Posted August 12, 2020

Applied Industrial Technologies sales fall 17.9 percent

Applied Industrial Technologies experienced a sales decline of 17.9 percent in its fiscal 2020 fourth quarter, as sales fell to $725.1 million from $882.7 million in the prior year.

Sales decreased 18.4 percent on an organic basis, reflecting a 21.1 percent decline in the Service Center segment and an 11.8 percent decline in the Fluid Power & Flow Control segment. The company reported net income of $30.0 million, or 77 cents per share, compared to $40.0 million, or $1.02 per share, in the same period last year. 

For the full year, sales were $3.2 billion, a decrease of 6.5 percent compared with $3.5 billion last year, or down 9.4 percent on an organic daily basis. Net income was $24.0 million or 62 cents per share, compared to net income of $144.0 million, or $3.68 per share. 

"As expected, demand was challenging throughout the quarter as customers in many of our core manufacturing end markets idled or reduced production capacity and facility utilization in response to the pandemic. Underlying trends remain subdued but are firming slightly into our fiscal 2021 first quarter with organic sales down mid-teens year-over-year through early August. While we believe the worst is behind us, visibility is limited and we expect a slow pace near term as customers gradually bring facilities back online and conservatively manage operations against a still fluid pandemic and macro outlook,” said Neil A. Schrimsher, president and chief executive officer.

Schrimsher said that weakness remains pronounced across many core manufacturing end markets. This includes heavy industries, such as machinery metals, oil and gas and transportation. "While more customers are bringing facilities back online following shutdowns in recent months, the pace remains gradual and balanced by adjustments to production schedules and working capital discipline. In addition, while we are selling greater amounts of safety and janitorial supplies to customers, given COVID-19, this product category represents a small portion of our business and was less than 5 percent of our overall sales during fiscal 2020," he said.

Schrimsher said order rates have gradually improved since early July. "We are starting to see greater maintenance activity and break-fix demand from heavy industry customers, as production gradually ramps and safety buffer stock is depleted, following what we believe was some unusual pandemic driven pre-buying during April," he said.

Applied has implemented cost cutting actions including temporary pay reductions and furloughs.

David K. Wells, vice president-CFO and treasurer, said sales in the service center segment declined 22.3 percent year-over-year or 21.1 percent on an organic basis. Lower industrial production activity and customer facility closures from COVID-19 precautions drove reduced MRO needs across the majority of the service center customer base during the quarter. "Weakness was particularly acute within metals, mining, oil and gas, machinery and transportation end markets, partially offset by more resilient demand within food and beverage, pulp and paper, forestry, electronics and chemical industries, as well as growth in our Australian operations," he said.

Within the fluid power and flow control segment, sales decreased 6.8 percent over the prior year quarter, with the August 2019 acquisition of Olympus Controls contributing 5 points of growth. On an organic basis, segment sales declined 11.8 percent, reflecting lower fluid power sales within industrial OEM, and mobile off-highway applications, as well as weaker flow control sales from slower project activity. This was partially offset by fluid power sales growth within the technology end-market during the quarter.