Applied Industrial Technologies, Inc. AIT is poised for growth on the back of strength across its served markets of food and beverage, primary metals, utilities, transportation, aggregates and technology. 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. However, soft local account sales, across machinery, pulp & paper, and oil & gas verticals, remain concerning.
Applied Industrial has added multiple assets to its portfolio over time. In first-quarter fiscal 2025 (ended Sept. 30, 2024), buyouts had a positive impact of 2% on the company's sales. Acquisitions boosted sales by 0.7% and 4.7% for the Service Center-Based Distribution and Engineered Solutions segments in the fiscal fourth quarter, respectively. In May 2024, Applied Industrial acquired Grupo Kopar, thus 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 its footprint in the upper Northeast region of the United States while helping to bolster relationships with leading suppliers.
Applied Industrial’s focus on improving the product line, increasing value-added services and initiatives to drive operational excellence will boost results in the quarters ahead. Its investments to expand automation, industrial Internet of Things (IIot) and digital offerings like smart vision and mobile robots will also help. Pricing actions, streamlining of procurement operations and freight savings are also positive for margin expansion.
The company remains committed to rewarding its shareholders substantially through dividend payments and share buybacks. In the first three months of fiscal 2025, it paid out dividends worth $14.2 million, up 4.9% on a year-over-year basis. In fiscal 2024, Applied Industrial rewarded shareholders with dividends of $55.9 million, up 4.6% year over year. The company hiked its quarterly dividend rate by 5.7% in January 2024. In August 2022, its board of directors authorized a new share buyback program to repurchase up to 1.5 million shares of its common stock. As of Sept. 30, 2024, it was left with repurchasing 1,050,000 shares.
AIT currently carries a Zacks Rank #3 (Hold). In the past year, the stock has gained 67.5% compared with the industry’s 30.3% growth.
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Downsides of AIT
Lower sales in the fluid power components, owing to weak demand across off-highway mobile OEM customers, are adversely impacting the performance of the Engineered Solutions segment. Also, softer flow control and automation product sales have been impacting the segment’s performance of late. In the first quarter of fiscal 2025, the segment’s revenues were relatively flat on a year-over-year basis (organic revenues declined 6.1%).
Applied Industrial has been dealing with the adverse impacts of rising operating costs and expenses. During the first quarter of fiscal 2025, the company witnessed a 3.7% year-over-year increase in SG&A expenses (including depreciation). The SG&A expenses, as a percentage of total revenues, climbed 60 basis points to reach 19.3%. This upward trajectory follows a pattern of expense growth in the preceding three quarters, with increases of 2.4%, 5.3% and 3.5%, respectively. Its cost of sales inched up 0.5% in the fiscal first quarter of 2025 due to an increase in compensation costs.
Stocks to Consider
Some better-ranked companies from the same space 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 earnings has increased 8.4%.
RBC Bearings Incorporated RBC presently carries a Zacks Rank #2 (Buy). The company delivered a trailing four-quarter average earnings surprise of 2.5%.
In the past 60 days, the consensus estimate for RBC’s fiscal 2025 earnings has increased 0.5%.
Kadant Inc. KAI presently carries a Zacks Rank of 2. It has a trailing four-quarter average earnings surprise of 17.2%.
The Zacks Consensus Estimate for KAI’s 2024 earnings has increased 1.8% in the past 60 days.
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