AIT Applied Industrial Technologies Inc

Applied Industrial Technologies (NYSE: AIT) today reported second quarter fiscal 2019 sales and earnings for the three months ended December 31, 2018.

Net sales for the quarter grew 25.9% to $840.0 million from $667.2 million in the same quarter a year ago. The overall sales increase for the quarter reflects a 21.3% increase from acquisition-related volume and a 1.6% benefit from a higher number of selling days in the quarter, partially offset by a negative 0.7% foreign currency translation impact. Excluding these factors, days adjusted organic growth was 3.7% in the quarter. Net income for the quarter increased 25.1% to $38.7 million from $31.0 million, and earnings per share rose 25.3% to $0.99 per share, compared to $0.79 per share in the prior year quarter. EBITDA for the quarter of $76.0 million increased 34.6% versus the prior year quarter.

For the six months ended December 31, 2018, sales were $1.70 billion, an increase of 26.5% compared with $1.35 billion in the same period last year. Net income increased to $87.7 million from $64.7 million, and earnings per share increased 35.2% to $2.23 per share from $1.65 per share, last year.

Commenting on the results, Applied’s President & Chief Executive Officer Neil A. Schrimsher said, “While we are pleased to post year-over-year increases in our second quarter results, we did experience some deceleration as we progressed through the quarter. The contributing factors included significantly weaker sales in the final week of the calendar year, combined with some softness and project delays in our fluid power businesses tied to technology markets (electronic equipment and component manufacturers). Additionally, we experienced an adverse impact on our margins from a LIFO inventory charge related to more pronounced inflation experienced in the quarter.”

Outlook

Mr. Schrimsher added, “Given the moderating industrial environment and current fluid power market dynamics, we are revising our full-year fiscal 2019 sales and earnings per share guidance to between $4.45 and $4.65 per share on a sales increase of 12.5% to 15.0%. The sales guidance includes a nearly 2.0% to 4.0% increase in second-half daily sales rates compared to the first half, excluding acquisitions. This assumes second-half Fluid Power & Flow Control daily sales rates essentially consistent with the first half of the fiscal year, and a 3.0% to 5.0% increase in the second-half daily sales rates in our Service Center Segment.” 

Dividend

The Company’s Board of Directors increased the quarterly cash dividend to $0.31 per common share, representing the 10th dividend increase since 2010. The dividend is payable on February 28, 2019, to shareholders of record on February 15, 2019.

Mr. Schrimsher concluded, “We are fully committed to generating shareholder value and leveraging our expanding product, service and solution offering to drive profitable growth. We are pleased to recognize the one-year anniversary of the FCX Performance acquisition along with the recent addition of Fluid Power Sales announced in November. These businesses further enhance our capabilities and differentiation to serve new and existing customers, and we will remain active in acquisitions as we move through calendar 2019.”

Conference Call Information

Applied will host its quarterly conference call for investors and analysts at 10 a.m. ET on January 24, 2019. Neil A. Schrimsher – President & CEO, and David K. Wells – CFO will discuss the Company's performance. A supplemental investor deck detailing latest quarter results is available for reference on the investor relations portion of the Company’s website at www.applied.com. To join the call, dial 877-311-4351 (toll free) or 614-999-9139 (for International callers) using conference ID 2388424. 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 855-859-2056 or 800-585-8367 (both toll free), or 404-537-3406 (International) using conference ID 2388424.

About Applied®

Founded in 1923, Applied Industrial Technologies is a leading distributor of bearings, power transmission products, engineered fluid power components and systems, specialty flow control solutions, and other industrial supplies, serving MRO and OEM customers in virtually every industry. In addition, Applied provides engineering, design and systems integration for industrial and fluid power applications, as well as customized mechanical, fabricated rubber, fluid power, and flow control shop services. Applied also offers storeroom services and inventory management solutions that provide added value to its customers. 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 “guidance,” “assume,” “will” 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, 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.

CONTACT INFORMATION INVESTOR RELATIONS David K. Wells Vice President – Chief Financial Officer & Treasurer 216-426-4755

CORPORATE & MEDIA RELATIONS Julie A. Kho Manager, Public Relations 216-426-4483

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(In thousands, except per share data)
	Three Months Ended December 31,						Six Months Ended December 31,
		2018		2017				2018		2017
Net Sales	$	840,038	$	667,187			$	1,704,553	$	1,347,888
Cost of sales		597,178		478,827				1,209,840		967,104
Gross Profit		242,860		188,360				494,713		380,784
Selling, distribution and administrative,
including depreciation		181,895		141,645				367,409		282,232
Operating Income		60,965		46,715				127,304		98,552
Interest expense, net		9,578		2,139				20,054		4,305
Other (income) expense, net		946		(20	)			707		(731	)
Income Before Income Taxes		50,441		44,596				106,543		94,978
Income Tax Expense		11,724		13,646				18,888		30,307
Net Income	$	38,717	$	30,950			$	87,655	$	64,671
Net Income Per Share - Basic	$	1.00	$	0.80			$	2.26	$	1.67
Net Income Per Share - Diluted	$	0.99	$	0.79			$	2.23	$	1.65
Average Shares Outstanding - Basic		38,743		38,716				38,729		38,824
Average Shares Outstanding - Diluted		39,247		39,206				39,316		39,270
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
(In thousands)
	December 31,  2018			June 30,  2018
Assets
Cash and cash equivalents	$	79,827		$	54,150
Accounts receivable, less allowances of $13,982 and $13,566		512,034			548,811
Inventories		445,881			422,069
Other current assets		44,041			32,990
Total current assets		1,081,783			1,058,020
Property, net		122,005			121,343
Goodwill		651,206			646,643
Intangibles, net		413,093			435,947
Other assets		21,901			23,788
Total Assets	$	2,289,988		$	2,285,741
Liabilities
Accounts payable	$	232,558		$	256,886
Current portion of long-term debt		44,184			19,183
Other accrued liabilities		117,046			156,482
Total current liabilities		393,788			432,551
Long-term debt		923,410			944,522
Other liabilities		82,875			93,705
Total Liabilities		1,400,073			1,470,778
Shareholders' Equity		889,915			814,963
Total Liabilities and Shareholders' Equity	$	2,289,988		$	2,285,741

 

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(In thousands)
	Six Months EndedDecember 31,
		2018			2017
Cash Flows from Operating Activities
Net income	$	87,655		$	64,671
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of property		10,019			8,008
Amortization of intangibles		21,912			11,526
Amortization of stock appreciation rights and options		1,257			1,013
Gain on sale of property		(105	)		(333	)
Other share-based compensation expense		2,351			1,577
Changes in assets and liabilities, net of acquisitions		(55,922	)		(65,007	)
Other, net		(1,587	)		(271	)
Net Cash provided by Operating Activities		65,580			21,184
Cash Flows from Investing Activities
Property purchases		(7,096	)		(11,460	)
Proceeds from property sales		244			596
Acquisition of businesses, net of cash acquired		(6,900	)		(5,014	)
Other		391			-
Net Cash used in Investing Activities		(13,361	)		(15,878	)
Cash Flows from Financing Activities
Net borrowings (repayments) under revolving credit facility		(19,500	)		23,000
Long-term debt borrowings		175,000			-
Long-term debt repayments		(151,868	)		(1,679	)
Debt issuance costs		(685	)		-
Purchases of treasury shares		-			(22,778	)
Dividends paid		(23,275	)		(22,571	)
Acquisition holdback payments		(2,275	)		(319	)
Taxes paid for shares withheld for equity awards		(3,318	)		(1,298	)
Net Cash used in Financing Activities		(25,921	)		(25,645	)
Effect of Exchange Rate Changes on Cash		(621	)		606
Increase (decrease) in cash and cash equivalents		25,677			(19,733	)
Cash and cash equivalents at beginning of Period		54,150			105,057
Cash and Cash Equivalents at End of Period	$	79,827		$	85,324

 

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(In thousands)
	Three Months Ended December 31,							Six Months Ended December 31,
		2018			2017				2018			2017
Net Income	$	38,717		$	30,950			$	87,655		$	64,671
Interest expense, net		9,578			2,139				20,054			4,305
Income tax expense (benefit)		11,724			13,646				18,888			30,307
Depreciation and amortization of property		5,038			4,081				10,019			8,008
Amortization of intangibles		10,991			5,695				21,912			11,526
EBITDA	$	76,048		$	56,511			$	158,528		$	118,817
SUPPLEMENTAL INFORMATION - RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
The company supplemented the reporting of financial information determined under U.S. generally accepted accounting principles (GAAP) with reporting EBITDA (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.  The company believes that this non-GAAP measure provides meaningful information to assist shareholders in understanding financial results, assessing prospects for future performance, and provides 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 this financial measure with other companies' non-GAAP financial measures having the same or similar names.  EBITDA should not be considered in isolation or as a substitute for reported results.  This non-GAAP financial measure reflects 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. The reconciliation provided above reconciles EBITDA , a non-GAAP financial measure, with net income, a GAAP financial measure.