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APPLIED INDUSTRIAL TECHNOLOGIES INC (AIT)·Q1 2026 Earnings Summary

Executive Summary

  • Solid start to FY26: Revenue $1.200B (+9.2% YoY; +3.0% organic) and EPS $2.63 (+11.4% YoY), with EBITDA margin 12.2% (+46 bps YoY). Both revenue and EPS beat S&P Global consensus; management modestly raised FY26 EPS guidance while maintaining sales and EBITDA margin outlook . Estimates marked with an asterisk are from S&P Global; Values retrieved from S&P Global.
  • Strength skewed to shorter-cycle Service Center (organic +4.4%) with strong national accounts; Engineered Solutions was flat organically but reported +19.4% YoY on M&A (Hydradyne), with positive orders and book-to-bill >1 pointing to H2 acceleration .
  • Margins benefited from favorable mix (Hydradyne), channel execution, cost control; gross margin 30.1% (+55 bps YoY) despite $2.6M LIFO expense; Q2 margin comp flagged as tough due to prior-year rebate/LIFO benefits .
  • Guidance: FY26 EPS raised to $10.10–$10.85 (prior $10.00–$10.75); sales +4% to +7% (organic +1% to +4%) and EBITDA margin 12.2%–12.5% reiterated; dividend $0.46 declared .
  • Stock reaction catalysts: broad-based beat, EPS guide raise, improving orders in Engineered Solutions (data centers/semis/life sciences pipelines) vs. near-term macro/tariff uncertainty and tougher Q2 margin comp .

What Went Well and What Went Wrong

What Went Well

  • “We had a solid first quarter, delivering double-digit EBITDA and EPS growth that exceeded our expectations... EBITDA margins of 12.2% expanding nearly 50 bps over the prior-year period, which was ahead of our guidance.” – CEO Neil Schrimsher .
  • Service Center momentum: organic sales +4.4% YoY; segment EBITDA +10.1% and margin 13.9% (+>70 bps) on operating leverage, execution, and cost control .
  • Orders and secular tailwinds: Engineered Solutions orders +~5% organically YoY, book-to-bill >1; growing exposure to data center thermal management, robotics/vision, and semiconductor cycle recovery expected in H2 .

What Went Wrong

  • Engineered Solutions organic sales -0.4% (reported +19.4% on M&A) as September softness hit flow control project shipments and semis conversion timing; segment EBITDA margin 13.8% (~40 bps YoY decline) on acquisition mix and lower flow control sales .
  • LIFO and mix headwinds persist: Q1 LIFO expense $2.6M; Q2 YOY margins face tougher compares (prior-year lower LIFO and non-routine rebates) and anticipated LIFO of ~$4M+ .
  • Macro/tariff uncertainty and seasonally slower fall/winter keep near-term organic growth choppy; pricing contribution held to ~200 bps with conservatism on further acceleration .

Financial Results

Headline P&L vs Prior Quarters

MetricQ3 2025Q4 2025Q1 2026
Revenue ($USD Billions)$1.167B $1.225B $1.200B
Diluted EPS ($)$2.57 $2.80 $2.63
Gross Profit ($M)$355.3 $374.7 $361.4
Gross Margin (%)30.5% (calc from 355.3/1,166.7) 30.6% (calc) 30.1%
Operating Income ($M)$129.4 $135.1 $129.0
Net Income ($M)$99.8 $107.8 $100.8
EBITDA ($M)$144.9 $153.0 $146.3
EBITDA Margin (%)12.4% (calc) 12.5% (calc) 12.2%

Actuals vs S&P Global Consensus

QuarterRevenue Actual ($B)Revenue Estimate ($B)*Surprise (%)EPS Actual ($)EPS Estimate ($)*Surprise (%)
Q1 2026$1.200 $1.188*+1.0%$2.63 $2.4825*+5.9%
Q4 2025$1.225 $1.183*+3.5%$2.80 $2.625*+6.7%
Q3 2025$1.167 $1.172*-0.5%$2.57 $2.41*+6.6%

Estimates marked with an asterisk are from S&P Global; Values retrieved from S&P Global.

Segment Performance (Q1 FY26)

SegmentReported Sales Growth YoYOrganic Sales Growth YoYSegment EBITDA Growth YoYSegment EBITDA MarginCommentary
Service Center~+4.4% (acq +10 bps; FX -10 bps) +4.4% +10.1% 13.9% (+>70 bps) Strong national accounts, technical MRO demand, pricing, cost control
Engineered Solutions+19.4% -0.4% +16% 13.8% (~-40 bps) Hydradyne contribution; flow control/semis timing softness; orders +~5% YoY, B2B >1

KPIs and Other Items

KPIQ3 2025Q4 2025Q1 2026
Cash from Operations ($M)$122.5 $147.0 $119.3
Free Cash Flow ($M)$114.9 $138.2 $112.0
Capital Expenditure ($M)$7.5 $8.9 $7.3
LIFO Expense ($M)$2.2 $2.9 $2.6
Cash & Equivalents ($M)$352.8 $388.4 $418.7
Share RepurchasesNew 1.5M auth. announced —204k shares for ~$53M
Net Leverage——~0.3x EBITDA
Pricing Contribution (bps)—~100 bps (reference) ~200 bps

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
EPSFY2026$10.00–$10.75 $10.10–$10.85 Raised
Total Sales GrowthFY2026+4% to +7% +4% to +7% Maintained
Organic Sales GrowthFY2026+1% to +4% +1% to +4% Maintained
EBITDA MarginFY202612.2%–12.5% 12.2%–12.5% Maintained
Pricing ContributionFY2026Incremental vs FY25 150–200 bps assumed Clarified cadence
LIFO ExpenseFY2026—$14–$18M assumed New detail
Q2 Organic SalesQ2 FY2026—Low single-digit % YoY increase; Service Center > Engineered Solutions New
Q2 Gross MarginQ2 FY2026—Slightly up sequentially New
Q2 EBITDA MarginQ2 FY2026—12.0%–12.3% New
DividendQuarterly$0.46 per share (May ’25) $0.46 payable Nov 28, 2025 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY25 and Q4 FY25)Current Period (Q1 FY26)Trend
Macro, tariffs, ratesElevated uncertainty; updated FY25 guide; cautious on tariff-driven inflation “Gradual and bifurcated” demand; trade/tariff uncertainty persists; prudent guidance Still cautious; stabilizing demand
PricingManaging inflation; not explicit bps disclosed ~200 bps pricing vs ~100 bps in Q4; neutral price/cost Improving pricing contribution
Engineered Solutions ordersPositive orders/backlog; Q4 sales stronger than expected Orders +~5% organically; B2B >1; H2 weighted conversion Building for H2
Automation/data centersIRIS Factory Automation acquisition announced Growing data center thermal mgmt; robotics/vision momentum Expanding pipeline
SemiconductorsAnticipated improvement into FY26 Expect WFE cycle ramp H2 FY26 Firming outlook
Hydradyne (M&A)Integration progressing; contribution to increase EBITDA +20% seq; synergy streams on track; mix headwinds easing ahead Improving contribution
Capital returnsNew 1.5M share repurchase authorization; dividend maintained 204k shares repurchased for $53M; dividend declared Active buybacks continue

Management Commentary

  • “We delivered strong earnings performance… EBITDA margins of 12.2% expanding nearly 50 basis points… ahead of our guidance.” – CEO Neil Schrimsher .
  • “Gross margin of 30.1% was up 55 bps… positive mix from Hydradyne, channel execution, margin initiatives; price/cost relatively neutral.” – CFO Dave Wells .
  • “Engineered Solutions orders… increasing nearly 5% organically… book-to-bill above one… data center thermal management, robotics solutions, and wafer fab equipment cycle gain in H2 FY26.” – CEO .
  • “We repurchased approximately 204,000 shares for $53M; balance sheet in a solid position; maintaining FY26 sales and EBITDA margin guidance; raising EPS range.” – CFO .

Q&A Highlights

  • Seasonality/holiday impact: Q2 guidance reflects potential holiday shutdown effects; December compares are easier, providing some balance .
  • Pricing cadence: Achieved ~200 bps price contribution in Q1; cautious on further ramp until visibility improves; supplier notifications remain orderly .
  • Engineered Solutions timing: September softness was timing-related (flow control projects, semis conversion); confidence in H2 backlog conversion; continued positive order trends through October .
  • Q2 margins: Sequential EBITDA margin not expected to rise despite slightly higher gross margin due to higher LIFO (~$4M+) vs prior-year $0.7M and lack of non-routine rebates; some Q1 AR provisioning benefits won’t repeat .
  • Hydradyne synergies: On track for year-one synergies; cross-selling and repair/service capabilities scaling; sequential EBITDA up >20% .
  • Capital deployment: Active M&A pipeline (bolt-ons and mid-sized), continued buybacks/dividend, disciplined approach as automation demand improves .

Estimates Context

  • Q1 FY26 beat: Revenue $1.200B vs $1.188B* (+1.0%); EPS $2.63 vs $2.4825* (+5.9%). Q4 FY25 beat on both revenue (+3.5%) and EPS (+6.7%); Q3 FY25 mixed (EPS beat, slight revenue miss) . Estimates marked with an asterisk are from S&P Global; Values retrieved from S&P Global.
  • Implications: Models likely lift EPS for FY26 on stronger pricing contribution, Service Center leverage, and Hydradyne accretion, with sales left largely intact given reiterated growth range and H2 weighting .

Key Takeaways for Investors

  • Quality beat with EPS guide raise and better margin execution; momentum building in Service Center with leading indicators improving across core heavy manufacturing verticals .
  • H2 setup constructive: Engineered Solutions orders positive with B2B >1; pipelines in data centers, semis, robotics/vision, life sciences should catalyze mix and margins as conversion ramps .
  • Near-term watchouts: Q2 margin compare is tough (LIFO/rebate), flow control timing, and macro/tariff uncertainty into seasonally slower months; management prudently maintained sales and EBITDA margin ranges .
  • Pricing tailwind strengthening (~200 bps in Q1 vs ~100 bps in Q4), with neutral price/cost—supports gross margin resilience amid inflation .
  • Hydradyne integration tracking ahead (sequential EBITDA +20%); mix headwinds expected to ease—supporting consolidated margin trajectory into H2 .
  • Capital allocation remains a positive: active M&A pipeline, continued buybacks ($53M in Q1), dividend sustained; net leverage ~0.3x preserves flexibility .
  • For trading: focus on H2 conversion milestones (Engineered Solutions bookings-to-billings, data center/semis project timing), Q2 margin print vs guided 12.0–12.3%, and any tariff/pricing updates on calls and 8-Ks .