- Record Full-Year Sales of $3.5 Billion, Up 13.0% YoY
- Full-Year EPS of $3.68; Non-GAAP Adjusted EPS of $4.41, Up
18.0% YoY
- Fourth Quarter Sales of $882.7 Million; EPS of $1.02
- Fourth Quarter Results Include: $3.4 Million Non-cash LIFO
Charge ($0.07 Per Share or 40 Bps); $0.18 Per Share of Discrete Tax
Expense
- Fourth Quarter Cash from Operations of $103 Million; Free Cash
of $96 Million
Applied Industrial Technologies (NYSE: AIT) today reported
results for its fourth quarter and fiscal 2019 year ended June 30,
2019.
Net sales for the quarter decreased 1.7% to $882.7 million from
$897.7 million in the prior year. The change in sales includes a
2.2% increase from acquisitions, partially offset by a negative
0.4% from foreign currency and a negative 0.8% selling day impact.
Excluding these factors, sales decreased 2.7% on an organic daily
basis. Net income was $39.8 million, or $1.02 per share, compared
to $40.4 million, or $1.03 per share, in the prior year. EBITDA was
$87.6 million compared to $87.0 million in the prior year. Results
include $7.0 million or $0.18 per share of discrete tax expense in
the quarter, as well as a pre-tax $3.4 million non-cash LIFO
charge, compared to $0.1 million in the prior year quarter and
guidance of $2.5 million.
For the twelve months ended June 30, 2019, sales were $3.47
billion, an increase of 13.0% compared with $3.07 billion last
year, or 1.9% on an organic daily basis. Net income was $144.0
million on a reported basis, or $3.68 per share. Non-GAAP adjusted
net income was $172.6 million, or $4.41 per share and up 18.0% from
the prior year. EBITDA was $328.4 million, an increase of 18.1%
compared to $278.1 million last year.
Commenting on the results, Applied’s President & Chief
Executive Officer Neil A. Schrimsher said, “Despite slower
end-market demand and ongoing inflationary headwinds, we ended
fiscal 2019 on an encouraging note with fourth quarter margins,
EBITDA, and free cash meeting or exceeding our expectations. This
demonstrates our ability to adapt, execute, and generate cash in
any demand environment, as well as benefit from various self-help
initiatives. Consistent with recent macroeconomic industrial
reports, we saw a slowing in demand across industrial, process, and
energy end markets during the quarter. Combined with ongoing fluid
power technology market headwinds and difficult comparisons, our
sales declined organically. While the industrial backdrop is
proving more challenging near-term, we see sustained momentum from
our differentiated industry position and operational strategy, as
highlighted by our collective fiscal 2019 performance including
consistent margin improvement, and respective EBITDA and free cash
growth of 18% and 30%.”
Outlook Today the Company also provided its initial
outlook for fiscal 2020. For the full year, the Company is
forecasting an EPS range of $4.20 to $4.50 on a change in sales of
down 2% to up 2%, including down 5% to down 1% on an organic daily
basis. In addition, the Company is forecasting free cash of $200
million to $220 million, or up 30% at the mid-point.
Mr. Schrimsher concluded, “We are mindful of broader industrial
cycle uncertainty entering fiscal 2020, which is reflected in our
guidance. While reinforcing our cost discipline and cash generation
potential near-term, we remain focused on our long-term growth
strategy and believe our products and solutions are increasingly
critical given an aging and tighter industrial labor force, more
sophisticated production equipment and processes, a focus on plant
floor optimization, and compliance and regulatory requirements.
Combined with sustained margin opportunities and our leading
technical and service-oriented position in engineered solutions and
flow control markets, we are favorably positioned as the cycle
evolves near-term. Over the intermediate to long-term we expect
accelerating growth potential via secular market tailwinds and
share gains given this industry position, as well as our recent
expansion into automation solutions with the agreement to acquire
Olympus Controls. This multi-faceted and technical-oriented growth
strategy presents many new and relevant opportunities to drive
shareholder value as we enter the next decade and approach the
Company’s 100th year anniversary.”
Conference Call Information Applied will host its
quarterly conference call for investors and analysts at 10 a.m. ET
on August 14, 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 5159526. 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 5159526.
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 “outlook,” “forecast,” “guidance,” “believe,”
“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 June
30,
Year Ended June 30,
2019
2018
2019
2018
Net Sales
$
882,743
$
897,721
$
3,472,739
$
3,073,274
Cost of sales
625,392
634,034
2,465,116
2,189,279
Gross Profit
257,351
263,687
1,007,623
883,995
Selling, distribution and administrative, including depreciation
185,376
192,856
742,241
658,168
Intangible impairment
-
-
31,594
-
Operating Income
71,975
70,831
233,788
225,827
Interest expense, net
10,187
10,964
40,188
23,485
Other income, net
(332
)
(354
)
(881
)
(2,376
)
Income Before Income Taxes
62,120
60,221
194,481
204,718
Income Tax Expense
22,317
19,859
50,488
63,093
Net Income
$
39,803
$
40,362
$
143,993
$
141,625
Net Income Per Share - Basic
$
1.03
$
1.04
$
3.72
$
3.65
Net Income Per Share - Diluted
$
1.02
$
1.03
$
3.68
$
3.61
Average Shares Outstanding - Basic
38,579
38,682
38,670
38,752
Average Shares Outstanding - Diluted
38,993
39,312
39,160
39,281
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.
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND
SUBSIDIARIES CONDENSED CONSOLIDATED
BALANCE SHEETS (In thousands)
June 30, June
30, 2019
2018 Assets Cash
and cash equivalents
$
108,219
$
54,150
Accounts receivable, net
540,902
548,811
Inventories
447,555
422,069
Other current assets
51,462
32,990
Total current assets
1,148,138
1,058,020
Property, net
124,303
121,343
Goodwill
661,991
646,643
Intangibles, net
368,866
435,947
Other assets
28,399
23,788
Total Assets
$
2,331,697
$
2,285,741
Liabilities Accounts
payable
$
237,289
$
256,886
Current portion of long-term debt
49,036
19,183
Other accrued liabilities
137,469
156,482
Total current liabilities
423,794
432,551
Long-term debt
908,850
944,522
Other liabilities
102,019
93,705
Total Liabilities
1,434,663
1,470,778
Shareholders' Equity
897,034
814,963
Total Liabilities and Shareholders' Equity
$
2,331,697
$
2,285,741
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND
SUBSIDIARIES CONDENSED STATEMENTS OF
CONSOLIDATED CASH FLOWS (In thousands)
Year Ended
June 30,
2019
2018
Cash Flows from Operating
Activities Net income
$
143,993
$
141,625
Adjustments to reconcile net income to net cash provided by
operating activities: Intangible impairment
31,594
-
Depreciation and amortization of property
20,236
17,798
Amortization of intangibles
41,883
32,065
Amortization of stock appreciation rights and options
2,437
1,961
Gain on sale of property
(459
)
(335
)
Other share-based compensation expense
4,474
4,666
Changes in assets and liabilities, net of acquisitions
(70,222
)
(54,227
)
Other, net
6,665
3,751
Net Cash provided by Operating Activities
180,601
147,304
Cash Flows from Investing
Activities Capital Expenditures
(18,970
)
(23,230
)
Proceeds from property sales
1,003
978
Acquisition of businesses, net of cash acquired
(37,526
)
(775,654
)
Other
391
Net Cash used in Investing Activities
(55,102
)
(797,906
)
Cash Flows from Financing
Activities Net borrowings (repayments) under revolving
credit facility
(19,500
)
19,500
Long-term debt borrowings
175,000
780,000
Long-term debt repayments
(161,738
)
(125,420
)
Debt issuance costs
(775
)
(3,298
)
Purchases of treasury shares
(11,158
)
(22,778
)
Dividends paid
(47,266
)
(45,858
)
Acquisition holdback payments
(2,610
)
(319
)
Taxes paid for shares withheld for equity awards
(3,492
)
(1,645
)
Exercise of stock appreciation rights and options
-
102
Net Cash (used in) provided by Financing Activities
(71,539
)
600,284
Effect of Exchange Rate Changes on Cash
109
(589
)
Increase (decrease) in cash and cash equivalents
54,069
(50,907
)
Cash and cash equivalents at beginning of year
54,150
105,057
Cash and Cash Equivalents at End of Year
$
108,219
$
54,150
APPLIED INDUSTRIAL
TECHNOLOGIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL
MEASURES
(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, a GAAP
financial measure, to EBITDA, a non-GAAP financial measure:
Three Months Ended
Year Ended
June 30,
June 30,
2019
2018
2019
2018
Net Income
$
39,803
$
40,362
$
143,993
$
141,625
Interest expense, net
10,187
10,964
40,188
23,485
Income tax expense
22,317
19,859
50,488
63,093
Depreciation and amortization of
property
5,191
5,077
20,236
17,798
Amortization of intangibles (including
impairment)
10,060
10,739
73,477
32,065
EBITDA
$
87,558
$
87,001
$
328,382
$
278,066
The Company defines EBITDA as Earnings
from operations before Interest, Taxes, Depreciation, and
Amortization (including impairment), a non-GAAP financial measure.
EBITDA excludes items that may not be indicative of core operating
results.
Reconciliation of Net Income and Net Income Per Share - Diluted,
GAAP financial measures, with Adjusted Net Income and Adjusted Net
Income Per Share (or Adjusted EPS), non-GAAP financial
measures:
Net Income Impact
Per Share - Diluted
Impact
Year Ended June 30,
Year Ended June 30,
2019
2018
2019
2018
Net Income and Net Income Per Share
$
143,993
$
141,625
$
3.68
$
3.61
Adjustments: FCX
one-time costs
-
5,128
-
0.13
Canadian intangible impairment
23,109
-
0.59
-
Canadian tax valuation allowance
3,785
-
0.10
-
Restructuring costs
1,702
-
0.04
-
Adjusted Net Income and Adjusted EPS
$
172,589
$
146,753
$
4.41
$
3.74
Adjusted Net Income and Adjusted EPS
excludes items that may not be indicative of core operating
results.
Reconciliation of Net Cash provided by Operating activities, a
GAAP financial measure, to Free Cash Flow, a non-GAAP financial
measure:
Three Months Ended June
30,
Year Ended June 30,
2019
2018
2019
2018
Net Cash provided by Operating Activities
$
103,435
$
99,426
$
180,601
$
147,304
Capital expenditure
(7,259
)
(5,332
)
(18,970
)
(23,230
)
Free Cash Flow
$
96,176
$
94,094
$
161,631
$
124,074
Free cash flow is defined as net cash
provided by operating activities less capital expenditures.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190814005200/en/
Ryan D. Cieslak Director – Investor Relations & Treasury
216-426-4887 / rcieslak@applied.com
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