What Management Said
Read the full Q2 2026 transcript ↗The agenda for the call today has Jenny starting with an overview of our record FY26 Q2 performance. We will both provide some details on the increase to our guidance that we released this morning. Our team delivered record Q2 sales of $5.2 billion, Organic Growth of 6.6%, and 150 basis points of margin expansion, resulting in 27.1% Adjusted Segment Operating Margin. Adjusted Earnings Per Share grew 17%, and cash flow from operations was $1.6 billion.
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. We win with innovative and differentiated product technology, subsystems, and full system capabilities designed to increase the capability and productivity of our customers. The acquisition of Filtration Group adds complementary and proprietary technologies for critical applications while expanding our presence in life sciences, HVAC and refrigeration, and in-plant industrial market verticals.
The combination of Parker Filtration and Filtration Group creates one of the largest global industrial filtration businesses and increases Parker Filtration aftermarket sales by 500 basis points. This strategic transaction continues our investment in high-quality businesses that continue to transform our portfolio, accelerate sales growth, improve profitability, and drive shareholder value. The acquisition of Filtration Group will continue our track record of accretive acquisitions. We are proud to have once again set new records for sales, adjusted segment operating margin, EBITDA, net income, and EPS.
What went well
- Parker delivered record Q2 sales of $5.2 billion, up 9% versus prior year, with organic growth of 6.6%.
- Adjusted segment operating margin reached a record 27.1%, up 150 basis points from the prior year, and adjusted EPS grew 17% to a record $7.65.
- Order rates were positive across all reported businesses, with total company orders up 9% and backlog increasing to a record $11.7 billion.
- The Aerospace Systems segment posted record sales of $1.7 billion, up 14.5%, with adjusted segment operating margin up 200 basis points to 30.2%, driven by strong commercial OEM and aftermarket demand and a record $8 billion backlog.
- International sales reached a record $1.5 billion, up 12%, with Europe turning to positive organic growth of 2% and Asia-Pacific the strongest at +9%, and international margins hit a record 26%.
- Cash flow from operations was $1.6 billion, or 16% of sales, the company announced the acquisition of Filtration Group Corporation, and it raised full-year guidance across the board.
What went wrong
- Transportation demand challenges persisted in both truck and auto, with the segment forecast remaining at mid-single-digit organic decline and no truck OEM recovery expected this fiscal year.
- Agriculture remained under pressure within the off-highway vertical, and upstream oil and gas stayed soft within energy.
- First-half free cash flow saw a drag from working capital and the timing of some tax payments, though management expects this to be a first-half-only issue.
- Latin America was down slightly at 3% versus prior year, and North America margin was modestly lower in Q2 than Q1 on less favorable mix.
Guidance Changes
| Metric | Period | Current guidance |
|---|---|---|
| Reported sales growth | FY2026 | 5.5%-7.5% (6.5% midpoint) (raised) |
| Organic sales growth | FY2026 | 4%-6% (5% midpoint) (raised) |
| Adjusted segment operating margin | FY2026 | 27.2% (raised 20 bps) |
| Adjusted EPS | FY2026 | $30.70 midpoint (+/- $0.30) (raised, +12.3% vs prior year) |
| Free cash flow | FY2026 | $3.2B-$3.6B (~$3.5B midpoint), conversion >100% (raised) |
| Aerospace organic growth | FY2026 | 11% (raised) |
| Off-highway organic growth | FY2026 | positive low single digit (raised) |
| North America organic growth | FY2026 | 2.5% (raised) |
| International organic growth | FY2026 | 2% (raised) |
| AMEA organic growth | FY2026 | low single digits (raised) |
| Asia-Pacific organic growth | FY2026 | positive mid single digit (raised) |
| Reported sales | Q3 2026 | ~$5.4 billion (~8.5% up) (increase to prior guide) |
| Organic sales growth | Q3 2026 | 5% (increase to prior guide) |
| Segment operating margin | Q3 2026 | 27% (increase to prior guide) |
| Adjusted EPS | Q3 2026 | $7.75 (increase to prior guide) |
| Interest expense | FY2026 | $415 million (down $5 million) |
Performance Breakdown
| Metric | YoY | Note |
|---|---|---|
| Total company sales | +9% | Organic growth of nearly 7%, currency favorable 2%, acquisitions favorable 1.5%, partly offset by a 1% divestiture headwind. |
| North America organic growth | +2.5% | Slightly better than expectations on strength in off-highway and aerospace and defense verticals. |
| North America adjusted operating margin | +80 bps to record 25.4% | Incrementals of 52% from operational execution. |
| International sales | +12% to record $1.5B | Organic growth of 4.6%, with Asia-Pac strongest at +9% and Europe positive at +2%; benefited from timing of large project shipments in power gen and commercial HVAC filtration in AMEA. |
| International adjusted operating margin | +190 bps to record 26% | Improvements in productivity and solid operational execution. |
| Aerospace Systems sales | +14.5% to record $1.7B | Organic growth of 13.5% driven by commercial OEM and aftermarket including strong spares and repairs volume. |
| Aerospace adjusted segment operating margin | +200 bps to 30.2% | Higher volumes aided productivity along with strong commercial spares and repairs. |
| Net income | $980 million (18.9% return on sales) | Strong growth and margin expansion across businesses. |
| Commercial aerospace aftermarket | +17% in Q2 (13% in Q1) | Continued strength in commercial markets. |
Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Filtration Group acquisition | announced in November | Integration planning underway with proven playbook; expected to close 6-12 months from announcement; ~$220M cost synergies targeted by end of year three; no revenue synergies modeled but upside seen | Rising |
| Aerospace and defense strength | — | Record sales and margins, record $8 billion backlog, order rates +14%, led by commercial markets; multi-year A&D orders also boosting industrial businesses | Rising |
| Industrial short-cycle recovery | — | Described as gradual; positive distributor sentiment and quoting activity, but customer CapEx remains selective toward productivity and automation over capacity expansion | Rising |
| Orders outpacing sales / record backlog | — | Orders have outpaced sales for 8 quarters; record total backlog of $11.7B; industrial backlog grew from Q1 to Q2, reflecting longer-cycle business mix | Rising |
| Incremental margins | — | Over 40% delivered; full-year guided to 40% with H2 at 35%, which management views as best in class | Steady |
| Tariffs | — | Volatile but covered; no negative impact called out; managed through pricing discipline with margins at all-time records | Steady |
| Off-highway | negative low single digit (August), then neutral (Q1) | Raised to positive low single digit on construction and mining growth while ag remains under pressure | Rising |
Q&A Summary
Diversified Industrial technology platforms saw positive organic growth across all three for the first time since June 2023 - is this Parker-specific or cyclical, and what does it imply for the Filtration Group deal?
Management said it is a combination: some Parker-specific, plus a return of short-cycle business such as off-highway, and strong aerospace within the industrial businesses; distribution had low single-digit organic growth. Filtration Group is expected to see improving organic growth too, supporting the view it was acquired near a cyclical bottom.
Could you give more color by region - is Europe's turn durable and is APAC's outlook still good?
Management raised North America to 2.5%, international to 2%, AMEA to low single digits, and Asia-Pacific to positive mid single digit; cited industrial/aero/defense strength in North America, large project shipments in AMEA, and electronics/semiconductor demand plus China mining improvement in Asia-Pacific, with tariff uncertainty noted.
On the 40%+ incremental margins - how long before you raise the 30%-35% guide, and what is driving it: price or execution?
Management guided H2 incrementals at 35% (40% full year), said it is best in class and driven by a litany of factors varying by business, with margins at all-time highs; the CEO attributed it to strong operational execution.
Why does international growth slow to 2% in Q3 and Q4 despite easier comps - are you being conservative?
Q2 benefited from timing of large project shipments in power gen and commercial HVAC filtration in AMEA that will not repeat in Q3; the 2% reflects continued gradual industrial recovery, and they noted the prior international guide had effectively been doubled.
Over the last decade implied volumes are roughly flat - do you agree, and do you need through-cycle volume growth?
Management said the portfolio has changed tremendously with more Engineered Materials, Filtration, and aerospace/defense; the company has a 4-6% long-term organic target and is guiding 4-6% this year despite 2+ years of industrial choppiness, and is proud to generate record margins in a weak organic environment.
On Filtration Group integration - any early confidence on cost synergies and view on sales synergies?
Management expressed high confidence in delivering the $220 million in synergies by end of year three, supported by diligence plant visits; no revenue synergies were modeled but they see upside from shared customer relationships and distribution networks.
More on Parker-Hannifin Corp
Reported 2026-01-29 · figures from the Parker-Hannifin Corp Q2 2026 earnings call.
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