- Net Sales of $885.4 Million Up 7.0%
YoY; Up 2.3% on an Organic Daily Basis
- EPS of $0.42; Non-GAAP Adjusted EPS of
$1.16 Up 9.4% YoY
- EBITDA of $82.3 Million, 9.3% of Sales;
Up 57 Bps YoY
- Results Include a $3.6 Million Non-cash
LIFO Charge ($0.07 Per Share or 41 Bps)
- Mid-point of Full Year Adjusted EPS
Guidance Reaffirmed, Range Tightened
Applied Industrial Technologies (NYSE: AIT) today reported third
quarter fiscal 2019 sales and earnings for the three months ended
March 31, 2019.
Net sales increased 7.0% to $885.4 million from $827.7 million
in the prior year. The overall sales increase for the quarter
includes 6.2% from acquisitions, partially offset by a negative
0.7% from foreign currency and a negative 0.8% selling day impact.
Excluding these factors, sales increased 2.3% on an organic daily
basis. Net income was $16.5 million, or $0.42 per share, compared
to $36.6 million, or $0.93 per share, in the prior year. Results
include a non-cash intangible impairment charge of $31.6 million
pre-tax, or a $0.70 per share impact including a related tax
valuation allowance, as well as restructuring costs of $2.3 million
pre-tax, or $0.04 per share. Excluding these items, non-GAAP
adjusted EPS was $1.16 and up 9.4% from the prior year on a
comparable basis. Adjusted results include a pre-tax $3.6 million
non-cash LIFO charge, compared to $2.7 million in our second
quarter fiscal 2019 and $0.3 million in the prior year quarter.
For the nine months ended March 31, 2019, sales were $2.59
billion, an increase of 19.1% compared with $2.18 billion in the
same period last year, or 4.0% on an organic daily basis. EPS was
$2.66 on a reported basis, or $3.39 per share on a non-GAAP
adjusted basis and up 25.1% from the prior year.
Commenting on the results, Applied’s President & Chief
Executive Officer Neil A. Schrimsher said, “Our performance this
quarter was driven by solid growth in our core Service Center
segment, gross margin execution, and ongoing SD&A cost
initiatives. As discussed last quarter, softness in technology end
markets and tougher comparisons are impacting reported growth in
our fluid power businesses in the interim, while ongoing inflation
drove a more pronounced LIFO charge. Apart from these near-term
variances, we believe the industrial cycle remains firm highlighted
by above normal sequential growth in our Service Center segment and
encouraging order/backlog momentum exiting the quarter in our Fluid
Power & Flow Control segment.”
Mr. Schrimsher added, “Reported results in the quarter were
impacted by a non-cash intangible impairment charge and related
restructuring costs in our Canadian upstream oil & gas
operations, reflecting continued softness within Western Canada
markets. We continue to take appropriate business and cost actions
in Western Canada, and remain encouraged by positive momentum
within our U.S. oil & gas end markets where our scaling
position in key basins is contributing nicely to our multi-faceted
growth.”
Outlook
Mr. Schrimsher concluded, “With our performance running largely
in line with our prior outlook, we are maintaining the mid-point of
our guidance, but tightening the range as we near year end. Our
updated full-year outlook now calls for non-GAAP adjusted EPS
between $4.50 and $4.60 per share, on sales growth of 14% to 15%,
or 3% to 4% on an organic daily basis. Our prior segment sales
expectations remain on track, while ongoing execution of internal
growth and margin initiatives combined with our position in
technically-critical bearings & power transmission, fluid
power, and flow control markets provides positive momentum ahead of
fiscal 2020.”
Dividend
Today the Company also announced that its Board of Directors
declared a quarterly cash dividend of $0.31 per common share,
payable on May 31, 2019, to shareholders of record on May 15,
2019.
Share Repurchases
During the quarter, the Company purchased 192,082 shares of its
common stock in open market transactions for $11.2 million. At
March 31, 2019, the Company had remaining authorization to purchase
864,618 additional shares.
Conference Call Information
Applied will host its quarterly conference call for investors
and analysts at 10 a.m. ET on April 26, 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 3378626. 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 3378626.
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 “believe,” “guidance,” “outlook,”
“expectations,” “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.
APPLIED
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED
STATEMENTS OF CONSOLIDATED INCOME
(In thousands, except per share data)
Three Months
Ended
March 31,
Nine Months Ended
March 31,
2019 2018 2019
2018 Net Sales $ 885,443 $ 827,665 $ 2,589,996 $
2,175,553 Cost of sales 629,884
588,141 1,839,724
1,555,245
Gross Profit 255,559 239,524 750,272
620,308
Selling, distribution and administrative,
including depreciation
189,456 183,080 556,865 465,312 Intangible impairment
31,594 - 31,594
-
Operating Income 34,509
56,444 161,813 154,996 Interest expense, net 9,947 8,216 30,001
12,521 Other income, net (1,256 )
(1,291 ) (549 ) (2,022 )
Income Before Income Taxes 25,818 49,519 132,361 144,497
Income Tax Expense 9,283
12,927 28,171
43,234
Net Income $ 16,535
$ 36,592 $ 104,190
$ 101,263
Net Income Per Share - Basic
$ 0.43 $ 0.95 $ 2.69
$ 2.61
Net Income Per Share - Diluted
$ 0.42 $ 0.93 $ 2.66
$ 2.58
Average Shares Outstanding -
Basic 38,643
38,674 38,701 38,775
Average Shares Outstanding - Diluted
39,039 39,286
39,222 39,272
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. 2) As a result
of the continued decline in the oil & gas industry in Western
Canada, the Company performed an impairment analysis for certain
long-lived intangible assets related to the Company's Reliance
upstream oil & gas operations in Canada during the quarter
ended March 31, 2019. As a result of this test, the Company
determined that the net book values of these long-lived intangible
assets were impaired and recognized a non-cash impairment charge of
$31.6 million. The Company also recorded a valuation allowance
against its Canadian deferred tax assets of $3.8 million. 3)
In the quarter ending March 31, 2019, the Company incurred certain
restructuring charges primarily for oil & gas operations. Total
restructuring charges reduced gross profit for the quarter by $0.7
million and operating income by $2.3 million. 4)
On March 5, 2019, the Company acquired substantially all of
the net assets of MilRoc Distribution and Woodward Steel for a
purchase price of $35.0 million. MilRoc Distribution is an
Oklahoma-based distributor of oilfield specific products, namely
pumps and valves, as well as equipment repair services and
industrial trailer parts to the oil & gas industry. Woodward
Steel is an Oklahoma-based steel supplier to the oil & gas and
agriculture industries. MilRoc Distribution and Woodward Steel are
both included in the Service Center Based Distribution segment.
APPLIED INDUSTRIAL
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31,2019
June 30,2018
Assets
Cash and cash equivalents $ 47,367 $ 54,150 Accounts receivable,
less allowances of $13,055 and $13,566 574,468 548,811 Inventories
454,555 422,069 Other current assets 49,380
32,990 Total current assets 1,125,770
1,058,020 Property, net 123,240 121,343 Goodwill 661,195 646,643
Intangibles, net 378,844 435,947 Other assets
33,761 23,788
Total Assets
$ 2,322,810 $
2,285,741
Liabilities
Accounts payable $ 240,339 $ 256,886 Current portion of long-term
debt 44,163 19,183 Other accrued liabilities
132,055 156,482 Total current liabilities
416,557 432,551 Long-term debt 937,536 944,522 Other liabilities
85,869 93,705
Total
Liabilities 1,439,962
1,470,778 Shareholders' Equity
882,848 814,963 Total
Liabilities and Shareholders' Equity $
2,322,810 $ 2,285,741
APPLIED INDUSTRIAL TECHNOLOGIES,
INC. AND SUBSIDIARIES
CONDENSED
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In thousands)
Nine Months Ended
March 31,
2019 2018
Cash Flows from
Operating Activities
Net income $ 104,190 $ 101,263
Adjustments to reconcile net income to net
cash provided by operating activities:
Intangible impairment 31,594 - Depreciation and amortization of
property 15,045 12,721 Amortization of intangibles 31,823 21,326
Amortization of stock appreciation rights and options 1,831 1,479
Gain on sale of property (258 ) (246 ) Other share-based
compensation expense 3,716 3,481 Changes in assets and liabilities,
net of acquisitions (106,367 ) (91,642 ) Other, net
(4,408 ) (504 )
Net Cash provided by
Operating Activities 77,166
47,878
Cash Flows from
Investing Activities
Property purchases (11,711 ) (17,898 ) Proceeds from property sales
649 714 Acquisition of businesses, net of cash acquired (37,526 )
(778,149 ) Other 391
Net Cash used in Investing Activities
(48,197 ) (795,333
)
Cash Flows from
Financing Activities
Net borrowings (repayments) under revolving credit facility (500 )
87,500 Long-term debt borrowings 175,000 780,000 Long-term debt
repayments (156,803 ) (120,488 ) Debt issuance costs (775 ) (3,298
) Purchases of treasury shares (11,158 ) (22,778 ) Dividends paid
(35,254 ) (34,190 ) Acquisition holdback payments (2,609 ) (318 )
Taxes paid for shares withheld for equity awards (3,369 ) (1,498 )
Exercise of stock appreciation rights and options
(2 ) 5
Net Cash (used in)
provided by Financing Activities
(35,470 ) 684,935
Effect of Exchange Rate Changes on Cash
(282 ) 986
Decrease in cash and cash
equivalents (6,783 ) (61,534 )
Cash and cash equivalents at
beginning of Period 54,150
105,057
Cash and Cash Equivalents at End of
Period $ 47,367
$ 43,523
APPLIED INDUSTRIAL
TECHNOLOGIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL
INFORMATION
RECONCILIATION OF
GAAP TO NON-GAAP FINANCIAL MEASURES
(In thousands)
Three Months Ended
March 31,
Nine Months Ended
March 31,
2019 2018
2019 2018 Net Income $
16,535 $ 36,592 $ 104,190
$ 101,263 Interest expense, net 9,947 8,216
30,001 12,521 Income tax expense 9,283 12,927 28,171 43,234
Depreciation and amortization of property 5,026 4,713 15,045 12,721
Amortization of intangibles (including impairment)
41,505 9,800 63,417
21,326
EBITDA $
82,296 $ 72,248 $
240,824 $ 191,065
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 net income, a GAAP financial measure with
EBITDA, a non-GAAP financial measure.
Three Months Ended
March 31,
Nine Months Ended
March 31,
2019 2018
2019 2018 Net Income Per Share -
Diluted $ 0.42 $ 0.93
$ 2.66 $ 2.58
Adjustments:
FCX one-time costs - 0.13 - 0.13 Canadian intangible impairment
0.60 - 0.59 - Canadian tax valuation allowance 0.10 - 0.10 -
Restructuring costs 0.04
- 0.04 -
Adjusted Net Income Per
Share $ 1.16 $
1.06 $ 3.39 $ 2.71
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 Adjusted Net Income Per Share
(Adjusted EPS), a non-GAAP financial measure. Adjusted EPS 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. Adjusted EPS 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 Net Income Per Share - Diluted, a GAAP financial measure
with Adjusted Net Income Per Share (or Adjusted EPS), a non-GAAP
financial measure.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190426005061/en/
David K. WellsVice President – Chief Financial Officer &
Treasurer216-426-4755 / dwells@applied.com
Ryan D. CieslakDirector – Investor Relations &
Treasury216-426-4887 / rcieslak@applied.com
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