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Here's Why Investors Should Avoid Applied Industrial Stock Now
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Applied Industrial Technologies, Inc.’s (AIT - Free Report) financial stability is challenged by weakness in the Engineered Solutions segment. Elevated labor costs are further putting a strain on the bottom line.
Applied Industrial is a distributor of value-added industrial products, including engineered fluid power components, bearings, specialty flow control solutions, power transmission products and miscellaneous industrial supplies. These products are mainly sold to original equipment manufacturers (OEMs) and maintenance, repair and operations customers in Australia, North America, Singapore and New Zealand.
Business Weakness: 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. Also, automation product sales declined as technology sector orders slowed.
High Costs: Applied Industrial is plagued by rising costs and expenses. 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.
Supply-Chain Issues: AIT's operations can be impacted due to supply-chain disruptions. Ongoing supply-chain constraints, particularly related to electronic components, remain a concern for the company. Also, it utilizes a variety of raw materials and components in its businesses and depends on others for the uninterrupted supply of raw materials at reasonable rates. It needs to adjust the prices of its products and services based on any changes in input price, which might compromise the competitive position of its products and services.
AIT currently carries a Zacks Rank #5 (Strong Sell). In the past year, the stock has gained 39.7% compared with the industry’s 31.5% growth.
Image Source: Zacks Investment Research
Forex Woes: Applied Industrial operates across international locations, which exposes it to certain political, environmental and geopolitical issues, as well as currency translation risks. This could affect its performance in the quarters ahead. A stronger U.S. dollar is likely to depress the company's overseas business results in the quarters ahead. While its international operations act as something of a hedge, adverse foreign currency translation lowered the company’s sales by 0.1% year over year in the fourth quarter of fiscal 2024.
Stocks to Consider
Some better-ranked companies from the same space are discussed below.
GHM delivered a trailing four-quarter average earnings surprise of 133.3%. In the past 60 days, the Zacks Consensus Estimate for Graham’s fiscal 2025 earnings has increased 17.3%.
Crane Company (CR - Free Report) presently carries a Zacks Rank #2 (Buy). 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 0.6%.
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 1.4%.
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Here's Why Investors Should Avoid Applied Industrial Stock Now
Applied Industrial Technologies, Inc.’s (AIT - Free Report) financial stability is challenged by weakness in the Engineered Solutions segment. Elevated labor costs are further putting a strain on the bottom line.
Applied Industrial is a distributor of value-added industrial products, including engineered fluid power components, bearings, specialty flow control solutions, power transmission products and miscellaneous industrial supplies. These products are mainly sold to original equipment manufacturers (OEMs) and maintenance, repair and operations customers in Australia, North America, Singapore and New Zealand.
Business Weakness: 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. Also, automation product sales declined as technology sector orders slowed.
High Costs: Applied Industrial is plagued by rising costs and expenses. 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.
Supply-Chain Issues: AIT's operations can be impacted due to supply-chain disruptions. Ongoing supply-chain constraints, particularly related to electronic components, remain a concern for the company. Also, it utilizes a variety of raw materials and components in its businesses and depends on others for the uninterrupted supply of raw materials at reasonable rates. It needs to adjust the prices of its products and services based on any changes in input price, which might compromise the competitive position of its products and services.
AIT currently carries a Zacks Rank #5 (Strong Sell). In the past year, the stock has gained 39.7% compared with the industry’s 31.5% growth.
Image Source: Zacks Investment Research
Forex Woes: Applied Industrial operates across international locations, which exposes it to certain political, environmental and geopolitical issues, as well as currency translation risks. This could affect its performance in the quarters ahead. A stronger U.S. dollar is likely to depress the company's overseas business results in the quarters ahead. While its international operations act as something of a hedge, adverse foreign currency translation lowered the company’s sales by 0.1% year over year in the fourth quarter of fiscal 2024.
Stocks to Consider
Some better-ranked companies from the same space are discussed below.
Graham Corporation (GHM - Free Report) 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 133.3%. In the past 60 days, the Zacks Consensus Estimate for Graham’s fiscal 2025 earnings has increased 17.3%.
Crane Company (CR - Free Report) presently carries a Zacks Rank #2 (Buy). 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 0.6%.
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 1.4%.