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APPLIED INDUSTRIAL TECHNOLOGIES INC (AIT)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY2025 delivered resilient execution amid muted demand: revenue $1.17B (+1.8% YoY), diluted EPS $2.57 (+3.7% YoY), and EBITDA $144.9M (+6.8% YoY), with gross margin expanding to 30.5% and EBITDA margin to 12.4% .
  • Results were mixed versus consensus: EPS beat (2.57 vs 2.41), EBITDA beat (144.9M vs 142.0M), while revenue was slightly below (1.167B vs 1.172B); management highlighted margin strength and disciplined cost control as key drivers* .
  • FY25 guidance was updated: EPS raised to $9.85–$10.00; sales growth trimmed to flat–+1%; organic ADS now down 4%–3%; EBITDA margin 12.3%–12.4%. Q4 guide: EPS $2.52–$2.67; sales y/y -1% to +3%; press release indicated Q4 EBITDA margin 12.3%–12.4%, while call commentary suggested 12.6%–12.8%, a notable discrepancy .
  • Strategic catalysts: announced bolt-on acquisition of IRIS Factory Automation (turn-key vision/robotics solutions ~30 associates), new authorization to repurchase up to 1.5M shares, and dividend of $0.46 per share; automation orders grew >30% y/y, Engineered Solutions book-to-bill rose above 1, supporting medium-term momentum .

What Went Well and What Went Wrong

What Went Well

  • Margin expansion and cash generation: gross margin +95 bps y/y to 30.5%; EBITDA margin +59 bps y/y to 12.4%; FCF up 50% y/y to $114.9M (“record third quarter cash generation”) .
  • Early integration progress and order momentum: Hydradyne contributing; automation orders +30% y/y; Engineered Solutions book-to-bill >1 for first time in nearly 3 years, indicating a bottoming and backlog conversion tailwind into FY2026 .
  • Management execution: “EBITDA and EPS exceeded our expectations… gross margins and EBITDA margins expanded nicely… solid cost management” — CEO Neil Schrimsher .

What Went Wrong

  • Organic demand softness persisted: organic average daily sales down 3.1% (Service Center -1.6% org.; Engineered Solutions -6.5% org.), with fluid power OEM weakness pressuring Engineered Solutions .
  • Tariff/inflation uncertainty and cautious outlook: April ADS estimated -3% organically y/y; Q4 guide embeds mid-to-low single-digit organic decline and limited tariff pricing impact near-term .
  • Mixed segment margin dynamics: Engineered Solutions EBITDA margin 13.8%, down vs prior year (14.3%), reflecting initial Hydradyne mix and slower backlog conversion despite contribution .

Financial Results

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Billions)$1.10 $1.07 $1.17
Diluted EPS ($)$2.36 $2.39 $2.57
EBITDA ($USD Millions)$129.0 $135.1 $144.9
Gross Profit ($USD Millions)$325.1 $328.1 $355.3
Gross Margin %29.6% (calc. from cited data) 30.6% (calc. from cited data) 30.5%
EBITDA Margin %11.7% (calc.) 12.6% (calc.) 12.4%
Operating Cash Flow ($USD Millions)$127.7 $95.1 $122.5
Free Cash Flow ($USD Millions)$122.2 $89.9 $114.9

Segment KPIs

SegmentOrganic Daily Sales YoYSegment EBITDA Margin
Service Center-1.6% 14.7%
Engineered Solutions-6.5% 13.8%

Estimates vs Actuals (Quarter)

MetricQ3 2025 ConsensusQ3 2025 Actual
EPS ($)2.41*2.57
Revenue ($USD Billions)1.17*1.17
EBITDA ($USD Millions)142.0*144.9

Notes: *Values retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
EPS ($)FY2025$9.65–$10.05 $9.85–$10.00 Raised midpoint / narrowed
Sales Growth (Total)FY2025+1% to +3% Flat to +1% Lowered
Organic ADS GrowthFY2025-3% to -1% -4% to -3% Lowered
EBITDA Margin %FY202512.2%–12.4% 12.3%–12.4% Slightly raised low end
EPS ($)Q4 FY2025N/A$2.52–$2.67 New
Sales Growth (y/y)Q4 FY2025N/A-1% to +3% New
EBITDA Margin %Q4 FY2025N/A12.3%–12.4% (press) ; 12.6%–12.8% (call) Discrepancy press vs call
DividendQuarterly$0.46 (approved Jan-29-25) $0.46 (payable May 30, 2025) Maintained
Share RepurchaseAuthorizationPrior plan in place New authorization up to 1.5M shares New program
Tariff AssumptionsQ4 FY2025N/ALimited direct impact; timing of supplier increases limits Q4 effect New disclosure

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 FY2025)Current Period (Q3 FY2025)Trend
Tariffs/MacroQ2: Muted industrial activity; raised FY25 EPS; dividend increase; early 2025 ADS down mid-single digits . Q1: Mixed demand; cautious near-term; increased EPS guidance modestly .Macro uncertainty intensified by evolving tariff backdrop; April ADS ~ -3% organically y/y; limited Q4 tariff pricing impact due to timing .Cautious near-term; limited tariff pass-through in Q4; uncertainty elevated.
AutomationQ2: Hydradyne closed end-Dec; building momentum . Q1: Stronger orders within Automation; tech sector improvement .Automation orders +30% y/y; Iris bolt-on announced; productized vision/robotics solutions .Strengthening growth engine; expanding platform.
Fluid PowerQ2: ES organic -6.3%; mobile off-highway softness . Q1: ES organic -6.1% .Orders turned slightly positive y/y; sequential +6% orders in mobile/industrial; tech side +10% .Bottoming; early recovery signals.
MRO vs CapexQ2: Seasonal/holiday limited activity; cost control . Q1: Customers slowly reengaging production/capex .MRO resilient (~70% of sales in MRO/aftermarket/break-fix); planned projects deferred; backlog conversion slower .MRO steady; capex phased and slower.
Pricing/InflationQ2: Ongoing inflationary headwinds embedded in guide . Q1: Inflation pressures and deleveraging risks .Price contribution ~100 bps in Q3; similar expected in Q4; suppliers’ increases timed mid-Q4 .Neutral price-cost in Q3; measured price flow in Q4.
Capital AllocationQ2: Dividend raised to $0.46; Hydradyne closed . Q1: Expect greater M&A/buybacks .New 1.5M-share buyback auth; 332k shares/$80M repurchased YTD; leverage 0.4x .Active and balanced (M&A + buybacks).

Management Commentary

  • “EBITDA and EPS exceeded our expectations… gross margins and EBITDA margins expanded nicely… record third quarter cash generation” — Neil Schrimsher, CEO .
  • “Gross margin of 30.5% increased 95 bps… EBITDA margin of 12.4% expanded 59 bps… price-cost trends relatively neutral” — David Wells, CFO .
  • “Iris provides proprietary turnkey productized solutions… utilizing advanced vision and robotics… we believe this acquisition can drive strong growth synergy long-term” — CEO on IRIS .
  • “Our U.S. operations direct exposure to procuring products outside the U.S. is very limited, <2% of total COGS… we do not expect significant exposure to direct tariff cost” — CEO .

Q&A Highlights

  • Tariff-driven pricing and guidance: management layering logical price increases (~100 bps Q3 and similar in Q4) into demand forecasts; minimal direct tariff impact in Q4 given timing .
  • Demand composition: MRO/break-fix highly resilient (~70% of sales), while planned projects and larger capex see deferrals; Engineered Solutions orders positive y/y with longer conversion cycles (120–180 days) .
  • Margin dynamics: SG&A deleverage in Q4 expected from Hydradyne higher SG&A rate and prior-year LIFO liquidation benefit; gross margins expected stable sequentially in Q4 .
  • Capital deployment: active M&A pipeline; new repurchase program; ample capacity at ~0.4x net leverage .
  • Reshoring: ongoing customer discussions and investment trends; potential tailwinds across manufacturing verticals and aftermarket MRO .

Estimates Context

  • Q3 FY2025 performance vs S&P Global consensus: EPS $2.57 vs $2.41 (beat); EBITDA $144.9M vs $142.0M (beat); Revenue $1.17B vs $1.17B (slight miss)* .
  • Q4 FY2025 consensus (for context vs company guidance): EPS $2.63; Revenue ~$1.18B; EBITDA ~$149.5M; company guides EPS $2.52–$2.67, total sales -1% to +3% y/y; margin guidance discrepancy noted between press release (12.3%–12.4%) and call (12.6%–12.8%)* .

Notes: *Values retrieved from S&P Global.

Key Takeaways for Investors

  • Strong margin execution amid soft top-line continues to underpin EPS and FCF resilience; management’s playbook (pricing analytics, mix, cost control) is working .
  • Near-term outlook prudently cautious due to tariff/macro uncertainty; expect mid-to-low single-digit organic ADS decline in Q4 and limited tariff pass-through given timing .
  • Medium-term setup improving: automation orders +30%, ES book-to-bill >1, fluid power orders stabilizing; backlog conversion and Hydradyne synergies support FY2026 acceleration .
  • Capital allocation remains a catalyst: new 1.5M-share buyback authorization, ongoing bolt-ons (IRIS), and dividend continuity; leverage at ~0.4x offers dry powder .
  • Watch guidance/margin disclosure consistency: press vs call margin ranges for Q4 diverge; monitor updated IR materials for alignment and potential revision .
  • Estimate revisions likely to drift toward higher EPS/EBITDA on margin strength, but revenue forecasts may stay conservative until macro/tariff clarity improves*.
  • Trading lens: bias to buy on dips if narrative remains margin-led with automation/ES momentum; near-term volatility possible around tariff headlines and Q4 seasonality .

Citations:
Press release/8-K Q3 FY2025: .
Q3 FY2025 earnings call transcript: .
Q2 FY2025 8-K: .
Q1 FY2025 8-K: .

Notes: *Values retrieved from S&P Global.