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Applied Industrial Technologies, Inc. (AIT - Free Report) is benefiting from strength across its served markets of food and beverage, lumber and wood, mining, pulp and paper, energy, utilities and refining. The strong position in these markets, sales initiatives and focus on national customer accounts are driving the Service Center Based Distribution segment. The increase in demand for fluid power MRO services across the U.S. manufacturing sector, driven by growing digitization and higher investment in maintenance operations is supporting the segment’s revenues. The Service Center Based Distribution segment’s revenues increased 1.2% year over year in the fourth quarter of fiscal 2024.
Applied Industrial has added multiple assets to its portfolio over time. In the fourth quarter of fiscal 2024 (ended June 2024), buyouts had a positive impact of 1.5% on the company's sales. Acquisitions boosted sales by 1.2% and 2.0% for the Service Center-Based Distribution and Engineered Solutions segments in the fiscal fourth quarter, respectively. In May 2024, Applied Industrial acquired Grupo Kopar, enhancing its automation position in North America.
The acquisitions of Bearing Distributors and Cangro (September 2023) enhanced the company’s footprint and strategic growth initiatives across the U.S. Southeast and upper Northeast regions. The Advanced Motion Systems Inc. (April 2023) buyout expanded the company’s footprint in the upper Northeast region of the United States while helping to bolster relationships with leading suppliers. The acquisition of Automation, Inc. (November 2022) expanded Applied Industrial’s footprint across key verticals and geographies while supplementing its value-added services and cross-selling efforts. We expect acquisitions to contribute 3.1% to the total revenue growth in fiscal 2025.
Applied Industrial has a strong balance sheet that has enabled it to reward its shareholders handsomely through dividend payments and share buybacks. In fiscal 2024, the company rewarded shareholders with dividends of $55.9 million, up 4.6% year over year. It hiked its quarterly dividend rate by 5.7% in January 2024. In fiscal 2023, it paid out dividends worth $53.4 million, up 3.2% on a year-over-year basis.
In August 2022, the company’s board of directors authorized a new share buyback program to repurchase up to 1.5 million shares of its common stock. Its cash and cash equivalents at the end of the fiscal fourth quarter were $460.6 million, much higher than the current portion of long-term debt of $25.1 million. Further, the company’s times interest earned ratio stands at a very comfortable 25.2. Therefore, any interruption in the flow of these returns seems extremely unlikely at this point.
In the past year, this Zacks Rank #3 (Hold) company’s shares have gained 28.2% compared with the industry’s 21.1% growth.
Image Source: Zacks Investment Research
Headwinds Plaguing AIT
Weakness in the OEM channel, due to lower sales in the fluid power components, is adversely impacting the performance of the Engineered Solutions segment. In the fourth quarter of fiscal 2024, the segment’s revenues declined 1.8% on a year-over-year basis. Automation product sales declined as technology sector orders slowed. Ongoing supply-chain constraints, particularly related to electronic components, remain a concern for the company.
Applied Industrial has been experiencing rising costs and expenses for a while. During the fourth quarter of fiscal 2024, the company witnessed a 2.4% year-over-year increase in SG&A expenses (including depreciation). The SG&A expenses, as a percentage of total revenues, climbed 40 basis points to reach 18.7%. This upward trajectory follows a pattern of expense growth in the preceding three quarters, with increases of 5.3, 3.5% and 2.1%, respectively. We expect SG&A to increase 0.7% year over year in fiscal 2025. Also, the cost of sales increased 1.8% in the fiscal fourth quarter of 2024 due to an increase in raw material and labor costs.
Stocks to Consider
Some better-ranked companies from the same space are discussed below.
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In the past 60 days, the Zacks Consensus Estimate for CR’s 2024 earnings has increased 2%.
Parker-Hannifin Corporation (PH - Free Report) currently carries a Zacks Rank of 2. PH delivered a trailing four-quarter average earnings surprise of 2.6%.
In the past 60 days, the consensus estimate for Parker-Hannifin’s fiscal 2025 earnings has increased 1.1%.
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Applied Industrial Exhibits Strong Prospects Despite Headwinds
Applied Industrial Technologies, Inc. (AIT - Free Report) is benefiting from strength across its served markets of food and beverage, lumber and wood, mining, pulp and paper, energy, utilities and refining. The strong position in these markets, sales initiatives and focus on national customer accounts are driving the Service Center Based Distribution segment. The increase in demand for fluid power MRO services across the U.S. manufacturing sector, driven by growing digitization and higher investment in maintenance operations is supporting the segment’s revenues. The Service Center Based Distribution segment’s revenues increased 1.2% year over year in the fourth quarter of fiscal 2024.
Applied Industrial has added multiple assets to its portfolio over time. In the fourth quarter of fiscal 2024 (ended June 2024), buyouts had a positive impact of 1.5% on the company's sales. Acquisitions boosted sales by 1.2% and 2.0% for the Service Center-Based Distribution and Engineered Solutions segments in the fiscal fourth quarter, respectively. In May 2024, Applied Industrial acquired Grupo Kopar, enhancing its automation position in North America.
The acquisitions of Bearing Distributors and Cangro (September 2023) enhanced the company’s footprint and strategic growth initiatives across the U.S. Southeast and upper Northeast regions. The Advanced Motion Systems Inc. (April 2023) buyout expanded the company’s footprint in the upper Northeast region of the United States while helping to bolster relationships with leading suppliers. The acquisition of Automation, Inc. (November 2022) expanded Applied Industrial’s footprint across key verticals and geographies while supplementing its value-added services and cross-selling efforts. We expect acquisitions to contribute 3.1% to the total revenue growth in fiscal 2025.
Applied Industrial has a strong balance sheet that has enabled it to reward its shareholders handsomely through dividend payments and share buybacks. In fiscal 2024, the company rewarded shareholders with dividends of $55.9 million, up 4.6% year over year. It hiked its quarterly dividend rate by 5.7% in January 2024. In fiscal 2023, it paid out dividends worth $53.4 million, up 3.2% on a year-over-year basis.
In August 2022, the company’s board of directors authorized a new share buyback program to repurchase up to 1.5 million shares of its common stock. Its cash and cash equivalents at the end of the fiscal fourth quarter were $460.6 million, much higher than the current portion of long-term debt of $25.1 million. Further, the company’s times interest earned ratio stands at a very comfortable 25.2. Therefore, any interruption in the flow of these returns seems extremely unlikely at this point.
In the past year, this Zacks Rank #3 (Hold) company’s shares have gained 28.2% compared with the industry’s 21.1% growth.
Image Source: Zacks Investment Research
Headwinds Plaguing AIT
Weakness in the OEM channel, due to lower sales in the fluid power components, is adversely impacting the performance of the Engineered Solutions segment. In the fourth quarter of fiscal 2024, the segment’s revenues declined 1.8% on a year-over-year basis. Automation product sales declined as technology sector orders slowed. Ongoing supply-chain constraints, particularly related to electronic components, remain a concern for the company.
Applied Industrial has been experiencing rising costs and expenses for a while. During the fourth quarter of fiscal 2024, the company witnessed a 2.4% year-over-year increase in SG&A expenses (including depreciation). The SG&A expenses, as a percentage of total revenues, climbed 40 basis points to reach 18.7%. This upward trajectory follows a pattern of expense growth in the preceding three quarters, with increases of 5.3, 3.5% and 2.1%, respectively. We expect SG&A to increase 0.7% year over year in fiscal 2025. Also, the cost of sales increased 1.8% in the fiscal fourth quarter of 2024 due to an increase in raw material and labor costs.
Stocks to Consider
Some better-ranked companies from the same space are discussed below.
Flowserve Corporation (FLS - Free Report) currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
FLS delivered a trailing four-quarter average earnings surprise of 18.2%. In the past 60 days, the Zacks Consensus Estimate for Flowserve’s 2024 earnings has increased 3.8%.
Crane Company (CR - Free Report) presently carries a Zacks Rank of 2. The company delivered a trailing four-quarter average earnings surprise of 11.2%.
In the past 60 days, the Zacks Consensus Estimate for CR’s 2024 earnings has increased 2%.
Parker-Hannifin Corporation (PH - Free Report) currently carries a Zacks Rank of 2. PH delivered a trailing four-quarter average earnings surprise of 2.6%.
In the past 60 days, the consensus estimate for Parker-Hannifin’s fiscal 2025 earnings has increased 1.1%.