Applied Industrial Technologies : Third Quarter 2025 Q3 FY25 Recap Presentation

Published: 2025-05-01 06:38:26 ET AIT

Published on 05/01/2025 at 06:38

May 1, 2025

- The Premier Provider of Advanced Motion, Power, Control, & Automation Solutions to Critical Industrial Infrastructure -

•

$80M) and announcing bolt-on acquisition of IRIS Factory Automation.

•

Down 3.1% on an organic daily basis

Acquisitions +6.6%, currency -0.9%, selling days -0.8%

EPS up 3.7% YoY

Includes $2.2M pre-tax ($0.04/sh) of LIFO expense

Unfavorable impact YoY from interest & other income and a slightly higher tax rate, partially offset by a lower share count

Includes a 22 bps YoY tailwind from lower LIFO expense

Down 6.3% YoY on an organic, constant currency basis

12.4% EBITDA margin up 59 bps YoY

Includes a 22 bps YoY tailwind due to lower LIFO expense

Up 50% vs. prior year and 115% of net income

YTD free cash up 39% vs. prior year

$1,167

$1,146

1.8%

-3.1% Org/Day

Q3 2024 Q3 2025

$145

$136

+6.8%

Q3 2024 Q3 2025

$2.48

+3.7%

$2.57

Q3 2024 Q3 2025

Year-over-Year Organic % Change in Sales Per Day

Fiscal Quarters

15.0%

Down 3.1% YoY on an organic daily basis; down 2.4% on a 2-year stack basis and up 12.6% on a 3-year stack basis

2-year stack trend improved sequentially for the first time in over two years

8.6%

3.4%

-0.1%

0.7%

-2.0%

-3.0% -3.4% -3.1%

Average daily sales organic sequential increase of +2% in F3Q25 was ~200 bps below normal seasonal patterns

Organic sales trends led by Service Center segment where average daily sales increased ~4% sequentially; segment 2-year stack of +1% vs. -1% last quarter

16 of top 30 industry verticals up YoY in F3Q25 compared to 11 during F2Q25 *

3Q23 4Q23 1Q24 2Q24 3Q24 4Q24 1Q25 2Q25 3Q25

YoY growth strongest across technology, food & beverage, pulp & paper, aggregates, and transportation

Offset by declines primarily in machinery, utilities, metals, chemicals, and mining

* Based on largest 30 industry verticals for fiscal 2024

Underlying Demand

End-market demand remains mixed with customers measured with production and spending; SC segment sales trends improved as the quarter progressed; ES segment sales trends remain muted though order and backlog trends building positive momentum

Organic daily sales down 3.1% YoY in F3Q25 but up over 2% sequentially; SC segment daily sales up 4% sequentially and slightly above normal seasonality; ES segment orders up 3% YoY and 8% sequentially led by stronger orders across automation, flow control, and the technology vertical

Suppliers announcing price increases in recent months tied to broader inflation/tariffs; evolving tariff backdrop creates NT demand uncertainty, but positioned well given technical industry position, MRO focus, U.S. customer base (88% of sales), minimal cross-border sourcing, and margin initiatives

Price contributed ~100 bps in F3Q25; <2% of U.S. COGS sourced internationally; 70% of sales tied to technical MRO including repair/rebuild services; core customers include U.S. OEMs; reshoring a potential significant tailwind given U.S. manufacturing customer base & scaling automation portfolio

Integration going well with strong collaboration and strategic positioning across operating teams; financial contribution expected to increase into F4Q25 and FY26 as initial synergies are achieved and demand strengthens across core and emerging fluid power markets

Contributed nearly $59M in sales and nearly $6M in EBITDA during F3Q25 inclusive of initial integration actions; relatively neutral to EPS; MRO focus (55% of sales), repair & rebuild capabilities, and fluid conveyance solutions provide near-term resiliency and favorable growth potential into FY26

Greater macro uncertainty and an evolving tariff backdrop could drive a more measured pace to near-term customer capital spending and spring/summer production activity; incorporating into F4Q25 guidance but remain constructive on relative position near term and into FY26

April organic daily sales estimated down ~3% YoY; F4Q25 guidance assumes organic daily sales down MSD to LSD YoY; potential support from easier comps, pent-up technical MRO spending, price contribution, ES segment backlog, acquisition synergies, margin initiatives, & balance sheet

Cash generation potential and strong balance sheet supports ongoing growth initiatives and capital deployment opportunities; M&A pipeline remains active; ongoing scope for share buybacks in F4Q25 and FY26

Record cash generation YTD sets path to over $400M of free cash in FY25, while net leverage at ~0.5x on a pro-forma basis; on pace to more than double capital deployment YoY in FY25 with over $440M deployed YTD including greater M&A, dividend growth, and share buybacks

Tariffs & Pricing

Hydradyne Acquisition

Near-term Outlook

Capital Deployment

Note: LSD = Low Single-Digits, MSD = Mid Single-Digits

Segment Overview: Representing 68% of fiscal 2024 sales - the segment includes our core distribution operations including ~400 local service centers across North America, Australia, and New Zealand, primarily focused on our technical bearings, power transmission, and fluid power MRO product and solution offerings, as well as other industrial supplies for scheduled maintenance and repairs of customers' machinery, equipment, and facilities

Service Center Distribution Segment Sales, in Millions

Organic − 1.6%

Acquisitions + 0.2%

Currency − 1.3%

Selling days − 0.8%

$789.4

$791.4

$749.7

$761.6

$723.8

3Q24 4Q24 1Q25 2Q25 3Q25

Fiscal Quarter

Organic decline driven by softer MRO spending and capital maintenance projects with weakness concentrated early in the quarter; sequential sales improvement in February and March exceeded normal seasonality

Muted end-market demand balanced by continued benefits from ongoing sales force productivity initiatives, technology investments, and new business opportunities

Segment EBITDA of $111.6M in F3Q25 up 6.4% YoY reflecting solid cost controls, gross margin initiatives, lower LIFO expense, and favorable AR provisioning

Segment Overview: Representing 32% of fiscal 2024 sales - the segment consists of 1) our Fluid Power network specializing in distributing, engineering, designing, integrating, and repairing hydraulic and pneumatic technologies and related systems across off-highway mobile, industrial, and technology verticals, 2) our specialty flow control products and engineered solutions supporting mission-critical process infrastructure, and 3) our advanced automation products and solutions focused on machine vision, robotics, motion, & digital technologies

Engineered Solutions Segment Sales, in Millions

$357.0

$369.3

$349.2

$405.1

Organic − 6.5%

Acquisitions + 20.8%

Selling days − 0.8%

3Q24 4Q24 1Q25 2Q25 3Q25

Fiscal Quarter

Organic decline primarily reflects ongoing weakness across mobile fluid power OEM customers, and to a lesser extent softer flow control and automaton sales, partially offset by growth across the technology vertical

Segment orders positive (organic +3% YoY, +8% seq in 3Q) though billing conversions on engineered systems remains slow as customers take a measured approach to capital deployment and project/install phasing

Segment EBITDA of $56.1M in F3Q25 up 10.2% YoY reflecting contribution from the recent Hydradyne acquisition (closed 12/31/24), as well as gross margin initiatives, cost management, and strategic progress

Gross Profit, SD&A, and EBITDA Metrics

Chg

LIFO

Includes a 22 bps YoY tailwind from LIFO expense

Gross Profit

$355.3

$338.2 5.0% 0.8%

Gross Margin

30.5%

29.5%

95 bps

22 bps

SD&A Expense

$225.9

$217.0

4.1%

% of Sales

19.4%

18.9%

(43) bps

EBITDA

$144.9

$135.7

6.8%

1.9%

EBITDA Margin

12.4%

11.8%

59 bps

22 bps

Memo:

LIFO Expense

$2.2

$4.8

$ in millions Q3 25 Q3 24 YoY Impact YoY

Primarily reflects positive acquisition mix, channel execution, and ongoing margin initiatives

Down 6.3% on an organic, constant currency basis

Ongoing inflationary pressures and sales headwinds more than offset by cost controls, efficiency gains, reduced variable expense, lower medical expense, and favorable AR provisioning YoY

Includes a 22 bps YoY tailwind due to lower LIFO expense

Free Cash Flow (in Millions) - Fiscal YTD Period

$234.8

$191.2

$153.4

$143.2

$122.1

$65.5

$327.0

Free cash at 115% of net income in the quarter

YTD free cash of $327M up 39% and 115% of net income

YoY cash flow growth primarily reflects more modest working capital investment compared to the prior year, as well as ongoing progress with internal initiatives and our enhanced margin profile

Pro-forma net leverage ratio at 0.46x including trailing 12-month EBITDA from

2019 2020 2021 2022 2023 2024 2025

Fiscal YTD Period, Ending Mar 31

Net Leverage Ratio (Net Debt to Trailing EBITDA)

0.53x

0.49x

0.34x

0.39x

0.26x

0.25x

0.11x

0.87x

Hydradyne acquisition, which closed on December 31, 2024

Compares to prior-year level of 0.26x

$353M of cash on hand

$516M of available capacity under revolver

Additional $500M accordion option

$270M of available capacity on uncommitted shelf facility

$62M of available capacity under AR securitization facility

3Q23 4Q23 1Q24 2Q24 3Q24 4Q24 1Q25 2Q25 3Q25

Fiscal Quarter

Debt Reduction

$362 M

Dividends

$261 M

~$1 Billion

Capital Deployed

(Fiscal 2020-2024)

Acquisitions

$182 M

Share Buybacks

$128 M

Capital Expenditures

$105 M

Debt Service

Dependent on outstanding commitments, cycle dynamics & interest savings potential; comfortable with normalized net leverage of ~2x through a cycle

Scale Engineered Solutions segment while pursuing select Service Center segment opportunities to enhance organic growth, margins, and competitive position

Acquisitions

Pursue greenfield expansion while optimizing customer service capabilities and operating efficiencies through technology, working capital, and system investments

Organic Growth

Opportunistic approach focused on returning excess cash through a disciplined valuation & return framework

Share Buybacks

Consistent annual increases in ordinary dividend; target dividend growth in relation to normalized earnings growth

Dividends

$251M capital deployed in fiscal 2024

Over $440M capital deployed in fiscal 2025 YTD

Fiscal 2025 Guidance

Updated Considerations:

Prior (1/29/25)

Current (5/1/25)

Total Sales - YoY % chg

Organic Avg Daily Sales - YoY % chg

-3%

-1%

-4%

-3%

EBITDA Margin

12.2%

12.4%

12.3%

12.4%

Diluted EPS

$9.65

$10.05

$9.85

$10.00

Additional Assumptions:

Depreciation & amortization expense

$60.0

$62.0

$60.0

$61.0

Interest & other expense (income)

$0.0

$1.0

($0.6)

($0.9)

Effective tax rate

23.0%

24.0%

22.2%

22.3%

Updating F4Q25 sales assumptions to reflect greater macro uncertainty and potential demand implications near term from the evolving tariff and trade backdrop

Adjusting EBITDA margin guidance to primarily reflect F3Q25 performance, partially balanced by updated F4Q25 sales assumptions

Assumes 5.5% to 6.0% of YoY M&A sales contribution in F4Q25

Excludes contribution from future M&A and/or share repurchases

Potential support/upside from industry position, sales initiatives, active cost controls, gross margin initiatives, greater ES segment order conversion, Hydradyne synergies, and a sooner/greater rebound in broader end-market demand

F4Q25 assumptions:

Total Sales: Down 1% to up 3% YoY

Organic Daily Sales: Down MSD to LSD (%) YoY

Gross Margin: Stable sequentially (~30.5%)

EBITDA Margin: 12.6% to 12.8%

EPS: $2.52 to $2.67

Notes: 1) $ amount in millions except EPS

2) LSD = Low Single-Digits, MSD = Mid Single-Digits

Fiscal Period

Year

2024

63.0

61.0

63.5

64.0

251.5

2025

64.0

62.0

63.0

63.5

252.5

2026

64.0

62.0

63.0

63.5

252.5

Three Months

Ended Mar 31

(dollar amount in thousands)

Q3 FY24

Q3 FY25

Service Center Based Distribution Segment:

Net sales

$ 789,356

$ 761,602

Operating income

$ 100,470

$ 107,164

Depreciation and amortization of property

$ 4,431

$ 4,477

EBITDA

$ 104,901

$ 111,641

% of sales (EBITDA margin)

13.3%

14.7%

Engineered Solutions Segment:

Net sales

$ 357,034

$ 405,147

Operating income

$ 49,511

$ 53,958

Depreciation and amortization of property

$ 1,371

$ 2,106

EBITDA

$ 50,882

$ 56,064

% of sales (EBITDA margin)

14.3%

13.8%

Corporate and other expense, net (1)

$ 28,775

$ 31,720

Note: (1) Includes intangible amortization expense.

Three Months Ended

Mar 31

(dollar amount in thousands) Q3 FY24 Q3 FY25

Net Income

$ 97,217

$ 99,799

Interest expense (income), net

265

853

Income tax expense

25,448

27,483

Depreciation and amortization of property

5,802

6,583

Amortization of intangibles

6,951

10,218

EBITDA

$ 135,683

$ 144,936

Three Months Ended

Mar 31

(dollar amount in thousands)

Q3 FY24

Q3 FY25

Net Sales

$ 1,146,390

$ 1,166,749

EBITDA

135,683

144,936

EBITDA Margin

11.8%

12.4%

Three Months Ended September 30

(dollar amount in thousands)

Q1 FY19

Q1 FY20

Q1 FY21

Q1 FY22

Q1 FY23

Q1 FY24

Q1 FY25

Cash provided by Operating Activities

$ 11,797

$ 50,018

$ 81,842

$ 48,642

$ 25,943

$ 66,209

$127,747

Capital Expenditures

(3,173)

(4,946)

(3,597)

(3,621)

(5,554)

(4,340)

(5,549)

Free Cash Flow

$ 8,624

$ 45,072

$ 78,245

$ 45,021

$ 20,389

$ 61,869

$122,198

Three Months Ended December 31

(dollar amount in thousands) Q2 FY19 Q2 FY20 Q2 FY21 Q2 FY22 Q2 FY23 Q2 FY24 Q2 FY25

Cash provided by Operating Activities

$ 53,783

$ 54,881

$ 77,514

$ 32,622

$ 62,880

$101,758

$ 95,137

Capital Expenditures (3,923) (7,019) (4,852) (3,889) (7,263) (5,523) (5,197)

Free Cash Flow

$ 49,860

$ 47,862

$ 72,662

$ 28,733

$ 55,617

$ 96,235

$ 89,940

Three Months Ended March 31

(dollar amount in thousands) Q3 FY19 Q3 FY20 Q3 FY21 Q3 FY22 Q3 FY23 Q3 FY24 Q3 FY25

Cash provided by Operating Activities

$ 11,586

$ 64,725

$ 44,053

$ 52,559

$ 75,204

$ 84,192

$122,453

Capital Expenditures (4,615) (4,258) (3,728) (4,164) (7,992) (7,491) (7,549)

Free Cash Flow

$ 6,971

$ 60,467

$ 40,325

$ 48,395

$ 67,212

$ 76,701

$114,904

Nine Months Ended March 31

(dollar amount in thousands)

FY19

FY20

FY21

FY22

FY23

FY24

FY25

Cash provided by Operating Activities

$ 77,166

$ 169,624

$ 203,409

$ 133,823

$164,027

$252,159

$345,337

Capital Expenditures

(11,711)

(16,223)

(12,177)

(11,674)

(20,809)

(17,354)

(18,295)

Free Cash Flow

$ 65,455

$ 153,401

$ 191,232

$ 122,149

$143,218

$234,805

$327,042

(dollar amount in thousands)

Q3 FY23

Q4 FY23

Q1 FY24

Q2 FY24

Q3 FY24

Q4 FY24

Q1 FY25

Q2 FY25

Q3 FY25

Net Income

97,187

92,215

93,826

91,228

97,217

$ 103,491

92,063

93,290

99,799

Interest expense (income), net

4,773

4,201

1,320

1,917

265

(671)

(627)

(936)

853

Income tax expense

25,093

30,322

25,103

24,373

25,448

37,444

24,017

29,271

27,483

Depreciation and amortization

5,565

5,668

5,717

6,048

5,802

5,864

5,924

5,926

6,583

Amortization of intangibles

7,670

7,616

7,393

7,257

6,951

7,322

7,600

7,567

10,218

EBITDA

$ 140,288

$ 140,022

$ 133,359

$ 130,823

$ 135,683

$ 153,450

$ 128,977

$ 135,118

$ 144,936

Trailing 4-Quarter EBITDA

$ 504,450

$ 524,521

$ 539,170

$ 544,492

$ 539,887

$ 553,315

$ 548,933

$ 553,228

$ 562,481

Current portion of long-term debt

$ 25,196

$ 25,170

$ 25,171

$ 25,159

$ 25,107

$ 25,055

$ 25,003

Long-term debt

597,006

596,926

596,883

571,854

571,862

572,279

572,288

572,300

Total Debt

$ 622,202

$ 622,096

$ 622,054

$ 597,013

$ 596,969

$ 597,334

$ 597,291

$ 572,300

Cash

182,127

344,036

360,415

412,855

456,533

460,617

538,520

303,441

352,842

Net Debt

$ 440,075

$ 278,060

$ 261,639

$ 184,158

$ 140,436

$ 136,717

$ 58,771

$ 268,859

$ 219,458

Net Leverage Ratio

0.87

0.53

0.49

0.34

0.26

0.25

0.11

0.49

0.39

Disclaimer

Applied Industrial Technologies Inc. published this content on May 01, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 01, 2025 at 10:36 UTC.