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.
| 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) |
| 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. |
| 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 |