What Management Said
Read the full Q1 2026 transcript ↗The agenda for today has Jenny starting with an overview of our record FY26 First Quarter performance. 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. 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.
These six market verticals represent greater than 90% of the company's revenue. 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. Parker supports multiple global industry-leading customers, and we are seeing significant growth in this space. 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. Moving to adjusted segment operating margins, as Jenny said, we did 27.4. All of this drove adjusted earnings per share up 16% to reach a record of $7.22 per share. If we could jump to Slide 10, you'll see a bridge on the year-over-year improvement in adjusted EPS.
What went well
- Record Q1 sales of $5.1 billion with 5% organic growth, the first quarter in two years with positive organic growth across all reported segments.
- Adjusted segment operating margin expanded 170 basis points to a record 27.4%, with every business delivering record adjusted segment margins.
- Adjusted earnings per share grew 16% to a record $7.22, supported by a $132 million (10%) increase in segment operating income dollars.
- Aerospace systems posted record sales of $1.6 billion, up 13%, its 11th consecutive quarter of double-digit organic growth, with segment margin reaching 30% for the first time ever.
- Diversified industrial North America turned organic-positive at 2%, its first positive organic growth in seven quarters and better than guidance of negative 1.5%.
- Record cash flow from operations of $782 million (15.4% of sales) and free cash flow of $693 million, plus completion of the Curtis Instruments acquisition.
What went wrong
- Transportation remained the most challenged market, with management guiding to a mid-single-digit organic decline and not expecting a truck recovery this fiscal year.
- EMEA international sales remained down 3% versus prior year amid continuing uncertainty and a slow in-plant industrial recovery.
- Agriculture challenges persisted and oil and gas upstream remained weak, partially offsetting strength in other verticals.
- Curtis Instruments comes in slightly margin-dilutive at a high-teens to low-20s margin rate, and interest expense was raised $30 million to fund the acquisition.
- Q2 adjusted EPS is guided to step down sequentially to $7.10, reflecting the seasonally softest top line.
Guidance Changes
| Metric | Period | Current guidance |
|---|---|---|
| Organic sales growth (FY26) | FY2026 | 4% at midpoint (range 2.5%-5.5%) (Raised) |
| Reported sales growth (FY26) | FY2026 | 5.5% at midpoint (Raised) |
| Adjusted segment operating margin (FY26) | FY2026 | 27.0% (Raised 50 bps) |
| Adjusted EPS (FY26) | FY2026 | $30.00 at midpoint (+/- $0.40) (Raised) |
| Free cash flow (FY26) | FY2026 | $3.1B-$3.5B, conversion >100% (Raised) |
| Aerospace organic growth (FY26) | FY2026 | 9.5% (Raised) |
| Off-highway organic growth (FY26) | FY2026 | Neutral (Raised) |
| HVAC and refrigeration organic growth (FY26) | FY2026 | Positive mid-single digit (Raised) |
| Aerospace segment margin (FY26) | FY2026 | 29.5% (Raised 60 bps) |
| Interest expense (FY26) | FY2026 | $420 million (Raised $30M (Curtis funding)) |
| Full year tax rate | FY2026 | 22.5% |
| Incremental margins (FY26) | FY2026 | ~40% |
| Reported sales growth (Q2) | Q2 FY2026 | 6.5% |
| Organic growth (Q2) | Q2 FY2026 | 4% |
| Adjusted segment operating margin (Q2) | Q2 FY2026 | 26.6% |
| Adjusted EPS (Q2) | Q2 FY2026 | $7.10 |
Performance Breakdown
| Metric | YoY | Note |
|---|---|---|
| Total sales | +4% (organic +5%, currency +1%, divestitures -2%) | Mid-single-digit growth with positive organic across all segments for the first time in two years. |
| Aerospace systems sales | +13% organic | Commercial OEM strongest segment growing 24%; backlog reached a record level on robust demand across aero and defense. |
| Aerospace segment margin | +210 bps to 30% | Record top-line productivity, continued aftermarket strength, and a strong spares mix (51% OEM / 49% aftermarket). |
| DI North America sales | +2% organic | Aerospace and defense within industrial, in-plant/industrial equipment, and better-than-expected off-highway and construction. |
| DI North America margin | +170 bps to record 27.0% | Higher productivity, new business wins at strong margins, and favorable mix from resilient aftermarket. |
| DI International sales | +3% (organic +1%) | Asia-Pacific strongest at +6% drove outperformance; EMEA down 3% and Latin America flat. |
| DI International margin | +90 bps to record 25.0% | International teams executing the win strategy with strong cost controls. |
| Orders | +8% total | Order rates rose across all segments; North America +3%, international +6%, aerospace +15%. |
| Adjusted EBITDA margin | +240 bps to 27.3% | Operational strength and cost controls across the company. |
| Cash flow from operations | +5% to record $782 million | Strong earnings; 86% conversion in a historically second-half-weighted year. |
Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Gradual industrial recovery / North America turning positive | — | DI North America positive organic for first time in seven quarters; channel inventory near trough but no restocking yet | Rising |
| Aerospace strength and record margins | — | 11th straight quarter of double-digit organic growth, record backlog, 30% margin reached | Rising |
| Curtis Instruments acquisition and integration | — | Closed in September, added $235M to guide, slightly dilutive but EPS-accretive in stub year, integration well underway | Rising |
| Power generation / gas turbines | — | Robust multi-year backlog and durable aftermarket; PowerGen ~half of the ~7% energy vertical, expected solid growth for years | Rising |
| M&A pipeline and capital deployment | — | Pipeline active with deals of all sizes; net debt/EBITDA at 1.8, below 2.0 target; no additional buyback in guide | Steady |
| Data center / liquid cooling | — | Rapid growth but still less than 1% of sales; not yet large enough to be its own vertical | Rising |
| Tariffs and pricing | — | Analytics and processes to adjust up or down quickly; tariffs treated as cost recovery, not a margin expansion device | Steady |
| Transportation weakness | — | Most challenged market; mid-single-digit organic decline maintained, no truck recovery expected this fiscal year | Declining |
Q&A Summary
On the DI North America organic demand cadence and why the full-year guide embeds no acceleration from the September quarter.
North America came in at +2% versus guidance of -1.5%, helped by aerospace/defense, distribution, HVAC, electronics, and construction. Management expects Q2 much like Q1 at ~2% (prior full-year was 1%), citing continued industrial aero/defense strength, gradual in-plant recovery, selective customer CapEx, ongoing transportation weakness, and not all markets increasing. North America full-year margins were raised 70 bps.
On industrial international orders being better than expected and when higher orders flow through to organic growth.
Orders have been choppy (Q3 +11%, Q4 flat on non-repeating long-cycle orders), so it is not a steady ~5% average. EMEA is flat to slightly positive for the year amid uncertainty and a slow recovery, with some energy, mining, and future defense upside; Asia-Pacific is positive low single digit on strong electronics/semiconductor demand and growth in India and Japan, with China delays and tariff uncertainty.
On the aerospace margin strength and the mix impact as OE build cycles continue to improve.
Quarter mix was 51% OEM / 49% aftermarket, expected for the rest of the year. A strong spares quarter helped reach the record 30%. Full-year aero margin guide raised to 29.5% (up 100 bps YoY, +60 bps from initial guide) and Q2 to 29.1% (+90 bps YoY); management is confident in maintaining strong margins.
On the M&A pipeline given it has been a few years since Meggitt and Curtis is smaller.
Parker remains committed to actively deploying capital, preferring strategic, disciplined acquisitions where it is the clear best owner. The pipeline, relationships, and analysis remain very active with deals of all sizes, targeting acquisitions accretive to growth, resiliency, margins, cash flow, and EPS, though timing is hard to predict.
On Curtis Instruments' margin rate, integration, and positioning.
Curtis added ~$235 million of sales to the guide, comes in slightly dilutive at a high-teens to low-20s margin rate, is split roughly 50/50 North America and international, and is EPS-accretive even in the stub year. Integration is well underway with a dedicated integration leader and team.
On whether incremental margins stepping up to 40% could become a new norm versus the ~35% long-term target.
Management is pleased with the impressive incrementals but noted the math is easier when sales growth is modest. They continue to hold teams to a 30-35% model that varies with the cycle and are not ready to change that guidance yet.
More on Parker-Hannifin Corp
Reported 2025-11-06 · figures from the Parker-Hannifin Corp Q1 2026 earnings call.
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