Market Overview

Applied Industrial Technologies Reports Fiscal 2021 First Quarter Results

Share:
  • Net Sales of $747.8 Million Down 12.7% YoY; Down 13.4% on an Organic Basis
  • Net Income of $34.8 Million; EPS of $0.89; EBITDA of $67.6 Million
  • Operating Cash Flow of $81.8 Million; Free Cash Flow of $78.2 Million

Applied Industrial Technologies (NYSE:AIT), a leading value-added distributor and technical solutions provider of industrial motion, fluid power, flow control, automation technologies, and related maintenance supplies, today reported results for its fiscal 2021 first quarter ended September 30, 2020.

Net sales for the quarter decreased 12.7% to $747.8 million from $856.4 million in the prior year. The change includes a 1.1% increase from acquisitions, partially offset by a 0.4% negative impact from foreign currency translation. Excluding these factors, sales decreased 13.4% on an organic basis reflecting a 14.4% decline in the Service Center segment and a 11.2% decline in the Fluid Power & Flow Control segment. The Company reported net income of $34.8 million, or $0.89 per share, and EBITDA of $67.6 million.

Neil A. Schrimsher, Applied's President & Chief Executive Officer, commented "I'm encouraged by the start to our fiscal 2021. We are executing well and positioning the Company for stronger growth, while remaining focused on the health and safety of our associates and customers as we continue to navigate through the impact from the ongoing pandemic. While demand remains below prior year levels, customer activity appears to be firming, which combined with our internal initiatives drove sequential improvement in underlying sales trends and earnings performance through our fiscal first quarter. Customers are gradually increasing facility utilization and production levels, as evidenced by initial recovery in our local account sales. This is a positive sign for the industrial economy. We are also benefiting from our technical solution capabilities and a more diversified end-market mix. That said, the pace of end-market improvement remains gradual and at times inconsistent. Additionally, visibility remains limited entering the seasonally slower winter months as customers continue to manage through an uncertain macro outlook."

Mr. Schrimsher added, "Importantly, our capabilities and company-specific opportunities provide a solid position to execute our strategic plan and optimize our earnings power. This is highlighted by first quarter results and our strong balance sheet, as well as our recent acquisition of Advanced Control Solutions (ACS), which further expands our emerging automation platform and growth potential. As the industrial economy recovers, we are increasingly critical to customers within many end markets as maintenance, production, and efficiency requirements ramp across their core operational infrastructure. I remain proud of our team's continued effort, and we look forward to showcasing the strength of our expanding value proposition going forward."

Outlook

Due to ongoing uncertainty from the COVID-19 pandemic, the Company continues to refrain from providing formal financial guidance for the full-year fiscal 2021. Near term, based on mid-teen organic sales declines month to date in October and assuming sales trend in line with normal seasonal patterns for the remainder of the quarter, the Company would project second quarter fiscal 2021 sales to decline 13% to 14% year over year on an organic basis. In addition, the Company's recent ACS acquisition is expected to contribute approximately $6 million in sales during second quarter fiscal 2021.

Dividend

Today the Company also announced that its Board of Directors declared a quarterly cash dividend of $0.32 per common share, payable on November 30, 2020, to shareholders of record on November 16, 2020.

Conference Call Information

Applied will host its quarterly conference call for investors and analysts at 10 a.m. ET on October 28, 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 2164357. 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 2164357.

About Applied®

Applied Industrial Technologies is a leading value-added distributor and technical solutions provider of industrial motion, fluid power, flow control, automation technologies, and related maintenance supplies. Our leading brands, specialized services, and comprehensive knowledge serve MRO and OEM end users in virtually all industrial markets through our multi-channel capabilities that provide choice, convenience, and expertise. 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," "will," "outlook," "project," "guidance" 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, the effects of the health crisis associated with the COVID-19 pandemic on our business operations, results of operations, and financial condition, and other risk factors identified in Applied's most recent periodic report and other filings made with the Securities and Exchange Commission, many of which risks are amplified by circumstances arising out of the COVID-19 pandemic. 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

(Unaudited)

(In thousands, except per share data)

   
 

Three Months Ended

September 30,

 

2020

 

2019

Net Sales  

 $

      747,807

 

 

$

      856,404

Cost of sales  

 

         532,026

 

 

 

604,944

Gross Profit  

 

         215,781

 

 

 

251,460

Selling, distribution and administrative expense, including depreciation  

 

         163,473

 

 

 

190,294

Operating Income  

 

           52,308

 

 

 

61,166

Interest expense, net  

 

             7,653

 

 

 

10,059

Other income, net  

 

              (177

)

 

 

-

Income Before Income Taxes  

 

           44,832

 

 

 

51,107

Income Tax Expense  

 

           10,048

 

 

 

12,308

Net Income  

 $

        34,784

 

 

$

        38,799

Net Income Per Share - Basic  

 $

            0.90

 

 

$

            1.00

Net Income Per Share - Diluted  

 $

            0.89

 

 

$

            1.00

Average Shares Outstanding - Basic  

 

           38,722

 

 

 

38,611

Average Shares Outstanding - Diluted  

 

           39,088

 

 

 

38,961

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.

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

     
  September 30,
2020
June 30,
 2020
   
   
Assets  
Cash and cash equivalents  

 $

       271,060

 $

       268,551

Accounts receivable, net  

 

          447,032

 

          449,998

Inventories  

 

          365,355

 

          389,150

Other current assets  

 

            52,887

 

 

            52,070

Total current assets  

 

       1,136,334

 

       1,159,769

Property, net  

 

          120,285

 

          121,901

Operating lease assets, net  

 

            89,622

 

            90,636

Intangibles, net  

 

          333,613

 

          343,215

Goodwill  

 

          541,357

 

          540,594

Other assets  

 

            28,042

 

 

            27,436

Total Assets  

 $

    2,249,253

 

 $

    2,283,551

   
Liabilities  
Accounts payable  

 $

       181,627

 $

       186,270

Current portion of long-term debt  

 

            78,651

 

            78,646

Other accrued liabilities  

 

          153,773

 

 

          161,167

Total current liabilities  

 

          414,051

 

          426,083

Long-term debt  

 

          792,827

 

          855,143

Other liabilities  

 

          156,969

 

 

          158,783

Total Liabilities  

 

       1,363,847

 

 

       1,440,009

Shareholders' Equity  

 

          885,406

 

 

          843,542

Total Liabilities and Shareholders' Equity  

 $

    2,249,253

 

 $

    2,283,551

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Unaudited)

(In thousands)

 
Three Months Ended
 September 30, 
 
   

2020

 

2019

 

Cash Flows from Operating Activities

Net income

 $

        34,784

 

 $

      38,799

 

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization of property

 

             5,352

 

 

           5,223

 

Amortization of intangibles

 

             9,726

 

 

         10,374

 

Amortization of stock appreciation rights and options

 

                693

 

 

              773

 

Other share-based compensation expense

 

                677

 

 

              919

 

Changes in assets and liabilities, net of acquisitions

 

           24,559

 

 

          (8,682

)

Other, net

 

 

             6,051

 

 

 

           2,612

 

Net Cash provided by Operating Activities

 

 

           81,842

 

 

 

         50,018

 

Cash Flows from Investing Activities

Acquisition of businesses, net of cash acquired

 

                  -

 

 

        (35,703

)

Property purchases

 

            (3,597

)

 

          (4,946

)

Proceeds from property sales

 

                193

 

 

                88

 

Net Cash used in Investing Activities

 

 

(3,404

)

 

 

(40,561

)

Cash Flows from Financing Activities

Long-term debt repayments

 

(62,450

)

 

(4,934

)

Dividends paid

 

(12,415

)

 

(11,985

)

Acquisition holdback payments

 

              (521

)

 

             (201

)

Taxes paid for shares withheld for equity awards

 

            (1,797

)

 

          (1,754

)

Net Cash used in Financing Activities

 

 

(77,183

)

 

 

(18,874

)

Effect of Exchange Rate Changes on Cash

 

 

1,254

 

 

 

(598

)

Increase in cash and cash equivalents

 

 

             2,509

 

 

 

        (10,015

)

Cash and Cash Equivalents at Beginning of Period

 

 

         268,551

 

 

 

       108,219

 

Cash and Cash Equivalents at End of Period

 

 $

      271,060

 

 

 $

      98,204

 

 

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION 

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(Unaudited)

(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

September 30,

 

2020

 

2019

Net Income   

 $

        34,784

 

 $

        38,799

Interest expense, net  

 

             7,653

 

 

           10,059

Income tax expense  

 

           10,048

 

 

           12,308

Depreciation and amortization of property  

 

             5,352

 

 

             5,223

Amortization of intangibles   

 

             9,726

 

 

           10,374

EBITDA  

 $

        67,563

 

 $

        76,763

Non-routine costs  

 

                  -

 

 

             1,455

Adjusted EBITDA  

 $

        67,563

 

 $

        78,218

The Company defines EBITDA as Earnings from operations before Interest, Taxes, Depreciation, and Amortization, a non-GAAP finanical measure.  Adjusted EBITDA excludes items that may not be indicative of core operating results, a non-GAAP financial measure.

 

Reconciliation of Net Cash provided by Operating activities, a GAAP financial measure, to Free Cash Flow, a non-GAAP financial measure:

 

 Three Months Ended

September 30,

   

2020

 

2019

Net Cash provided by Operating Activities  

 $

        81,842

 

 

 $

        50,018

 

Property purchases  

 

           (3,597

)

 

 

           (4,946

)

Free Cash Flow  

 $

        78,245

 

 

 $

        45,072

 

Free cash flow is defined as net cash provided by operating activities less property purchases, a non-GAAP financial measure.

 

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