- Net Sales of $833.4 Million Down 0.8% YoY; Down 4.0% on an
Organic Basis
- Net Income of $38.0 Million; EPS of $0.97
- Cash from Operations of $54.9 Million; Free Cash of $47.9
Million
- Quarterly Dividend Increased to $0.32 Per Share
- Fiscal 2020 Guidance Updated, Range Narrowed
Applied Industrial Technologies (NYSE: AIT), a leading
value-added distributor and technical solutions provider of
industrial motion, fluid power, flow control, and automation
technologies, today reported results for its second quarter fiscal
2020 ended December 31, 2019.
Net sales decreased 0.8% to $833.4 million from $840.0 million
in the prior year. Excluding a 3.2% increase from acquisitions,
sales decreased 4.0% on an organic basis reflecting a 3.5% decline
in the Service Center segment and a 4.9% decline in the Fluid Power
& Flow Control segment. Net income was $38.0 million, or $0.97
per share, compared to $38.7 million, or $0.99 per share, in the
prior year. EBITDA for the quarter of $74.5 million compared to
$76.0 million in the prior year.
Commenting on the results, Applied’s President & Chief
Executive Officer Neil A. Schrimsher said, “We are executing on our
earnings commitments midway through fiscal 2020 despite tepid
demand industry-wide, and are on track to achieve record free cash
flow. In the current slow environment, we remain focused on expense
control, leveraging our technical and cross-selling capabilities,
and pursuing M&A that enhances our earnings and return
potential long term.”
“As we enter the second half of our fiscal year, we expect
ongoing benefits from these internal initiatives. That said,
end-market demand remains challenging and uncertain, with our
recent quarter impacted by an unusually slow December. While likely
impacted by typical seasonal variability this time of year, we
expect subdued industry demand to persist near-term as customers
slowly rebound from an evolving trade and industrial production
backdrop. Our track record of cost control and cash generation is
once again apparent and key in this type of environment, while our
leading technical position across motion control, fluid power, flow
control, and automation provides significant and differentiated
long-term growth potential.”
Outlook The Company is updating fiscal 2020 guidance
following performance year to date and ongoing end-market
uncertainty. Guidance now assumes non-GAAP adjusted EPS of $4.20 to
$4.40 on a change in sales of down 2% to 0%, including down 5% to
down 3% on an organic daily basis. Prior guidance assumed non-GAAP
adjusted EPS of $4.20 to $4.50, and sales down 2% to up 2%
including down 5% to down 1% on an organic daily basis. The
adjusted EPS ranges exclude fiscal first quarter restructuring
expenses. In addition, we reaffirm our free cash guidance of $200
million to $220 million, up 30% at the midpoint.
Dividend Today the Company also announced that its Board
of Directors approved an increase in the quarterly cash dividend to
$0.32 per common share, payable on February 28, 2020, to
shareholders of record on February 14, 2020. This represents the
11th dividend increase since 2010.
Conference Call Information Applied will host its
quarterly conference call for investors and analysts at 10 a.m. ET
on January 23, 2020. 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 7195851. 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 7195851.
About Applied® Founded in 1923, Applied Industrial
Technologies is a leading value-added distributor of bearings,
power transmission products, engineered fluid power components and
systems, specialty flow control solutions, automation technologies,
and other industrial supplies, serving MRO and OEM customers in
virtually every industry. In addition, Applied provides
engineering, design and systems integration for industrial, fluid
power, and flow control 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 “expect,” “outlook,” “guidance,” “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 December
31,
Six Months Ended December 31,
2019
2018
2019
2018
Net Sales
$
833,375
$
840,038
$
1,689,779
$
1,704,553
Cost of sales
592,141
597,178
1,197,085
1,209,840
Gross Profit
241,234
242,860
492,694
494,713
Selling, distribution and administrative expense, including
depreciation
182,489
181,895
372,783
367,409
Operating Income
58,745
60,965
119,911
127,304
Interest expense, net
9,583
9,578
19,642
20,054
Other (income) expense, net
(215
)
946
(215
)
707
Income Before Income Taxes
49,377
50,441
100,484
106,543
Income Tax Expense
11,346
11,724
23,654
18,888
Net Income
$
38,031
$
38,717
$
76,830
$
87,655
Net Income Per Share - Basic
$
0.98
$
1.00
$
1.99
$
2.26
Net Income Per Share - Diluted
$
0.97
$
0.99
$
1.97
$
2.23
Average Shares Outstanding - Basic
38,649
38,743
38,630
38,729
Average Shares Outstanding - Diluted
39,047
39,247
39,000
39,316
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) On July 1, 2019, the
Company adopted ASC 842 – accounting for leases. Adoption of the
new standard resulted in the recognition of right-of-use assets and
lease liabilities of $83.5 million and $89.8 million, respectively,
on July 1, 2019. In addition, the adoption resulted in an
adjustment to opening retained earnings of approximately $3.3
million, net of tax, on July 1, 2019 primarily due to the
impairment of certain leases in Canada.
APPLIED INDUSTRIAL
TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED
BALANCE SHEETS (In thousands)
December 31, 2019
June 30, 2019
Assets Cash and cash
equivalents
$
128,149
$
108,219
Accounts receivable, net
502,894
540,902
Inventories
463,609
447,555
Other current assets
47,903
51,462
Total current assets
1,142,555
1,148,138
Property, net
126,248
124,303
Operating lease assets
85,418
-
Intangibles, net
364,519
368,866
Goodwill
673,175
661,991
Other assets
27,082
28,399
Total Assets
$
2,418,997
$
2,331,697
Liabilities Accounts
payable
$
212,312
$
237,289
Current portion of long-term debt
73,771
49,036
Other accrued liabilities
134,618
137,469
Total current liabilities
420,701
423,794
Long-term debt
874,423
908,850
Other liabilities
161,632
102,019
Total Liabilities
1,456,756
1,434,663
Shareholders' Equity
962,241
897,034
Total Liabilities and Shareholders' Equity
$
2,418,997
$
2,331,697
APPLIED INDUSTRIAL
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (In
thousands)
Six Months Ended December
31,
2019
2018
Cash Flows from Operating
Activities Net income
$
76,830
$
87,655
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization of property
10,617
10,019
Amortization of intangibles
20,569
21,912
Amortization of stock appreciation rights and options
1,494
1,257
Gain on sale of property
(165
)
(105
)
Other share-based compensation expense
1,837
2,351
Changes in assets and liabilities, net of acquisitions
(11,660
)
(55,922
)
Other, net
5,377
(1,587
)
Net Cash provided by Operating Activities
104,899
65,580
Cash Flows from Investing
Activities Acquisition of businesses, net of cash
acquired
(36,390
)
(6,900
)
Property purchases
(11,965
)
(7,096
)
Proceeds from property sales
325
244
Other
-
391
Net Cash used in Investing Activities
(48,030
)
(13,361
)
Cash Flows from Financing
Activities Net borrowings (repayments) under revolving
credit facility
-
(19,500
)
Long-term debt borrowings
25,000
175,000
Long-term debt repayments
(34,868
)
(151,868
)
Debt issuance costs
(16
)
(685
)
Dividends paid
(24,002
)
(23,275
)
Acquisition holdback payments
(777
)
(2,275
)
Taxes paid for shares withheld for equity awards
(1,988
)
(3,318
)
Exercise of stock appreciation rights and options
330
-
Net Cash used in Financing Activities
(36,321
)
(25,921
)
Effect of Exchange Rate Changes on Cash
(618
)
(621
)
Increase in cash and cash equivalents
19,930
25,677
Cash and cash equivalents at beginning of Period
108,219
54,150
Cash and Cash Equivalents at End of Period
$
128,149
$
79,827
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
December 31,
2019
2018
Net Income
$
38,031
$
38,717
Interest expense, net
9,583
9,578
Income tax expense
11,346
11,724
Depreciation and amortization of property
5,394
5,038
Amortization of intangibles
10,195
10,991
EBITDA
$
74,549
$
76,048
The Company defines EBITDA as 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.
Reconciliation of Net Cash provided
by Operating activities, a GAAP financial measure, to Free Cash
Flow, a non-GAAP financial measure:
Three Months Ended
December 31,
2019
2018
Net Cash provided by Operating Activities
$
54,881
$
53,783
Capital expenditure
(7,019
)
(3,923
)
Free Cash Flow
$
47,862
$
49,860
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/20200123005226/en/
Ryan D. Cieslak Director – Investor Relations & Treasury
216-426-4887 / rcieslak@applied.com
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