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Applied Industrial (AIT) Q1 Earnings & Revenues Beat Estimates

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Applied Industrial Technologies, Inc. AIT has reported better-than-expected first-quarter fiscal 2022 (ended Sep 30, 2021) results. Its earnings surpassed estimates by 14.3%. This was the seventh consecutive quarter of an earnings beat. Also, sales surpassed the consensus estimate by 4.6%.

The company’s earnings in the fiscal first quarter were $1.36 per share, surpassing the Zacks Consensus Estimate of $1.19. The bottom line increased 52.8% from the year-ago figure of 89 cents.

Revenue Details

In the reported quarter, Applied Industrial’s net sales amounted to $891.7 million, up 19.2% year over year. The results benefited from 16.3% growth in organic sales, 2.1% gains from acquisitions, and 0.8% gain from foreign currency translation.

The company’s top line surpassed the Zacks Consensus Estimate of $852.8 million.

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

Service Center-Based Distribution’s revenues totaled $600.9 million, which contributed 67.4% to net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues increased 17.1%. Organic sales grew 15.9% and foreign currency translation had a positive impact of 1.2%. Demand was healthy in chemicals, lumber & wood, pulp & paper, food & beverage and rubber & plastic markets.

The Fluid Power & Flow Control segment generated revenues of $290.8 million, contributing 32.6% to net revenues in the reported quarter. The figure increased 24% year over year on the back of 17.4% growth in organic sales and 6.6% gain from acquisitions. Businesses flourished in the life sciences, chemical, off-highway mobile, and industrial markets.

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

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

Margin Profile

In the reported quarter, Applied Industrial’s cost of sales increased 19.6% year over year to $636.3 million. Cost of sales was 71.4% of the quarter’s net sales. Gross profit in the quarter grew 18.3% year over year to $255.3 million while gross margin decreased 30 basis points (bps) to 28.6%.

Selling, distribution and administrative expenses (including depreciation) increased 10.5% year over year to $180.7 million. It represented 20.3% of net sales in the reported quarter versus 21.9% in the year-ago quarter. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $88.5 million, reflecting year-over-year growth of 30.9%. Margin increased 90 bps to 9.9%. Interest expenses declined 3.9% year over year to $7.4 million.

Balance Sheet & Cash Flow

Exiting the first quarter of fiscal 2022, Applied Industrial had cash and cash equivalents of $247.3 million, down 4.1% from $257.8 million recorded in the last reported quarter. Long-term debt decreased 7% sequentially to $730.3 million.

In the first three months of fiscal 2022, the company repaid long-term debts of $9.8 million compared with $62.5 million in the year-ago period. During the same period, the company generated net cash of $48.6 million from operating activities, reflecting a decrease of 40.6% from the year-ago period. Capital spent on property purchases totaled $3.6 million, relatively stable year over year. Free cash flow decreased 42.5% to $45 million.

In the first three months of fiscal 2022, the company rewarded shareholders with a dividend payout of $12.7 million. The amount represents growth of 2.4% year over year. Also, the company repurchased shares worth $6.5 million in the same period. Exiting first quarter of fiscal 2022, the company is left to repurchase 388,000 shares.

Concurrent with the earnings release, the company announced that its board of directors has approved the payment of a quarterly cash dividend of 33 cents per share. The company will pay out the dividend on Nov 30 to shareholders on record as of Nov 15, 2021.

Outlook

For fiscal 2022 (ending June 2022), Applied Industrial anticipates benefiting from strengthening demand in industrial markets, growth initiatives, and pricing actions. However, supply-chain constraints and inflationary issues are concerning.

The company expects total revenues to increase 8-10% year over year for fiscal 2022 (versus a 0.3% decline recorded in fiscal 2021). Organic sales growth for the year is predicted to be 7-9%.

EBITDA margin is expected to be 9.7-9.9%. Earnings per share of $5.00-$5.40 for fiscal 2022 suggest year-over-year growth of 5-14%.

Zacks Rank & Stocks to Consider

The company currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the Zacks Industrial Products sector are Nordson Corporation NDSN, AZZ Inc. AZZ, and Brady Corporation BRC. While Nordson and AZZ currently sport a Zacks Rank #1 (Strong Buy), Brady carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Nordson delivered an earnings surprise of 17.77%, on average, in the trailing four quarters.

AZZ delivered an earnings surprise of 25.47%, on average, in the trailing four quarters.

Brady delivered an earnings surprise of 2.49%, on average, in the trailing four quarters.


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