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Applied Industrial Technologies Reports Fiscal 2023 Third Quarter Results

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  • Net Sales of $1.1 Billion Up 15.4% YoY; Up 15.0% on an Organic Basis
  • Net Income of $97.2 Million, or $2.47 Per Share
  • Adjusted Net Income of $93.5 Million, or $2.38 Per Share Up 36.3% YoY
  • EBITDA of $140.3 Million Up 29.2% YoY
  • Updating Fiscal 2023 Guidance to Reflect Fiscal Third Quarter Performance

CLEVELAND--(BUSINESS WIRE)-- Applied Industrial Technologies (NYSE: AIT), a leading value-added distributor and technical solutions provider of industrial motion, fluid power, flow control, automation technologies, and related maintenance supplies, today reported results for its fiscal 2023 third quarter ended March 31, 2023.

Net sales for the quarter increased 15.4% to $1.1 billion from $980.7 million in the prior year. The change includes a 0.7% increase from acquisitions, offset by a negative 0.3% impact from foreign currency translation. Excluding these factors, sales increased 15.0% on an organic basis reflecting a 16.1% increase in the Service Center segment and a 13.1% increase in the Engineered Solutions segment. The Company reported net income of $­­­97.2 million, or $2.47 per share, and EBITDA of $140.3 million. Results include a net tax benefit of $3.7 million, or $0.09 per share, from a deferred tax valuation allowance adjustment. Excluding this item, the Company reported non-GAAP adjusted net income of $93.5 million, or $2.38 per share. On a pre-tax basis, results include $8.2 million ($0.16 after tax per share) of LIFO expense compared to $7.4 million ($0.14 after tax per share) of LIFO expense in the prior-year period.

Neil A. Schrimsher, Applied’s President & Chief Executive Officer, commented, “We reported another solid quarter as sales grew over 15% with ongoing support from our industry position. We continued to expand gross margins while remaining focused on managing costs given the current backdrop. These dynamics drove strong EBITDA margin expansion and earnings growth. At the same time, we remain focused on our investments in talent, technology, and our service solutions as we further enhance our capabilities and operational strength for the future. Overall, we continue to demonstrate the benefits of our strategy and ability to consistently execute.”

Mr. Schrimsher added, “Looking ahead, we remain constructive on underlying industrial sector fundamentals within North America. Customer feedback remains generally positive, while our internal initiatives and technical capabilities are supporting new growth opportunities. That said, consistent with our prior outlook and recent macroeconomic industrial reports, we expect underlying market demand and orders to continue to moderate near term as broader industry activity normalizes and customers rebalance spending levels against current macro uncertainty. Month to date in April, sales are trending up by a high single-digit percent on an organic basis compared to the prior year. Our diverse mix of growth tailwinds and business evolution puts us in a favorable position to sustain above-market growth, and our track record highlights our ability to execute across all parts of the cycle. Lastly, our balance sheet and liquidity are in a solid position, and we expect stronger cash generation going forward.”

Updated Fiscal 2023 Guidance
For fiscal 2023, the Company now projects EPS of $8.47 to $8.60 on an adjusted basis (prior $8.10 to $8.50), sales growth of 14% to 15% (prior 13% to 15%), and EBITDA margins of 11.7% to 11.8% (prior 11.5% to 11.7%). Updated adjusted EPS guidance excludes the $3.7 million net tax benefit in the fiscal 2023 third quarter related to a deferred tax valuation allowance adjustment. Guidance incorporates ongoing economic uncertainty and inflationary pressures. Guidance does not assume contribution from potential future acquisitions.

Dividend
Today the Company announced that its Board of Directors declared a quarterly cash dividend of $0.35 per common share, payable on May 31, 2023, to shareholders of record on May 15, 2023.

Conference Call Information
Applied will host its quarterly conference call for investors and analysts at 10 a.m. ET on April 27, 2023. Neil A. Schrimsher – President & CEO, and David K. Wells – CFO will discuss the Company's performance. A supplemental investor presentation detailing latest quarter results and the Company’s outlook is available for reference on the investor relations portion of the Company’s website at www.applied.com. To join the call, dial 800-945-5981 (toll free) or 212-231-2929 (for International callers) using conference ID 22026611. A live audio webcast can be accessed online through the investor relations portion of the Company's website at www.applied.com. A replay of the call will be available for two weeks by dialing 800-633-8625 or 402-977-9141 (International) using conference ID 22026611.

About Applied®
Applied Industrial Technologies is a leading value-added distributor and technical solutions provider of industrial motion, fluid power, flow control, automation technologies, and related maintenance supplies. Our leading brands, specialized services, and comprehensive knowledge serve MRO and OEM end users in virtually all industrial markets through our multi-channel capabilities that provide choice, convenience, and expertise. For more information, visit www.applied.com.

This press release contains statements that are forward-looking, as that term is defined by the Securities and Exchange Commission in its rules, regulations and releases. Applied intends that such forward-looking statements be subject to the safe harbors created thereby. Forward-looking statements are often identified by qualifiers such as “expect,” “will,” “guidance,” “projects,” “assume”, and derivative or similar expressions. All forward-looking statements are based on current expectations regarding important risk factors including trends in the industrial sector of the economy (such as the inflationary environment and supply chain strains), the effects of the health crisis associated with the COVID-19 pandemic on our business operations, results of operations, and financial condition, and other risk factors identified in Applied's most recent periodic report and other filings made with the Securities and Exchange Commission, many of which risks are amplified by circumstances arising out of the COVID-19 pandemic. Accordingly, actual results may differ materially from those expressed in the forward-looking statements, and the making of such statements should not be regarded as a representation by Applied or any other person that the results expressed therein will be achieved. Applied assumes no obligation to update publicly or revise any forward-looking statements, whether due to new information, or events, or otherwise.

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED STATEMENTS OF CONSOLIDATED INCOME

(Unaudited)

(In thousands, except per share data)

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

Nine Months Ended
March 31,

 

 

2023

 

 

2022

 

 

2023

 

2022

 

Net Sales

$

1,132,035

 

$

980,662

$

3,254,720

$

2,749,217

 

Cost of sales

 

798,917

 

 

693,338

 

2,306,314

 

1,948,928

 

Gross Profit

 

333,118

 

 

287,324

 

948,406

 

800,289

 

Selling, distribution and administrative expense,

including depreciation

 

206,207

 

 

191,481

 

602,070

 

551,655

 

Operating Income

 

126,911

 

 

95,843

 

346,336

 

248,634

 

Interest expense, net

 

4,773

 

 

5,852

 

17,438

 

20,249

 

Other (income) expense, net

 

(142

)

 

469

 

1,624

 

(712

)

Income Before Income Taxes

 

122,280

 

 

89,522

 

327,274

 

229,097

 

Income tax expense

 

25,093

 

 

21,216

 

72,750

 

50,796

 

Net Income

$

97,187

 

$

68,306

$

254,524

$

178,301

 

Net Income Per Share - Basic

$

2.52

 

$

1.78

$

6.60

$

4.63

 

Net Income Per Share - Diluted

$

2.47

 

$

1.75

$

6.49

$

4.56

 

Average Shares Outstanding - Basic

 

38,617

 

 

38,453

 

38,574

 

38,470

 

Average Shares Outstanding - Diluted

 

39,268

 

 

39,098

 

39,203

 

39,102

 

 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Applied uses the last-in, first-out (LIFO) method of valuing U.S. inventory. An actual valuation of inventory under the LIFO method can only be made at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management's estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory determination.

 

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
 
 
March 31, 2023 June 30, 2022
 
 
Assets
Cash and cash equivalents

$

182,127

$

184,474

Accounts receivable, net

 

705,638

 

656,429

Inventories

 

526,978

 

449,821

Other current assets

 

92,002

 

68,805

Total current assets

 

1,506,745

 

1,359,529

Property, net

 

115,383

 

111,896

Operating lease assets, net

 

101,960

 

108,052

Intangibles, net

 

243,133

 

250,590

Goodwill

 

577,235

 

563,205

Other assets

 

64,182

 

59,316

Total Assets

$

2,608,638

$

2,452,588

 
Liabilities

Accounts payable

$

276,024

$

259,463

Current portion of long-term debt

 

25,196

 

40,174

Other accrued liabilities

 

179,372

 

199,990

Total current liabilities

 

480,592

 

499,627

Long-term debt

 

597,006

 

649,150

Other liabilities

 

150,380

 

154,456

Total Liabilities

 

1,227,978

 

1,303,233

Shareholders' Equity

 

1,380,660

 

1,149,355

Total Liabilities and Shareholders' Equity

$

2,608,638

$

2,452,588

 
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

Nine Months Ended
March 31,

 

 

 

 

 

2023

 

 

 

2022

 

 
Cash Flows from Operating Activities
Net income

$

254,524

 

$

178,301

 

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property

 

16,598

 

 

16,215

 

Amortization of intangibles

 

23,189

 

 

24,096

 

Provision for losses on accounts receivable

 

4,676

 

 

2,905

Applied Industrial Technologies, Inc.

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