Applied Industrial Technologies Reports Fiscal 2025 Second Quarter Results

Rhea-AI Summary

Applied Industrial Technologies (NYSE: AIT) reported fiscal 2025 second quarter results with net sales of $1.1 billion, down 0.4% year-over-year. Net income reached $93.3 million, or $2.39 per share, up 6.7% compared to prior-year adjusted EPS. EBITDA increased 3.3% to $135.1 million.

The company generated strong cash flows with operating cash flow of $95.1 million and free cash flow of $89.9 million. The Board approved a 24% increase in quarterly dividend to $0.46 per share. Sales performance included a 1.9% increase from acquisitions and 1.6% benefit from an extra selling day, offset by -0.5% foreign currency impact and -3.4% organic daily sales decline.

Based on Q2 performance and the recent Hydradyne acquisition, AIT raised its FY2025 guidance, now projecting EPS of $9.65-$10.05 on sales growth of 1-3%, with EBITDA margins of 12.2-12.4%.

Positive

• Net income increased 6.7% YoY to $93.3 million ($2.39 per share)
• EBITDA grew 3.3% YoY to $135.1 million
• Strong cash generation with $95.1M operating cash flow
• 24% increase in quarterly dividend to $0.46 per share
• Raised FY2025 EPS guidance to $9.65-$10.05

Negative

• Net sales declined 0.4% YoY to $1.1 billion
• Organic daily sales decreased 3.4%
• Service Center segment sales down 1.9%
• Engineered Solutions segment sales down 6.3%
• January sales trending down mid-single digits organically

Insights

Financial Analyst

Applied Industrial Technologies' Q2 FY2025 results demonstrate remarkable operational execution amid challenging market conditions. While net sales remained relatively flat at $1.1 billion, the 3.3% EBITDA growth and 6.7% EPS improvement highlight successful margin expansion initiatives and cost management.

The organic daily sales decline of 3.4% reveals underlying demand softness, with the Service Center segment down 1.9% and Engineered Solutions segment down 6.3%. However, the company's ability to expand EBITDA margins during this period underscores its pricing power and operational efficiency.

The strategic Hydradyne acquisition, completed December 31, has prompted an upward revision in FY2025 guidance, with EPS now projected at $9.65 to $10.05 and sales growth of 1% to 3%. This adjustment, despite acknowledging near-term economic uncertainties, reflects management's confidence in growth acceleration potential.

The standout 24% dividend increase to $0.46 per share - the 16th increase since 2010 - signals robust cash flow generation capabilities and management's optimistic long-term outlook. The company's strong free cash flow of $89.9 million provides ample flexibility for both shareholder returns and strategic investments.

Looking ahead, while January's mid-single-digit organic sales decline suggests continued near-term pressure, several catalysts could drive improvement: improving industrial macro indicators, pent-up technical MRO activity and anticipated post-election demand recovery. The company's strategic positioning in automation and fluid power markets, combined with its demonstrated operational excellence, creates a compelling setup for accelerated growth as industrial activity normalizes.

• Net Sales of $1.1 Billion Down 0.4% YoY; Down 3.4% on an Organic Daily Basis
• Net Income of $93.3 Million, or $2.39 Per Share Up 6.7% vs. Prior-Year Adjusted EPS
• EBITDA of $135.1 Million Up 3.3% YoY
• Operating Cash Flow of $95.1 Million; Free Cash Flow of $89.9 Million
• Quarterly Dividend Increased 24% to $0.46 Per Share
• Raising FY25 Guidance to Reflect F2Q25 Performance and the Recent Hydradyne Acquisition

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 2025 second quarter ended December 31, 2024.

Net sales for the quarter of $1.1 billion decreased 0.4% over the prior year. The change includes a 1.9% increase from acquisitions and a 1.6% benefit from one extra selling day, partially offset by a negative 0.5% impact from foreign currency translation. Excluding these factors, sales decreased 3.4% on an organic daily basis reflecting a 1.9% decrease in the Service Center segment and a 6.3% decrease in the Engineered Solutions segment. The Company reported net income of $­­­93.3 million, or $2.39 per share, and EBITDA of $135.1 million. On a pre-tax basis, results include $0.7 million ($0.01 after tax per share) of LIFO expense compared to $3.4 million ($0.07 after tax per share) of LIFO expense in the prior-year period.

Neil A. Schrimsher, Applied’s President & Chief Executive Officer, commented, “Fiscal second quarter EBITDA and EPS exceeded our expectations, increasing a respective 3% and 7% year over year on relatively unchanged sales. Demand remained mixed during the quarter with seasonal factors and holiday timing limiting customer activity in December. That said, our team continued to execute well with organic sales trends inline with our guidance, while strong gross margin performance and cost controls drove solid EBITDA margin expansion during the quarter. Additionally, the closing of our Hydradyne acquisition at the end of December represents another notable milestone in our story and provides solid growth and operational momentum moving forward. Overall, we had a productive second quarter that highlights our business resilience, self-help opportunities, and favorable industry position.”

Mr. Schrimsher added, “We are raising fiscal 2025 guidance to reflect second quarter performance and initial estimated contribution from our recent Hydradyne acquisition. Our updated outlook assumes industrial activity remains muted near term given current economic policy uncertainty and a more gradual pace to interest rate cuts. This is reflected in January sales trending down by a mid single-digit percent on an organic basis over prior-year levels. That said, we believe a growth inflection in end-market demand is near considering improving industrial macro indicators in recent months, pent-up technical MRO activity, and easing comparisons. In addition, order momentum and business funnels are building across our technology vertical, while a more favorable regulatory backdrop, stabilizing machinery markets, and reenergized secular demand post the election should provide additional support. Combined with ongoing self-help margin opportunities and balance sheet capacity, we remain constructive on our set-up and ability to accelerate sales and earnings growth in coming quarters. Lastly, I am pleased to announce our Board has approved a 24% increase in our quarterly dividend, which highlights the conviction we have in our outlook and financial position moving forward, as well as our ongoing capital allocation opportunities.”

Updated Fiscal 2025 Guidance

For fiscal 2025, the Company now projects EPS of $9.65 to $10.05 (prior $9.25 to $10.00) on sales growth of up 1% to 3% (prior down 2.5% to up 2.5%) including down 3% to 1% on an organic daily basis (prior down 4% to up 1%), and EBITDA margins of 12.2% to 12.4% (prior 12.1% to 12.3%). Updated guidance assumes initial estimated contribution from the Company’s recent Hydradyne acquisition, which closed on December 31, 2024. In addition, updated guidance incorporates ongoing economic uncertainty and potential margin pressures on muted sales trends near term, ongoing inflationary headwinds, and growth investments. Guidance does not assume contribution from future acquisitions or share buybacks.

Dividend

Today the Company also announced that its Board of Directors approved a 24% increase in the quarterly cash dividend to $0.46 per common share, payable on February 28, 2025, to shareholders of record on February 14, 2025. This represents the 16^th dividend increase since 2010.

Conference Call Information

The Company will host a conference call at 10 a.m. ET today to discuss the quarter’s results and outlook. A live audio webcast and supplemental presentation can be accessed on our Investor Relations site at https://ir.applied.com. To join by telephone, dial 800-715-9871 (toll free) or 646-307-1963 using conference ID 2139950. Replays of the call will be available via webcast, as well as by telephone for one week by dialing 800-770-2030 (toll free) using conference ID 2139950.

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 (maintenance, repair, and operations) and OEM (original equipment manufacturing), and new system install applications 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,” “assume,” “outlook,” “believe,” and derivative or similar expressions. All forward-looking statements are based on current expectations regarding important risk factors including trends and events in the industrial sector of the economy (such as the inflationary environment and supply chain strains), 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. 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,
		2024			2023				2024			2023
Net Sales	$	1,073,001		$	1,077,153			$	2,171,945		$	2,172,341
Cost of sales		744,951			760,063				1,518,813			1,530,169
Gross Profit		328,050			317,090				653,132			642,172
Selling, distribution and administrative expense,
including depreciation		207,180			202,496				419,090			406,898
Operating Income		120,870			114,594				234,042			235,274
Interest (income) expense, net		(936	)		1,917				(1,563	)		3,237
Other (income) expense, net		(755	)		(2,924	)			(3,036	)		(2,493	)
Income Before Income Taxes		122,561			115,601				238,641			234,530
Income tax expense		29,271			24,373				53,288			49,476
Net Income	$	93,290		$	91,228			$	185,353		$	185,054
Net Income Per Share - Basic	$	2.43		$	2.35			$	4.83		$	4.78
Net Income Per Share - Diluted	$	2.39		$	2.32			$	4.76		$	4.71
Average Shares Outstanding - Basic		38,427			38,744				38,413			38,722
Average Shares Outstanding - Diluted		38,963			39,302				38,956			39,307
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, 2024			June 30, 2024
Assets
Cash and cash equivalents		$	303,441		$	460,617
Accounts receivable, net			696,239			724,878
Inventories			518,044			488,258
Other current assets			96,972			96,148
Total current assets			1,614,696			1,769,901
Property, net			125,336			118,527
Operating lease assets, net			195,318			133,289
Intangibles, net			360,748			245,870
Goodwill			686,148			619,395
Other assets			62,395			64,928
Total Assets		$	3,044,641		$	2,951,910
Liabilities
Accounts payable		$	240,889		$	266,949
Current portion of long-term debt			-			25,055
Other accrued liabilities			188,551			209,096
Total current liabilities			429,440			501,100
Long-term debt			572,300			572,279
Other liabilities			249,389			189,750
Total Liabilities			1,251,129			1,263,129
Shareholders' Equity			1,793,512			1,688,781
Total Liabilities and Shareholders' Equity		$	3,044,641		$	2,951,910

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(In thousands)
	Six Months Ended December 31,
		2024				2023
Cash Flows from Operating Activities
Net income	$	185,353			$	185,054
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property		11,850				11,765
Amortization of intangibles		15,167				14,650
Provision for losses on accounts receivable		3,605				1,026
Amortization of stock appreciation rights and options		2,453				1,710
Other share-based compensation expense		3,101				4,237
Changes in assets and liabilities, net of acquisitions		1,451				(47,855	)
Other, net		(96	)			(2,620	)
Net Cash provided by Operating Activities		222,884				167,967
Cash Flows from Investing Activities
Acquisition of businesses, net of cash acquired		(273,142	)			(21,440	)
Capital expenditures		(10,746	)			(9,863	)
Proceeds from property sales		922				471
Net Cash used in Investing Activities		(282,966	)			(30,832	)
Cash Flows from Financing Activities
Long-term debt repayments		(25,106	)			(25,125	)
Interest rate swap settlement receipts		6,797				7,194
Purchases of treasury shares		(30,084	)			(10,677	)
Dividends paid		(28,469	)			(27,155	)
Acquisition holdback payments		(1,210	)			(681	)
Taxes paid for shares withheld for equity awards		(13,037	)			(12,914	)
Exercise of stock appreciation rights and options		-				127
Net Cash used in Financing Activities		(91,109	)			(69,231	)
Effect of Exchange Rate Changes on Cash		(5,985	)			915
(Decrease) Increase in cash and cash equivalents		(157,176	)			68,819
Cash and Cash Equivalents at Beginning of Period		460,617				344,036
Cash and Cash Equivalents at End of Period	$	303,441			$	412,855

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 and Net income per share, GAAP financial measures, with Adjusted Net income and Adjusted Net income per share, non-GAAP financial measures:
	Three Months Ended December 31, 2023
	Pre-tax			Tax Effect				Net of Tax			Per Share Diluted Impact			Tax Rate
Net income and net income per share	$	115,601		$	24,373			$	91,228		$	2.32		21.1	%
Tax valuation allowance adjustment		-			3,046				(3,046	)		(0.08	)	2.6	%
Adjusted net income and net income per share	$	115,601		$	27,419			$	88,182		$	2.24		23.7	%
	Six Months Ended December 31, 2023
	Pre-tax			Tax Effect				Net of Tax			Per Share Diluted Impact			Tax Rate
Net income and net income per share	$	234,530		$	49,476			$	185,054		$	4.71		21.1	%
Tax valuation allowance adjustment		-			3,046				(3,046	)		(0.08	)	1.3	%
Adjusted net income and net income per share	$	234,530		$	52,522			$	182,008		$	4.63		22.4	%
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,
		2024			2023				2024			2023
Net Income	$	93,290		$	91,228			$	185,353		$	185,054
Interest (income) expense, net		(936	)		1,917				(1,563	)		3,237
Income tax expense		29,271			24,373				53,288			49,476
Depreciation and amortization of property		5,926			6,048				11,850			11,765
Amortization of intangibles		7,567			7,257				15,167			14,650
EBITDA	$	135,118		$	130,823			$	264,095		$	264,182
The Company defines EBITDA as Earnings from operations before Interest, Taxes, Depreciation, and Amortization, a non-GAAP financial measure. 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,
		2024			2023				2024			2023
Net Cash provided by Operating Activities	$	95,137		$	101,758			$	222,884		$	167,967
Capital expenditures		(5,197	)		(5,523	)			(10,746	)		(9,863	)
Free Cash Flow	$	89,940		$	96,235			$	212,138		$	158,104
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/20250129060638/en/

Ryan D. Cieslak

Director – Investor Relations & Treasury

216-426-4887 / rcieslak@applied.com

Source: Applied Industrial Technologies, Inc.

FAQ

What were AIT's Q2 2025 earnings per share?

AIT reported earnings of $2.39 per share for Q2 fiscal 2025, representing a 6.7% increase compared to the prior year's adjusted EPS.

How much did AIT increase its dividend in Q2 2025?

AIT increased its quarterly dividend by 24% to $0.46 per share, payable on February 28, 2025.

What is AIT's updated FY2025 sales guidance?

AIT updated its FY2025 sales guidance to growth of 1-3%, including a decline of 3% to 1% on an organic daily basis.

How did AIT's segments perform in Q2 2025?

The Service Center segment saw a 1.9% decrease while the Engineered Solutions segment experienced a 6.3% decrease in sales.

What was AIT's EBITDA for Q2 2025?

AIT reported EBITDA of $135.1 million, representing a 3.3% increase year-over-year.