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Applied Industrial (AIT) Q3 Earnings Top Estimates, View Weak

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Applied Industrial Technologies, Inc. (AIT - Free Report) reported better-than-expected results for third-quarter fiscal 2020 (ended Mar 31, 2020), with earnings surpassing estimates by 2%. However, sales lagged estimates by 2.6%.

The company’s earnings in the fiscal third quarter were $1.02 per share, surpassing the Zacks Consensus Estimate of $1.00. However, quarterly earnings declined 12.1% from the year-ago quarter’s figure of $1.16 on weak sales performance and a decline in margin.

Revenue Details

In the reported quarter, Applied Industrial’s net sales amounted to $830.8 million, down 6.2% year over year. The results were adversely impacted by a 9.5% fall in organic sales and 0.2% impact from forex woes, partially offset by 1.9% gain from acquired assets and 1.6% extra day-related benefit.

The company noted that it continues to serve many industries in the present uncertain environment. However, industrial demand suffered in the quarter due to the pandemic.

Also, the company’s top line lagged the Zacks Consensus Estimate of $853.4 million.

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

Service Center-Based Distribution’s revenues totaled $574.4 million, which contributed 69.1% to net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues declined 8.9%. Organic sales declined 10.9% and unfavorable movements in foreign currencies had adverse impact of 0.3%. This was partially offset by 1.6% gain from selling days and 0.7% benefit from acquisitions.

Weakness in mining, machinery, oil & gas, transportation, and metals end markets affected the segment’s results. Internationally, business was weak in Mexico and Canada.

The Fluid Power & Flow Control segment generated revenues of $256.4 million, contributing 30.9% to net revenues in the reported quarter. The figure increased 0.5% year over year, driven by 5% gain from acquisitions and 1.6% gain from selling days, partially offset by a 6% decline in organic sales.

Organic sales suffered from weak OEM activities in industrial markets and softness in the flow control market. Project activity was also weak in the quarter.

Margin Profile

In the reported quarter, Applied Industrial’s cost of sales declined 5.7% year over year to $594 million. Cost of sales was 71.5% of the quarter’s net sales. Adjusted gross profit in the quarter decreased 6.1% year over year to $240.7 million, while adjusted gross margin rose 10 basis points (bps) year over year to 29%.

Selling, distribution and administrative expenses (including depreciation) decreased 3% year over year to $183.7 million. It represented 22.1% of net sales in the reported quarter versus 21.4% in the year-ago quarter. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $75.9 million, reflecting a year-over-year decline of 10.3%. Margin decreased 50 bps year over year to 9.1%.

Interest expenses declined 11.5% year over year to $8.8 million. Adjusted income tax rate in the quarter was 23.3% versus 24.4% in the year-ago quarter.

Balance Sheet & Cash Flow

Exiting the third quarter of fiscal 2020, Applied Industrial had cash and cash equivalents of $165.5 million, up 29.2% from $128.1 million recorded in the last reported quarter. Long-term debt decreased 1.1% sequentially to $864.8 million.

During the first nine months of fiscal 2020, long-term debt repaid totaled $39.8 million, while borrowings (long-term) were $25 million.

The company generated net cash of $169.6 million from operating activities in the first three quarters of fiscal 2020, up 119.8% from $77.2 million generated in the year-ago period. Capital spent on property purchase totaled $16.2 million compared with $11.7 million in the previous year’s first three quarters. Free cash flow was $153.4 million compared with $65.5 million in the year-ago comparable period.

Applied Industrial rewarded shareholders with a dividend payout of $36.4 million in the first three quarters of fiscal 2020. The amount represents growth of 3.3% year over year.

Concurrently, the company announced that its board of directors approved the payment of a quarterly cash dividend of 32 cents per share to shareholders of record as of May 15. The disbursement will be made on May 29.


Applied Industrial noted that worker’s safety, cash generation, satisfaction of customers and maintaining a reliable supply chain are its priorities. Also, certain cost-control measures — including pay reductions, lowering discretionary spending, staff adjustments and others — have been taken to mitigate some financial pressures.

However, industry demand has been adversely impacted by the coronavirus outbreak (with organic sales decline expected in April).

The company suspended its projections for fiscal 2020 (ending June 2020) due to the uncertainties caused by the pandemic.

Applied Industrial Technologies, Inc. Price, Consensus and EPS Surprise


Applied Industrial Technologies, Inc. Price, Consensus and EPS Surprise

Applied Industrial Technologies, Inc. price-consensus-eps-surprise-chart | Applied Industrial Technologies, Inc. Quote

Zacks Rank & Stocks to Consider

With a market capitalization of $2.2 billion, Applied Industrial currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the Zacks Industrial Products sector are Silgan Holdings Inc. (SLGN - Free Report) , Superior Uniform Group, Inc. (SGC - Free Report) and CECO Environmental Corp. (CECE - Free Report) . While Silgan currently sports a Zacks Rank #1 (Strong Buy), both Superior Uniform and CECO Environmental carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 30 days, earnings estimates for Silgan improved for the current year, while have been unchanged for Superior Uniform and CECO Environmental. Further, earnings surprise for the last reported quarter was 16.33% for Silgan Holdings, 57.14% for Superior Uniform and 92.86% for CECO Environmental.

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