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Applied Industrial (AIT) Q3 Earnings, Revenues Top Estimates

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Applied Industrial Technologies, Inc. (AIT - Free Report) reported impressive third-quarter fiscal 2021 (ended Mar 31, 2021) results, with earnings surpassing estimates by 35.6%. This was the fifth consecutive quarter of better-than-expected bottom-line results. Also, sales surpassed estimates by 3.4%.

The company’s earnings in the fiscal third quarter were $1.37 per share, beating the Zacks Consensus Estimate of $1.01. Earnings in the year-ago quarter were $1.02.

Revenue Details

In the reported quarter, Applied Industrial’s net sales amounted to $840.9 million, up 1.2% year over year. The results were driven by a 0.4% rise in organic sales, a 0.6% positive impact of foreign currency translation, and a 1.8% gain from acquired assets, partially offset by an adverse impact of 1.6% from one less selling day.

Applied Industrial’s top line surpassed the Zacks Consensus Estimate of $813 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 $572.9 million, which contributed 68.1% to net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues declined 0.3%. One less selling day had an adverse impact of 1.6%, while organic sales increased 0.4% and foreign currency translation had a positive impact of 0.9%. Organic sales gained from recovery in the industrial end markets.

The Fluid Power & Flow Control segment generated revenues of $268 million, contributing 31.9% to net revenues in the reported quarter. The figure increased 4.5% year over year due to a 0.2% rise in organic sales, a 5.9% gain from acquisitions, partially offset by an adverse impact of 1.6% from one less selling day.

The results benefited from strength in technology, life sciences, off-highway mobile, and chemical industries end markets.

Margin Profile

In the reported quarter, Applied Industrial’s cost of sales declined 0.1% year over year to $593.7 million. Cost of sales was 70.6% of the quarter’s net sales. Gross profit in the quarter increased 4.4% year over year to $247.2 million, while gross margin increased 90 basis points (bps) to 29.4%.

Selling, distribution and administrative expenses (including depreciation) decreased 5.9% year over year to $172.8 million. It represented 20.5% of net sales in the reported quarter versus 22.1% in the year-ago quarter. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $86.8 million, reflecting a year-over-year increase 14.4%. Margin increased 120 bps to 10.3%. Interest expenses declined 13.6% year over year to $7.6 million.

Balance Sheet & Cash Flow

Exiting the third quarter of fiscal 2021, Applied Industrial had cash and cash equivalents of $304 million, up 12.1% from $271.1 million recorded in the last reported quarter. Long-term debt decreased 1.2% sequentially to $773.4 million.

During the first nine months of the fiscal year, the company repaid long-term debts of $82.1 million.

It generated net cash of $44 million from operating activities in the fiscal third quarter, reflecting a decrease of 32% from the prior-year quarter. Capital spent on property purchase totaled $3.7 million compared with $4.3 million in the year-ago quarter. Free cash flow decreased 33.3% year over year to $40.3 million.
 
In the first nine months of fiscal 2021, the company rewarded shareholders with a dividend payout of $37.8 million. The amount represents growth of 3.8% year over year.

Dividend

Concurrent with the earnings release, the company’s board of directors approved the payout of a quarterly dividend of 33 cents to shareholders on record as of May 28, 2021. The dividend will be paid out on May 14, 2021.

Outlook

For the fourth quarter of fiscal 2021 (ending June 2021), Applied Industrial expects organic sales growth of 12-13% on a year-over-year basis.

Zacks Rank & Other Stocks to Consider

The company currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks are Alcoa Corporation (AA - Free Report) , Lakeland Industries, Inc. (LAKE - Free Report)   and Energy Recovery, Inc. (ERII - Free Report) . While Alcoa currently sports a Zacks Rank #1 (Strong Buy), Lakeland Industries and Energy Recovery carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Alcoa delivered an earnings surprise of 56.78%, on average, in the trailing four quarters.

Lakeland Industries delivered an earnings surprise of 230.73%, on average, in the trailing four quarters.

Energy Recovery delivered an earnings surprise of 232.08%, on average, in the trailing four quarters.

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