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Why Is Applied Industrial Technologies (AIT) Down 4.3% Since Last Earnings Report?

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It has been about a month since the last earnings report for Applied Industrial Technologies (AIT - Free Report) . Shares have lost about 4.3% in that time frame, underperforming the S&P 500.

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

Applied Industrial Q1 Earnings Beat, Revenues Improve

Applied Industrialreported mixed results for first-quarter fiscal 2019 (ended September 2018).

Earnings/Revenues

Quarterly adjusted earnings came in at $1.24 per share, surpassing the Zacks Consensus Estimate of $1.10. The bottom line also came in higher than the year-ago tally of 86 cents per share.  

Net sales during the quarter came in at $864.5 million, up from $680.7 million recorded in the year-ago period. Quarterly revenues improved 6.9% year over year organically. However, the top line missed the Zacks Consensus Estimate of $886 million.

The company noted that adverse foreign currency-exchange impact and adoption of ASC 606 partially hurt its top line in the quarter under review.

Segmental Details

Revenues in the Service Center Based Distribution segment came in at $604 million, up 6.2% year over year. Also, aggregate sales of the Fluid Power Businesses segment were $260 million, up 133% year over year.

Costs/Margins

Cost of sales in the reported quarter was $612.7 million, up 25.5% year over year. Gross profit margin came in at 29.1%, expanding 86 basis points (bps) year over year.

Selling, distribution and administrative expenses (including depreciation) totaled $185.5 million compared to $140.6 million incurred in the year-earlier period. Operating margin in the fiscal first quarter came in at 7.7%, advancing 10 bps year over year.

Balance Sheet/Cash Flow

Exiting the Sep-end quarter, Applied Industrial had cash and cash equivalents of $56.4 million compared with $54.2 million recorded at the end of fiscal 2018. The company’s long-term debt was $953.2 million, higher than $944.5 million recorded as of Jun 30, 2018.

In the first three months of fiscal 2019, the company generated $11.8 million cash from operating activities compared to $9.4 million cash generated in the year-ago quarter. The company purchased property worth $3.2 million, lower than the property worth $6.3 million procured in the year-ago period.

Concurrent with the earnings release, Applied Industrial’s board of directors approved the payment of a quarterly cash dividend of 30 cents per share. The dividend will be paid on Nov 30, to shareholders of record on Nov 15, 2018.

Outlook

Applied Industrial is poised to grow on the back of improved end-market sales and the FCX Performance buyout benefits. Based on the favourable market conditions, the company has raised its earnings view for fiscal 2019 from the $4.48-$4.68 per share range to the $4.65-$4.85 per share range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Applied Industrial Technologies has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Applied Industrial Technologies has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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