Applied Industrial Technologies Inc (AIT) Q4 2025 Earnings Call Highlights: Record Sales and ...

Revenue Growth: Consolidated sales increased 5.5% over the prior year quarter. Organic Sales Growth: Sales increased 0.2% year over year on an organic daily basis. Gross Margin: Gross margin of 30.6%, down 9 basis points from the prior year. EBITDA Margin: EBITDA margin of 12.5%, down 73 basis points from the prior year. Net Income: Free cash flow totaled $138.2 million or 128% of net income for the fourth quarter. EPS: Reported earnings per share of $2.80, up 5.9% from prior year EPS of $2.64. Free Cash Flow: Generated over $465 million of free cash for the full year, up 34%. Acquisition Impact: Acquisitions contributed 6.5 points of growth for the quarter. Service Center Segment Sales: Decreased 0.4% year over year on an organic daily basis. Engineered Solutions Segment Sales: Increased 20.7% over the prior year quarter. Cash on Hand: Approximately $388 million at the end of June. Fiscal 2026 Guidance: EPS in the range of $10 to $10.75, total sales increasing 4% to 7%.

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Release Date: August 14, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Applied Industrial Technologies Inc (NYSE:AIT) achieved new records for sales, EBITDA, and EPS in fiscal 2025, with full-year EPS growth of 4% exceeding the high end of initial guidance. Gross margins expanded nearly 50 basis points, surpassing 30% for the first time in the company's history. The strategic acquisition of Hydradyne, the largest M&A transaction in six years, contributed positively to sales and EBITDA growth. Fourth quarter sales and EPS exceeded expectations, with sales exceeding the high end of guidance by 2.5% and returning to modest positive organic growth. The company generated over $465 million of free cash, up 34% to a new record, enabling significant capital deployment including share buybacks and dividend increases.

Negative Points

Underlying end market demand trends remained mixed, with declines in several top markets such as machinery, primary metals, utility and energy, aggregates, and chemicals. The Engineered Solutions segment faced ongoing weakness across mobile fluid power OEM markets, though the year-over-year decline eased from the previous quarter. Higher-than-expected AR provisioning in the fourth quarter negatively impacted EBITDA margins, though it is expected to normalize moving forward. The company faced a challenging prior year comparison for gross margins due to a LIFO layer liquidation benefit in the previous fourth quarter. Ongoing economic uncertainty, including tariff and interest rate policy, continues to impact broader demand visibility and could remain a gating factor to growth in the near term.

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Q & A Highlights

Q: Can you elaborate on the sequential sales and EBITDA growth for Hydradyne and whether integration costs affected these figures? A: David Wells, CFO, explained that the sequential growth in sales and EBITDA for Hydradyne was primarily due to leverage on selling, distribution, and administrative expenses, as well as quicker-than-expected synergy realization. Integration costs were relatively similar between Q3 and Q4, so they did not significantly impact the improvement.

Q: Are you seeing any pent-up demand in the break-fix MRO market, particularly with national accounts versus local accounts? A: Neil Schrimsher, CEO, noted that there was positive growth in local accounts in the last month, indicating potential firming and building of demand. National accounts also showed encouraging trends.

Q: How does the pricing outlook for fiscal 2026 compare to the previous quarter, and what is the expected impact on sales growth? A: Neil Schrimsher stated that pricing contributed over 100 basis points to sales growth in the quarter and is expected to increase to 150-200 basis points for fiscal 2026. If the demand environment strengthens, the impact could be higher.

Q: Can you provide more details on the technology vertical within the Engineered Solutions segment and its growth drivers? A: Neil Schrimsher explained that the technology vertical includes data centers and semiconductor manufacturing. The company is expanding its participation in these areas, leveraging its fluid power, fluid conveyance, and automation businesses.

Q: What are the expectations for LIFO expense and its impact on fiscal 2026 margins? A: David Wells indicated that LIFO expense is expected to be between $14 million and $18 million for fiscal 2026. This will be influenced by inflationary increases and inventory levels, impacting the overall margin guidance.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.