Applied Industrial Technologies (AIT) Down 1.6% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Applied Industrial Technologies (AIT). Shares have lost about 1.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Applied Industrial Technologies due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Applied Industrial Q4 Earnings Beat, Sales View Solid

Applied Industrial has reported better-than-expected results for fourth-quarter fiscal 2021 (ended Jun 30, 2021). Its earnings surpassed estimates by 28%. This was the sixth consecutive quarter of an earnings beat. Also, sales surpassed the consensus estimate by 6.6%.

The company’s earnings in the fiscal fourth quarter were $1.51 per share, surpassing the Zacks Consensus Estimate of $1.18. On a year-over-year basis, the bottom line increased 88.8% from the year-ago figure of 80 cents.

In fiscal 2021, the company’s earnings were $4.74 per share, increasing 24.4% from the previous year. Also, the bottom line surpassed the Zacks Consensus Estimate of $4.42.

Revenue Details

In the reported quarter, Applied Industrial’s net sales amounted to $895.9 million, up 23.6% year over year. The results benefited from 19.8% growth in organic sales, 2.1% gains from acquisitions and 1.7% gain from foreign currency translation.

The company’s top line surpassed the Zacks Consensus Estimate of $840.2 million.

Applied Industrial reports revenues under two market segments. A brief discussion of the quarterly results is provided below:

Service Center-Based Distribution’s revenues totaled $597.7 million, which contributed 66.7% to net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues increased 22.3%. Organic sales grew 19.8% and foreign currency translation had a positive impact of 2.5%. Demand was healthy in mining, chemicals, and other markets.

The Fluid Power & Flow Control segment generated revenues of $298.2 million, contributing 33.3% to net revenues in the reported quarter. The figure increased 26.1% year over year on the back of 19.7% growth in organic sales and 6.4% gain from acquisitions. Businesses flourished in the technology markets and recovery was witnessed in life sciences, chemical, off-highway mobile and industrial markets.

For fiscal 2021, the company’s net sales totaled $3.24 million, down 0.3% from the previous year. However, the top line surpassed the Zacks Consensus Estimate of $3.18 billion.

Margin Profile

In the reported quarter, Applied Industrial’s cost of sales increased 22.5% year over year to $632.9 million. Cost of sales was 70.7% of the quarter’s net sales. Gross profit in the quarter grew 26.3% year over year to $263 million, while gross margin increased 60 basis points (bps) year over year to 29.4%.

Selling, distribution and administrative expenses (including depreciation) increased 12.8% year over year to $181.9 million. It represented 20.3% of net sales in the reported quarter versus 22.2% in the year-ago quarter. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $94.8 million, reflecting year-over-year growth of 46.4%. Margin increased 160 bps year over year to 10.6%. Interest expenses declined 5.1% year over year to $7.7 million.

Balance Sheet & Cash Flow

Exiting the fourth quarter of fiscal 2021, Applied Industrial had cash and cash equivalents of $257.8 million, down 15.2% from $304 million recorded in the last reported quarter. Long-term debt increased 1.5% sequentially to $784.9 million.

In the year, the company repaid long-term debts of $131.9 million as compared with $49.6 million in the previous year. Long-term borrowings for the year were $26 million, up from $25 million in fiscal 2020.

In fiscal 2021, the company generated net cash of $241.7 million from operating activities, reflecting a decrease of 18.5% from the previous year. Capital spent on property purchases totaled $15.9 million compared with $20.1 million in the previous year. Free cash flow decreased 18.3% year over year to $225.9 million.
 
In fiscal 2021, the company rewarded shareholders with a dividend payout of $50.7 million. The amount represents growth of 3.7% year over year. Also, the company repurchased shares worth $40.1 million in fiscal 2021. Exiting fiscal 2021, the company is left to repurchase 465,000 shares.

Outlook

For fiscal 2022 (ending June 2022), Applied Industrial anticipates benefitting from strengthening demand in industrial markets, growth initiatives and pricing actions. However, supply-chain constraints, inflation, labor and pandemic-led uncertainties are concerning.

The company expects total revenues to increase 8-10% year over year in fiscal 2022 (versus a 0.3% decline recorded in fiscal 2021). Organic sales growth for the year is predicted to be 7-9%.

EBITDA margin is expected to be 9.7-9.9%. Earnings per share of $5.00-$5.40 for fiscal 2022 suggest year-over-year growth of 5-14%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Applied Industrial Technologies has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Applied Industrial Technologies has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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