You can see on that slide all the different examples of the products that we have. It's just a very robust order book, like I commented, multi-year. We expect solid growth for years to come. We're working with all of the leading industry customers. While this market vertical makes up about 7% of our sales and PowerGen is about half of that, it's a small percent overall, but a very nice growth area for us. We expect to not only continue to win in this market, but really benefit from it.

Yeah. That's great to see. I'm glad that you guys highlighted it. Other quick question. I know that we won't be talking specifically around pricing. In an environment, let's say, where you do see some of these tariffs potentially getting rolled back, how does that impact the pricing that you've already put through? Ultimately, is that another potential boost to margins if we do see some pullback on tariffs?

As we've talked about tariffs, we have the analytics and the processes to navigate and act quickly up or down. We've had to do a lot of that over the last several months. The teams have just done a fantastic job. We have a strong muscle when it comes to pricing and to price cost, and we'll adjust as we need to. As I've stated time and time again, we can't use tariffs as a margin expansion device. This is something that we have to recover from a cost standpoint. We'll adjust as we need to going forward.

We'll take our next question from Joe Ode with Wells Fargo. Your line is open.

Hi. Good morning. Thanks for taking my questions. I wanted to start on the North America in-plant side of things and what you're seeing from customer activity or what you're hearing from dealers with respect to greenfield and brownfield investment in the U.S. And then around that, whether you're getting any color on the nature of those investments and kind of local for local, or you're seeing more kind of foreign participants looking to invest in the U.S.

Yeah. I do not have the details too much for local versus foreign investment. I would tell you my comment earlier about the CapEx being selective. I do believe it is still selective. In the past, we were just talking about delays and delays. Obviously, we saw a stronger area there through distribution and in-plant in Q1. We are seeing some things get across the line and projects get started. I do not have a specific breakdown for you at this time.

On the HVAC side of things and seeing some strength in commercial refrigeration and filtration, I think you talked about some nice new wins in filtration. Can you just expand on that a little bit in terms of kind of verticals you're serving there where you're seeing some of that strength?

Yeah. We've had some nice filtration wins when it comes to gas turbines. We have some proprietary technologies, really nice filtration products in the energy market. Then we've also had some nice filtration wins on the, actually on the mobile side of the business as well. It's been a growth area for our filtration group this past year.

We'll move next to Christopher Snyder with Morgan Stanley. Your line is open.

Thank you. Obviously, North America industrial turned organic positive in the quarter. I'd imagine there's some benefit of incremental price. It does sound like some of the longer cycle verticals kind of helped that. I guess my question is, when you look at North America industrial, the more cyclical pieces, do you feel like the cycle is starting to get better?

Yeah. I would definitely say that Q1 is evidence of that, right? Especially those key market verticals where we've increased our outlook for the year. Yes, I would definitely say we're starting to see that.

I was just going to add, Chris, that we've talked about inventory across the channel, and we feel that it's kind of at a trough level. Can't say that we've seen a restocking yet, but it feels like we're closer to that than going the other direction.

Yeah. No, happy to hear that. You talked about in-plant as being one of the industrial verticals doing well, showing momentum. Do you have any color to provide on how that business did in the U.S. versus the international markets, just to get a sense if some of the policy is driving activity into the U.S.? Thank you.

In North America, as I commented before, it's a gradual in-plant industrial recovery. As Todd was just saying, although we don't see restocking yet, we still have that very positive sentiment from our distribution channel and a lot of quoting activity. When we talk about EMEA, it's still some uncertainty that remains. We are expecting a slow in-plant industrial recovery. When we look to Asia-Pacific, it's kind of mixed. Delays continue in China, but there's been some growth in India and Japan.

Parker-Hannifin (PH) Q1 2026 Earnings Call Transcript

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