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Why is Applied Industrial (AIT) Up 4.4% Since Its Last Earnings Report?

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A month has gone by since the last earnings report for Applied Industrial Technologies, Inc. (AIT - Free Report) . Shares have added about 4.4% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is AIT due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Third-Quarter Fiscal 2018 Results

Applied Industrial reported better-than-expected results for third-quarter fiscal 2018 (ended March 2018).

Earnings and Revenues

Quarterly adjusted earnings came in at $1.05 per share, surpassing the Zacks Consensus Estimate of 85 cents. The bottom line also came in higher than the year-ago tally of 75 cents per share.  

Net sales during the quarter came in at nearly $828 million, beating the Zacks Consensus Estimate of $715 million. In addition, the top line came in higher than the prior-year figure of $679.3 million. The upswing stemmed from elevated acquisition-related volume and favorable foreign currency-translation impact. 

The company’s quarterly organic sales improved 6.7% year over year.

Segmental Details

Revenues of the Service Center Based Distribution segment came in at $601 million, up 4.8% year over year. Also, aggregate sales of the Fluid Power Businesses segment were $227 million, up 114.6% year over year.

Costs and Margins

Cost of sales in the reported quarter was $588.1 million, up 20.4% year over year. Gross profit margin came in at 28.9%, expanding 80 basis points (bps) year over year.

Selling, distribution and administrative expenses (including depreciation) totaled $183.1 million compared to $145.1 million incurred in the year-earlier period. Operating margin in the fiscal third quarter came in at 6.8%, higher by 10 bps year over year.

Balance Sheet & Cash Flow

Exiting the reported quarter, Applied Industrial had cash and cash equivalents of $43.5 million compared with $105.1 million recorded at the end of fiscal 2017. The company’s long-term debt was $1,017.3 million, higher than $686.8 million recorded as of Jun 30, 2017.

In the first nine months of the fiscal, the company generated $47.9 million cash from operating activities compared to $78.5 million cash generated in the year-ago quarter. The company purchased property worth $17.9 million, higher than $11.8 million procured in the comparable period last year.

Outlook

Applied Industrial believes its revenues and profitability in the upcoming quarters will improve on the back of tailwinds prevailing in the industrial end-markets. The company also raised its earnings per share guidance for fiscal 2018 (ending June 2018) from the $3.40-$3.50 per share range to the $3.51-$3.61 per share range.

Moreover, Applied Industrial anticipates to bolster its sales by 17.5-18.5%, higher than the prior guidance of 6-7%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter.

VGM Scores

At this time, AIT has a subpar Growth Score of D, however its Momentum is doing a lot better with a B. The stock was also allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks style scores indicate that the company's stock is suitable for value and momentum investors.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise AIT has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.




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