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Applied Industrial (AIT) Q2 Earnings & Revenues Top Estimates

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Applied Industrial Technologies, Inc. (AIT - Free Report) has reported better-than-expected second-quarter fiscal 2022 (ended Dec 31, 2021) results. Its earnings surpassed estimates by 33.9%. This was the eighth consecutive quarter of an earnings beat. Also, sales beat the consensus estimate by 3.3%.

The company’s adjusted earnings in the fiscal second quarter were $1.46 per share, outpacing the Zacks Consensus Estimate of $1.09. The bottom line increased 49% from the year-ago figure of 98 cents.

Revenue Details

In the reported quarter, Applied Industrial’s net sales amounted to $876.9 million, up 16.7% year over year. The results benefited from 16.4% growth in organic sales, 1.6% gains from acquisitions and 0.3% gain from foreign currency translation. The increase was partially offset by an adverse impact of 1.6% from one less selling day.

The company’s top line surpassed the Zacks Consensus Estimate of $849 million.

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

Service Center-Based Distribution’s revenues totaled $587.2 million, which contributed 67% to net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues increased 13.9%. Organic sales grew 15.1% and foreign currency translation had a positive impact of 0.4%. One less selling day had an adverse impact of 1.6%. Demand was healthy in machinery, aggregates & mining, lumber & wood, food & beverage and pulp & paper markets.

The Fluid Power & Flow Control segment generated revenues of $289.7 million, contributing 33% to net revenues in the reported quarter. The figure increased 22.9% year over year on the back of 19.3% growth in organic sales and 5.2% gain from acquisitions. One less selling day had an adverse impact of 1.6%. Businesses flourished in the technology, life sciences, off-highway mobile, chemical, utilities and machinery markets.

Margin Profile

In the reported quarter, Applied Industrial’s cost of sales increased 14.3% year over year to $619.2 million. Cost of sales was 70.6% of the quarter’s net sales. Gross profit in the quarter grew 23% year over year to $257.6 million, while gross margin increased 150 basis points (bps) to 29.4%.

Selling, distribution and administrative expenses (including depreciation) increased 10.5% year over year to $179.4 million. It represented 20.5% of net sales in the reported quarter compared with 21.6% in the year-ago quarter. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $92.6 million, reflecting growth of 35.6%. Margin increased 150 bps to 10.6%. Interest expenses declined 9.1% year over year to $7 million.

Balance Sheet & Cash Flow

Exiting the second quarter of fiscal 2022, Applied Industrial had cash and cash equivalents of $154.8 million, down 37.4% from $247.3 million recorded in the last reported quarter. Long-term debt decreased 6.7% sequentially to $681.3 million.

In the first six months of fiscal 2022, the company repaid long-term debts of $550.4 million compared with $72.3 million in the year-ago period. During the same period, the company generated net cash of $81.3 million from operating activities, reflecting a decrease of 49% from the year-ago period. Capital expenditures totaled $7.5 million, down 10.7% year over year. Free cash flow in the first six months of fiscal 2022 decreased 51.1% to $73.8 million.

In the first six months of fiscal 2022, Applied Industrial rewarded shareholders with a dividend payout of $25.5 million. The amount represents growth of 2.4% year over year. Also, the company repurchased shares worth $10.1 million in the same period. Exiting the second quarter of fiscal 2022, the company is left to repurchase 353,000 shares.

Concurrent with the earnings release, AIT announced that its board of directors approved a 3% hike in the quarterly dividend rate. It now stands at 34 cents per share, higher than the previous rate of 33 cents. The company will pay out the revised amount on Feb 28, 2022, to shareholders on record as of Feb 15.

Outlook

For fiscal 2022 (ending June 2022), Applied Industrial is expected to benefit from strength across industrial markets and a strong backlog level. However, supply-chain constraints and inflationary issues are concerning.

The company expects total revenues to increase 11.5-12.5% year over year for fiscal 2022 (higher than 8-10% growth predicted earlier). Organic sales growth for the year is predicted to be 10.5-11.5% (higher than 7-9% growth guided earlier).

EBITDA margin is expected to be 10.1-10.3% (versus 9.7-9.9% predicted earlier). Earnings per share are estimated to be $5.70-$5.90 for fiscal 2022 (versus $5.00-$5.40 guided previously).

Zacks Rank & Stocks to Consider

AIT currently carries a Zacks Rank #3 (Hold).

Some better-ranked companies in the industry are discussed below.

Ferguson plc (FERG - Free Report) presently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. Its earnings surprise in the last reported quarter was 16.82%, on average.

Ferguson’s earnings estimates increased 0.1% for fiscal 2022 (ending July 2022) and 0.6% for fiscal 2023 (ending July 2023) in the past 30 days. Its shares have gained 1.8% in the past three months.

Graco Inc. (GGG - Free Report) presently carries a Zacks Rank #2 (Buy). Its earnings surprise in the last four quarters was 6.58%, on average.

In the past 30 days, Graco’s earnings estimates have been stable for both 2021 (results awaited) and 2022. GGG’s shares have lost 7.1% in the past three months.

Xometry, Inc. (XMTR - Free Report) presently carries a Zacks Rank #2. In the last reported quarter, its earnings missed the consensus estimate by 6.45%.

Xometry’s bottom line estimates have decreased 1.1% for 2021 (results awaited) and decreased 25.4% for 2022 in the past 30 days. Its shares have lost 16.5% in the past three months.