Parker-Hannifin Corporation (PH) Earnings Call Transcript & Summary

We are really excited to have Parker-Hannifin with us today. We've got Todd Leombruno, who is the Executive Vice President and Chief Financial Officer of Parker. So Todd, as I walk over to you, obviously, there's still some economic uncertainty out there. But in general, your orders, your industrial orders have been inflecting positively. Distributor commentaries continue to support what seems like a gradual recovery.

So maybe just to get it out of the way, could you update us on whether you've seen any changes in the order patterns here over the first couple of months of the calendar year. And so we continue to think this recovery is gradual versus firing on all cylinders.

So first, Andy, thanks for having us. We always love coming to this conference. Thank you all for showing up. I know it's the last day of the conference, right? It is Thursday. It's right before lunch.

You're still in the morning.

Yes, we appreciate your time and attention here. Andy, I don't mean to disappoint you. I'm not here to talk about January or February. We were really proud that our orders turned so positive with the last quarter or second quarter. We just had our earnings call on the 31st, I believe, of January. And it has been a wonderful time to be part of the Aerospace business. Our aerospace orders continue to be robust. We're now on the fourth year of double-digit organic growth in aerospace. It has really been something that has been transformational for the company. The industrial side of the business, to answer your question, has been under some duress for the past 2 years. But our orders turned positive a few quarters ago. That trend has continued. We were really happy to see North America specifically pop up to plus 7. And what I can share is that we have tried to shift this business to more longer cycle business. That has been driving a lot of those orders in aerospace. We do have a fair amount of exposure to aerospace end markets in our industrial technologies in the filtration and in the Engineered Materials business. But we also saw some nice lift from things like power gen. And really on the shorter side of the business, construction turned positive, which we were happy about. And obviously, the sentiment from the distribution network has also been positive. And I would say it's probably equally split between longer cycle orders and shorter cycle orders, and we view that as a positive sign. If you remember, we started our guidance specifically in North America. We started the year at 1. We moved that to 2, and now we're at 2.5. So we hope to see that trend continue.

It's helpful color, Todd. So look, I think one thing also that Parker has done a really good job with is sort of price versus cost and managing the tariff uncertainty that's out there well. So maybe just could you talk through what you've done. How should we think about future impact on Parker's business because as tariffs lap, you might have some tailwinds there. So how should we think about price versus cost in general in the second half of '26 and beyond?

A key element of our strategy, and this is decades long now, has been making sure that we procure parts in the most efficient strategic manner, making sure we convert them in the most efficient manner using our tools of Lean and then making sure we get value from those on the price side. So for decades, we have very much closely monitored input cost and output prices. And our goal has always been to be positive on that. When we went through those inflationary times, the big spike in energy cost and logistics cost and labor cost, it really -- historically, we've been mainly focused on the material side. But with all those costs kind of spiking out of control, we knew that we had to move to a total cost coverage. And really, we flexed our tools to focus on total cost coverage. Tariffs specifically, we always looked at that as just another cost that we would have to control. And while the pricing muscle is strong, specifically on tariffs, we didn't just use price as a tool. We have had a local-for-local manufacturing strategy way before it was cool, way before people thought it was the most efficient thing to do. And the reason we did that is because we wanted to be close to our customers. We wanted to procure, convert and invoice in local currencies, and we wanted to keep inventory levels under control. And the best way we thought to do that was through a local-for-local model. That has been helpful when it comes to tariffs. Our global footprint has allowed us to utilize different production capabilities, different shipping routes that really the goal has been to minimize the impact of tariffs. And if none of those fail, we have dual sourcing elements in there as well. And if none of those work to mitigate tariffs, we would pull the pricing element and make sure that our commitment to you, our shareholders, would be that there'd be no margin degradation, no EPS degradation as a result of these tariffs that clearly are out of everyone's control. So that's what we've done. I don't think you've heard us call out any negatives or positives as a result of tariffs. We just consider it another cost that we have to manage.

Todd, so maybe a somewhat related question. I think I'm dating myself, but I kind of remember when The Win Strategy was being born. And it's been an integral part of Parker for a long, long time now. So maybe just talk about sort of where you are with the strategy itself and really around Lean and like how much more sort of improvement you have because obviously, your margins are already pretty high. So ability to continue to have greater than 30% incrementals.

Yes. I remember when the first Win Strategy was out, too, it's been now roughly 26 years that we've had a version of The Win Strategy. And what I've been telling people this week is the reason it got the name Win was we created it at a time when the company was not winning, right? We were doing okay, but we weren't clearly differentiating ourselves in the space when it came to things like operational excellence, like growth, like earnings per share growth and cash flow growth. So that's how it's got its name. And it has been unbelievably powerful. I think it has structurally and culturally changed the company. We've been able to post some numbers that have really convinced our team members that this is a never-ending journey of continuous improvement. We've been doing lean specifically that entire time. And I would tell you, when they say it's a journey, it really is a journey. If you could sit in some of our meetings, you would think that we were just learning Lean and just learning how to take waste out because it constantly changes. It constantly evolves, whether it's the products you're making, whether it's the lead times that you need to meet, whether it's the cost structure that you need to meet. And I would tell you, it's -- I'm unbelievably proud to be part of the team that is never satisfied with whatever our most recent Lean Kaizen is. So I would tell you, all of these tools are at various stages of maturity. Some businesses may be more advanced with a series of tools. Others may be advanced with a different series of tools. As we've brought these acquisitions into the company, right, we've done some pretty significant transactions. If you go back to CLARCOR, LORD, Exotic, Meggitt, which was the largest ever. Now Curtis. We had Exotic Metals in there and soon to be the filtration group. We have shared those tools of The Win Strategy with those new team members of ours. And all of these businesses that we acquired were already good businesses. Each one of them got significantly better when they executed the tools of The Win Strategy. So this will never stop. We're on version 3.0. Will there be a 4.0? Yes. But there's still enormous runway to go on our current version.

Todd, so I'm sure you don't want to guide to fiscal '27 on the stage. So I won't ask you officially to do that. But I will ask you about sort of the puts and takes, right? Industrial is sort of ramping in orders slowly. Maybe some people asking about more difficult comps in Aero. So how do you think about sort of this shorter cycle maybe getting a little bit better, longer cycle still staying the course. When you think about can you -- the 4% to 6% is your framework, so why shouldn't you be in your framework. Let's ask it like that?

Well, we're guiding to 5% organic growth at the midpoint. So we're right in that 4% to 6% range for FY '26. I think you guys all know that ends in June for us. I'm not going to guide for FY '27. We've got 6 more months before we do that. But your thesis is intact, right? Aerospace continues to be great. . It's hard to continue double-digit organic growth in that business just because of the comps get tougher. But I will tell you the pure sales dollars will continue to increase. So we like that. There are starting to be signs of life on the industrial side of the business, right? I think the longer cycle nature of that business is already intact. And we've been vocal. We've started to see construction turn a little bit. We've started to see some implant in industrial equipment, some positivity around that. Things like power gen have been really great, things like anything electronic has been really good, and we expect that to continue. So to answer your question, I don't see why it wouldn't be in that framework.

Got it. And probably your favorite question around margin targets because you are 3 years ahead of schedule when you're guiding to 27% to 27.4% for this year of margin. And so -- but operating leverage really hasn't helped you that much, at least on the industrial side. So maybe talk about what tracked ahead of your expectations. And why wouldn't it continue to do so. Again, I'm sure you don't want to set a new target here today, although you can, if you'd like.

So let me just start by saying we do have a set of FY '29 as our long-term targets. It is a combination of targets. It's growth 4% to 6% organically. The margin target you called out, 27% adjusted segment operating margins, 28% adjusted EBITDA margins. We want to grow EPS at a 10-plus CAGR every year. We want to get to 17% free cash flow. We want to keep that dividend record going. And we look at that holistically as a series of targets. We have clearly outperformed on the margin target. We are right on top of that 27% target. You called it out, it is 3 years early. You may say, "geez, how did you get there 3 years early." The clear answer is aerospace has been an unbelievable engine. We did not model 3 years of double-digit organic growth. We did not model a 50% aftermarket OEM mix. And to be honest with you, we've outperformed on the Meggitt synergies. We got those faster and sooner than we expected. And the combination of those 2 businesses made our legacy aerospace even better. So that was something we didn't expect to see come so soon. But if you look at the industrial side of the businesses, those businesses are operating at record margins as well. And to your point, we've had 2 years of negative top line growth in those businesses. And I would tell you, for however long you've tracked Parker-Hannifin, there has never been a time where the top line has been negative, and we've been able to not just maintain margin, but expand it. It really has been an unbelievable amount of work from the team. Jenny became CEO 3 years ago. She was crystal clear in her belief that we could expand margins. The opportunity that she saw across the company, she was very clear about that we can do everything better, no matter how well we're doing it today, there are opportunities for improvement, and the team has really delivered on that. And the 27 is not the end target. We would like to get there for a full year before we start committing on new targets. But rest assured, there is going to be a new target.

That's helpful, Todd. And maybe just digging in a little bit on sort of what you're seeing. I think you answered this question already to some extent, but I'm just curious, right, I think you said it's like kind of balanced, right? In short-cycle industrial recovery and also long cycle within industrial, right, is kind of helping you. Are there markets that you're starting to see turn though that are holding you back right now, like the trucks, the ags of the world? How do you think about that?

What we've started to say is construction has been a nice turn positive. Things like Power Gen have been positive. Things like commercial HVAC has been positive. We've started to see positive activity through the distribution network. Sentiment there has been positive for some time. In both channels, the distribution and the OEM network, we feel like inventories have been managed to levels of demand, so they're kind of pulling on demand. We're starting to hear like little pockets of selective restocking, right? Not anything material, but we're starting to hear that from our conversations with distributors. And we take all of that as a positive. Ag has still got a ways to go. And a lot of these things are muted recoveries. So we are not expecting or waiting for some kind of rapid increase, and we're kind of managing each technology, each product based on the demand that we see. We've never had better visibility than we have today. We've never had better tools to help us forecast and analyze the business. And what I love about our decentralized structure is each one of those P&L owners is adjusting their capacity and their cost based on the demands of those businesses.

And to your point on visibility, Todd, because you have such good visibility, like I'd like to ask you about like mega projects. When I sit here with other managements, they tell me, oh, we really haven't seen any unlocking of capital this year outside of data centers, of course. How would you sort of respond to that? There's OBBBA out there, too, reshoring. Like are you seeing any of that.

Yes. It is hard to kind of pinpoint that. You see all these things. We've got various tracking mechanisms of it. Parker-Hannifin loves that because we benefit in all cycles of that. We have some discrete examples of wins from these mega projects from infrastructure builds. What I tell everyone is it has helped keep us where we're at without all of that stuff, we'd be much less positive, in many cases, negative. So that has been a positive drive. The data center builds are real. There's activity going across there. I don't want you to think that Parker-Hannifin is going crazy on data centers, but it's a nice positive bit of growth in those businesses that are challenged in their other markets.

Got it. And your comments on your distribution, we know what's the strength of Parkers. And to your point on visibility, it's very interesting to me, right, because I think you've talked about them being positive for a while, right? But then they started to see better sellout. Maybe a couple of quarters ago, it started. Can you walk me through that? Like has sellout gotten better over the last few quarters. And you did mention maybe some limited restock. So where is that?

Yes. We've been saying gradual recovery for some time now. We're almost getting tired of saying it. What we do like to see is the order trends turn positive, that organic growth has turned positive. So we like that. Still an enormous amount of challenges out there from interest rates and tariffs and certain end markets still being under pressure. We feel like we're closer to the growth cycle than any kind of negative cycle. But I keep going back to our belief is it's going to be gradual. It will start in these selective markets and the others will pull through. And I think we're seeing evidence of that.

Got it. So I'm going to open up to the audience in a second. But maybe I wanted to turn to the international markets for a second. Asia has been pretty strong for you guys, led by electronics and semicon. It's been mixed for others. So maybe talk about what Parker does maybe better in those places? Or is it mix or...

Well, again, I mean, we have -- we're in region for region. That is true of our Asia Pacific region. There's nothing we make in Asia that we ship to other regions. It's pretty much in the region for the region. The Electronics business has come back. It has been a challenge in Asia Pacific post-COVID. That has historically been a growth engine for us. The way Asia opened up after COVID, it slowed growth. Where we have won is on those electronics on semicon, where we have won has been construction equipment is coming back. And what we have seen there is a lot of positivity from our team being able to serve locally local customers. It's been a plus.

Got it. And then I think you mentioned Europe posted its first organic growth after 7 quarters of decline.

Yes, Europe is more challenged, and we are excited about it. There's still a long way to go. Some of the comps are a little bit easier when you've got 7 quarters of negatives there. But the team is very much focused in Europe. They know what they've got to do. They are adjusting the businesses accordingly. And they're focusing on where we know we can win, where we can continue to expand margins. That alone, Europe has been negative for 7 quarters. They're posting record margins, right? So that is something that Parker-Hannifin of 3, 5, 10, 15, 20 years ago would never have been able to do. And it's really around rallying around those tools of The Win Strategy, taking actions that are difficult in a timely manner, not waiting for things to get better, but adjusting the businesses, demanding value from customers and just taking control of the environment that you're in.

Got it. And then I do think historically, you've had a particular strength in Latin America as well. Maybe to step back a little bit in your Q2. Anything.

Yes. I mean, Latin America, I've been unbelievably impressed with our team there. It is a small piece of the total company. But the last few years, they have really figured out how to operate in that region, right? It's probably the most challenging region from a currency standpoint, from an inflation standpoint, from a demand standpoint, and they've done unbelievably well. This is a tougher year for them, challenges in Brazil. But again, the team is -- if you looked at historically, these are all-time high margins, and I love that they're taking actions and taking control of the demand environment.

And one more before I open it up to the audience. Like you did talk about data centers, Todd. So obviously, it's still a relatively small part of the business. But certainly at this conference, one of the themes is that it's really been a wave again of big orders. And it's not just -- you have direct exposure, but you also have Power Gen exposure. Maybe talk about how much Parker now is exposed because it seems like there's multiple avenues.

What we've tried to do is we've tried to simplify the way we talk about the company. We've kind of shown 6 major market verticals. It is not yet those 1 of those 6 major market verticals. So it's still small for us. But what we love about it is this is existing technologies that we have being applied in these applications that are bringing value to those customers. And we hope someday that it does become one of those market verticals that we talk about. And the other thing is it pulls all those other technologies that we have. It helps on the construction side of the business. It helps on the filtration side of the business. All of those things are positives when these large projects take shape.

Yes. Questions from the audience questions. Any questions? None? Luckily, I have -- just stretching. Okay. So let's move to Aero then. So supply chains seem like they're getting better, but it seems like you've been able to navigate better than peers. So I mean, I think it's a good time to talk about your focus on supply chain and why you've excelled. And you mentioned at the beginning that part of the reason for the good margins you have is Aero. So we're all kind of focused on how much better can it get?

Well, I will tell you, I hear less and less noise about the entire supply chain today than I did a year ago, 2 years ago, certainly 3 years ago. And part of that is when you have 3 years of organic growth, you're able to invest, you're able to add capacity, you're able to deliver. But we've also partnered with our customers. I would say, the relationship between the aerospace customers and the aerospace team has never been more robust, never been more intense. Adding Meggitt to the portfolio helped with that. We got bigger with every one of our aerospace customers. We have more content on every platform than we did before. And we could do more for those customers than we've ever been able to do from a design standpoint, from a product improvement and retrofit standpoint, from a global service standpoint, and it's really been meaningful for the customers. I got to tell you, I think it's going to bode well for us when we get into the next-generation platforms. We've never been able to do more for our aerospace customers than we can now. On the supply chain side, our team has been working with that channel to share some of the tools of The Win Strategy to help them be able to deliver to these demand levels. So we view it as a partnership. We have a partnership with our customers. We have a partnership with our supply base. And I would tell you, less and less noise than I'm hearing as a result of all of that effort.

And Todd, you mentioned Meggitt went better than expected. So like what sort of lessons learned as you continue to do deals because you have.

Well, we'd love to do a deal and then roll into 3 years of double-digit organic growth. That's the biggest lesson that we've had. All of these transactions have been unique. All of them have been unbelievably meaningful. I think we have gotten better at identifying potential targets, at building relationships with potential targets on being able to clearly identify how we can make these businesses better. Every one of them has been a great business. We just made it better. And we've made it better using the same tools that we've used to make the legacy business better. And I would tell you the alignment we have across the company, I've been there 34 years now. It's never been stronger. And when you're able to post numbers like this, you get a lot of alignment on continuing to make changes. And it really has been an unbelievable driver of our performance. The other thing that we've done is because these things have been sizable, we've been able to create integration, an integration team for each one that we've taken our highest talent people from across the business. So it hasn't just been aerospace people integrating Meggitt. It has been our highest talent people from across the entire business and we have paired those with team members that have came from those acquisitions. So this wasn't a team of Parker people coming in and telling you how to run the business. This was a combined team, some Parker people, some people from the acquired business. And we set out to integrate and we had a clear plan on what that model looked like, and we monitor it every 2 weeks. So this is not -- you get a month, you get a quarter, you get 6 months. Every 2 weeks, it is a senior level meeting. Our CEO is in there. Our COO is in there. I am in there. Every one of our senior leaders that owns a synergy bucket for the transaction is in there. The integration team is in there. The business leaders from the group that is doing the acquisition is in there. And we get status updates. We find out what the barriers are. We figure out how to remove those barriers. We make sure they have what the support and what tools they need, and we'll see you in 2 weeks. So this is the way we've been able to do it, and it's been very successful. So that's something we didn't do in the past because we would do a lot of smaller ones, and it was hard to kind of -- you would -- they would get lost across the business so on and so forth. And that's exactly what we're going to do with the Filtration business. What we love about the Filtration business is, again, technologies that we know, very complementary, customers that we know, end markets that we are familiar with. And this is going to make us one of the largest industrial filtration offerings on the planet, which -- what can you not do when you have scale. It becomes really powerful. So we're excited about that. We saw a clear path to the $220 million in synergies that we called out. And I would tell you, our team is already assembled. We are talking with filtration group team members. Obviously, we're 2 separate companies until close. So there's -- we're running those businesses separately, but there's already progress being made.

I should just ask you about that now because you brought it up, Todd. So initial progress, you are talking to them a lot. So like any sort of initial findings on that $220 million. It seems like, again, given your process, I'm not going to tell you it should be a slam dunk but you tell me.

I don't want to get too far ahead. We'll share more of that when the time is right. But I would tell you, we feel very confident in the number. When you look at this business, our plan is to combine that with our existing filtration business. We talk about 85 discrete P&L owners that run those businesses that make those decisions every day. We think this is going to fit very nicely when there's not going to be any additional businesses. Those will all complement our existing businesses extremely well.

So getting back to aerospace aftermarket, again, it's been strong, expected to grow low double digits in FY '26. So again, you get -- you kind of mentioned this, the law of large numbers, it's several years in a row of this. So how do you think about the growth drivers on that side of the business for you guys? How much is continued sort of innovation, self-help going to lead to continued strong growth in that business.

I mean it's all of the above, right? Air traffic has been tremendous. People have had concerns, as this OEM ramps, are you going to have pressure. Is your aftermarket going to go down. We are glad the OEM is ramping. These are the investments that we've made years ago. We are ready to deliver those higher levels of sales. And we always say this internally, the reason we like the longer cycle business is because you have great visibility. When you know what you have to ship and you've got great visibility, you can do that in ways that are way more efficient than you can when you don't know what you need to ship or the quantities change. So we believe that there's enough self-help improvement that we have that we're not going to have any issues as that mix shift changes to be more OEM and slightly less MRO. Meggitt was a structural change to that mix. That added 800 or 900 basis points of aftermarket mix to our Aerospace business. And that has continued to be robust. We have combined our support organization. Meggitt had a support service MRO organization. We had a support sales and service organization, that's now one global organization. We go to market as Parker Aerospace. We're able to do so much more for customers than we did before, and that will continue to be a growth driver.

So Todd, to that point, you have 20% growth dialed in for '26 commercial OEs, right? Like...

Yes. Think about that, and we're at record margins within Aerospace.

It's pretty big, right. That's what I'm saying already. Like so do we just kind of -- do we still ramp up from here? Again, you mentioned sort of mix, but it's already growing pretty fast.

You're saying ramp-up margins?

OE like growth.

Yes. Yes. We expect that to continue. Sure.

And so like as that happens then, you just said you have enough sort of self-help to sort of offset the mix that we see.

Yes. And that's in the Aerospace business. Obviously, people have asked on the industrial side, boy, when volume comes back, are you going to have to inject a whole bunch of new costs in the business. The answer to that is no. The best way we convert earnings per share growth is by having a great top line. And there's nothing we can't do when that top line is growing. We're agnostic on where we take cost out of the business. We are relentlessly driven to do everything that we do better. And the tools that we have in this Win Strategy have been proven, and I have great confidence in them.

Todd, to that point, if industrials does inflect, if we go more than 2.5% growth, the tendency is to think very good operating leverage. How much do you balance sort of that versus plugging more money back into the business investments, all that kind of stuff ramping that up.

We've been asked a couple of times today, "Hey, have you done anything different on the investment because of the volume challenges or the tariff issues." The answer really is no. We're in this business for the long term. We have designed it to be CapEx light. We've committed to 2.5% of sales. That's roughly 50 basis points better than what we've done historically. And that 50 basis points is all around safety. It's all around productivity, automation. There's some technology in there. and we think it's the right number.

Got it. And then lastly in Aero, just to ask you about defense. Jenny on the call talked about maybe not seeing proposed stimulus of EMEA yet impacting '26. But it seems like there's a lot of money out there flashing around.

There's certainly a lot of talk about it. You can't go anywhere within Europe without them being positive about defense spending. It's a net positive for Parker-Hannifin. It's probably a year or 2 out would be my guess. We're well suited on the Eurofighter program. Obviously, the F-35, we've got great content on. So we're looking at that as a positive. And I'm confident that's going to come. I think it's just going to take a little bit while. It's not a short-term shot yet.

And Todd, it doesn't seem like you have any perturbations from U.S. government, like shutdowns, partial shutdowns, things like that, U.S. defense.

It's just -- listen, what we have learned is that the world is a complex place.

I think we've all learned that.

We call it VUCA within Parker-Hannifin. And whether it's a pandemic or tariffs or supply chain or logistics or energy or anything, what we've tried to do internally is we try to rise above it. We try to focus on keeping our team members safe. We try to focus on meeting our customers' needs and making sure we're doing that and achieving our financial commitments. And that's what's made Parker-Hannifin work.

Yes. So Todd, over the last several years, as you said, you've done some larger deals. So how do we think about it from here? You announced Filtration Group, you'll close it. Your balance sheet is still in good shape. You generate a lot of cash flow. So how much can you sort of do at once? Or how do you think about that. Yes.

Well, so I love what we've been able to do. The company has never been bigger. We've never been more profitable. We've never generated more cash. Our EPS algorithm is strong. So it gives us a lot of options, right? And we're going to be $23 billion when we close the Filtration Group annual sales. We play in a $150 billion space. The number of potential acquisition targets within that space is very robust. We continue to work relationships. We continue to work that channel. We never stop, whether we're announcing one or working on 8. It constantly is something that happens across the business. And we have seen how powerful it's been to the portfolio. We've seen how powerful it has been to our results. But we're not naive to know that anyone will do the same. They're all unique in themselves. We definitely do not want to have a bad acquisition. So we're not going to rush into anything. We won't do something just because the balance sheet is ready. I think you saw us over the last year, we did the largest number of buybacks that we've done in the history of the company because we felt that was a better use of the capital than doing any of the acquisitions that we could have done at that time period. We're really happy we got Curtis done. We're super happy we got the Filtration Group done. And I think what you're going to see from us is more of what we've done in the past, thoughtful acquisitions that make sense. There's not going to be a head scratcher announcement that, geez, why did Parker-Hannifin buy this. We're going to have to have a clear path to synergies to make that business even better than it already is. And it's going to have to be in customers and end markets and technologies that we're comfortable with.

I'm sure you like all of your technology platforms.

We do. We definitely do.

Yes, I know you do. But Filtration is going to be large now.

It is. It is.

Filtration aero will be sort of much larger than sort of Flow and Motion, for example.

Correct.

Do you then say, "Hey, I want to beef up Flow and Motion? Or do you like...

Yes. I mean, Curtis was obviously a small acquisition, but that was a commitment to bring more electronics into the Motion Systems technology. To be totally honest, transactions in those spaces are a little bit harder because we have such a great market position that much of that business we could go get in other ways if we wanted to versus having to acquire the market share. And there's just been better opportunities in the aerospace businesses and the filtration businesses and the Engineered Materials businesses, but we love them all. We would add to all of them. These technologies are not separate. They are totally interconnected. 2/3 of our sales comes from customers that are buying 4 or more technologies. Filtration fits with Motion Systems. It fits with flow and process control, it fits with Engineered Materials. When a customer applies these technologies, they all touch each other. They all work together. We believe we are best-in-class when it comes to building a system that requires all of those elements. And that's why we love all of those technologies.

So last question, Todd. What are the top 2 or 3 innovations and structural changes affecting your company over the next 5 years? And are there any emerging industry trends that are perhaps being overlooked in the current discourse?

Yes. I mentioned it already. We have been extremely close to our customers globally. We haven't had to take any flyers on risky things. All of our innovation is tied to an alpha customer. The biggest thing that I would say that we're talking about now is that next generation of aircraft. We've never had a stronger presence in aerospace. We've never been able to do more. That is meaningful to those decision-makers in the aerospace end markets because the value that we bring is greater than we've ever been able to bring before. So we have never been more set to win those contracts, and that's probably something that we're most focused on. When you look across the rest of the portfolio, the world continues to get more electronic, whether that's in aerospace or other applications, we are going to be supportive with that. We think there's true value in that. And those are the 2 things that we've been driving. And I think that those are great things for Parker-Hannifin in the future.

Excellent. Well, we're almost out of time. So we appreciate it. Thanks, Todd.

This was wonderful. Thank you all for sticking with us through lunch.