Sign in
AI

APPLIED INDUSTRIAL TECHNOLOGIES INC (AIT)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY2025 revenue was $1.073B (down 0.4% YoY; -3.4% organic daily), EPS was $2.39, and EBITDA was $135.1M; management highlighted that EBITDA and EPS exceeded internal expectations on strong gross margin execution and cost control .
  • Gross margin expanded to 30.6% (+114 bps YoY) and EBITDA margin to 12.6% (+45 bps YoY), helped by lower LIFO expense ($0.7M vs. $3.4M prior year) and mix/initiatives; SD&A was 19.3% of sales .
  • FY2025 guidance raised: EPS to $9.65–$10.05 (prior $9.25–$10.00), sales growth to +1%–+3% (prior -2.5%–+2.5%), organic daily to -3%–+1%, EBITDA margin to 12.2%–12.4%; quarterly dividend increased 24% to $0.46 .
  • Hydradyne acquisition (closed Dec 31) adds ~$260M sales, ~$30M EBITDA, and is expected to be ~$0.15 EPS accretive in first 12 months; initial D&A will step up to ~$17M/quarter total with ~$3M incremental from Hydradyne .

What Went Well and What Went Wrong

What Went Well

  • Margin expansion: Gross margin reached 30.6% (+114 bps YoY) and EBITDA margin 12.6% (+45 bps), driven by channel execution, ES segment mix/initiatives, and lower LIFO expense; SD&A discipline maintained .
  • Engineered Solutions strength: ES EBITDA margin expanded 115 bps YoY to 16.3% on strong gross margin performance and favorable mix (flow control AD sales +2% YoY, +4% seq) despite lower sales .
  • Capital deployment and dividend: FY25 EPS guidance raised, and quarterly dividend increased 24% to $0.46; balance sheet capacity for M&A and buybacks remains significant .

What Went Wrong

  • Organic sales softness: Organic daily sales declined 3.4% YoY (Service Center -1.9%, ES -6.3%) amid muted end-market demand and seasonal/holiday timing impacts in December (estimated ~100 bps headwind) .
  • Automation and fluid power OEM headwinds: Automation AD sales declined high-single digits; fluid power OEM weakness reduced consolidated organic sales growth by ~150 bps, though orders stabilized late in the quarter .
  • Near-term moderation expected: Q3 gross margin expected around 30% and EBITDA margin 12.0%–12.2%, reflecting normalized execution, slightly higher LIFO, growth investments, merit increases, integration costs, and Hydradyne mix .

Financial Results

MetricQ2 2024 (Dec 31, 2023)Q4 2024 (Jun 30, 2024)Q1 2025 (Sep 30, 2024)Q2 2025 (Dec 31, 2024)
Revenue ($USD Millions)$1,077.153 $1,160.675 $1,098.944 $1,073.001
Diluted EPS ($)$2.32 $2.64 $2.36 $2.39
Net Income ($USD Millions)$91.228 $103.491 $92.063 $93.290
Gross Profit ($USD Millions)$317.090 $356.235 $325.082 $328.050
Gross Margin (%)29.4% —29.6% 30.6%
EBITDA ($USD Millions)$130.823 $153.450 $128.977 $135.118
EBITDA Margin (%)——11.7% 12.6%
Cash from Operations ($USD Millions)$101.758 $119.234 $127.747 $95.137
Free Cash Flow ($USD Millions)$96.235 $111.724 $122.198 $89.940
Organic Daily Sales Growth (%)—-2.0% -3.0% -3.4%

Segment Breakdown – Q2 2025

MetricService CenterEngineered Solutions
Sales growth YoY (organic daily)-1.9% -6.3%
EBITDA margin13.4% 16.3%
CommentaryLocal accounts weaker; national accounts steadier Flow control AD sales +2% YoY, +4% seq; automation AD sales down high-single digits; mix/initiatives drove margin

KPIs

KPIQ2 2025Prior Period
LIFO expense ($USD Millions)$0.7 $3.4 (Q2 2024)
SD&A as % of sales19.3% 18.7% (Q1 2025 prior year comp)
Dividend per share (quarterly)$0.46 (payable Feb 28, 2025) $0.37 (Nov 29, 2024)
FCF conversion (quarter)96% of net income —
YTD Free Cash Flow ($USD Millions)$212.1 $158.1 (YTD prior year)
January organic sales trendDown mid-single-digit YoY; early-month double-digit down, late-month low-single-digit up —

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
EPSFY2025$9.25–$10.00 $9.65–$10.05 Raised
Sales growth (total)FY2025-2.5% to +2.5% +1% to +3% Raised
Organic daily salesFY2025-4% to +1% (prior) -3% to +1% Raised
EBITDA marginFY202512.1%–12.3% 12.2%–12.4% Raised
Gross margin (sequential outlook)Q3 FY2025N/A~30% New detail
EBITDA margin (sequential outlook)Q3 FY2025N/A12.0%–12.2% New detail
M&A contribution to sales (H2)FY2025 H2N/A+600–700 bps New detail
Dividend per share (quarterly)Current$0.37 $0.46 Raised 24%

Earnings Call Themes & Trends

TopicQ4 FY2024 (Prev-2)Q1 FY2025 (Prev-1)Q2 FY2025 (Current)Trend
Automation/Technology vertical“Poised to rebound; early positive signs” Double-digit order growth in automation/tech; funnels strengthening Automation orders high-single-digit; tech double-digit; automation run-rate ~$240M Improving
Break-fix MRO & Service CenterMixed MRO; conservative customer spending Break-fix improved in September; national accounts healthier Expect break-fix to ramp spring/summer; Dec holiday timing hurt sales Improving into spring
Tariffs & macro policy—Election/interest-rate uncertainty weighing on near term USMCA/tariffs monitored; no pre-buy; manageable given footprint Ongoing headwind
Fluid power OEMDestocking/production softness Ongoing weakness Orders +9% seq; sales headwind ~150 bps; stabilization emerging Stabilizing
Pricing/Inflation/LIFO—Price ~100 bps; LIFO expense $2M Price <100 bps; normalized inflation; LIFO expense $0.7M Tailwind vs prior
Freight——Not material; contracted pricing; focus on recovery Neutral
M&A – Hydradyne——Closed Dec 31; ~$260M sales, ~$30M EBITDA; ~$0.15 EPS accretion; synergies $5–$10M in 3 years Accretive growth
Regulatory backdrop——Lighter agenda seen as tailwind in legacy end markets Potential tailwind

Management Commentary

  • “Fiscal second quarter EBITDA and EPS exceeded our expectations… strong gross margin performance and cost controls drove solid EBITDA margin expansion.” – Neil Schrimsher, CEO .
  • “We are raising fiscal 2025 guidance… and initial estimated contribution from our recent Hydradyne acquisition.” – Neil Schrimsher, CEO .
  • “Gross margin of 30.6% increased 114 bps… underlying performance reflects strong channel execution, ES performance, and ongoing margin initiatives.” – David Wells, CFO .
  • “Hydradyne… ~$260M sales and $30M EBITDA… EPS accretion of ~$0.15 within the first 12 months; net synergies targeted at $5–$10M within 3 years.” – David Wells, CFO .
  • “We expect third quarter EBITDA margins to moderate sequentially to 12%–12.2%, though still expand year-over-year.” – David Wells, CFO .

Q&A Highlights

  • Gross margin sustainability: Core GM improvement ~80 bps YoY ex-rebates/LIFO; ~50 bps from ES (mix/flow control); vendor support 10–20 bps likely non-repeat; Q3 GM expected low-30s .
  • Hydradyne accounting & synergies: D&A step-up to ~$17M/quarter total; ~$3M incremental from Hydradyne; synergy mix ~70–80% cost, 20–30% sales opportunities .
  • January intra-month cadence: Early January down double digits; last two weeks up low single-digit; management cautions extrapolation .
  • Segment mix ambition: ES approaching ~40% of sales post Hydradyne; balanced 50/50 mix possible over time with profitable growth .
  • Pricing/inflation: No disinflation; pricing increases normalized (sub-100 bps impact expected for H2); lower LIFO driven by inventory normalization .

Estimates Context

  • Wall Street consensus estimates via S&P Global were not retrievable in this session due to system limits; therefore, explicit beats/misses vs consensus cannot be provided. Based on management’s commentary, EBITDA and EPS exceeded internal expectations, and FY2025 EPS/sales guidance were raised, which typically implies upward estimate revisions by the Street .
  • If you want, we can refresh SPGI consensus later and add a “vs. estimates” table.

Key Takeaways for Investors

  • Margin resilience stands out: Gross margin 30.6% and EBITDA margin 12.6% despite softer sales; expect near-term margin moderation in Q3 to ~30% GM and 12.0%–12.2% EBITDA margin .
  • Guidance upgrade and dividend hike: FY2025 EPS now $9.65–$10.05 and sales +1%–+3%; dividend raised 24% to $0.46, signaling confidence in cash generation/outlook .
  • Hydradyne deal is strategically accretive: Expands ES/Fluid Power footprint in the Southeast; ~$0.15 EPS accretion within year one; targeted net synergies $5–$10M in 3 years .
  • Near-term demand still muted but improving signals: Break-fix MRO should ramp into spring/summer; tech/automation orders strengthening; fluid power OEM orders stabilizing .
  • Watch Q3 margin mix/LIFO dynamics: Management flagged normalized gross margin execution, higher LIFO, growth investments, and integration costs; monitor Hydradyne mix impact .
  • Strong FCF supports optionality: YTD FCF ~$212M; balance sheet capacity remains ample for bolt-on/mid-sized M&A and opportunistic buybacks .
  • Macro/trade policy is a swing factor: Election/tariff/USMCA uncertainty persists; exposure appears manageable given domestic/North America sourcing and break-fix orientation .

Additional Relevant Press Releases (Q2 FY2025)

  • Completed acquisition of Hydradyne on Dec 31, 2024; expected to contribute ~$260M sales and ~$30M EBITDA before synergies; accretive to EPS within 12 months .
  • Agreement to acquire Hydradyne announced Nov 22, 2024, highlighting strategic fit and Southeast U.S. footprint (33 locations, ~500 associates) .

Prior Two Quarters’ Earnings (for Trend)

  • Q1 FY2025: Revenue $1.099B; EPS $2.36; organic daily -3.0%; EBITDA $129.0M; modest margin vs tough comps; record FCF $122.2M; guidance modestly increased for EPS only .
  • Q4 FY2024: Revenue $1.161B; EPS $2.64; EBITDA $153.5M; gross margins exceeded 30%, EBITDA margins exceeded 13%; organic daily -2.0%; established initial FY2025 guidance .

Notes:

  • All figures are GAAP unless noted.
  • Where “—” appears, exact percentages were not disclosed in primary documents.
  • Consensus estimate comparisons could not be provided due to SPGI retrieval limits in this session.