Executive Summary

Solid finish to FY25: Q4 revenue $1.22B (+5.5% YoY), EPS $2.80 (+5.9% YoY), gross margin 30.6% (+15 bps seq), and EBITDA $153.0M; organic daily growth turned positive (+0.2%) as Engineered Solutions (ES) inflected to growth (+1.8%) while Service Center (SC) held (-0.4%) .
Clear beat vs consensus: Q4 revenue $1.2247B vs $1.1832B* and EPS $2.80 vs $2.625*; beats driven by stronger ES execution, improving tech/automation demand, and M&A contribution (Hydradyne) .
FY26 guide introduced: EPS $10.00–$10.75, total sales +4%–+7% (organic +1%–+4%), EBITDA margin 12.2%–12.5%; Q1 FY26 organic daily sales guided low single-digit growth, EBITDA margin 11.9%–12.1% .
Key swing factors: Tariff and rate uncertainty, AR provision normalization, pricing tailwinds (150–200 bps FY26), and faster-than-planned Hydradyne synergies and cross-sell; ES order momentum (HSD YoY) and expanding tech/data center/semiconductor pipelines underpin narrative into FY26 .

What Went Well and What Went Wrong

What Went Well
- ES inflection: ES organic daily sales grew +1.8% YoY; orders up high-single digits YoY; growth in technology (data centers/semiconductor) and mid-single-digit automation growth .
- Margin resilience and cash: Gross margin 30.6% (inline; +15 bps seq); FCF $138.2M in Q4 (128% of NI), FY25 FCF $465.2M (118% of NI) enabling buybacks/dividend and M&A .
- Hydradyne ahead of plan: ~$7M EBITDA in Q4; synergies tracking ahead; sequential EBITDA +30% vs +12% sales; expanding repair/cross-sell in Southeast and tech verticals .
What Went Wrong
- SC softness and AR provisioning: SC organic -0.4% YoY; segment EBITDA margin 13.6% (-100 bps YoY) with ~50 bps drag from elevated AR provisioning; company-level AR provision +$4M YoY .
- LIFO headwind and tough comp: Q4 LIFO expense $2.9M vs $0.3M prior-year; prior-year quarter benefited from LIFO layer liquidation, pressuring YoY gross margin/EBITDA comparison .
- International/Canada softness and OEM mobile fluid power headwinds persisted (though easing), limiting broader MRO uplift; macro/tariff visibility still constrained .

Financial Results

Metric	Q4 2024	Q3 2025	Q4 2025
Net Sales ($USD)	$1,160,675,000	$1,166,749,000	$1,224,730,000
Diluted EPS ($)	$2.64	$2.57	$2.80
Gross Margin (%)	30.7% (implied prior-year level per mgmt)	—	30.6%
EBITDA ($USD)	$153,450,000	$144,936,000	$153,028,000
EBITDA Margin (%)	~13.2% prior-year; Q4’25 down 73 bps YoY	—	12.5%

Notes: Management indicated Q4 gross margin down 9 bps YoY (30.6% vs 30.7% prior) and EBITDA margin 12.5% (-73 bps YoY), with sequential gross margin +15 bps .

Actual vs Consensus (Q4 2025)

Metric	Actual	Consensus	Surprise
Revenue ($USD)	$1,224,730,000	$1,183,211,520*	+$41.5M / +3.5%
EPS ($)	$2.80	$2.625*	+$0.175 / +6.7%

Values with asterisks retrieved from S&P Global.

Segment Performance (Q4 2025)

Segment	Organic Daily Sales YoY	Segment EBITDA Margin
Service Center	-0.4%	13.6%
Engineered Solutions	+1.8%	14.8%

Cash Flow KPIs

KPI	Q2 2025	Q3 2025	Q4 2025
Cash from Operations ($USD)	$95,137,000	$122,453,000	$147,048,000
Capital Expenditures ($USD)	$5,197,000	$7,549,000	$8,892,000
Free Cash Flow ($USD)	$89,940,000	$114,904,000	$138,156,000

Non-GAAP/adjustments:

EBITDA as defined in filings; Q4 LIFO expense $2.9M (≈$0.06/sh after tax) vs $0.3M prior-year .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
EPS	FY2026	—	$10.00–$10.75	Introduced
Total Sales Growth	FY2026	—	+4% to +7%	Introduced
Organic Sales Growth	FY2026	—	+1% to +4%	Introduced
EBITDA Margin	FY2026	—	12.2%–12.5%	Introduced
Pricing Contribution	FY2026	—	+150–200 bps YoY	Introduced
LIFO Expense	FY2026	—	$14–$18M	Introduced
Inorganic Growth Contribution	FY2026	—	~300 bps FY; ~600 bps 1H (Hydradyne timing)	Introduced
Organic Daily Sales	Q1 FY2026	—	Low single-digit % YoY increase	Introduced
EBITDA Margin	Q1 FY2026	—	11.9%–12.1%	Introduced
Capex	FY2026	—	$30–$35M	Introduced
Free Cash Flow	FY2026	—	Strong; potentially lower YoY on higher working capital	Introduced

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2 & Q3 FY25)	Current Period (Q4 FY25)	Trend
Tariffs/macro	Raised FY25 guide but noted tariff/inflation uncertainty; January ADS down mid-single digits organically; cautious macro/gradual rate cuts (Q2) . Q3 flagged tariff actions, economic uncertainty and assumed continued organic declines into Q4 .	Prudent FY26 outlook given tariff/rate uncertainty; price increase notifications rising; limited direct import exposure; expect pricing tailwind to build .	Improving visibility but still cautious; pricing tailwind building.
ES trajectory	ES org daily -6.3% (Q2) ; -6.5% (Q3) .	ES org daily +1.8%; orders HSD YoY; automation mid-single-digit growth; tech vertical strength (data centers/semis) .	Inflecting to growth; strengthening order book.
Pricing	Limited commentary Q2/Q3 PRs.	Q4 pricing >100 bps YoY contribution; FY26 +150–200 bps assumed .	Tailwind increasing into FY26.
Hydradyne M&A	Closed 12/31; initial FY25 contribution; guided benefit to FY25/26 .	~$7M Q4 EBITDA; synergies ahead of plan; sequential EBITDA +30% vs +12% sales; cross-sell/repair ops traction .	Accelerating synergy realization, margin mix improving.
Supply chain	Managing inflation/tariff effects; minimal cross-border sourcing; self-help levers (Q3) .	Supplier price increases rising; company confident in execution; limited direct import exposure .	Manageable with pricing analytics/process.
Regional trends	FX headwinds noted (Q3) .	Canada softer; lessening across quarter .	Stabilizing.
Technology/AI	Tech vertical momentum in PRs; automation platform expansion (Q3) .	Using AI in pricing/sales process; strong exposure to data centers/semis; building electric-powered fluid power pipeline .	Expanding tech footprint and AI enablement.

Management Commentary

“Fourth quarter sales and EPS exceeded our expectations... driven by stronger than expected Engineered Solutions segment sales... Service Center segment sales held steady... delivered another solid quarter of cash generation” — Neil Schrimsher, CEO .
“Gross margin of 30.6% was... in line with our guidance and up 15 bps sequentially... unfavorable 21 bps YoY impact on gross margins due to LIFO comparison; excluding LIFO, gross margins increased YoY” — David Wells, CFO .
“Reported earnings per share of $2.80 was up 5.9%... exceeded the high end of our guidance by nearly 5%” — CFO .
“Hydradyne contributed just over $7 million of EBITDA in Q4... ahead of synergy realization expectations” — CFO .
“Introducing fiscal 2026 EPS guidance of $10.00 to $10.75... total sales up 4% to 7%... EBITDA margins of 12.2% to 12.5%” — Company release .

Q&A Highlights

Hydradyne synergy trajectory: Integration costs stable; leverage on SG&A, stronger margin performance; synergy realization ahead of plan; ~$0.03 EPS contribution in Q4; tracking to ≥$0.15 EPS accretion in first 12 months .
Pricing cadence: ~>100 bps in Q4; similar early in Q1 FY26; building to 150–200 bps for FY26 depending on supplier inflation .
AR provisioning: Elevated in Q4 (timing, a few late payers), mainly in U.S. Service Centers; expected to normalize; DSO stable; deferred comp in SC also distorted margins but offset below-the-line .
ES seasonality/quality of growth: No major pull-forward; backlog down slightly sequentially (seasonal), book-to-bill slightly <1 but higher than prior year; pipeline strong across Fluid Power/Flow Control/Automation .
Regional: More softness in Canada tied to tariff-related adjustments; trends improved across the quarter .

Estimates Context

Q4 FY25 beats: Revenue $1.2247B vs $1.1832B*; EPS $2.80 vs $2.625* — both above Wall Street consensus (S&P Global).
Trend vs prior quarter: Q3 FY25 revenue $1.1667B vs estimate $1.1723B* (slight miss); EPS $2.57 vs $2.41* (beat) — sequential reacceleration into Q4 .
Early FY26: Company later reported Q1 FY26 beats (revenue and EPS above consensus), consistent with momentum entering FY26; not a driver of Q4 but supportive of trajectory.
Values with asterisks retrieved from S&P Global.

Key Takeaways for Investors

Quality beat and positive inflection: Q4 outperformance vs consensus with ES turning positive, sequential gross margin improvement, and robust cash generation — supports multiple resilience .
Near-term margin optics contained: Q4 EBITDA margin impacted by AR provisioning and LIFO comp; both are transitory/known, with normalization expected, while underlying margin work remains intact .
FY26 setup balanced but constructive: Prudent guide embeds macro/tariff caution yet assumes tangible pricing tailwinds, accelerating ES mix, and M&A synergies — upside if macro stabilizes and ES orders convert faster .
Hydradyne synergy catalyst: Faster synergy capture and cross-sell into tech/data center and repair services should lift ES margin mix through FY26, reducing current mix drag .
Secular exposure: Data centers, semis, discrete automation, flow control infrastructure, and electrification of fluid power expand AIT’s TAM; AI-enabled pricing/sales processes can incrementally lift margins .
Capital allocation capacity: Record FY25 FCF and low leverage (net leverage ~0.3x) support ongoing M&A, buybacks, and dividend growth, offering downside protection and optionality .
Trading lens: Stock reaction typically keys on ES momentum, pricing cadence, and guidance tone; watch for AR provision normalization, ES order conversion, and any tariff/policy updates as catalysts and risk variables .

Footnote: All consensus estimate figures marked with an asterisk (*) are values retrieved from S&P Global.

APPLIED INDUSTRIAL TECHNOLOGIES INC (AIT)·Q4 2025 Earnings Summary