Applied Industrial Technologies Reports Fiscal 2023 Second Quarter Results

Rhea-AI Summary

Applied Industrial Technologies reported net sales of $1.1 billion for fiscal Q2 2023, up 20.9% year-over-year, achieving an organic growth of 21.1%. The company recorded net income of $80.5 million, translating to an EPS of $2.05, reflecting a 40.8% increase YoY. EBITDA rose to $125.5 million, indicating a 35.6% growth. The quarterly dividend increased to $0.35 per share. The company raised its fiscal 2023 guidance, projecting EPS between $8.10 and $8.50, and sales growth of 13% to 15%.

Positive

• Net sales increased by 20.9% YoY to $1.1 billion.
• Net income rose to $80.5 million, EPS of $2.05, up 40.8% YoY.
• EBITDA reached $125.5 million, reflecting a 35.6% increase.
• Quarterly dividend increased to $0.35 per share.
• Raised fiscal 2023 guidance: EPS projected at $8.10 to $8.50; sales growth of 13% to 15%.
• Organic sales growth of low-twenty percent month-to-date in January.

Negative

• Negative impact from foreign currency translation of 0.7%.
• Ongoing economic uncertainty and inflationary pressures highlighted.

• Net Sales of $1.1 Billion Up 20.9% YoY; Up 21.1% on an Organic Basis
• Net Income of $80.5 Million; EPS of $2.05 Up 40.8% YoY
• EBITDA of $125.5 Million Up 35.6% YoY
• Quarterly Dividend Increased to $0.35 Per Share
• Raising Fiscal 2023 Guidance

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 second quarter ended December 31, 2022.

Net sales for the quarter increased 20.9% to $1.1 billion from $876.9 million in the prior year. The change includes a 0.5% increase from acquisitions, offset by a negative 0.7% impact from foreign currency translation. Excluding these factors, sales increased 21.1% on an organic basis across both the Service Center segment and Engineered Solutions segment. The Company reported net income of $­­­80.5 million, or $2.05 per share, and EBITDA of $125.5 million. On a pre-tax basis, results include $8.9 million ($0.17 after tax per share) of LIFO expense compared to $4.7 million ($0.09 after tax per share) of LIFO expense in the prior-year period.

Neil A. Schrimsher, Applied’s President & Chief Executive Officer, commented, “We had another solid quarter with organic sales growth exceeding 21% against difficult comparisons. The broader U.S. manufacturing environment remained productive during the quarter, and we continue to benefit from our internal sales initiatives, industry position, and channel capabilities. This is presenting recurring growth opportunities across both legacy and new market verticals. From technical MRO support to advanced engineered solutions, we are playing a broader and more integral role across the industrial supply chain as customers embrace service requirements and investments. Concurrently, we continue to control costs and leverage operational enhancements, resulting in record EBITDA margins and notable EPS growth. Overall, these results further demonstrate our enhanced growth profile and earnings power as we capitalize on our strategy and various secular, structural, and company-specific tailwinds.”

Mr. Schrimsher added, “Based on our second quarter performance and updated outlook, we are raising fiscal 2023 guidance for sales, EBITDA margins, and EPS. While order rates are gradually normalizing and macro uncertainty is persisting, I am encouraged by our performance year to date and ongoing company-specific growth and margin opportunities moving forward. Organic sales are up by a low-twenty percent month to date in January compared to prior-year levels. Underlying industrial sector fundamentals within North America remain favorable long term, and we expect ongoing benefits from a more diverse mix of growth tailwinds tied to our channel strategy and business evolution in recent years. In addition, our cash generation and balance sheet provide capacity to supplement our growth going forward. This includes the ongoing build-out of our advanced automation platform, as highlighted by the acquisition of Automation, Inc. in early November 2022. Overall, I am proud of our team’s continued effort, and we look forward to further showcasing the strength of our differentiated industry position into the second half of fiscal 2023 and beyond.”

Updated Fiscal 2023 Guidance

For fiscal 2023, the Company now projects EPS of $8.10 to $8.50 (prior $6.90 to $7.55), sales growth of 13% to 15% (prior 5% to 9% including 6% to 10% on an organic basis) and EBITDA margins of 11.5% to 11.7% (prior 10.9% to 11.2%). Guidance incorporates ongoing economic uncertainty, inflationary pressures, and supply chain headwinds. Guidance does not assume contribution from potential future acquisitions.

Dividend

Today the Company also announced that its Board of Directors approved an increase in the quarterly cash dividend to $0.35 per common share, payable on February 28, 2023, to shareholders of record on February 15, 2023. This represents the 14^th dividend increase since 2010.

Conference Call Information

Applied will host its quarterly conference call for investors and analysts at 10 a.m. ET on January 26, 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 877-248-0132 (toll free) or 212-231-2902 (for International callers) using conference ID 22024595. 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 22024595.

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 December 31,						Six Months Ended December 31,
		2022		2021				2022		2021
Net Sales	$	1,060,280	$	876,874			$	2,122,685	$	1,768,555
Cost of sales		751,775		619,249				1,507,397		1,255,590
Gross Profit		308,505		257,625				615,288		512,965
Selling, distribution and administrative expense,
including depreciation		195,612		179,448				395,863		360,174
Operating Income		112,893		78,177				219,425		152,791
Interest expense, net		6,185		7,007				12,665		14,397
Other expense (income), net		758		(869	)			1,766		(1,181	)
Income Before Income Taxes		105,950		72,039				204,994		139,575
Income tax expense		25,493		15,013				47,657		29,580
Net Income	$	80,457	$	57,026			$	157,337	$	109,995
Net Income Per Share - Basic	$	2.09	$	1.48			$	4.08	$	2.86
Net Income Per Share - Diluted	$	2.05	$	1.46			$	4.02	$	2.81
Average Shares Outstanding - Basic		38,579		38,456				38,552		38,479
Average Shares Outstanding - Diluted		39,208		39,122				39,162		39,104

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)
	December 31, 2022			June 30, 2022
Assets
Cash and cash equivalents	$	165,538		$	184,474
Accounts receivable, net		654,510			656,429
Inventories		523,021			449,821
Other current assets		79,183			68,805
Total current assets		1,422,252			1,359,529
Property, net		112,790			111,896
Operating lease assets, net		105,797			108,052
Intangibles, net		246,739			250,590
Goodwill		572,319			563,205
Other assets		63,007			59,316
Total Assets	$	2,522,904		$	2,452,588
Liabilities
Accounts payable	$	250,407		$	259,463
Current portion of long-term debt		25,189			40,174
Other accrued liabilities		171,609			199,990
Total current liabilities		447,205			499,627
Long-term debt		624,052			649,150
Other liabilities		155,771			154,456
Total Liabilities		1,227,028			1,303,233
Shareholders' Equity		1,295,876			1,149,355
Total Liabilities and Shareholders' Equity	$	2,522,904		$	2,452,588

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(In thousands)
	Six Months Ended December 31,
		2022				2021
Cash Flows from Operating Activities
Net income	$	157,337			$	109,995
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property		11,033				10,863
Amortization of intangibles		15,519				16,205
Provision for losses on accounts receivable		9,573				1,328
Amortization of stock appreciation rights and options		1,871				2,516
Other share-based compensation expense		4,001				3,268
Changes in assets and liabilities, net of acquisitions		(111,542	)			(61,066	)
Other, net		1,031				(1,845	)
Net Cash provided by Operating Activities		88,823				81,264
Cash Flows from Investing Activities
Acquisition of businesses, net of cash acquired		(25,516	)			(6,974	)
Capital expenditures		(12,817	)			(7,510	)
Proceeds from property sales		128				442
Cash payments for loans on company-owned life insurance		-				(14,835	)
Net Cash used in Investing Activities		(38,205	)			(28,877	)
Cash Flows from Financing Activities
Net borrowings under revolving credit facility		-				442,592
Long-term debt repayments		(40,123	)			(550,371	)
Interest rate swap settlement receipts (payments)		2,684				(3,294	)
Payment of debt issuance costs		-				(1,794	)
Purchases of treasury shares		(716	)			(10,064	)
Dividends paid		(26,259	)			(25,465	)
Acquisition holdback payments		(1,510	)			(1,070	)
Taxes paid for shares withheld for equity awards		(3,340	)			(4,093	)
Exercise of stock appreciation rights and options		127				116
Net Cash used in Financing Activities		(69,137	)			(153,443	)
Effect of Exchange Rate Changes on Cash		(417	)			(1,846	)
Decrease in cash and cash equivalents		(18,936	)			(102,902	)
Cash and Cash Equivalents at Beginning of Period		184,474				257,745
Cash and Cash Equivalents at End of Period	$	165,538			$	154,843

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(Unaudited)

(In thousands)

The Company supplemented the reporting of financial information determined under U.S. generally accepted accounting principles (GAAP) with reporting of non-GAAP financial measures. The Company believes that these non-GAAP measures provide meaningful information to assist shareholders in understanding financial results, assessing prospects for future performance, and provide a better baseline for analyzing trends in our underlying businesses. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. These non-GAAP financial measures should not be considered in isolation or as a substitute for reported results. These non-GAAP financial measures reflect an additional way of viewing aspects of operations that, when viewed with GAAP results, provide a more complete understanding of the business. The Company strongly encourages investors and shareholders to review company financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.

Reconciliation of Net Income, a GAAP financial measure, to EBITDA, a non-GAAP financial measure:
	Three Months Ended December 31,					Six Months Ended December 31,
		2022		2021			2022		2021
Net Income	$	80,457	$	57,026		$	157,337	$	109,995
Interest expense, net		6,185		7,007			12,665		14,397
Income tax expense		25,493		15,013			47,657		29,580
Depreciation and amortization of property		5,552		5,436			11,033		10,863
Amortization of intangibles		7,814		8,084			15,519		16,205
EBITDA	$	125,501	$	92,566		$	244,211	$	181,040
The Company defines EBITDA as Earnings from operations before Interest, Taxes, Depreciation, and Amortization, a non-GAAP financial measure. Adjusted EBITDA excludes items that may not be indicative of core operating results, a non-GAAP financial measure.

Reconciliation of Net Cash provided by Operating activities, a GAAP financial measure, to Free Cash Flow, a non-GAAP financial measure:
	Three Months Ended December 31,							Six Months Ended December 31,
		2022			2021				2022			2021
Net Cash provided by Operating Activities	$	62,880		$	32,622			$	88,823		$	81,264
Capital expenditures		(7,263	)		(3,889	)			(12,817	)		(7,510	)
Free Cash Flow	$	55,617		$	28,733			$	76,006		$	73,754
Free cash flow is defined as net cash provided by operating activities less capital expenditures, a non-GAAP financial measure.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20230126005153/en/

Ryan D. Cieslak

Director – Investor Relations & Treasury

216-426-4887 / rcieslak@applied.com

Source: Applied Industrial Technologies, Inc.

FAQ

What were the net sales for AIT in Q2 2023?

Net sales for AIT in Q2 2023 were $1.1 billion, up 20.9% year-over-year.

What is the EPS for AIT in fiscal 2023?

The EPS for AIT in fiscal 2023 is projected to be between $8.10 and $8.50.

What is the new dividend amount for AIT?

The new quarterly dividend for AIT is $0.35 per share.

How did AIT perform in terms of EBITDA in Q2 2023?

AIT reported EBITDA of $125.5 million, a 35.6% increase compared to the prior year.

What is AIT's updated sales growth guidance for fiscal 2023?

AIT projects sales growth of 13% to 15% for fiscal 2023.