Applied Industrial's (AIT) Shares Up On Q2 Earnings Beat

Applied Industrial Technologies, Inc.’s (NYSE:AIT) revenues and earnings in second-quarter fiscal 2018 (ended Dec 31, 2017) surpassed the respective Zacks Consensus Estimates. The figures also improved year over year.

The stock gained 1.8% to $74.70 per share as of Jan 25, 2018, post announcement of the impressive quarterly results.

Earnings and Revenues

Quarterly adjusted earnings came in at 77 cents per share, comfortably surpassing the Zacks Consensus Estimate of 71 cents. The bottom line also came in higher than the year-ago tally of 61 cents per share.

Net sales during the quarter came in at $667.2 million, beating the Zacks Consensus Estimate of $651 million. In addition, the top line came in higher than the prior-year figure of $608.1 million. The upswing stemmed from elevated acquisition-related volume and favorable foreign currency-translation impact.

The company’s quarterly organic sales improved 8% year over year.

Segmental Details

Revenues of the Service Center Based Distribution segment came in at $555.6 million, up 8% year over year. Also, aggregate sales of the Fluid Power Businesses segment were $111.6 million, up 19% year over year.

Costs & Margins

Cost of sales in the reported quarter was $478.8 million, up 9.9% year over year. Gross profit margin came in at 28.2%, contracting 20 basis points (bps) year over year.

Selling, distribution and administrative expenses (including depreciation) totaled $141.6 million compared to $134.6 million incurred in the year-earlier period. Operating margin in the fiscal second quarter came in at 7%, expanding 80 bps year over year.

Balance Sheet & Cash Flow

Exiting the reported quarter, Applied Industrial had cash and cash equivalents of $85.3 million compared with $105.1 million recorded at the end of fiscal 2017. The company’s long-term debt was $306.6 million, up 6.9% from the figure recorded at the end of fiscal 2017.

In the first half of fiscal 2018, the company generated net cash of $21.2 million from its operating activities compared to $45.7 million cash generated in the comparable period last fiscal.

In the fiscal second quarter, Applied Industrial purchased property worth $11.5 million compared with $6.7 million property purchased at the end of second-quarter fiscal 2017.

During the reported quarter, the company purchased 145,800 shares in the open market for $9 million. Also, its board of directors approved the payment of a quarterly dividend of 30 cents per share. The dividend will be paid on Feb 28 to shareholders on record as of Feb 15, 2018.

Outlook

Applied Industrial believes its profitability in the upcoming quarters will improve on the back of the tax reform and tailwinds prevailing in the industrial markets. The company also raised its earnings per share guidance for fiscal 2018 (ending June 2018) from the $3.10-$3.20 per share range to $3.40-$3.50 range.

Moreover, Applied Industrial anticipates to bolster its sales by 6-7% in fiscal 2018, higher than the prior guidance of 4-5%. The company also anticipates that the recently-inked deal to acquire FCX Performance (January 2018) will help boost its revenues and profitability in the quarters ahead.

Zacks Rank & Other Stocks to Consider

Applied Industrial currently carries a Zacks Rank #2 (Buy). Some other top-ranked stocks in the industry are listed below:

Colfax Corporation (NYSE:CFX) sports a Zacks Rank of 1 (Strong Buy). The company’s earnings per share (EPS) are projected to be up 12.3% in the next three to five years. You can see the complete list of today’s Zacks #1 Rank stocks here

Barnes Group, Inc. (NYSE:B) also holds a Zacks Rank of 2, at present. The company’s EPS is predicted to rise 10% over the next three to five years.

EnPro Industries (NYSE:NPO) carries a Zacks Rank of 2. The company’s EPS is estimated to record 15.5% growth during the same time frame.

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