Parker-Hannifin Corporation (NYSE:PH) Q2 2023 Earnings Call Transcript

Jennifer Parmentier: Yes. Thanks for the question, Andrew. So the beauty of the Win Strategy and the lean tools that are inside of the Win Strategy is really all about constantly looking at optimizing our lead times. So as far as restructuring the way we look at it, I wouldn’t say we’re going to do that, but I would say we’re going to continue to look to have those best-in-class lead times. The supply chain, I would characterize it as it’s healing. We are seeing some improvement. The one thing that we will really continue to do is increase our dual sourcing and our local-for-local model that has really helped us out. It also helps us that our teams are in a decentralized structure, and they’re able to work closely with the customers. So I think that those are some of the keys that help us work closer with our suppliers and really help us have a good look into the future so we can best utilize our resources and our capacity.

Andrew Obin: Got you. And just a follow-up question on CapEx when you talk about your capital deployment priority. You sort of said CapEx target 2%. I may be wrong, but I recall sort of having conversations where you sort of thought maybe you needed on the margin to have capacity in places like Mexico, et cetera, and maybe take it off a bit to deal with what’s coming in terms of the cycle. A, have you changed your view? Is that a function of Meggitt? And just generally, maybe how do you think about capacity additions, given what you’re seeing over the next couple of years in terms of broader CapEx cycle trends?

Jennifer Parmentier: No, we have not changed our position. We’re doing exactly what we said we were going to do. We have a need to increase capacity in a couple of our operating groups. And obviously, we’ll invest in Meggitt in the future as well. So that position remains the same.

Todd Leombruno: Andrew, I would just add, if you look at historically over the last couple of years, our CapEx has been about 1.4% of sales. So you look at it today, it’s a 2.1%. That’s a pretty significant increase for us. And of course, as the sales of the company increased, that’s more CapEx dollars that we’ve got to spend there. So we think that 2% number is right, including Meggitt, including all the supply chain initiatives that we’re looking for as well. And it might be a little bit bumpy, but you’re not going to see it too far about that, too.

Operator: And one moment for our next question. Our next question will come from Scott Davis of Melius Research.

Scott Davis: I was hoping to dig into supply chain a little bit and not necessarily what’s going on this quarter, but the longer-term fixes and priorities and such. And so when you think about supply chains, there’s a notion of kind of localization and dual sourcing. Some of that, in some ways, feels almost inflationary. But then there’s the other component of kind of streamlining supply chains and driving more productivity and it becomes kind of a cost tailwind. How do you guys think about the priorities that you’re trying to — now that kind of COVID is less of a problem around the globe? How do you think about those priorities and the puts and takes behind kind of costing you more but maybe saving you more? I’ll just stop there and leave it open ended.