Parker-Hannifin Corp. (NYSE:PH)

Current Income Tax Expense

The current income tax expense displays a fluctuating trend over the periods analyzed. Starting at $307.8 million in June 2017, it nearly doubled in June 2018 to $682.4 million, indicating a significant increase in taxable income or tax rates during that period. In June 2019, it decreased substantially to $388.0 million, followed by a further decline to $292.2 million in June 2020. Afterwards, the current tax expense rose again to $551.6 million in June 2021 and increased further to $649.2 million in June 2022. Overall, the current income tax expense shows volatility with pronounced peaks in 2018 and 2022.

Deferred Income Tax Expense

The deferred income tax expense line exhibits more pronounced fluctuations, including both positive and negative values, reflecting changes in timing differences for income recognition or tax rate adjustments. It began with a positive expense of $37.0 million in June 2017, swung sharply to a negative $41.4 million in June 2018, suggesting a deferred tax benefit. June 2019 saw a return to a positive expense of $32.5 million. In June 2020, the expense continued positive but decreased to $13.7 million. However, the following periods reveal significant deferred tax benefits: negative $51.5 million in June 2021 and an even larger negative amount of $351.2 million in June 2022. This substantial negative deferred tax expense in 2022 likely reflects a considerable deferred tax asset recognition or a reversal of earlier deferred tax liabilities.

Total Income Tax Expense

The total income tax expense, which aggregates current and deferred amounts, mirrors the volatility observed in both components. It increased from $344.8 million in June 2017 to a peak of $641.0 million in June 2018, before decreasing to $420.5 million in June 2019 and further down to $305.9 million in June 2020. It increased again to $500.1 million in June 2021 but then sharply declined to $298.0 million in June 2022. The sharp decrease in 2022 is driven principally by the large deferred tax benefit recognized in the same period.

Summary of Insights

The financial data reveals significant variability in both current and deferred income tax expenses over the six-year period. The current tax expense generally follows fluctuations that could correspond to changes in taxable earnings or tax regulations. The deferred tax expense line, with its swings between positive and negative values, suggests adjustments in tax timing differences, valuation allowances, or tax rate changes. The dramatic deferred tax benefit in 2022 notably impacts the total tax expense, resulting in a lower overall tax expense despite relatively high current taxes. These patterns indicate dynamic tax management and possible impacts from tax law changes or adjustments in deferred tax asset and liability recognition.

The analysis of the tax-related financial data over the six-year period ending June 30, 2022, reveals several notable trends and patterns in various tax components and the overall effective income tax rate.

Statutory Federal Income Tax Rate

The statutory federal income tax rate experienced a significant decline from 35% in 2017 to a stable 21% from 2019 onwards. This reduction aligns with changes in tax legislation and has remained consistent through 2022.

State and Local Income Taxes

State and local income taxes showed a decreasing trend over the period. Beginning at 1.7% in 2017, it gradually fell to slightly negative values (-0.2%) by 2022, indicating either refunds or adjustments reducing the overall state and local tax burden.

Tax Related to International Activities

Initially negative at -5.5% in 2017, suggesting tax benefits or credits from international operations, this component fluctuated but generally showed a positive shift, reaching 3.6% in 2021 before slightly decreasing to 2.7% in 2022. This indicates a variable impact of international activities on the tax rate, possibly reflecting changes in global tax regulations or operational footprint.

Transition Tax Related to the TCJ Act

Data for the transition tax related to the Tax Cuts and Jobs Act (TCJ Act) appear only between 2018 and 2020. It peaked at 17.5% in 2018, sharply declining to near zero or negative values in subsequent years, indicating the temporary effect of this tax component during the initial implementation period of the act.

Remeasurement of Deferred Tax Assets and Liabilities Related to the TCJ Act

This component showed negative values in 2018 and 2019 (-4.8% and -0.9%, respectively), and no values afterward, aligning with adjustments related to the TCJ Act that were resolved or stabilized after 2019.

Cash Surrender Value of Life Insurance

This tax component was negative in the earlier years, with a slight increase toward zero, turning positive in 2022 (0.5%). This suggests minor fluctuations in the impact of life insurance values on tax calculations, with a mild positive contribution in the latest year.

Federal Manufacturing Deduction

The deduction was negative around -0.9% to -1% in 2017 and 2018 but became negligible or zero in later years, indicating a phase-out or reduced relevance over time.

Foreign Derived Intangible Income Deduction

Introduced from 2019, this deduction has increased in its negative impact on the tax rate from -1% to -3.7%, showing a growing benefit presumably due to international intangible income optimization strategies.

Research Tax Credit

The research tax credit remained stable and modest throughout the period, fluctuating between -0.8% and -0.4%, indicating a consistent though small reduction in taxable income due to research activities.

Share-Based Compensation

There is a noticeable decline in the negative impact of share-based compensation from -2.7% in 2017 to -1.3% in 2022, suggesting reduced tax benefits or changes in the structure, valuation, or utilization of share-based compensation over time.

Other

The "Other" category fluctuated with no clear pattern, staying between -0.6% and 1%, indicating minor miscellaneous tax effects without a sustained trend.

Effective Income Tax Rate

The effective income tax rate shows volatility with an initial rise from 26% in 2017 to 37.7% in 2018, likely influenced by the TCJ Act transition tax impact, followed by a sharp decrease to around 20% in 2020. The rate stabilized between 18.5% and 22.3% in 2021 and 2022, reflecting the combined influences of statutory rates, deductions, credits, and one-time tax adjustments settling into a lower effective tax burden post-2018.

Overall, the data indicate a significant restructuring of the tax landscape affecting the company, primarily driven by legislative changes, such as the TCJ Act, and evolving international tax considerations. The effective tax rate benefited from lower statutory rates and growing deductions, particularly related to foreign income and research credits, despite fluctuations due to one-time transitional tax effects. The gradual reduction in certain tax benefits, such as share-based compensation and manufacturing deductions, suggests ongoing adjustments in tax strategy or regulation compliance.

The financial data reveals several notable trends across the years ending June 30, 2017 to June 30, 2022. A general decline can be observed in various long-term liabilities and valuation-related items, alongside fluctuations in foreign exchange impacts and deferred tax balances.

Retirement Benefits

This liability decreased substantially from $571 million in 2017 to $207 million in 2022. The most significant drop occurred between 2017 and 2018, followed by some volatility but an overall downward trend, suggesting diminishing retirement-related obligations or changes in actuarial assumptions.

Other Liabilities and Reserves

These showed variability but a moderate increasing trend, starting at approximately $145 million in 2017 and rising to about $181 million in 2022. This reflects either growth in miscellaneous liabilities or additional reserves held over time.

Long-term Contracts

Values declined sharply from $61 million in 2017 to below $9 million by 2022, indicating either the completion, reclassification, or reduction of long-term contractual obligations.

Stock-based Compensation

Compensation expense related to stock-based incentives decreased from approximately $60 million in 2017 to roughly $31 million in 2022, reflecting potential changes in employee remuneration policies or grant activity.

Loss Carryforwards

This tax asset steadily increased from $679 million in 2017 to $889 million in 2022, potentially indicating accumulation of deferred tax benefits from operating losses or tax credits that remained available.

Unrealized Currency Exchange Gains and Losses

There was significant volatility in gains and losses, with values fluctuating from gains of around $22 million in 2017 to a peak of $254 million in 2022. Despite some years with lower figures, the marked increase in 2022 could reflect currency market volatility or changes in foreign operations' exposures.

Inventory

Inventory balances were generally low and variable, with an unusual negative value recorded in 2021 at approximately -$11.7 million before recovering to positive $14.6 million in 2022. This anomaly may be due to accounting adjustments or inventory write-downs.

Tax Credit Carryforwards

Data show irregular figures with some missing values, but overall amounts fluctuated around $15 million to $33 million across the years, demonstrating the availability of tax credits as deferred tax benefits with no clear directional trend.

Undistributed Foreign Earnings

The figures were negative and relatively stable, between approximately -$16 million and -$22 million, suggesting consistent foreign earnings not repatriated or recognized in the income statement.

Depreciation and Amortization

Depreciation and amortization expenses decreased from approximately -$1.08 billion in 2017 to around -$875 million in 2022, with a notable dip in 2019. This may indicate asset base fluctuations or changes in depreciation policies.

Valuation Allowance

The allowance related to deferred tax assets increased in magnitude, moving from around -$684 million in 2017 to about -$902 million in 2022. This rise suggests increasing uncertainty or skepticism regarding the realizability of deferred tax assets.

Net Deferred Tax Asset (Liability)

This liability fluctuated but generally remained negative, with values worsening from approximately -$186 million in 2017 to a peak negative of -$450 million in 2021 before improving to about -$196 million in 2022. The volatility could reflect changes in tax positions, asset valuations, or corporate earnings.

Overall, the data indicate a reduction in pension liabilities and long-term contractual obligations, increased recognition of valuation allowances on tax assets, and considerable variability in currency exchange effects and deferred tax liabilities. These trends underscore changing risk profiles and financial management adjustments over the observed period.

Deferred Tax Assets

The deferred tax assets showed a significant increase from 36,057 thousand US dollars in mid-2017 to 150,462 thousand in mid-2019, indicating a positive trend in recognized future tax benefits during this period. However, after this peak in 2019, the deferred tax assets decreased to 126,839 thousand in 2020 and continued declining to 104,251 thousand in 2021. In the most recent period of mid-2022, there was a slight recovery to 110,585 thousand. Overall, the deferred tax assets experienced considerable volatility, peaking in 2019 and then declining before a minor rebound.

Deferred Tax Liabilities

The deferred tax liabilities demonstrated a different trend. Starting at 221,790 thousand in mid-2017, they slightly increased to 234,858 thousand in 2018. However, in mid-2019, there was a notable decline to 193,066 thousand, which was followed by a substantial surge to 382,528 thousand in 2020. This sharp increase continued into 2021, reaching a peak of 553,981 thousand. In mid-2022, deferred tax liabilities decreased markedly to 307,044 thousand. This pattern indicates significant fluctuations with a peak in 2021 before a decline in the last reported period.

Summary of Trends

Both deferred tax assets and liabilities exhibited considerable volatility over the six-year period. Deferred tax assets increased sharply until 2019, then gradually declined, while deferred tax liabilities fluctuated more dramatically, with a sharp rise in 2020 and 2021 followed by a notable reduction in 2022. These movements suggest changes in the company's tax position, possibly influenced by varying tax regulations, timing differences, or changes in asset valuation affecting deferred tax calculations.

The analysis of the financial data over the six-year period reveals several notable trends in the reported and adjusted figures related to assets, liabilities, shareholders' equity, and net income attributable to common shareholders.

Total Assets

Reported total assets show a steady increase from approximately 15.49 billion US dollars in 2017 to about 25.94 billion in 2022. The adjusted total assets follow a similar upward trajectory, rising from around 15.45 billion to approximately 25.83 billion over the same period. This growth indicates a consistent expansion of the asset base, with a significant acceleration observed between 2021 and 2022.

Total Liabilities

Reported total liabilities exhibit a more fluctuating pattern. Initially, liabilities decreased from about 10.22 billion in 2017 to 9.45 billion in 2018, then rose sharply to 13.61 billion by 2020. In 2021, liabilities declined to around 11.93 billion before markedly increasing to approximately 17.08 billion in 2022. The adjusted liabilities mirror this trend, with a decline in 2018, a rise peaking in 2020, a reduction in 2021, and a significant increase in 2022. The pronounced growth in liabilities in the most recent year suggests increased leverage or additional debt acquisition.

Shareholders’ Equity

Reported shareholders’ equity steadily increased from about 5.26 billion in 2017 to 8.85 billion in 2022. Adjusted shareholders’ equity also grew consistently from approximately 5.45 billion to 9.04 billion over the same period. The most significant increase occurred between 2020 and 2021, indicating strengthening equity possibly due to retained earnings or capital injections.

Net Income Attributable to Common Shareholders

Reported net income rose from roughly 983 million in 2017 to a peak of approximately 1.75 billion in 2021, before declining to around 1.32 billion in 2022. Adjusted net income shows a less consistent pattern: it increased from about 1.02 billion in 2017 to a peak of 1.54 billion in 2019, decreased slightly in 2020, rose again in 2021, and then significantly dropped to approximately 964 million in 2022. This divergence between reported and adjusted net income in recent years may indicate adjustments related to tax effects or other non-operational factors affecting the adjusted figures. The sharp decline in adjusted income in 2022 contrasts with the reported income trend, suggesting a notable impact from these adjustments.

In summary, the data reflects sustained asset and equity growth, with liabilities increasing sharply in the latest year. Net income trends show variability, particularly in adjusted figures, highlighting potential influences from tax or accounting adjustments. The financial position appears to strengthen overall, though increasing liabilities and volatility in adjusted earnings warrant careful attention.

Net Profit Margin Trends

The reported net profit margin exhibited fluctuations over the period, beginning at 8.18% in 2017 and rising to a peak of 12.17% in 2021 before declining to 8.29% in 2022. The adjusted net profit margin followed a similar pattern, albeit with a generally lower level, ending at 6.08% in 2022 after peaking at 11.81% in 2021. This indicates variability in profitability, with both metrics declining notably in the most recent year.

Total Asset Turnover Trends

There was a general downward trend in total asset turnover ratios. The reported figure started at 0.78 in 2017, increased to a high of 0.93 in 2018, but subsequently declined each year to reach 0.61 by 2022. The adjusted total asset turnover mirrored this trend closely, indicating a consistent decrease in the efficiency with which the company utilized its assets to generate revenue over the period.

Financial Leverage Trends

Reported financial leverage fluctuated within the range of 2.42 to 3.23, with a notable increase in 2020 to 3.23 followed by a decrease to 2.93 in 2022. The adjusted financial leverage exhibited a similar pattern, though generally at slightly lower levels than reported values. This suggests changes in the capital structure, possibly reflecting shifts in debt levels or equity financing over the years.

Return on Equity (ROE) Trends

The reported return on equity showed a rise from 18.69% in 2017 to a peak of 25.37% in 2019, before declining to 14.87% in 2022. The adjusted ROE trend was broadly consistent but with a sharper decrease to 10.66% in 2022. This sharp decline in adjusted ROE indicates that underlying operational performance and adjustments related to income tax may have impacted shareholder returns adversely in the last year.

Return on Assets (ROA) Trends

Reported ROA improved from 6.35% in 2017 to 8.6% in 2019 and then displayed volatility, ending at 5.07% in 2022. Adjusted ROA followed a similar pattern, peaking at 8.87% in 2019 and dropping more significantly to 3.73% in 2022. The decreasing ROA, especially the adjusted figure, signals reduced overall asset profitability after accounting for tax adjustments in the recent period.

Summary Insights

Overall, the company demonstrated varying profitability and efficiency metrics over the six-year span. Profit margins and returns peaked around 2019-2021 but declined in 2022. Asset turnover showed a persistent decline, indicating potential challenges in utilizing assets effectively. Financial leverage fluctuated, suggesting changes in financial policy or capital structure. The more pronounced declines in adjusted profitability and returns in 2022 imply that tax-related adjustments have an increasingly negative effect on reported financial performance, highlighting a need for careful monitoring of tax and operational factors going forward.

The analysis of the annual reported and deferred income tax adjusted financial data reveals distinct trends in profitability metrics over the examined periods.

Reported Net Income Attributable to Common Shareholders

This metric exhibited an overall increasing trend from 2017 through 2021, starting at approximately $983 million and peaking at about $1.75 billion in 2021. However, there was a notable decline in 2022, where net income decreased to roughly $1.32 billion. This suggests a period of growth followed by a downturn in the most recent year analyzed.

Adjusted Net Income Attributable to Common Shareholders

The adjusted net income followed a somewhat similar pattern with increases from 2017 ($1.02 billion) to 2019 ($1.54 billion) and remained high through 2021 ($1.69 billion). Notably, there was a more pronounced decrease in 2022 to approximately $964 million, indicating that when accounting for deferred income tax adjustments, the decline became more significant compared to reported figures.

Reported Net Profit Margin (%)

The reported net profit margin demonstrated fluctuation across the years. It began at 8.18% in 2017, dipped to a low of 7.42% in 2018, then increased substantially to 12.17% by 2021. This increase suggests improved profitability efficiency in generating net income relative to revenue during this period. In 2022, the margin dropped again to 8.29%, aligning with the net income decline observed.

Adjusted Net Profit Margin (%)

Adjusted net profit margin showed a similar trajectory, starting at a slightly higher 8.48% in 2017, decreasing to 7.13% in 2018, and rising to 11.81% in 2021. However, the margin declined sharply to 6.08% in 2022, which is both the lowest across the years studied and significantly below the reported margin. This highlights the impact of deferred income tax adjustments on profitability ratios in the most recent period.

In summary, both reported and adjusted net income and profit margins experienced growth up to 2021, followed by declines in 2022. Adjusted figures display a more pronounced negative impact during the last period, illustrating how deferred tax considerations influence profitability assessments. The data suggests an environment of increasing profitability and efficiency up to 2021, interrupted by challenges or changes that reduced net income and margins in 2022.

Assets

The reported total assets exhibit a generally increasing trend from June 30, 2017, through June 30, 2022. The value grew from approximately $15.49 billion in 2017 to about $25.94 billion in 2022. This growth is consistent, with a significant increase noted particularly between 2021 and 2022. The adjusted total assets follow the same trend and magnitude, with slightly lower values than the reported figures but maintaining close alignment throughout the periods.

Asset Turnover Ratios

Both reported and adjusted total asset turnover ratios display a declining trend over the six-year period. The ratios start at around 0.78 in 2017, peak slightly to approximately 0.94 in 2018 for adjusted figures, and then continuously decrease to 0.61 by 2022. This decline suggests a reduction in asset efficiency, as the company generates less revenue per unit of asset value over time.

Comparative Insights

The close alignment between reported and adjusted figures for both total assets and asset turnover indicates consistency in the adjustments made for deferred income tax. Despite the asset base growing significantly, the declining asset turnover ratio implies that the increase in asset investment has not proportionately translated into increased revenue, potentially indicating operational challenges or strategic investments that have not yet yielded returns.

Total Assets

The reported total assets demonstrate a generally increasing trend from June 30, 2017, through June 30, 2022. Starting at approximately $15.49 billion in 2017, total assets slightly declined in 2018 but subsequently rose through 2022, reaching about $25.94 billion. The adjusted total assets mirror this trajectory closely, with marginally lower values reflecting adjustments, increasing steadily from approximately $15.45 billion in 2017 to $25.83 billion in 2022. This trend signifies consistent growth and expansion in the asset base over the observed period.

Shareholders' Equity

Reported shareholders’ equity exhibits a steady increase from around $5.26 billion in 2017 to approximately $8.85 billion in 2022. There is a notable jump between 2020 and 2021, where equity rises from about $6.11 billion to $8.40 billion, indicating a substantial strengthening of the company’s equity position during that period. Adjusted shareholders’ equity follows a similar upward trend but with a slightly smoother increase, moving from roughly $5.45 billion in 2017 to $9.04 billion in 2022, reinforcing the overall positive equity growth adjusted for income tax effects.

Financial Leverage

The reported financial leverage ratio fluctuates throughout the timeline. It begins at a high of 2.94 in 2017, decreases to 2.61 in 2018, then increases again, peaking at 3.23 in 2020 before dropping sharply to 2.42 in 2021 and returning to 2.93 in 2022. Adjusted financial leverage displays a similar albeit slightly lower pattern, moving from 2.84 in 2017 to a peak of 3.08 in 2020, declining to 2.29 in 2021, and then rising again to 2.86 in 2022. These fluctuations suggest periods of varying reliance on debt financing relative to equity, with the highest leverage noted in 2020 possibly reflecting strategic financial structuring before a subsequent deleveraging phase in 2021.

Overall Observations

The data reveals a consistent expansion of the company's asset base and a strengthening equity position over the six-year period. The variability in financial leverage ratios points to active management of the capital structure, with increased leverage in 2020 potentially linked to specific financing needs or market conditions, followed by a cautious reduction in leverage in 2021. Adjustments for deferred income taxes moderately modify the values but maintain the overall trends, indicating that tax effects had a limited impact on the core financial position and leverage dynamics. Collectively, these patterns reflect a growing and financially disciplined entity with strategic adaptations to leverage over time.

The financial data over the examined periods reveals notable fluctuations in both reported and adjusted metrics relating to net income, shareholders’ equity, and return on equity (ROE).

Net Income Trends

Reported net income attributable to common shareholders generally increased from 983,412 thousand US dollars in 2017 to a peak of 1,746,100 thousand in 2021, before declining to 1,315,605 thousand in 2022. Adjusted net income displayed a similar pattern with an increase from 1,020,436 thousand in 2017 to 1,694,600 thousand in 2021, followed by a more pronounced decrease to 964,405 thousand in 2022. This suggests that while income growth was strong up to 2021, there was a significant downturn in profitability in the most recent year on an adjusted basis.

Shareholders’ Equity Trends

Reported shareholders’ equity showed a steady upward trend from 5,261,649 thousand in 2017 to 8,848,011 thousand in 2022, indicating a consistent increase in equity base. The adjusted shareholders’ equity figures followed a similar growth pattern, rising from 5,447,382 thousand in 2017 to 9,044,470 thousand in 2022. The gradual increase in both reported and adjusted equity reflects accumulation of retained earnings and/or capital contributions over the period.

Return on Equity (ROE) Analysis

Reported ROE experienced variability, starting at 18.69% in 2017, dipping to 18.1% in 2018, then markedly increasing to 25.37% in 2019. Subsequently, it declined to 19.73% in 2020 and stood at 20.79% in 2021 before dropping to 14.87% in 2022. Adjusted ROE exhibited a comparable trend but with generally lower values in the latter years, starting at 18.73% in 2017, falling to 16.89% in 2018, rising sharply to 25.73% in 2019, then decreasing progressively each year from 19.15% in 2020 to 10.66% in 2022. This declining trend in adjusted ROE towards the end of the period suggests diminishing profitability relative to equity.

Overall Observations

The data indicates a period of growth in net income and shareholders’ equity up to 2021, followed by declines or slower growth in 2022, particularly notable in adjusted net income and ROE. The divergence between reported and adjusted figures becomes more pronounced in 2022, with adjusted profitability metrics showing a sharper decrease. This may reflect one-time adjustments, deferred income tax impacts, or other factors affecting the underlying earnings quality. The comprehensive equity growth contrasts with weakening return metrics, suggesting that while the capital base has increased, its efficiency in generating profits has diminished in the latest period.

Net Income Trends

Both reported and adjusted net income attributable to common shareholders exhibited fluctuations over the six-year period. Reported net income increased from approximately 983 million US dollars in mid-2017 to a peak of around 1.75 billion in mid-2021, before declining to about 1.32 billion in mid-2022. Adjusted net income followed a similar pattern with a peak in mid-2019 at around 1.54 billion, a dip in 2020, a recovery in 2021 at approximately 1.69 billion, and a marked reduction to roughly 964 million in mid-2022. The divergence between reported and adjusted figures is most notable in the latest year, where adjusted income decreased significantly relative to reported income.

Total Assets Overview

Reported total assets showed a general upward trend, rising steadily from approximately 15.5 billion US dollars in 2017 to over 25.9 billion by mid-2022. Adjusted total assets mirrored this growth pattern, increasing from about 15.5 billion in 2017 to almost 25.8 billion in 2022. The growth in assets accelerated particularly after 2019, with a notable increase during 2021-2022. The slight discrepancy between reported and adjusted total assets values remained consistent throughout the period, with adjusted assets slightly lower than reported ones.

Return on Assets (ROA) Insights

Reported ROA experienced considerable variability, starting at 6.35% in 2017, peaking at 8.6% in 2019, then declining to 6.11% in 2020 before rising again to 8.58% in 2021 and sharply dropping to 5.07% in 2022. Adjusted ROA followed a generally similar trend, initially higher than reported ROA in the early years, peaking at 8.87% in 2019, decreasing in 2020, and remaining close to reported levels through 2021. The most significant variance occurs in 2022, where adjusted ROA decreases more substantially to 3.73%, highlighting a decline in asset efficiency after adjustment for tax effects.

Overall Observations

The financial data reveals a pattern of growth in asset base accompanied by fluctuating profitability ratios. While net income and ROA peaked around 2019-2021, there was a notable decline in the latest reported period, more pronounced when adjusted for deferred income taxes. The divergence between reported and adjusted metrics, especially in the most recent year, suggests that deferred tax adjustments significantly impact profitability evaluations. The declining ROA figures, particularly adjusted ROA, might indicate challenges in maintaining income relative to the enlarged asset base.