News Details

Applied Industrial Technologies Reports Fiscal 2020 Second Quarter Results

01/23/2020
  • 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

CLEVELAND--(BUSINESS WIRE)-- 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 11thdividend 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.

 

Ryan D. Cieslak
Director – Investor Relations & Treasury
216-426-4887 / rcieslak@applied.com

Source: Applied Industrial Technologies, Inc.

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