Two of the most acquisitive U.S. manufacturing groups signaled Thursday they would eschew deals in favor of building cash reserves because international end-markets are still weakening.

Parker Hannifin Corp. (PH) and Illinois Tools Works Inc. (ITW) have typically offset slow-growing businesses through acquisitions and expanding operating margins.

But Parker Chief Executive and President Don Washkewicz said the downturn in the global economic downturn had disrupted the strategy.

"Our game plan (is) to run the business for cash and to pay down debt," he told Wall Street analysts during a conference call Thursday. "We've put our acquisition program largely on hold."

The Cleveland-based company's sales dropped 26% during its fiscal third quarter compared with a year ago. Net income plunged 79%.

Declining customer demand and aggressive inventory reductions have made margin expansion difficult. But Parker's cash flow amounted to $271 million, or 11.6% of total sales in the quarter, compared with $390 million, 12.3% of sales, a year earlier. Parker also paid off $308 million in debt

Meanwhile, ITW's first-quarter free cash flow was $386 million, down modestly from a year ago despite a 24% decline in revenue and $39.3 million net loss in the quarter.

Cash on the Glenview, Ill.-based company's balance sheet increased to $1.1 billion from $743 million at the end of 2008.

ITW's business lines include automotive parts, construction materials, commercial kitchen equipment, packaging and welding equipment.

Chief Executive and Chairman David Speer described business conditions as "extraordinarily difficult," and suspended ITW's earnings guidance beyond the second quarter.

The company, which logged $1.5 billion in acquired revenue last year from 50 deals, completed just six deals in the first quarter that added $75 million in annual revenue, or 6.6% of the $2.91 billion in revenue from the quarter.

Speer said deals under consideration could add about $300 million to annual revenue this year, but cautioned that low valuations for companies are making owners reluctant to sell.

In January, the company forecast acquired revenue at $400 million to $600 million for 2009.

"A lot of potential sellers have decided to push back form the table," Speer said during the conference call with analysts.

"Any storage of cash is not going to be long term," he said. "We're going to be patient and ready to react when" the acquisition market improves.

Parker's $146 million in acquired revenue during the quarter was wiped out by unfavorable currency translations that pared revenue by $218 million.

Sharp reductions in sales were reported across most of Parker's businesses lines which include components for hydraulic and pneumatic gear, aircraft parts and refrigeration and air conditioning equipment.

Although company executives expect slumping conditions to persist for at least the next two quarters, they predicted that Parker will emerge from the downturn with a stronger balance sheet than some of its competitors.

Parker's stock was recently up 7.4% at $38.97 while ITW was up 6.6% at $33.24.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com