Applied Industrial Technologies AIT reported second-quarter fiscal 2025 (ended Dec. 31, 2024) earnings of $2.39 per share, which surpassed the Zacks Consensus Estimate of $2.22. The bottom line increased 6.7% year over year.

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Net revenues of $1.07 billion missed the consensus estimate of $1.08 billion. The top line inched down 0.4% year over year. Acquisitions boosted the top line by 1.9% while foreign-currency translation had a negative impact of 0.5%. Organic sales decreased 3.4% year over year. Selling days had a favorable impact of 1.6%.

Segmental Discussion

The Service Center-Based Distribution segment’s revenues, which contributed 67.5% to net revenues, totaled $723.8 million. On a year-over-year basis, the segment’s revenues decreased 0.7%. Our estimate for segmental revenues was $737.4 million. Organic sales decreased 1.9%. 

Foreign currency translation lowered sales by 0.7% while acquisitions boosted sales by 0.3%. Selling days had a favorable impact of 1.6% year over year. Segmental revenues were impacted by soft MRO spending and capital maintenance projects.

The Engineered Solutions segment’s revenues (formerly the Fluid Power & Flow Control segment), which contributed 32.5% to net revenues, totaled $349.2 million. On a year-over-year basis, the segment’s revenues increased 0.4%. Our estimate for the segment’s revenues was $336.8 million.

Acquisitions boosted the top line by 5.1%. Organic sales decreased 6.3% due to weaker demand among off-highway mobile fluid power OEM customers, along with a slight decline in automation sales. However, selling days had a favorable impact of 1.6% year over year.

AIT’s Margin Profile

In the quarter, Applied Industrial’s cost of sales decreased 2% year over year to $745 million. Gross profit was $328.1 million, up 3.5% from the year-ago quarter. The gross margin increased to 30.6% from 29.4% in the year-ago quarter. Selling, distribution and administrative expenses (including depreciation) increased 2.3% year over year to $207.2 million. EBITDA was $135.1 million, reflecting an increase of 3.3%.

AIT’s Balance Sheet & Cash Flow

In the first six months of fiscal 2025, Applied Industrial had cash and cash equivalents of $303.4 million compared with $460.6 million at the end of fiscal 2024. Long-term debt was $572.3 million, in line with the figure reported at the end of the prior fiscal year.

In the fiscal second quarter, it generated net cash of $95.1 million from operating activities, indicating a decrease of 6.6% from the year-ago quarter. Capital expenditures totaled $5.2 million, down 5.5% year over year. Free cash flow decreased 6.5% year over year to $89.9 million.

In the first six months of fiscal 2025, AIT rewarded shareholders with dividends of $28.4 million, up 4.4% year over year.

Dividend Update

Applied Industrial announced a hike in its dividend payout. The company increased its quarterly dividend by 24% to 46 cents per share (annually: $1.84). The new dividend will be paid out on Feb. 28, 2025, to shareholders of record as of Feb. 14. This marks the company’s 16th dividend hike since 2010.

Applied Industrial’s Guidance

For fiscal 2025 (ending June 2025), Applied Industrial anticipates adjusted earnings to be in the range of $9.65-$10.05 per share compared with $9.25-$10.00 predicted earlier. The Zacks Consensus Estimate for adjusted earnings is pegged at $9.77 per share. The company currently anticipates sales to increase in the range of 1-3% year over year compared with its earlier prediction of down 2.5% to up 2.5%. AIT expects the EBITDA margin to be in the range of 12.2-12.4%.

AIT’s Zacks Rank & Other Stocks to Consider

The company currently carries a Zacks Rank #2 (Buy). Other top-ranked companies are discussed below:

Graham Corporation GHM currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

GHM delivered a trailing four-quarter average earnings surprise of 101.9%. In the past 60 days, the Zacks Consensus Estimate for Graham’s fiscal 2025 (ending March 2025) earnings has remained stable.

Resideo Technologies REZI presently carries a Zacks Rank of 2. REZI delivered a trailing four-quarter average earnings surprise of 27.3%.

In the past 60 days, the consensus estimate for Resideo Technologies’ 2024 earnings has been stable.

Enersys ENS currently carries a Zacks Rank of 2. ENS delivered a trailing four-quarter average earnings surprise of 1.6%.

In the past 60 days, the consensus estimate for Enersys’ fiscal 2025 (ending March 2025) earnings has increased 10.2%.

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