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Applied Industrial Gains From Business Strength Amid Headwinds
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Key Takeaways
AIT's Engineered Solutions segment grew 13.5% in Q3, fueled by tech, automation and fluid power demand.
Acquisitions of IRIS and Hydradyne expanded automation and boosted Southeast U.S. market presence.
Distribution segment weakness and rising SG
Applied Industrial Technologies, Inc. (AIT - Free Report) is witnessing strength across its served markets of technology, food & beverage, pulp & paper and transportation. Solid momentum in the technology-related fluid power market is driving the Engineered Solutions segment. Increase in order trends across automation, technology, mobile and industrial verticals are also supporting the segment’s revenues. The Engineered Solutions segment’s revenues increased 13.5% year over year in the third quarter of fiscal 2025 (ended March 31, 2025).
The company has added multiple assets to its portfolio over time. In the fiscal third quarter, buyouts had a positive impact of 6.6% on its sales. In May 2025, the company acquired IRIS Factory Automation (“IRIS”). The acquisition is expected to boost Applied Industrial’s automation offerings and will be integrated into the Engineered Solutions segment.
Applied Industrial’s acquisition of Hydradyne in January 2025 is likely to boost its fluid power offerings. It will enable the company to create cross-selling opportunities and expand its footprint in the Southeast U.S. region. Applied Industrial expects the buyout to be cash-earnings per share accretive in the first 12 months of possession. The transaction is also expected to add $260 million in sales and $30 million in EBITDA.
AIT remains committed to rewarding its shareholders handsomely through dividend payouts and share repurchases. In the first nine months of fiscal 2025, the company paid out dividends worth $46.2 million, up 11.2% on a year-over-year basis. It hiked its quarterly dividend rate by 24% in January 2025.
Also, in April 2025, AIT’s board of directors authorized a new share buyback program (replacing the August 2022 share buyback program) to repurchase up to 1.5 million shares of its common stock. As of March 31, 2025, the company was left with repurchasing 770,124 shares.
AIT’s Price Performance
Image Source: Zacks Investment Research
In the past year, the Zacks Rank #3 (Hold) company has gained 31.5% compared with the industry’s growth of 9.7%.
Despite the positives, Applied Industrial has been witnessing weakness in the Service Center Based Distribution segment. Reduced maintenance, repair and operations spending, lower capital maintenance projects and prolonged customer plant shutdowns are affecting the segment’s performance. Also, soft local account sales across machinery, metals and utilities verticals remain concerning. In the fiscal third quarter, the segment’s revenues decreased 3.5% on a year-over-year basis (organic revenues declined 1.6%).
Rising operating costs and expenses have also been a concern. In the fiscal third quarter, the company’s SG&A expenses (including depreciation) increased 4.1% year over year due to higher costs associated with acquired businesses. The SG&A expenses, as a percentage of total revenues, climbed 50 basis points to reach 19.4%.
Stocks to Consider
Some better-ranked stocks from the same space are discussed below.
FERG delivered a trailing four-quarter average earnings surprise of 4.8%. In the past 60 days, the Zacks Consensus Estimate for Ferguson’s fiscal 2025 earnings has increased 7%.
RBC Bearings Incorporated (RBC - Free Report) currently carries a Zacks Rank #2 (Buy). RBC delivered a trailing four-quarter average earnings surprise of 4.7%. In the past 60 days, the consensus estimate for RBC Bearings’ 2025 earnings has increased 2.5%.
Broadwind, Inc. (BWEN - Free Report) presently carries a Zacks Rank of 2. The company delivered a trailing four-quarter average earnings surprise of 61.1%. In the past 60 days, the consensus estimate for BWEN’s 2025 earnings has increased 14.3%.
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Applied Industrial Gains From Business Strength Amid Headwinds
Key Takeaways
Applied Industrial Technologies, Inc. (AIT - Free Report) is witnessing strength across its served markets of technology, food & beverage, pulp & paper and transportation. Solid momentum in the technology-related fluid power market is driving the Engineered Solutions segment. Increase in order trends across automation, technology, mobile and industrial verticals are also supporting the segment’s revenues. The Engineered Solutions segment’s revenues increased 13.5% year over year in the third quarter of fiscal 2025 (ended March 31, 2025).
The company has added multiple assets to its portfolio over time. In the fiscal third quarter, buyouts had a positive impact of 6.6% on its sales. In May 2025, the company acquired IRIS Factory Automation (“IRIS”). The acquisition is expected to boost Applied Industrial’s automation offerings and will be integrated into the Engineered Solutions segment.
Applied Industrial’s acquisition of Hydradyne in January 2025 is likely to boost its fluid power offerings. It will enable the company to create cross-selling opportunities and expand its footprint in the Southeast U.S. region. Applied Industrial expects the buyout to be cash-earnings per share accretive in the first 12 months of possession. The transaction is also expected to add $260 million in sales and $30 million in EBITDA.
AIT remains committed to rewarding its shareholders handsomely through dividend payouts and share repurchases. In the first nine months of fiscal 2025, the company paid out dividends worth $46.2 million, up 11.2% on a year-over-year basis. It hiked its quarterly dividend rate by 24% in January 2025.
Also, in April 2025, AIT’s board of directors authorized a new share buyback program (replacing the August 2022 share buyback program) to repurchase up to 1.5 million shares of its common stock. As of March 31, 2025, the company was left with repurchasing 770,124 shares.
AIT’s Price Performance
Image Source: Zacks Investment Research
In the past year, the Zacks Rank #3 (Hold) company has gained 31.5% compared with the industry’s growth of 9.7%.
Despite the positives, Applied Industrial has been witnessing weakness in the Service Center Based Distribution segment. Reduced maintenance, repair and operations spending, lower capital maintenance projects and prolonged customer plant shutdowns are affecting the segment’s performance. Also, soft local account sales across machinery, metals and utilities verticals remain concerning. In the fiscal third quarter, the segment’s revenues decreased 3.5% on a year-over-year basis (organic revenues declined 1.6%).
Rising operating costs and expenses have also been a concern. In the fiscal third quarter, the company’s SG&A expenses (including depreciation) increased 4.1% year over year due to higher costs associated with acquired businesses. The SG&A expenses, as a percentage of total revenues, climbed 50 basis points to reach 19.4%.
Stocks to Consider
Some better-ranked stocks from the same space are discussed below.
Ferguson Enterprises Inc. (FERG - Free Report) currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
FERG delivered a trailing four-quarter average earnings surprise of 4.8%. In the past 60 days, the Zacks Consensus Estimate for Ferguson’s fiscal 2025 earnings has increased 7%.
RBC Bearings Incorporated (RBC - Free Report) currently carries a Zacks Rank #2 (Buy). RBC delivered a trailing four-quarter average earnings surprise of 4.7%. In the past 60 days, the consensus estimate for RBC Bearings’ 2025 earnings has increased 2.5%.
Broadwind, Inc. (BWEN - Free Report) presently carries a Zacks Rank of 2. The company delivered a trailing four-quarter average earnings surprise of 61.1%. In the past 60 days, the consensus estimate for BWEN’s 2025 earnings has increased 14.3%.