Fiscal Fourth Quarter 2020 Highlights
- Net Sales of $725.1 Million Down 17.9% YoY; Down 18.4% on an
Organic Basis
- EPS of $0.77;Non-GAAP Adjusted EPS of $0.80
- Operating Cash Flow of $127.1 Million; Free Cash Flow of $123.2
Million
Fiscal Full-Year 2020 Highlights
- Net Sales of $3.2 Billion Down 6.5% YoY; Down 9.4% on an
Organic Daily Basis
- EPS of $0.62; Non-GAAP Adjusted EPS of $3.81
- Operating Cash Flow of $296.7 Million; Free Cash Flow of $276.6
Million
Applied Industrial Technologies (NYSE: AIT), a leading
value-added distributor and technical solutions provider of
industrial motion, fluid power, flow control, automation
technologies, and related maintenance supplies, today reported
results for its fiscal 2020 fourth quarter and full year ended June
30, 2020.
Net sales for the quarter decreased 17.9% to $725.1 million from
$882.7 million in the prior year. The change in sales includes a
1.5% increase from acquisitions, partially offset by an approximate
1% negative impact from foreign currency translation. Excluding
these factors, sales decreased 18.4% on an organic basis reflecting
a 21.1% decline in the Service Center segment and an 11.8% decline
in the Fluid Power & Flow Control segment. The Company reported
net income of $30.0 million, or $0.77 per share. Results include
non-routine costs of $1.5 million pre-tax ($0.03 per share)
associated with restructuring and cost actions in response to the
demand environment. Excluding these costs, the Company reported
non-GAAP adjusted net income of $31.1 million, or $0.80 per
share.
For the twelve months ended June 30, 2020, sales were $3.2
billion, a decrease of 6.5% compared with $3.5 billion last year,
or down 9.4% on an organic daily basis. Net income was $24.0
million or $0.62 per share on a reported basis. Non-GAAP adjusted
net income was $148.7 million, or $3.81 per share.
Neil A. Schrimsher, Applied’s President & Chief Executive
Officer, commented “I want to thank our associates for their strong
effort and support throughout fiscal 2020 including the exceptional
response in recent months to the ongoing COVID-19 pandemic. We have
adapted well with all of our locations fully operational and
playing a vital role in keeping essential industries productive,
while understanding our requirements during this slower demand
environment. This resiliency was apparent during the quarter with
decremental margins on adjusted operating income in the mid-teens
despite a high-teen sales decline, as well as strong cash
generation further enhancing our balance sheet and flexibility as
we enter fiscal 2021.”
Mr. Schrimsher added, “As expected, demand was challenging
throughout the quarter as customers in many of our core
manufacturing end markets idled or reduced production capacity and
facility utilization in response to the pandemic. Underlying trends
remain subdued but are firming slightly into our fiscal 2021 first
quarter with organic sales down mid-teens year-over-year through
early August. While we believe the worst is behind us, visibility
is limited and we expect a slow pace near term as customers
gradually bring facilities back online and conservatively manage
operations against a still fluid pandemic and macro outlook.”
“Going forward, we will remain prudent and have reinforced
recent cost actions, though with an offensive approach in mind as
we position for the recovery and execute strategic initiatives
aimed at optimizing our growth in coming years. We remain committed
to our long-term financial targets of $4.5 billion in sales and 11%
EBITDA margins. While the timing of these goals is dependent on the
industrial cycle trajectory, I believe Applied’s long-term growth
and margin potential have never been stronger as our leading
technical MRO position, service capabilities, and strategic
direction further entrench our value across critical motion, power,
and control infrastructure, as well as next generation industrial
solutions.”
Fiscal 2021 Outlook
Due to ongoing uncertainty from the COVID-19 pandemic, the
Company is refraining from providing formal financial guidance for
the full-year fiscal 2021 until it further assesses the direction
of industrial activity. Near term, assuming underlying demand
remains stable with July and early August levels, first quarter
sales are expected to decline 17% to 18% year-over-year on an
organic basis. In addition, the Company has extended previously
announced cost measures into early fiscal 2021. The majority of
these actions remain temporary and will be reevaluated as the year
progresses alongside growth requirements.
Conference Call Information Applied will host its
quarterly conference call for investors and analysts at 10 a.m. ET
on August 12, 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 6441297. 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 6441297.
About Applied® Applied Industrial Technologies is a
leading value-added distributor and technical solutions provider of
industrial motion, fluid power, flow control, automation
technologies, and related maintenance supplies. Our leading brands,
specialized services, and comprehensive knowledge serve MRO and OEM
end users in virtually all industrial markets through our
multi-channel capabilities that provide choice, convenience, and
expertise. 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,” “believe,” “will,” “outlook,”
“guidance” 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, the effects of the health crisis associated
with the COVID-19 pandemic on our business operations, results of
operations, and financial condition, and other risk factors
identified in Applied's most recent periodic report and other
filings made with the Securities and Exchange Commission, many of
which risks are amplified by circumstances arising out of the
COVID-19 pandemic. 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
SUBSIDIARIESCONDENSED STATEMENTS OF CONSOLIDATED INCOME
(In thousands, except per share data)
Three Months
EndedJune 30, Year EndedJune 30,
2020
2019
2020
2019
Net Sales
$
725,076
$
882,743
$
3,245,652
$
3,472,739
Cost of sales
516,786
625,392
2,307,916
2,465,116
Gross Profit
208,290
257,351
937,736
1,007,623
Selling, distribution and administrative expense, including
depreciation
161,262
185,376
717,747
742,241
Goodwill & intangible impairment
-
-
131,000
31,594
Operating Income
47,028
71,975
88,989
233,788
Interest expense, net
8,088
10,187
36,535
40,188
Other income, net
(1,139
)
(332
)
(2,782
)
(881
)
Income Before Income Taxes
40,079
62,120
55,236
194,481
Income Tax Expense
10,090
22,317
31,194
50,488
Net Income
$
29,989
$
39,803
$
24,042
$
143,993
Net Income Per Share - Basic
$
0.78
$
1.03
$
0.62
$
3.72
Net Income Per Share - Diluted
$
0.77
$
1.02
$
0.62
$
3.68
Average Shares Outstanding - Basic
38,691
38,579
38,658
38,670
Average Shares Outstanding - Diluted
38,988
38,993
38,999
39,160
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.
3) In the quarter ending March 31, 2020, the Company recognized
a non-cash goodwill impairment charge of $131.0 million related to
the operations of FCX Performance, Inc. (FCX) within the Company's
Fluid Power & Flow Control segment.
4) In the year ending June 30, 2020, the Company incurred
certain non-routine charges primarily related to its U.S. Service
Center Based Distribution segment. Total non-routine charges
reduced gross profit by $3.9 million, decreased operating income by
$9.0 million, and decreased net income by $5.8 million.
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
June 30, 2020 June 30, 2019 Assets Cash and cash equivalents
$
268,551
$
108,219
Accounts receivable, net
449,998
540,902
Inventories
389,150
447,555
Other current assets
52,070
51,462
Total current assets
1,159,769
1,148,138
Property, net
121,901
124,303
Operating lease assets, net
90,636
-
Intangibles, net
343,215
368,866
Goodwill
540,594
661,991
Other assets
27,436
28,399
Total Assets
$
2,283,551
$
2,331,697
Liabilities Accounts
payable
$
186,270
$
237,289
Current portion of long-term debt
78,646
49,036
Other accrued liabilities
161,167
137,469
Total current liabilities
426,083
423,794
Long-term debt
855,143
908,850
Other liabilities
158,783
102,019
Total Liabilities
1,440,009
1,434,663
Shareholders' Equity
843,542
897,034
Total Liabilities and Shareholders' Equity
$
2,283,551
$
2,331,697
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND
SUBSIDIARIESCONDENSED STATEMENTS OF CONSOLIDATED CASH
FLOWS (In thousands)
Year EndedJune 30,
2020
2019
Cash Flows from Operating
Activities Net income
$
24,042
$
143,993
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization of property
21,196
20,236
Amortization of intangibles
41,553
41,883
Goodwill & intangible impairment
131,000
31,594
Amortization of stock appreciation rights and options
2,954
2,437
Gain on sale of property
(1,157
)
(459
)
Other share-based compensation expense
4,000
4,474
Changes in assets and liabilities, net of acquisitions
73,720
(70,221
)
Other, net
(594
)
6,664
Net Cash provided by Operating Activities
296,714
180,601
Cash Flows from Investing
Activities Acquisition of businesses, net of cash
acquired
(37,237
)
(37,526
)
Property purchases
(20,115
)
(18,970
)
Proceeds from property sales
1,948
1,003
Other
-
391
Net Cash used in Investing Activities
(55,404
)
(55,102
)
Cash Flows from Financing
Activities Net repayments under revolving credit
facility
-
(19,500
)
Long-term debt borrowings
25,000
175,000
Long-term debt repayments
(49,553
)
(161,738
)
Payment of debt issuance costs
(95
)
(775
)
Purchases of treasury shares
-
(11,158
)
Dividends paid
(48,873
)
(47,266
)
Acquisition holdback payments
(2,440
)
(2,610
)
Taxes paid for shares withheld for equity awards
(2,607
)
(3,492
)
Exercise of stock appreciation rights and options
330
-
Net Cash used in Financing Activities
(78,238
)
(71,539
)
Effect of Exchange Rate Changes on Cash
(2,740
)
109
Increase in cash and cash equivalents
160,332
54,069
Cash and cash equivalents at beginning of Period
108,219
54,150
Cash and Cash Equivalents at End of Period
$
268,551
$
108,219
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND
SUBSIDIARIES SUPPLEMENTAL INFORMATIONRECONCILIATION 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 and Net income per share, GAAP financial measures, with
Adjusted Net income and Adjusted Net income per share, non-GAAP
financial measures: Three Months Ended June 30,
2020 Pre-tax Tax Effect Net of Tax Per
ShareDiluted Impact Tax Rate Net income and net
income per share
$
40,079
$
10,090
$
29,989
$
0.77
25.2
%
Non-routine costs
1,540
388
1,152
0.03
25.2
%
Adjusted net income and net income per share
$
41,619
$
10,478
$
31,141
$
0.80
25.2
%
Year Ended June 30, 2020 Pre-tax Tax Effect
Net of Tax Per ShareDiluted Impact Tax Rate
Net income and net income per share
$
55,236
$
31,194
$
24,042
$
0.62
56.5
%
Goodwill impairment
131,000
12,200
118,800
3.04
9.3
%
Non-routine costs
8,992
2,135
6,857
0.18
23.7
%
Non-routine tax benefit
-
1,010
(1,010
)
(0.03
)
N/M
Adjusted net income and net income per share
$
195,228
$
46,539
$
148,689
$
3.81
23.8
%
Year Ended June 30, 2019 Pre-tax Tax Effect
Net of Tax Per ShareDiluted Impact Tax Rate
Net income and net income per share
$
194,481
$
50,488
$
143,993
$
3.68
26.0
%
Canadian intangible impairment
31,594
8,485
23,109
0.59
26.9
%
Canadian tax valuation allowance
-
(3,785
)
3,785
0.10
N/M
Non-routine costs
2,300
598
1,702
0.04
26.0
%
Adjusted net income and net income per share
$
228,375
$
55,786
$
172,589
$
4.41
24.4
%
Reconciliation of Net Cash provided by Operating
activities, a GAAP financial measure, to Free Cash Flow, a non-GAAP
financial measure: Three Months EndedJune 30,
Year EndedJune 30,
2020
2019
2020
2019
Net Cash provided by Operating Activities
$
127,090
$
103,435
$
296,714
$
180,601
Property purchases
(3,892
)
(7,259
)
(20,115
)
(18,970
)
Free Cash Flow
$
123,198
$
96,176
$
276,599
$
161,631
Free cash flow is defined as net cash provided by operating
activities less property purchases.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200812005191/en/
Ryan D. Cieslak Director – Investor Relations & Treasury
216-426-4887 / rcieslak@applied.com
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