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Applied Industrial (AIT) Tops on Q2 Earnings, Ups Dividend

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Applied Industrial Technologies, Inc. (AIT - Free Report) reported impressive results for second-quarter fiscal 2021 (ended Dec 31, 2020), with earnings surpassing estimates by 28.9%. This was the fourth consecutive quarter of better-than-expected bottom-line results. Also, sales surpassed the same by 2.82%.

The company’s earnings in the fiscal second quarter were 98 cents per share, surpassing the Zacks Consensus Estimate of 76 cents. Earnings in the year-ago quarter were 97 cents.

Revenue Details

In the reported quarter, Applied Industrial’s net sales amounted to $751.3 million, down 9.9% year over year. The results were adversely impacted by a 10.5% fall in organic sales, partially offset by a 0.1% positive impact of foreign currency translation and a 0.5% gain from acquired assets.

However, Applied Industrial’s top line surpassed the Zacks Consensus Estimate of $730.7 million.

The company reports revenues under two market segments. A brief discussion of the quarterly results is provided below:

Service Center-Based Distribution’s revenues totaled $515.7 million, which contributed 68.6% to net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues declined 10.4%. Organic sales declined 10.5% and foreign currency translation had a positive impact of 0.1%. Demand was weak in the industrial end markets due to the pandemic-led woes.

The Fluid Power & Flow Control segment generated revenues of $235.6 million, contributing 31.4% to net revenues in the reported quarter. The figure decreased 8.5% year over year due to a 10.1% decline in organic sales, partially offset by a 1.6% gain from acquisitions.

The results suffered from weakness in the process-related, industrial and off-highway mobile markets. However, businesses flourished in life sciences, chemical, technology, transportation, utilities and aggregates end markets.

Margin Profile

In the reported quarter, Applied Industrial’s cost of sales declined 8.5% year over year to $541.8 million. Cost of sales was 72.1% of the quarter’s net sales. Gross profit in the quarter decreased 13.1% year over year to $209.5 million, while gross margin fell 110 basis points (bps) year over year to 27.9%.

Selling, distribution and administrative expenses (including depreciation) decreased 11% year over year to $162.4 million. It represented 21.6% of net sales in the reported quarter versus 21.9% in the year-ago quarter. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $68.3 million, reflecting a year-over-year decline of 8.4%. Margin decreased 10 bps year over year to 9.1%. Interest expenses declined 20.1% year over year to $7.7 million.

Balance Sheet & Cash Flow

Exiting the second quarter of fiscal 2021, Applied Industrial had cash and cash equivalents of $288.8 million, up 6.5% from $271.1 million recorded in the last reported quarter. Long-term debt decreased 1.2% sequentially to $783.1 million.

During the first six months of the fiscal year, the company repaid long-term debts of $72.3 million.

It generated net cash of $77.5 million from operating activities in the fiscal second quarter, reflecting an increase of 41.2% from the prior-year quarter. Capital spent on property purchase totaled $4.9 million compared with $7 million in the year-ago quarter. Free cash flow increased 51.8% year over year to $72.7 million.
 
In the first six months of fiscal 2021, the company rewarded shareholders with a dividend payout of $24.9 million. The amount represents growth of 3.7% year over year.

Dividend

Concurrent with the earnings release, the company announced that its board of directors approved 3.1% or an increase of 1 cent per share in the quarterly dividend rate. The current rate stands at 33 cents and will be paid out on Feb 26 to shareholders of record as of Feb 16.

Outlook

The company believes that general economic uncertainties will persist in the quarters ahead. However, solid demand for engineered solutions, healthy cross-selling actions, benefits from acquired assets and a solid balance sheet will prove beneficial.

For the third quarter of fiscal 2021 (ending March 2021), it expects an organic sales decline of 3-4% on a year-over-year basis. Selling, administrative and distribution expenses are predicted to be $170-$175 million.

The Advanced Control Solutions and Gibson buyouts are anticipated to add $10-$11 million to sales in the fiscal third quarter.

Applied Industrial Technologies, Inc. Price, Consensus and EPS Surprise

 

Applied Industrial Technologies, Inc. Price, Consensus and EPS Surprise

Applied Industrial Technologies, Inc. price-consensus-eps-surprise-chart | Applied Industrial Technologies, Inc. Quote

Zacks Rank & Other Stocks to Consider

With a market capitalization of $3.1 billion, Applied Industrial currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the industry are Altra Industrial Motion Corp. (AIMC - Free Report) , EnPro Industries, Inc. (NPO - Free Report) and IDEX Corporation (IEX - Free Report) . All these stocks presently carry a Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past 60 days, earnings estimates for these companies have improved for the current year. Further, positive earnings surprise in the last reported quarter was 77.55% for Altra Industrial, 109.38% for EnPro and 16.67% for IDEX.

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