Applied Industrial Technologies Reports Fiscal 2019 Fourth Quarter and Year-End Results

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Applied Industrial Technologies (NYSE: AIT) today reported results for its fourth quarter and fiscal 2019 year ended June 30, 2019.

Net sales for the quarter decreased 1.7% to $882.7 million from $897.7 million in the prior year. The change in sales includes a 2.2% increase from acquisitions, partially offset by a negative 0.4% from foreign currency and a negative 0.8% selling day impact. Excluding these factors, sales decreased 2.7% on an organic daily basis. Net income was $39.8 million, or $1.02 per share, compared to $40.4 million, or $1.03 per share, in the prior year. EBITDA was $87.6 million compared to $87.0 million in the prior year. Results include $7.0 million or $0.18 per share of discrete tax expense in the quarter, as well as a pre-tax $3.4 million non-cash LIFO charge, compared to $0.1 million in the prior year quarter and guidance of $2.5 million.

For the twelve months ended June 30, 2019, sales were $3.47 billion, an increase of 13.0% compared with $3.07 billion last year, or 1.9% on an organic daily basis. Net income was $144.0 million on a reported basis, or $3.68 per share. Non-GAAP adjusted net income was $172.6 million, or $4.41 per share and up 18.0% from the prior year. EBITDA was $328.4 million, an increase of 18.1% compared to $278.1 million last year.

Commenting on the results, Applied’s President & Chief Executive Officer Neil A. Schrimsher said, “Despite slower end-market demand and ongoing inflationary headwinds, we ended fiscal 2019 on an encouraging note with fourth quarter margins, EBITDA, and free cash meeting or exceeding our expectations. This demonstrates our ability to adapt, execute, and generate cash in any demand environment, as well as benefit from various self-help initiatives. Consistent with recent macroeconomic industrial reports, we saw a slowing in demand across industrial, process, and energy end markets during the quarter. Combined with ongoing fluid power technology market headwinds and difficult comparisons, our sales declined organically. While the industrial backdrop is proving more challenging near-term, we see sustained momentum from our differentiated industry position and operational strategy, as highlighted by our collective fiscal 2019 performance including consistent margin improvement, and respective EBITDA and free cash growth of 18% and 30%.”

Outlook
Today the Company also provided its initial outlook for fiscal 2020. For the full year, the Company is forecasting an EPS range of $4.20 to $4.50 on a change in sales of down 2% to up 2%, including down 5% to down 1% on an organic daily basis. In addition, the Company is forecasting free cash of $200 million to $220 million, or up 30% at the mid-point.

Mr. Schrimsher concluded, “We are mindful of broader industrial cycle uncertainty entering fiscal 2020, which is reflected in our guidance. While reinforcing our cost discipline and cash generation potential near-term, we remain focused on our long-term growth strategy and believe our products and solutions are increasingly critical given an aging and tighter industrial labor force, more sophisticated production equipment and processes, a focus on plant floor optimization, and compliance and regulatory requirements. Combined with sustained margin opportunities and our leading technical and service-oriented position in engineered solutions and flow control markets, we are favorably positioned as the cycle evolves near-term. Over the intermediate to long-term we expect accelerating growth potential via secular market tailwinds and share gains given this industry position, as well as our recent expansion into automation solutions with the agreement to acquire Olympus Controls. This multi-faceted and technical-oriented growth strategy presents many new and relevant opportunities to drive shareholder value as we enter the next decade and approach the Company’s 100th year anniversary.”

Conference Call Information
Applied will host its quarterly conference call for investors and analysts at 10 a.m. ET on August 14, 2019. 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 LINK  . To join the call, dial 877-311-4351 (toll free) or 614-999-9139 (for International callers) using conference ID 5159526. A live audio webcast can be accessed online through the investor relations portion of the Company's website at LINK  . 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 5159526.

About Applied®
Founded in 1923, Applied Industrial Technologies is a leading distributor of bearings, power transmission products, engineered fluid power components and systems, specialty flow control solutions, and other industrial supplies, serving MRO and OEM customers in virtually every industry. In addition, Applied provides engineering, design and systems integration for industrial and fluid power applications, as well as customized mechanical, fabricated rubber, fluid power, and flow control shop services. Applied also offers storeroom services and inventory management solutions that provide added value to its customers. For more information, visit LINK  .

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 “outlook,” “forecast,” “guidance,” “believe,” “will” 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, and other risk factors identified in Applied's most recent periodic report and other filings made with the Securities and Exchange Commission. 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
(In thousands, except per share data)
 

Three Months Ended
June 30,

 

Year Ended
June 30,

2019

 

2018

 

2019

 

2018

Net Sales

$

882,743

 

$

897,721

 

$

3,472,739

 

$

3,073,274

 

Cost of sales

 

625,392

 

 

634,034

 

 

2,465,116

 

 

2,189,279

 

Gross Profit

 

257,351

 

 

263,687

 

 

1,007,623

 

 

883,995

 

Selling, distribution and administrative, including depreciation

 

185,376

 

 

192,856

 

 

742,241

 

 

658,168

 

Intangible impairment

 

-

 

 

-

 

 

31,594

 

 

-

 

Operating Income

 

71,975

 

 

70,831

 

 

233,788

 

 

225,827

 

Interest expense, net

 

10,187

 

 

10,964

 

 

40,188

 

 

23,485

 

Other income, net

 

(332

)

 

(354

)

 

(881

)

 

(2,376

)

Income Before Income Taxes

 

62,120

 

 

60,221

 

 

194,481

 

 

204,718

 

Income Tax Expense

 

22,317

 

 

19,859

 

 

50,488

 

 

63,093

 

Net Income

$

39,803

 

$

40,362

 

$

143,993

 

$

141,625

 

Net Income Per Share - Basic

$

1.03

 

$

1.04

 

$

3.72

 

$

3.65

 

Net Income Per Share - Diluted

$

1.02

 

$

1.03

 

$

3.68

 

$

3.61

 

Average Shares Outstanding - Basic

 

38,579

 

 

38,682

 

 

38,670

 

 

38,752

 

Average Shares Outstanding - Diluted

 

38,993

 

 

39,312

 

 

39,160

 

 

39,281

 

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.

 

(2)

As a result of the continued decline in the oil & gas industry in Western Canada, the Company performed an impairment analysis for certain long-lived intangible assets related to the Company's Reliance upstream oil & gas operations in Canada during the quarter ended March 31, 2019. As a result of this test, the Company determined that the net book values of these long-lived intangible assets were impaired and recognized a non-cash impairment charge of $31.6 million. The Company also recorded a valuation allowance against its Canadian deferred tax assets of $3.8 million.

 

(3)

In the quarter ending March 31, 2019, the Company incurred certain restructuring charges primarily for oil & gas operations. Total restructuring charges reduced gross profit for the quarter by $0.7 million and operating income by $2.3 million.

 
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30,June 30,
2019

 

2018
 
Assets
Cash and cash equivalents

$

108,219

$

54,150

Accounts receivable, net

 

540,902

 

548,811

Inventories

 

447,555

 

422,069

Other current assets

 

51,462

 

32,990

Total current assets

 

1,148,138

 

1,058,020

Property, net

 

124,303

 

121,343

Goodwill

 

661,991

 

646,643

Intangibles, net

 

368,866

 

435,947

Other assets

 

28,399

 

23,788

Total Assets

$

2,331,697

$

2,285,741

 
Liabilities
Accounts payable

$

237,289

$

256,886

Current portion of long-term debt

 

49,036

 

19,183

Other accrued liabilities

 

137,469

 

156,482

Total current liabilities

 

423,794

 

432,551

Long-term debt

 

908,850

 

944,522

Other liabilities

 

102,019

 

93,705

Total Liabilities

 

1,434,663

 

1,470,778

Shareholders' Equity

 

897,034

 

814,963

Total Liabilities and Shareholders' Equity

$

2,331,697

$

2,285,741

 
 
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(In thousands)
 
 

Year Ended

June 30,

2019

 

2018

 
Cash Flows from Operating Activities
Net income

$

143,993

 

$

141,625

 

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

 

31,594

 

 

-

 

Depreciation and amortization of property

 

20,236

 

 

17,798

 

Amortization of intangibles

 

41,883

 

 

32,065

 

Amortization of stock appreciation rights and options

 

2,437

 

 

1,961

 

Gain on sale of property

 

(459

)

 

(335

)

Other share-based compensation expense

 

4,474

 

 

4,666

 

Changes in assets and liabilities, net of acquisitions

 

(70,222

)

 

(54,227

)

Other, net

 

6,665

 

 

3,751

 

Net Cash provided by Operating Activities

 

180,601

 

 

147,304

 

Cash Flows from Investing Activities
Capital Expenditures

 

(18,970

)

 

(23,230

)

Proceeds from property sales

 

1,003

 

 

978

 

Acquisition of businesses, net of cash acquired

 

(37,526

)

 

(775,654

)

Other

 

391

 

Net Cash used in Investing Activities

 

(55,102

)

 

(797,906

)

Cash Flows from Financing Activities
Net borrowings (repayments) under revolving credit facility

 

(19,500

)

 

19,500

 

Long-term debt borrowings

 

175,000

 

 

780,000

 

Long-term debt repayments

 

(161,738

)

 

(125,420

)

Debt issuance costs

 

(775

)

 

(3,298

)

Purchases of treasury shares

 

(11,158

)

 

(22,778

)

Dividends paid

 

(47,266

)

 

(45,858

)

Acquisition holdback payments

 

(2,610

)

 

(319

)

Taxes paid for shares withheld for equity awards

 

(3,492

)

 

(1,645

)

Exercise of stock appreciation rights and options

 

-

 

 

102

 

Net Cash (used in) provided by Financing Activities

 

(71,539

)

 

600,284

 

Effect of Exchange Rate Changes on Cash

 

109

 

 

(589

)

Increase (decrease) in cash and cash equivalents

 

54,069

 

 

(50,907

)

Cash and cash equivalents at beginning of year

 

54,150

 

 

105,057

 

Cash and Cash Equivalents at End of Year

$

108,219

 

$

54,150

 

 

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(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

 

Year Ended

June 30,

 

June 30,

2019

 

2018

 

2019

 

2018

Net Income

$

39,803

$

40,362

$

143,993

$

141,625

Interest expense, net

 

10,187

 

10,964

 

40,188

 

23,485

Income tax expense

 

22,317

 

19,859

 

50,488

 

63,093

Depreciation and amortization of property

 

5,191

 

5,077

 

20,236

 

17,798

Amortization of intangibles (including impairment)

 

10,060

 

10,739

 

73,477

 

32,065

EBITDA

$

87,558

$

87,001

$

328,382

$

278,066

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

Reconciliation of Net Income and Net Income Per Share - Diluted, GAAP financial measures, with Adjusted Net Income and Adjusted Net Income Per Share (or Adjusted EPS), non-GAAP financial measures:

Net Income Impact

 

Per Share - Diluted Impact

Year Ended
June 30,

 

Year Ended
June 30,

2019

 

2018

 

2019

 

2018

Net Income and Net Income Per Share

$

143,993

 

$

141,625

 

$

3.68

 

$

3.61

Adjustments:   
FCX one-time costs

 

-

 

 

5,128

 

 

-

 

 

0.13

Canadian intangible impairment

 

23,109

 

 

-

 

 

0.59

 

 

-

Canadian tax valuation allowance

 

3,785

 

 

-

 

 

0.10

 

 

-

Restructuring costs

 

1,702

 

 

-

 

 

0.04

 

 

-

Adjusted Net Income and Adjusted EPS

$

172,589

 

$

146,753

 

$

4.41

 

$

3.74

Adjusted Net Income and Adjusted EPS excludes items that may not be indicative of core operating results.

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

Three Months Ended
June 30,

 

Year Ended
June 30,

 

2019

 

2018

 

2019

 

2018

Net Cash provided by Operating Activities 

$

103,435

 

 

$

99,426

 

$

180,601

 

 

$

147,304

 

Capital expenditure 

 

(7,259

)

 

 

(5,332

)

 

(18,970

)

 

 

(23,230

)

Free Cash Flow 

$

96,176

 

 

$

94,094

 

$

161,631

 

 

$

124,074

 

    

Free cash flow is defined as net cash provided by operating activities less capital expenditures.

 

More news and information about Applied Industrial Technologies, Inc.

Published By:

Business Wire: 11:30 GMT Wednesday 14th August 2019

Published: .

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