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.
| 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 |
| 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. |
| 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 |