Welcome everybody to the Parker Hannifin session, and very pleased to welcome Todd Leombruno, who is the Chief Financial Officer. He'll have a few slides to sort of level set us, and then we'll do some general Q&A. Would love to have as much participation as we can, so with that, Todd, welcome. Thanks for coming. Thanks for having me. This is my first time at this conference, so, appreciate the hospitality. It's great to see such a great turnout. I know many in the room are very familiar with Parker Hannifin. I just have a few slides that I'll go through for those that might not be so familiar. This is the way the company looks today at a glance. We have been focused on what we call the motion control space for well over 100 years. This is our FY 2024 financials, which just finished in June. June is our year-end. Nearly $20 billion in revenue, you could see that's kind of split across really three distinct businesses that we share externally. Our North America Diversified Industrial business is roughly 44% of the company. Those businesses that are based internationally are about 30% of the company, and Aerospace, specifically our Aerospace Systems business, the segment itself is about 27% of the business. A little bit of further color is, we break our revenue into technology platforms, and you can see Aerospace Systems is the same, it says 27%. But we have really three platforms that make up our industrial business. That's Motion Systems, that's Flow and Process Control, and that's Filtration and Engineered Materials. Over a longer period of time, our focus on the company has been to expand our Aerospace exposure, our filtration exposure, and our engineered materials exposure. So this is what the chart looks like as of FY24. If you know the company from years ago, that would've been a much different, much different mix. Really the thing that ties all of these business together is our operating strategy, we call it the Win Strategy. It was named that because, you know, as humans, we all wanna win, and, that was a strategy that was set out for the company, years ago. We're on our third iteration of that. The company is really a collection of unbelievable engineering technologies that we use to apply customer challenges in, the most unique ways possible, and that's how we drive value. One of the key things that we love about the company is if you look at the industrial part of the business, which is roughly 70% of the company, 50% of that business goes through our independent distribution network. So that is really important because we have the widest technology offering in the space, and that allows our distributors to really have a leading position when it comes to serving both the aftermarket and small regional local OEMs around the world. And we're fiercely passionate about our decentralized operating structure and driving decisions in the business that are close to customers and close to product issues. Some people get confused about the business because it is such a diverse end market mix and such a wide range of technologies. We love the market space that we're in. We label it as about a $145 billion market space. We've tried to simplify this for digestion, and if you look at this, over 90% of our revenue comes from what we've identified as these six market verticals. Aerospace and Defense is now 33% of the company. You may say, "Geez, Todd, you just showed us 27% on the last slide." We do have Aerospace business that resides in our industrial businesses, and those are technologies around filtration, around sealing and shielding, and vibration control. So we put those technologies where the technology experts are, and just like any other end market, they serve Aerospace from those businesses. Next biggest market is what we call in-plant automation and industrial equipment. It's about 20% of the company. And then we move to transportation both on and off-road. That's 15% of the company. And then off-highway, this would be things like ag and construction, 15%. And then a nice bit of energy, oil and gas exposure there, and then refrigeration, air conditioning and cooling is about 4% of the company. Add that all up, and that's our $20 billion worth of business. What is unique about us is all of these technologies, all of these applications are based in technology offerings, and then our application engineers just apply our best solutions to whatever our end customer needs. Just a snapshot on what we've been doing over the last five years. We're really proud of this. We've been able to grow revenue at a CAGR of 7%. This is, you know, going back pre-COVID. We have grown adjusted segment operating margins by 630 basis points. We, you know, nearly hit 25% last fiscal year. Our target, our previous target was 25%. That was for our FY 2027. So, we accomplished that many years early. We feel really good about that. We have grown earnings per share at a CAGR of 14% over the last five years. We've finished over $25. It's the first time in the history of the company we've been able to generate earnings per share at that level. And probably one of the things that I'm most proud about is we've doubled our free cash flow generation. So back in FY 2019, we were generating about $1.5 billion of cash flow. Last year, we did $3 billion of cash flow. So, that's the performance of what the company has been. It really is a combination of our team members around the world, our strategy, and these changes that we've made to the portfolio. And, we believe that we are not done yet. Just last May, we introduced new long-term targets, five-year targets, so this takes us out to FY 2029, starting in FY 2025, which we're in as I speak right now. And, we raised our margin targets. We raised our segment operating margin targets by 200 basis points. We now target 27% segment operating margins. EBITDA margins, we raised a little bit higher, 300 basis points to 28%, and we raised our cash flow, free cash flow margin, 100 basis points from what was 16% - 17%. We still believe we can grow earnings per share at a CAGR greater than 10% over that time period. And probably one of the more challenging goals we set for ourselves, which remains the long-term goal that we've had for the company, is to grow organically with a 4%-6% CAGR over the period. So, that's where we're going in the future. I will remind everyone that if you do all that math, if you look at where we're at today, that would generate earnings per share greater than $35. But what it does not take into account is optionality we have with the balance sheet. We just did the largest transaction in the history of the company. It's only been 24-ish months since that's closed. Our leverage is back to our target at 2.0 times net debt to EBITDA, and because of the growth of the company, because of the cash flow generation, because of that margin expansion, we see no issues with continuing to grow our dividend, to continuing to invest in the company, and to keep our share buyback program going. What is exciting for us is we've got options, and we've got options that are somewhere in the range of $20-$26 billion over the next five years. Our focus would be to deploy that on M&A, like we've done in the past. But I know I'm sure you'll have some questions about that and where we're focused, and the short answer is it's gonna be more of the same. But none of those targets that I just talked about take into account this $20-$26 billion of optionality. So, Steve, I think that's all I had. Great. Uh. All right, so let's kick off. Great ... some Q&A then. If anybody has a question, you can just raise your hand and we'll work that in. I'll just start off. I think, Todd, one of the most striking things that's happened at Parker since I started covering you guys. I remember an IR guy that looked a little like you. Yeah, it was me. 20 yeah. It was me, yeah. So, 20 years ago. Yeah. One of the- Not that long, it wasn't that long. One of the most striking things is that, you know, we've heard a lot at this conference about a bit of a soft patch in short cycle industrial. Mm-hmm. That used to be kind of what drove Parker Hannifin. Sure. It doesn't seem to be driving it any longer. Right. You just gave guidance for FY 25 that was kind of ahead of what the street was expecting. Mm-hmm. You know, talk about how that's changed and how much visibility you have, and what gives you confidence of setting that sort of higher guidance? Yeah ... for FY25? Yeah, Steve, you gave me a flashback here on some of those meetings years ago. You know, you're absolutely right. Parker was pegged as a short cycle company. There's no doubt, the markets we serve, they are cyclical. They will always be cyclical. What our focus has been over the last many years has been to kinda level out that cyclicality and lean the portfolio towards more what we call longer cycle business. You know, that acquisition strategy has been a big driver of that. We doubled our Aerospace business, we doubled our Filtration business, we doubled our material science, our engineered materials business, and that has been extremely powerful. That's what we've done on the acquisitive side of the business, but internally, we have focused our teams on innovation metrics, on product vitality metrics. Our investments, our resources have been directed on businesses that lean - applications that lend themselves to more visibility, more longer cycle. That short cycle element of the company is still there. It is a critical piece of the company. It's important to our technology offering, it's important to our distribution base, and we are committed to that. What we have seen here just last year, if you look at FY24, was it, you know, it was a muted industrial environment, there's no doubt about it. What really saved the day for Parker Hannifin in FY 2024 was Aerospace continued to outperform, and that more than made up for the softness that we were seeing in the industrial sides of the business. Your question about guidance is very true. We just gave our annual guidance, you know, a little over a month ago, and a lot of thought, a lot of analysis, a lot of data went into that, and it's gonna be more of the same. We're gonna see Aerospace carry an outsized portion of the growth for the company in FY 2025. We guided to a midpoint of 8.5% organic for Aerospace. That's 11% in the first half, obviously softer in the second half, and then on the industrial side of the business that you were asking about is, it is soft. We have guided for negative organic growth in the first half of our fiscal year, and that's been driven by, you know, what we have called continued softness in, off-highway. Ag is, double-digit declines that has been, you know, ongoing and, continues to be, a sign of, negative growth in the areas. So what we are hopeful for is we are hopeful that when we get to the second half, there will be a gradual, very gradual, return to growth, also helped by, some easier comps coming off of FY 2025. So, what you're gonna see for us again this year is strong growth, strong performance out of Aerospace, and we're gonna manage that Industrial business like we always have, through these ups and downs, and our goal is to still drive margin expansion, no matter what happens on the top line. Okay. And you guys don't talk in a lot of detail around pricing, but- Yep ... any broad comments you can give us in terms of what you- No, I would say we're gonna do pricing like we always do. Coming off the last, whatever it is, two, two and a half years, it's been a very dynamic inflationary environment. We've all lived through that. We've all seen everything that we purchase increase in price. You know, we have a pricing organization that I think is the best pricing organization in the industrial space. Lots of data analytics, lots of process expertise throughout the organization, and really a drive to act frequently and quickly. So that's what we did when we saw the inflationary pressures come into place, and that's what we'll continue to do. Pricing in general has moderated back to a normal environment, but you know, we're still in an inflationary environment. It's not as bad as it was, but it's still worse than it used to be. And, I would say that's probably even more so on the Aerospace side of the business, right? A little bit different than the industrial side of the business, but, you know, Aerospace is still working through significant supply chain challenges and obviously double digit, you know, high single digit to double digit growth, depending on the platform. So, we're making sure that we keep margins neutral. You're not gonna hear us ever get on a earnings call and complain that price cost was a factor in us not meeting our commitments. But is it fair to say that price cost has been a tailwind? I mean, you guys have grown margin a lot over the last ten years. We certainly have. We certainly have. I think it's been an element of it, but I would tell you, the main drivers of our margin expansion has been the changes in the portfolio, the organic investments that we've made, really implementing all the tools of our Win Strategy, which I know we've got a full room here, I won't go through that whole list of things. But when you look at that, we have really focused on being the most strategic on the supply chain side, the most value-based on the pricing side. We continue to refine our lean skills that you know we've been doing for over thirty years now, and we're still learning on that. We are no way experts in that area, but we could continue to learn and drive that forward, and we're really focused on making sure we can grow differently. That is, from an organic standpoint, that is one of the things that we have not accomplished, so that is a goal that still sits out there, and that's what's driving the team's focus. Okay. Let's look at orders a little bit. I think historically, for you guys, sort of a cycle is five or six quarters- Yeah ... of negative orders. Where are we in that? Well, you know, we have looked at that. You're exactly right. The average, when order year-over-year comparisons on a quarterly basis, when they turn negative, the average has been six quarters of negative activity. And that varies a little bit. Sometimes the international's a little bit different, maybe a quarter or two longer. The longest we've ever been has been in the financial crisis and the recession and COVID period, and that was seven quarters. So we just released orders for June. We were really happy to see the North American orders return to flat, which, you know, flat was kind of a positive for us, and international was still negative, but less bad. So we were happy with that. We felt comfortable with that, but we're not. You know, if you look at those last downturns over the history of time, certainly the portfolio of the company was different, and every one of these downturns has got a little theme within itself, but what we saw in this last downturn was, you know, not as steep of a decline, so we're not expecting that steep of a return, and we're all following all the same external metrics that this room follows, and we expect it to be gradual at best, where I draw positivity at is from our Aerospace business and, you know, some signs of life in some of those smaller categories. Refrigeration, HVAC, has returned to a positive growth. There is activity in the energy markets that has been positive. We're not expecting a rebound in those, you know, major off-highway markets or, you know, really in plant and industrial equipment yet. And you guys, I think, have worked some new processes around AI and- Mm-hmm ... forecasting. Sure. Does that give you longer visibility now than you used to have? Yeah, it certainly does. You know, our-- we've talked about this externally. Our backlog coverage is much higher than what it used to be. Obviously, the Aerospace business is clearly a longer cycle business. Mm-hmm. We have over $6.7 billion of Aerospace backlog. It's the highest it's ever been. Obviously, it's the highest percentage of sales of the company that's ever been, so we feel really good about that. But if you look solely at the industrial side of the business, you know, back in 2015, we would've had maybe 15% backlog coverage. You know, today, that's high twenties. So that's down from where it was like in the peak of the supply chain stuff, maybe, you know, 300-400 basis points lower than what it was, but still significantly higher than where we were before. And I think that's a factor of our portfolio change, it's a factor of customers being more focused on making sure they have. continuity of supply, and that has been a nice plus for us. And to your point, all kinds of analytical tools that help us, you know, look forward that we didn't have historically. So are these higher levels of backlog kind of what the new normal should look like, or do they continue to moderate? Well, on Aerospace, we expect that to be the new normal for sure. On the industrial side of the business, this slight decline, this slight moderation is not a surprise to us. And we think it, probably is where it will remain going forward. But we just gotta get through this, you know, this little soft patch of, demand. Right. Okay. All right, we'll come up for air. Any questions from- Yeah. Okay, good. One in the back. Yep. Is that enough? Just on the M&A side, if you don't mind? Yes. Are you guys thinking more Aerospace? Are you thinking more the industrial businesses- Yeah ... and Aerospace? You know, it seems like there's a lot of folks out there looking for assets. Sure. Almost every sort of Aerospace company here is looking for assets. Absolutely. Yeah. Can you just talk about how, why you would win? Yeah. We love the Aerospace business, there's no doubt about it. We made a big swing with Meggitt. Before that, we did Exotic Metals Forming, that has, you know, more than doubled our exposure to Aerospace over the company's history. And it has been, you know, transformational for our performance. We would like to get more Aerospace, there's no doubt about it. We don't have a target, we're not chasing a particular number. What it really comes down to for the M&A space is, we want to add companies to the portfolio that will help us grow differently, that we have a clear path to margin expansion. Doesn't have to be margin accretive immediately, but through a synergy period, it has to be margin accretive. It's gotta be accretive to EPS, and it has to help us grow cash. We have set a ROIC target in year five that's gotta be very high single digits. It's gotta exceed our cost of capital, and we feel that if we find a transaction that fits from a cultural standpoint, fits from a technology standpoint, and meets all those criteria, that's how we win within Parker Hannifin. What we have been successful at over the last four large transactions is really world-class integration and world-class synergy realization. And Meggitt is a prime example of that. It had the benefit of lessons learned from CLARCOR and LORD and Exotic, the last three acquisitions the company has done. And, what we learned was, you know, move quickly, move with precision, and take care of the customer, take care of the technology, and treat the people right, and we like those results. So, I think where we win versus others is our ability to integrate, capture real synergies that are visible in the financial statements. And, part of that is in the selection process and the relationship building of all of these targets. So, we are very much focused on it. If you look at our capital allocation history, we have been much highly levered towards spending all that optionality on M&A. We like what that has done with the company, and we plan to do it again. We're not trying to do anything bigger than what we did with Meggitt. It's gonna have to be the right deal. We're not gonna be rushed to do it, and we're gonna remain disciplined like we have in the past. So, we like our track record, and we like what the pipeline looks like. Good? Wait, do you have any views on, like, if Aerospace is 50% of the company, is that fine, if it's the right asset? That would be totally fine. Yeah. You know, it's over 30% today, so. And, you know, you mentioned this earlier, I was gonna get to it, but you've recharged the balance sheet- Yep ... you're kind of where your normal, debt to assets or- Right ... or EBITDA coverage should be. How much are you willing to flex up in, if the right deal came along? You know, it all depends on the deal and the size. You know, as the company gets larger, as our margins get higher, as our free cash flow gets larger, you know, it really changes the dynamics on what we can do and how quickly we can deliver. We like where the company is positioned as in respect to that. So, we would not be afraid to do exactly what we did in the past, if it was the right transaction. And one thing that struck me recently is that you actually announced a reasonably chunky divestiture. Yeah, yep ... which hasn't really been part of the track record. Yeah, you know, that's, that is, feedback that we've got from many people like this in this room, and it's something that we've taken a harder look at. That is actually the ninth division, business, product line divestitures that we've done over the last, I think six years, so some of them have been small, but what they have done is they have simplified the business. They've allowed management to focus on our core technologies, on businesses that we like. The business that we just divested, you're right, it was, it's been the biggest that we haven't been required to divest as part of any other acquisition agreements, but very sound business, a great business, a little bit outside of our core technology. And while that has been part of the Meggitt integration, we really came to the conclusion that it probably wasn't gonna achieve above company average operating margins, and we found a best owner for it. So you've heard us talk. We go through this process every year with every single one of our businesses. We make sure that they earn their right to stay in the portfolio, and we've been more active on moving ones out that might find better success elsewhere. Great... maybe the final one on M&A. The Meggitt process was a little more drawn out- Oh, yeah. Yeah, right. Yeah. That's exactly what the reaction- Yeah ... I was I was looking for. Yeah, it was the aging- So the question is, you know, would you do something like that again? I mean, there's a lot of approvals and- Yeah ... divestitures, and. Yeah, that process was probably the most complex process that we went through ever in the history of the company. It's hard to say we would not do that exactly again, based on the results that have come from it. Each one, as you know, is different within itself. Each one has a different set of complications. But I would tell you, the team has taken each one of these transactions, put it into our toolbox, and we're ready to execute on, you know, whatever complexities could be out there. You know, what is nice about a longer process is it does allow us to, and what was the Meggitt case was, we were able to prepay down a lot of that purchase price before we had closed. So there was almost $2 billion of that purchase price was applied towards the purchase of Meggitt before we closed, and we've now done nearly $4 billion since. So that puts the company in a nice rinse and repeat optionality, which we like, and Meggitt has been fantastic. We are really glad that we got to yes on that. A lot of companies have sort of come at this at a different angle from you, which is to do it more in small chunks- Yeah ... but more of them. Is that also on the table? That is also on the table, yeah. It does not have to be bigger than Meggitt, it doesn't have to be bigger than LORD, it doesn't have to be bigger than CLARCOR or, you know, Exotic was a fine example of a mid-sized acquisition. Historically, what would've been on a larger scale for Parker Hannifin, and, you know, it just has to be the right business for us, and it's gotta be fit all those criteria that I went through earlier, and we just wanna make sure that we remain disciplined on it. We don't wanna have to come here and explain why synergies aren't showing up in the P&L or why the returns aren't what we expected. You know, I think a lot of that we control based on the pipeline reviews, the relationships that we've had over many, many years with all of these potential targets, and really, what I can't stress enough, is a world-class integration process. Anyone else? Yep. Just on the guidance for this year and longer term. Yes ... I... I mean, you've got the Aerospace business, which is, you know, round numbers, 30% of your portfolio, probably growing at 12%. Yeah. So you're almost hitting the bottom end, you know, of your midterm guide and- Yeah ...your near-term guide, just with aero. So it sounds like... And there's no M&A in there, so it sounds like you're sort of assuming that these industrial businesses don't really pick up, even though the orders seem like they've kind of inflected. So can you flesh that out a little? Yeah. For FY 25, you're speaking- Yeah ... specifically? Yeah. So our guide, midpoint guide for Aerospace growth, organic, is eight and a half. The total company is a range of three to five, right? So we are expecting Aerospace to certainly the orders to moderate, just based off of two years of double-digit growth. And we're watching that very highly. It's at very high levels. That supply chain is still very stressed. In Aerospace, we just came off a double-digit organic growth in Aerospace. So you know, right now, we're guiding to eight and a half. On that industrial side, we're expecting it to be negative first half. So you know, first six months of our fiscal year, we're expecting that to be negative, with a gradual rebound in the second half. That, coupled with the Aerospace growth, gets us to that 3-5% range for the guide. Could you just elaborate on the stress in the Aero supply chain? Yeah. Why it's still there. Yeah ... and if Boeing is ever able to increase production, what does that do to the supply chain from where we are today? That's a good point. Yeah, you know, it's a unique supply chain. It suffered worse than the industrial supply chain through the COVID and resulting supply chain challenges after that. But they've also been dealing with, you know, really now three years of pretty positive organic growth. So I think it's just been a combination of severe impact during COVID, and then really three years of prolonged growth, and of course, that is, you know, it's a complex supply chain. So it's better than it was, it's just not healed yet, and we expect that to really still take some time to continue on that healing process, and what was the second part of the question? The second part was, if we assume Boeing at some point- Oh, yeah. Yeah, yeah, yeah. Yep. What does that do to the supply? Well, yeah, you know, all the large manufacturers, Boeing, Airbus, that will put more stress on the supply chain. What we're trying to do is make sure that we are delivering to those customers well ahead of the rate that they need today. We don't think that there's a big enough bubble there that would have, you know, any kind of inventory pushback. And we're just making sure we're ready, right? That's really what our focus is. We'd love to see those rates increase. With that, I'm afraid we're out of time. Nope. I'm sorry. We wanna keep on schedule. Nope. Todd, thank you so much. Thank you so much, it was great. Really appreciate it. Great seeing you. Thanks, everyone.