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 to $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 gear.

The company logged more than $1 billion in acquired revenue last year, but has said it doesn't expect to find nearly as many deals this year. Depressed valuations for companies are keeping sellers on the sidelines.

Acquisitions accounted for 6.6% of its $2.91 billion in the first-quarter revenue. The acquired revenue in the quarter, however, was overshadowed by 7.3% hit to revenue from unfavorable foreign currency translations.

Parker's $146 million in acquired revenue during the quarter also was wiped out by currency issues.

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 6.9% at $33.30.

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