Applied Industrial Q2 Earnings Surpass Estimates, Revenues Miss

Core Insights - Applied Industrial Technologies, Inc. (AIT) reported Q2 fiscal 2026 earnings of $2.51 per share, exceeding the Zacks Consensus Estimate of $2.48, marking a 4.6% year-over-year increase [1][9] - Net revenues reached $1.16 billion, slightly missing the consensus estimate of $1.17 billion, but reflecting an 8.4% year-over-year growth [2][9] Revenue Breakdown - The Service Center-Based Distribution segment generated revenues of $747.3 million, accounting for 64.3% of total revenues, with a year-over-year increase of 3.2% [3] - The Engineered Solutions segment, contributing 35.7% to net revenues, reported revenues of $415.7 million, up 19.1% year-over-year, driven by acquisitions and pricing gains [4] Margin and Cost Analysis - AIT's cost of sales increased by 8.7% year-over-year to $809.7 million, while gross profit rose 7.7% to $353.3 million, resulting in a slight decrease in gross margin to 30.4% [5] - Selling, distribution, and administrative expenses increased by 11.1% year-over-year to $230.1 million, with EBITDA rising 3.9% to $140.4 million [5] Balance Sheet and Cash Flow - As of the first six months of fiscal 2026, AIT had cash and cash equivalents of $406 million, up from $388.4 million at the end of fiscal 2025, with long-term debt remaining stable at $572.3 million [6] - The company generated net cash of $219 million from operating activities, a decrease of 1.7% year-over-year, while capital expenditures rose 27.1% to $13.6 million [7] Dividend and Shareholder Returns - AIT announced an 11% increase in its quarterly dividend to 51 cents per share, marking the 17th dividend hike since 2010 [8][9] Future Guidance - For fiscal 2026, AIT anticipates adjusted earnings in the range of $10.45-$10.75 per share and expects sales growth of 5.5-7%, with an organic growth forecast of 2.5-4% [10]