Parker-Hannifin Pricing Spineometer: 5 of 5 Vertebrae

Parker-Hannifin, a global motion and control company selling hydraulics and other technologies to aerospace and other industries, had a positive Q2 2024.  Revenue rose 3.1% to $4.8 billion and earnings before interest and taxes rose 46% to $911 million over the same period last year.

A review of Parker-Hannifin’s Q2 2024 earnings call held on 1 February 2024 and the recent financial report provided insight regarding the importance of pricing on performance.

Jennifer A. Parmentier, CEO of Parker-Hannifin, takes a proactive stand on price management.  When asked about price adjustments in the past and future, she stated: “Just kind of a reminder with pricing, we went out early and often, some of these really historical inflationary times over the last couple of years. We are now back at our regular pricing cadence of January and July. And, I would just say that the increase that we just did was very modest. I wouldn’t consider it a higher increase for fluid power. So, and that’s what we, barring any major changes, that’s what we expect to see going into the future. So, we still are in inflationary times, and there’s some of those inflationary cost drivers that aren’t going to reverse. So, looking forward, this is what we see right now, but we’ll continue to use the pricing tools that we’ve always used in the past.”

From an industry benchmark perspective, we would expect Parker-Hannifin to have 40 to 200 professionals engaged in pricing.

1. Price management with major accounts and long-term customers requires careful calibration of how to move prices in relation to inflation and yet retain customer loyalty for future systems.
2. Working with technology-driven solutions and serving rapidly evolving customer needs, Parker-Hannifin would benefit from having a team focused on quantifying the value of different solutions to customers for new product development.
3. Serving clients globally and often through distribution partnerships would present complexity in managing price variances through discounts and rebates for different countries that have different practices.
4. Pricing at Parker-Hannifin must also manage currency fluctuation challenges such as the high inflationary environments in Venezuela, Turkiye, and Argentina.
5. Macroeconomic variations across geographies, such as a reported slowdown in China, a tepid European market, a flat North American market, and then strong growth in Latin America, highlight the need to incorporate macroeconomic thinking in price management to prevent unnecessary price concessions in reaction to temporary sales quantity fluctuations.

All these items indicate a need for a pricing capability in the upper half of industry benchmarks. The comments by Jennifer A. Parmentier, CEO, and others by Todd M Loembruno, CFO, lead to expectations that the capability exists.

Research into the investment by Parker-Hannifin in pricing yielded highly encouraging results.  Well over 100 professionals could be identified as specializing in pricing at Parker-Hannifin.  Their roles varied from analyst and manager to director and vice president. As is fitting for Parker-Hannifin’s global presence, pricing professionals were identified across the United States and the world including Sweden, Netherlands, United Kingdom, Germany, Spain, Poland, Singapore, and many other countries.  Pricing individuals were often aligned with customer segments such as filtration, aerospace, or off-highway automotive.  Some were focused on operations, others on data science, and a few even mentioned economics itself.

Pricing capability is so core to Parker-Hannifin’s leadership that it is a part of their leadership development program for future managers.

Given the importance and capability of pricing at Parker-Hannifin as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of March 2024.

Parker-Hannifin Pricing Spineometer: 5 out of 5 Vertebrae.

PH (Parker-Hannifin Corporation) rose from 463 the day prior to their earnings call to 513 one week later. FY 2023 revenue of $19.1 billion with a 16% operating margin and P/E ratio near 29.

For FY 2023, a 1% improvement in price would yield 6.2% improvement in operating profits holding all else constant at Parker-Hannifin.