Applied Industrial Technologies Reports Fiscal 2018 Second Quarter Results

|GlobeNewswire|About: AIT
  • Net Sales of $667.2 Million Up 9.7%
  • Net Income of $31.0 Million Up 28.5%; EPS of $0.79 Up 29.5%
  • Raises Full-year Guidance
  • Increases Quarterly Dividend to $0.30 Per Share

CLEVELAND, Jan. 25, 2018 (GLOBE NEWSWIRE) -- Applied Industrial Technologies (AIT) today reported second quarter fiscal 2018 sales and earnings for the three months ended December 31, 2017.

Net sales for the quarter grew 9.7% to $667.2 million from $608.1 million in the same quarter a year ago. The overall sales increase for the quarter reflects a 0.9% increase from acquisition-related volume and favorable foreign currency translation of 0.8%. Organic growth, excluding these factors, was 8.0% in the quarter. Net income for the quarter increased 28.5% to $31.0 million from $24.1 million, and earnings per share rose 29.5% to $0.79 per share, compared with $0.61 per share in the prior year quarter. Year-over-year EPS growth included a $0.02 per share net tax benefit primarily attributed to the combined impact of deferred tax remeasurement, transition tax, and tax rate reduction resulting from the recently enacted U.S. federal tax reform. 

For the six months ended December 31, 2017, sales were $1.35 billion, an increase of 9.3% compared with $1.23 billion in the same period last year. Net income increased to $64.7 million from $51.5 million, and earnings per share increased 26.1% to $1.65 per share from $1.31 per share, last year.

Commenting on the results, Applied’s President & Chief Executive Officer Neil A. Schrimsher said, “We are off to an exciting start to the calendar year and our fiscal year second-half, celebrating 95 years of leadership in industrial distribution and further strengthening our position with the definitive agreement to acquire specialty flow control provider FCX Performance, Inc. Our solid second quarter results reflect broad-based execution across our business groups and a productive economic market environment.”

Outlook

“In light of recent performance, U.S. tax reform and continued favorable industrial markets, we are raising our full-year earnings per share guidance to a range between $3.40 and $3.50 per share, on sales which are anticipated to be 6% to 7% higher year-over-year. Revised guidance includes approximately $0.11 EPS benefit from U.S. tax reform.”

The Company also announced that the U.S. Federal Trade Commission has granted early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act with respect to the pending acquisition of FCX Performance, Inc. The proposed acquisition, announced on January 9, 2018, is expected to close on January 31, 2018.  Mr. Schrimsher added, “We will provide further guidance to include the partial year impact of results from the acquisition of FCX in conjunction with announcing the close of the transaction.”

Dividend

The Company’s Board of Directors declared a quarterly cash dividend of $0.30 per common share, an increase of $0.01 per common share over the prior quarter. The dividend is payable on February 28, 2018, to shareholders of record on February 15, 2018.

Mr. Schrimsher concluded, “We continue to strengthen our differentiated industrial distribution capabilities, including our critical core products offering, expanding value-added services, leadership in engineered fluid power solutions, growing geographic reach, and channels to market. Applied is well-positioned as the technical MRO distribution leader, and we are committed to generating profitable growth and enhancing value for all our stakeholders.”

Share Repurchases

During the quarter, the Company purchased 145,800 shares of its common stock in open market transactions at an average share price of $61.84 for a total of $9.0 million. Fiscal year to date, the Company has purchased 393,300 shares for a total of $22.8 million. At December 31, 2017, the Company had remaining authorization to purchase 1,056,700 additional shares.

Conference Call Information

Applied will host its quarterly conference call for investors and analysts at 10 a.m. ET on January 25. Neil A. Schrimsher – President & CEO, and David K. Wells – CFO will discuss the Company's performance. To join the call, dial 877-311-4351 (toll free) or 614-999-9139 (International) using conference ID 6863328. A live audio webcast can be accessed online through the investor relations portion of the Company's website at www.applied.com. 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 6863328.

About Applied

Founded in 1923, Applied Industrial Technologies is a leading distributor of bearings, power transmission products, fluid power components, 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 and fluid power shop services. Applied also offers storeroom services and inventory management solutions that provide added value to its customers. For more information, visit www.applied.com.

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 “guidance,” “anticipate,” “expect,” “will” and derivative or similar expressions. All forward-looking statements are based on current expectations regarding important risk factors, including the ability of Applied (AMAT) and FCX Performance, Inc. to close the pending transaction, 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. 

CONTACT INFORMATION

INVESTOR RELATIONS
David K. Wells
Vice President – Chief Financial Officer & Treasurer
216-426-4755

CORPORATE & MEDIA RELATIONS
Julie A. Kho
Manager, Public Relations
216-426-4483


         
  APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(In thousands, except per share data)
       
   Three Months Ended
December 31,
Six Months Ended
December 31,
    2017     2016     2017     2016  
Net Sales $   667,187   $   608,123   $   1,347,888   $   1,232,971  
Cost of sales     478,827       435,667       967,104       882,185  
Gross Profit     188,360       172,456       380,784       350,786  
Selling, distribution and administrative,        
  including depreciation     141,645       134,600       282,232       269,511  
Operating Income     46,715       37,856       98,552       81,275  
Interest expense, net     2,139       2,100       4,305       4,246  
Other income, net     (20 )     (11 )     (731 )     (208 )
Income Loss Before Income Taxes     44,596       35,767       94,978       77,237  
Income Tax Expense     13,646       11,682       30,307       25,781  
Net Income  $   30,950   $   24,085   $   64,671   $   51,456  
Net Income Per Share - Basic $   0.80   $   0.62   $   1.67   $   1.32  
Net Income Per Share - Diluted $   0.79   $   0.61   $   1.65   $   1.31  
Average Shares Outstanding - Basic     38,717       38,985       38,824       39,015  
Average Shares Outstanding - Diluted     39,206       39,371       39,270       39,352  
       
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) During the first quarter of fiscal 2018, we early adopted Accounting Standards Update No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. As a result of this adoption, the condensed statement of consolidated income for the three months and six months ended December 31, 2016 has been restated resulting in a decrease in selling, distribution and administrative expenses and increasing other income, net of $0.2 million and $0.4 million respectively; resulting in an increase to operating income for the same amount.

(3) On December 22, 2017, the Tax Cuts and Jobs Act was enacted in the U.S., making significant changes to U.S. tax law. In the quarter ended December 31, 2017, the Company revised its estimated annual effective tax rate to reflect the change in the federal statutory rate to a blended statutory rate for the annual period of 28.1%. We recognized a provisional amount for the one-time transition tax of $3.9 million, which is included as a component of income tax expense in the condensed statements of consolidated income for the three months and six months ending December 31, 2017. We also remeasured certain deferred assets and liabilities based on the rates at which they are expected to reverse in the current fiscal year and the future. The provisional amount recorded related to the remeasurement of our deferred tax balance was not material to the Company's condensed consolidated financial statements.

(4) On January 9, 2018, the Company announced it has reached a definitive agreement to acquire FCX Performance, Inc., a distributor of specialty process flow control products and services based in Columbus, Ohio, for approximately $768 million. The deal is expected to close on January 31, 2018. The transaction will be financed with a new credit facility comprised of a $780,000 Term Loan A and $250,000 revolver, effective with the transaction closing.
 


 

               
               
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(Amounts in thousands)  
               
               
               
        December 31,
2017
  June 30,
2017
 
           
               
Assets    
  Cash and cash equivalents   $   85,324   $   105,057  
  Accounts receivable, less allowances of $9,650 and $9,628     393,706       390,931  
  Inventories       386,943       345,145  
  Other current assets         37,538       41,409  
  Total current assets       903,511       882,542  
  Property, net       111,962       108,068  
  Goodwill        209,001       206,135  
  Intangibles, net       153,432       163,562  
  Deferred tax assets       9,543       8,985  
  Other assets         18,433       18,303  
Total Assets     $    1,405,882   $    1,387,595  
         
Liabilities          
  Accounts payable   $   165,634   $   180,614  
  Current portion of long-term debt       6,378       4,814  
  Other accrued liabilities       99,615       124,325  
  Total current liabilities       271,627       309,753  
  Long-term debt         306,579       286,769  
  Other liabilities         48,414       45,817  
Total Liabilities         626,620       642,339  
Shareholders' Equity       779,262       745,256  
Total Liabilities and Shareholders' Equity $    1,405,882   $    1,387,595  
           

 

           
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES  
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS  
 (In thousands)  
           
 
  Six Months Ended
  December 31,
 
   
      2017       2016    
 
Cash Flows from Operating Activities  
Net income   $   64,671     $   51,456    
Adjustments to reconcile net income to net cash provided  
  by operating activities:  
  Depreciation and amortization of property       8,008         7,487    
  Amortization of intangibles       11,526         12,331    
  Amortization of stock appreciation rights and options       1,013         1,180    
  Gain on sale of property       (333 )       (1,581 )  
  Other share-based compensation expense       1,577         1,278    
  Changes in assets and liabilities, net of acquisitions       (65,007 )       (27,252 )  
  Other, net       (271 )       759    
Net Cash provided by Operating Activities       21,184         45,658    
Cash Flows from Investing Activities                  
  Property purchases       (11,460 )       (6,710 )  
  Proceeds from property sales       596         2,648    
  Acquisition of businesses, net of cash acquired       (5,014 )       -     
Net Cash used in Investing Activities     (15,878 )     (4,062 )  
Cash Flows from Financing Activities                  
  Net borrowings under revolving credit facility     23,000       1,000    
  Long-term debt repayments     (1,679 )     (1,695 )  
  Purchases of treasury shares     (22,778 )     (5,478 )  
  Dividends paid     (22,571 )     (21,893 )  
  Acquisition holdback payments       (319 )       (7,069 )  
  Taxes paid for shares withheld for equity awards       (1,298 )       (2,081 )  
  Exercise of stock appreciation rights and options           195    
Net Cash used in Financing Activities     (25,645 )     (37,021 )  
Effect of Exchange Rate Changes on Cash     606       (1,579 )  
Increase (decrease) in cash and cash equivalents       (19,733 )       2,996    
Cash and cash equivalents at beginning of period       105,057         59,861    
Cash and Cash Equivalents at End of Period   $    85,324     $    62,857    
                   


 

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Source: Applied Industrial Technologies, Inc. 2018 GlobeNewswire, Inc.