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Applied Industrial's (AIT) Q4 Earnings & Revenues Surpass Mark

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Applied Industrial Technologies, Inc. (AIT - Free Report) reported better-than-expected fourth-quarter fiscal 2022 (ended June 2022) results. Earnings beat the Zacks Consensus Estimate by 20.2%. Sales beat the same by 9%.

AIT’s adjusted earnings per share in the reported quarter were $2.02, surpassing the Zacks Consensus Estimate of $1.68. Quarterly earnings expanded 33.8% from the year-ago quarter’s reported figure of $1.51.

Revenue Details

In the reported quarter, Applied Industrial’s net sales amounted to $1,061.5 million, up 18.5% year over year. The results benefited from 18.7% growth in organic sales and 0.3% gain from acquisitions. The increase was partially offset by an adverse impact of 0.5% from foreign currency translation.

AIT’s top line surpassed the Zacks Consensus Estimate of $974 million.

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

Service Center-Based Distribution’s revenues totaled $718.5 million, which contributed 67.7% to net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues increased 20.2%. Organic sales grew 21%. Foreign currency translation had a negative impact of 0.8%. Improvement in the top line was backed by the break-fix maintenance, repair, and overhaul (MRO) activity, accretive contribution from heavy industry verticals and a ramp-up of sales process initiatives.

The Fluid Power & Flow Control segment generated revenues of $342.9 million, contributing 32.3% to net revenues in the reported quarter. The figure increased 15% year over year on the back of 14% growth in organic sales and a 1% gain from acquisitions. Businesses flourished in the technology, metals, refining, chemicals, utilities, pulp & paper, and mining markets.

Margin Profile

In the reported quarter, Applied Industrial’s cost of sales increased 19.3% year over year to $754.8 million. Cost of sales was 71.1% of the quarter’s net sales. Gross profit in the quarter grew 16.6% year over year to $306.6 million, while gross margin decreased 50 basis points (bps) to 28.9%.

Selling, distribution and administrative expenses (including depreciation) increased 8.5% year over year to $197.4 million. The same represented 18.6% of net sales in the reported quarter compared with 20.3% in the year-ago quarter. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $120 million, reflecting growth of 26.5%. Margin increased 72 bps to 11.3%. Interest expenses declined 22.1% year over year to $6 million.

Balance Sheet & Cash Flow

At the time of exiting fiscal 2022, Applied Industrial had cash and cash equivalents of $184.5 million, down 28.4% from $257.7 million recorded in the year-ago period. Long-term debt was $649.2 million compared with $784.9 million reported in the previous year.

In fiscal 2022, AIT repaid long-term debts of $550.5 million compared with $131.9 million in the year-ago period. During the same period, Applied Industrial generated net cash of $187.6 million from operating activities, reflecting a decrease of 22.4% from the year-ago period’s level. Capital expenditures totaled $18.1 million, up 13.8% year over year. Free cash flow in fiscal 2022 decreased 25% to $169.4 million.

In fiscal 2022, Applied Industrial rewarded its shareholders with a dividend payout of $51.8 million, up 2.2% year over year. Concurrent with the earnings release, AIT announced that its board of directors authorized a new share buyback program to repurchase up to 1.5 million shares of its common stock.

Outlook

For fiscal 2023 (ending June 2023), Applied Industrial is expected to benefit from strengthening end market conditions, management initiatives, price contribution and growth opportunities. However, supply-chain constraints and inflationary issues are concerning.

Applied Industrial expects total revenues to increase 3-7% for fiscal 2023. Organic sales growth for the full fiscal is predicted in low double-digit percentage.

EBITDA margin is expected to be 10.8-11.1%. Earnings per share are estimated to be $6.65-$7.0 for fiscal 2023.

Zacks Rank & Stocks to Consider

AIT currently has a Zacks Rank #3 (Hold). Some better-ranked companies from the industrial products sector are discussed below:

Greif, Inc. (GEF - Free Report) presently sports a Zacks Rank #1 (Strong Buy). GEF delivered a trailing four-quarter earnings surprise of 22.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks.

GEF’s earnings estimates have increased 0.4% for fiscal 2022 (ending October 2022) in the past 60 days. Its shares have risen 25.6% in the past six months.

Titan International, Inc. presently flaunts a Zacks Rank of 1. Its earnings surprise in the last four quarters was 47%, on average.

In the past 60 days, TWI’s earnings estimates have increased 39.5% for 2022. The stock has surged 39.3% in the past six months.

Valmont Industries, Inc. (VMI - Free Report) presently has a Zacks Rank #2 (Buy). VMI’s earnings surprise in the last four quarters was 13.7%, on average.

In the past 60 days, Valmont’s earnings estimates have increased 3.8% for 2022. The stock has rallied 30.5% in the past six months.

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