Applied Industrial Technologies reports net sales up 1.5% YOY
Applied Industrial Technologies, a value-added distributor and technical solutions provider of industrial motion, fluid power, flow control, automation technologies, and related maintenance supplies, reported net sales for the fourth quarter increased 0.2% to $1.2 billion. The change includes a 1.5% increase from acquisitions and a positive 0.8% selling day impact, offset by a negative 0.1% impact from foreign currency translation.
Excluding these factors, sales declined 2.0% on an organic daily basis reflecting a 0.7% decrease in the service center segment and a 4.6% decrease in the engineered solutions segment. The company reported net income of $103.5 million, or $2.64 per share, and EBITDA of $153.5 million. On a pre-tax basis, results include $0.3 million ($0.01 after tax per share) of LIFO expense compared to $8.1 million ($0.15 after tax per share) of LIFO expense in the prior-year period.
For the 12 months ended June 30, 2024, sales of $4.5 billion increased 1.5% compared with the prior year, or 0.4% on an organic daily basis. Net income was $385.8 million, or $9.83 per share, and EBITDA was $553.3 million. Non-GAAP adjusted net income was $382.7 million, or $9.75 per share. On a pre-tax basis, full-year results include $13.0 million ($0.25 after tax per share) of LIFO expense compared to $34.2 million ($0.66 after tax per share) of LIFO expense in the prior-year period.
“Our fiscal fourth quarter reflects strong execution and positive margin momentum within an ongoing muted demand backdrop," said President & Chief Executive Officer Neil A. Schrimsher. "EBITDA and EPS increased a respective 10% and 13% over the prior year on total sales that were relatively unchanged. Gross margins exceeded 30% and EBITDA margins exceeded 13% for the first time, both significant milestones. These results provide further evidence of the benefits our strategy, ongoing evolution, and operational discipline can deliver in any environment, as well as the margin improvement potential ahead as we continue to leverage our differentiated industry position and internal initiatives. I want to thank our entire Applied team for their ongoing commitment to our strategy focused on creating industry-leading value for our customers and all stakeholders.
“Consistent with broader industrial datapoints in recent months, we saw a greater than expected slowdown in end-market demand as the quarter played out, he continued. "Similar to last quarter, organic sales declines were greatest within the Fluid Power operations of our Engineered Solutions segment reflecting ongoing inventory destocking and reduced production across OEM customers. In addition, billing activity within our Service Center segment was more mixed as customers conservatively managed MRO spending within the uncertain business environment. Softer demand conditions have sustained into early fiscal 2025 with organic sales through mid-August trending down by a mid single-digit percent compared to prior-year levels.”
Schrimsher added, “While end-market demand remains mixed, we understand our requirements and we remain constructive on our setup. We see several potential catalysts on the horizon including a possible re-acceleration in industrial production following subdued activity the past 18 months, as well as ongoing benefits from various secular tailwinds and our initiatives. In addition, demand across our technology vertical and Automation operations is poised to rebound with early positive signs emerging. We are also developing a strong flow control business funnel related to customers’ decarbonization initiatives and other high-profile market verticals. Combined with easing comparisons and our M&A pipeline, we see a path for year-over-year sales trends to gradually improve through fiscal 2025.
“Lastly, we are increasingly confident in the opportunity developing beyond our intermediate-term annual objectives of $5.5 billion in sales and 13% EBITDA margins considering fiscal 2024 margin performance, nearly $2 billion of current balance sheet capacity, and the increasing critical role we are playing across the North American industrial sector. Our track record over the past five years highlights the power of our strategy and value creation potential. This includes respective EBITDA and EPS compounded annual growth of 11% and 17%, EBITDA margin expansion of nearly 300 basis points, more than $1.3 billion in free cash generation, and a meaningful increase in our returns on capital. We look forward to expanding on this progress in fiscal 2025 and years to come.”
Acquisition of Total Machine Solutions and Stanley Proctor
The company also announced the acquisitions of Total Machine Solutions (TMS) and Stanley Proctor. Based in Fairfield, New Jersey. TMS is a provider of electrical and mechanical power transmission products and solutions including bearings, drives, motors, conveyor components, and related repair services. TMS will be integrated into Applied’s U.S. Service Center operations. Stanley Proctor provides hydraulic, pneumatic, measurement, control, and instrumentation components, as well as fluid power engineered systems. The Company is based in Twinsburg, Ohio, and will join Applied’s Fluid Power operations. Combined, the Companies are expected to generate annual sales of approximately $17 million in the first year.
“We welcome TMS and Stanley Proctor to Applied. Both companies bring strong technical knowledge, service capabilities, and aligned supplier relationships in their regional markets that will enhance our competitive position," Mr. Schrimsher said. "Of note, TMS will supplement our growth potential in the U.S. Upper Northeast with local customer focus and capabilities across the food & beverage vertical. Stanley Proctor brings specialization and capabilities in the design and assembly of hydraulic power units, as well as fluid power rebuild and repair services. We look forward to their contribution to Applied’s performance.”
Fiscal 2025 Guidance and Outlook
Today the company is introducing fiscal 2025 EPS guidance in the range of $9.20 to $9.95 based on assumptions for total sales of down 2.5% to up 2.5% including down 4.0% to up 1.0% on an organic daily basis, as well as EBITDA margins of 12.1% to 12.3%. Guidance incorporates current economic uncertainty and assumes end-market demand slows further through the first half of the year, followed by stabilization in the second half of the year. Guidance also incorporates potential margin pressures early in the year reflecting some expense deleveraging on sales declines, ongoing inflationary headwinds, and growth positioning. Guidance does not assume contribution from future acquisitions or share buybacks.
“While we remain optimistic on our potential, we are taking a prudent approach to our initial 2025 outlook," Schrimsher said. "We believe industrial activity could remain muted near term as customers await clarity on interest rates and the upcoming U.S. Election. In addition, we remain focused on our long-term growth potential and investing accordingly, particularly considering our industry position and exposure to meaningful secular tailwinds. That said, as our recent results show, we know how to operate in any environment with various self-help opportunities, active cost controls, and a track record of operational discipline that provides support if a softer demand backdrop continues.”
INDUSTRIAL SUPPLY MAGAZINE
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