Financial Performance - Net sales for Q2 2026 reached $1.2 billion, an increase of 8.4% year-over-year, with organic sales growth of 2.2%[3] - Net income for the quarter was $95.3 million, or $2.51 per diluted share, reflecting a 4.6% increase compared to the prior year[5] - EBITDA for the quarter was reported at $140.4 million, a 3.9% increase year-over-year[5] - Net income for the six months ended December 31, 2025, was $196,156, compared to $185,353 for the same period in 2024, representing a growth of 4.3%[21] - EBITDA for the six months ended December 31, 2025, was $286,697, an increase from $264,095 in 2024, reflecting a growth of 8.6%[23] Cash Flow and Investments - Operating cash flow for the quarter was $99.7 million, with free cash flow of $93.4 million[5] - Free Cash Flow for the six months ended December 31, 2025, was $205,398, slightly down from $212,138 in 2024, indicating a decrease of 3.9%[24] - Net Cash provided by Operating Activities for the six months ended December 31, 2025, was $218,976, compared to $222,884 in 2024, a decrease of 1.8%[21] - Net Cash used in Investing Activities for the six months ended December 31, 2025, was $(15,361), significantly lower than $(282,966) in 2024, indicating a reduction in cash outflow[21] - Cash and Cash Equivalents at the end of the period increased to $405,986 from $303,441 in the previous year, marking a growth of 33.8%[21] Capital Management - The company announced an 11% increase in its quarterly dividend to $0.51 per share, marking the 17th dividend increase since 2010[9] - The company remains focused on capital deployment, including ongoing share repurchases and strategic acquisitions[4] - Capital expenditures for the six months ended December 31, 2025, totaled $13,578, up from $10,746 in 2024, representing an increase of 26.5%[21] - Long-term debt repayments were not specified for the current period but were $(25,106) in the previous year, indicating a potential reduction in debt obligations[21] Economic Outlook - Updated fiscal 2026 EPS guidance is now set at $10.45 to $10.75, with sales growth projected between 5.5% to 7.0%[5] - The company anticipates LIFO expense in the range of $24 million to $26 million, reflecting ongoing macroeconomic uncertainties[6] - The company is experiencing positive sales trends in January, with organic sales trending up by a mid single-digit percent year-over-year[4] Working Capital Management - The company reported a decrease in changes in operating assets and liabilities, net of acquisitions, from $1,451 in 2024 to $(26,230) in 2025, indicating a significant shift in working capital management[21] - The effect of exchange rate changes on cash resulted in an increase of $1,008, contrasting with a decrease of $(5,985) in the previous year, showing improved currency impact[21] Acquisitions - The acquisition of Thompson Industrial Supply Inc. is expected to generate annual sales of approximately $20 million in the first year[7]

Core Viewpoint - Applied Industrial Technologies (AIT) reported quarterly earnings of $2.51 per share, exceeding the Zacks Consensus Estimate of $2.48 per share, and showing an increase from $2.39 per share a year ago, indicating a positive earnings surprise of +1.41% [1] Financial Performance - The company achieved revenues of $1.16 billion for the quarter ended December 2025, which was below the Zacks Consensus Estimate by 0.78%, but an increase from $1.07 billion year-over-year [2] - Over the last four quarters, AIT has surpassed consensus EPS estimates four times and topped consensus revenue estimates three times [2] Stock Performance - AIT shares have increased approximately 9.7% since the beginning of the year, significantly outperforming the S&P 500's gain of 1.5% [3] - The stock currently holds a Zacks Rank 2 (Buy), indicating expectations for it to outperform the market in the near future [6] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $2.69, with projected revenues of $1.22 billion, and for the current fiscal year, the EPS estimate is $10.59 on revenues of $4.84 billion [7] - The trend of estimate revisions for AIT was favorable prior to the earnings release, suggesting potential positive movements in stock performance [6] Industry Context - The Manufacturing - General Industrial industry, to which AIT belongs, is currently ranked in the top 39% of over 250 Zacks industries, indicating a favorable outlook compared to lower-ranked industries [8]

Core Viewpoint - Applied Industrial Technologies reported a strong second quarter for fiscal 2026, with net sales of $1.2 billion, reflecting an 8.4% increase year-over-year, driven by acquisitions and organic growth in key segments [2][3]. Financial Performance - Net sales for the quarter reached $1.2 billion, an increase of 8.4% compared to the previous year, with a 6.0% contribution from acquisitions and a 0.2% positive impact from foreign currency translation [2]. - Organic sales growth was 2.2%, with a 2.9% increase in the Service Center segment and a 0.5% increase in the Engineered Solutions segment [2]. - The company reported net income of $95.3 million, or $2.51 per share, and EBITDA of $140.4 million [2][3]. Management Commentary - The CEO highlighted effective management through a mixed end-market backdrop and expressed optimism for stronger growth in the second half of the fiscal year, with early signs of sales momentum [3]. - The company is focusing on internal initiatives and channel execution to drive gross and EBITDA margin performance, despite challenges from LIFO expenses and prior-year comparisons [3]. Fiscal 2026 Guidance - The company adjusted its fiscal 2026 EPS guidance to a range of $10.45 to $10.75, reflecting a more optimistic outlook for sales growth of 5.5% to 7.0% [4]. - Updated guidance includes an organic sales growth expectation of 2.5% to 4.0% and an EBITDA margin of 12.2% to 12.4% [4]. Acquisition Activity - Applied Industrial Technologies announced the acquisition of Thompson Industrial Supply Inc., expected to generate annual sales of approximately $20 million in the first year [5][6]. - This acquisition is aimed at enhancing the company's service center capabilities and expanding its footprint in the industrial market [6]. Dividend Announcement - The Board of Directors approved an 11% increase in the quarterly cash dividend to $0.51 per common share, marking the 17th dividend increase since 2010 [7].

Core Viewpoint - Applied Industrial Technologies will release its fiscal 2026 second quarter results on January 27, 2026, before market opens [1] Group 1: Financial Results Announcement - The fiscal 2026 second quarter ended on December 31, 2025 [1] - A conference call will be held at 10 a.m. ET on the same day to discuss the results and outlook [2] - The call will be accessible via a live audio webcast and supplemental presentation on the Investor Relations site [2] Group 2: Company Overview - Applied Industrial Technologies is a leading value-added distributor and technical solutions provider [3] - The company specializes in industrial motion, fluid power, flow control, automation technologies, and related maintenance supplies [3] - It serves MRO, OEM, and new system install applications across various industrial markets [3]

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Core Insights - Applied Industrial Technologies (AIT) reported first-quarter fiscal 2026 earnings of $2.63 per share, exceeding the Zacks Consensus Estimate of $2.47, with a year-over-year increase of 11.4% [1] - Net revenues reached $1.20 billion, surpassing the consensus estimate of $1.18 billion, reflecting a 9.2% year-over-year growth, driven by acquisitions contributing 6.3% and organic sales increasing by 3% [1][8] Segmental Performance - The Service Center-Based Distribution segment generated revenues of $782.5 million, accounting for 65.3% of net revenues, with a year-over-year increase of 4.4%, surpassing the estimate of $767.9 million [2] - The Engineered Solutions segment reported revenues of $417.0 million, contributing 34.7% to net revenues, with a significant year-over-year increase of 19.4%, aided by acquisitions which boosted sales by 19.8, despite a slight organic sales decline of 0.4% [3] Financial Metrics - AIT's cost of sales rose by 8.3% year over year to $838.1 million, while gross profit increased by 11.2% to $361.4 million, resulting in a gross margin improvement to 30.1% from 29.6% [4] - EBITDA for the quarter was $146.3 million, reflecting a 13.4% increase [4] Balance Sheet and Cash Flow - As of the end of the first three months of fiscal 2026, AIT had cash and cash equivalents of $418.7 million, up from $388.4 million at the end of fiscal 2025, with long-term debt remaining stable at $572.3 million [5] - The company generated net cash of $119.3 million from operating activities, a decrease of 6.6% year over year, while capital expenditures increased by 31.6% to $7.3 million [6] Dividend Information - AIT's board approved a quarterly cash dividend of 46 cents per share, payable on November 28, 2025, to shareholders of record as of November 14 [7] Guidance - For fiscal 2026, AIT anticipates adjusted earnings in the range of $10.10-$10.85 per share, an increase from the previous forecast of $10.00-$10.75, with expected sales growth of 4-7% year over year [9]

Core Insights - Applied Industrial Technologies (AIT) reported revenue of $1.2 billion for the quarter ended September 2025, reflecting a year-over-year increase of 9.2% [1] - Earnings per share (EPS) for the quarter was $2.63, up from $2.36 in the same quarter last year, surpassing the consensus estimate of $2.47 by 6.48% [1] - The revenue exceeded the Zacks Consensus Estimate of $1.18 billion, resulting in a surprise of 1.8% [1] Financial Performance Metrics - Net Sales for Engineered Solutions reached $417.05 million, exceeding the average estimate of $414.33 million by analysts, marking a year-over-year increase of 19.4% [4] - Net Sales for Service Center Based Distribution amounted to $782.47 million, surpassing the estimated $763.97 million, with a year-over-year change of 4.4% [4] - Operating income for Engineered Solutions was reported at $45.86 million, below the average estimate of $52.19 million [4] - Operating income for Service Center Based Distribution was $104.05 million, exceeding the estimated $98.27 million [4] Stock Performance - Shares of Applied Industrial Technologies have returned +0.6% over the past month, compared to a +3.6% change in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance relative to the broader market in the near term [3]

Financial Performance - Consolidated sales for the quarter ended September 30, 2025 increased by $100.6 million or 9.2% compared to the prior year quarter, with acquisitions contributing $69.7 million or 6.3%[77] - Net income for the quarter was $100.8 million, reflecting a 9.5% increase compared to the prior year quarter, with diluted net income per share rising to $2.63, an increase of 11.4%[94] - The gross profit margin improved to 30.1% for the quarter ended September 30, 2025, up from 29.6% in the prior year quarter, positively impacted by recent acquisitions[88] - Operating income increased by $15.9 million or 14.0%, reaching $129.0 million, with operating margin rising to 10.8% from 10.3%[90] - Sales in the U.S. operations increased by $99.3 million or 10.4%, with acquisitions adding $69.7 million or 7.3%[87] Cash Flow and Investments - Net cash provided by operating activities decreased to $119.3 million in Q3 2025 from $127.7 million in Q3 2024, primarily due to a reduction in cash flows generated from working capital by $17.2 million[99] - Net cash used in investing activities decreased to $9.5 million in Q3 2025, with $2.3 million allocated for acquisitions compared to $10.5 million in the prior year[100] - Net cash used in financing activities increased to $78.6 million in Q3 2025, primarily due to $53.2 million used to repurchase 204,136 shares of common stock, up from $10.0 million for 52,000 shares in Q3 2024[101] Debt and Financial Ratios - Total debt obligations remained stable at $572.3 million as of September 30, 2025, consistent with the previous quarter[96] - The company had total debt of $572.3 million as of September 30, 2025, with a revolving credit facility of $384.0 million and a trade receivable securitization facility of $188.3 million[104] - The interest rate on the revolving credit facility was 5.06% as of September 30, 2025, down from 5.23% in the previous quarter[105] - The effective income tax rate for the quarter was 21.6%, up from 20.7% in the prior year, with expectations for the full year tax rate for fiscal 2026 to be in the 23.0% to 24.0% range[93] - The current ratio improved to 3.5 to 1 at September 30, 2025, compared to 3.3 to 1 at June 30, 2025[97] Operational Metrics - The number of employees was 6,794 at September 30, 2025, a slight decrease from 6,837 at June 30, 2025[80] - Accounts receivable, net, decreased to $753.4 million as of September 30, 2025, from $769.7 million at June 30, 2025, with an allowance for doubtful accounts at 1.8% of gross receivables[111] - Days Sales Outstanding (DSO) was 56.5 days as of September 30, 2025, slightly down from 56.6 days at June 30, 2025[112] - The annualized inventory turnover ratio based on average costs was 4.3 for the period ended September 30, 2025, compared to 4.4 for the period ended June 30, 2025[113] - The company was in compliance with all financial covenants at September 30, 2025, with net indebtedness less than 0.4 times consolidated income before interest, taxes, depreciation, and amortization[110] Acquisitions and Internal Controls - The company completed the acquisition of Hydradyne, LLC on December 31, 2024, and is extending oversight processes to include Hydradyne's operations[120] - No changes in internal control over financial reporting during the three months ended September 30, 2025, that materially affected the Company's internal control[122] - The Company does not expect any pending legal proceedings to have a material adverse effect on its consolidated financial position, results of operations, or cash flows[123] - The Company's management, including the CEO and CFO, concluded that the disclosure controls and procedures are effective as of the end of the reporting period[121]

Financial Data and Key Metrics Changes - The company reported a 9.2% increase in consolidated sales year-over-year, with acquisitions contributing 6.3 percentage points to this growth [17] - EBITDA increased by 13.4% year-over-year, resulting in EBITDA margins of 12.2%, which expanded by 46 basis points from the previous year [21] - Earnings per share (EPS) rose by 11.4% to $2.63, benefiting from a reduced share count due to buyback activity [21] Business Line Data and Key Metrics Changes - The service center segment saw organic sales growth of 4.4%, driven by internal initiatives and firming technical MRO demand [22] - The engineered solutions segment experienced a 19.4% increase in sales, primarily due to acquisitions, but organic sales decreased by 0.4% year-over-year [23] - Hydradyne's EBITDA contribution improved by over 20% sequentially, indicating strong progress in integration and synergy initiatives [14] Market Data and Key Metrics Changes - Year-over-year organic sales growth was reported at 3%, the strongest in two years, with 16 out of the top 30 markets generating positive sales growth [6][17] - Strongest growth was observed in machinery, food and beverage, refining, pulp and paper, metals, oil and gas, and aggregates, while declines were noted in lumber and wood, transportation, chemicals, mining, and utilities [6] Company Strategy and Development Direction - The company remains focused on M&A as a top capital allocation priority for fiscal 2026, with an active pipeline of mid-sized targets [15] - Continued investments in engineering systems and production capacity are expected to leverage demand tailwinds moving forward [11] - The company aims to capitalize on trends in automation, life sciences, and technology, positioning itself to link legacy industrial production with advanced applications [32] Management's Comments on Operating Environment and Future Outlook - Management described the underlying demand backdrop as stable to slightly positive, with expectations for continued improvement in core markets [6][30] - The company anticipates a choppy near-term sales environment due to seasonal factors and trade policy uncertainty, but remains optimistic about the second half of fiscal 2026 [30][28] - Positive order momentum and customer sentiment are gradually improving, with expectations for increased capital investment decisions [31] Other Important Information - The company achieved 17% incremental margins on EBITDA, despite ongoing inflationary pressures [13] - Cash generated from operating activities was $119.3 million, with free cash flow totaling $112 million, representing a conversion of 111% relative to net income [25] - The balance sheet remains strong, with approximately $419 million in cash and net leverage at 0.3x EBITDA [26] Q&A Session Summary Question: Holiday shutdowns and customer activity - Management indicated it is still early to assess customer plans for holiday shutdowns, but some customers are expected to remain active [36] Question: Supplier pricing behavior - Management noted no significant changes in supplier behavior, with price increases being orderly and manageable [39][40] Question: Engineered solutions performance - Management expects engineered solutions to potentially outperform service centers in the second half of fiscal 2026 due to order backlog conversions [44] Question: Order growth dynamics - Management explained that project complexity and scheduling variances affect order conversion times, but remains optimistic about the pipeline [52] Question: Pricing expectations - Management stated that pricing contributions were better than expected, but it is too early to predict further increases beyond the current guidance [55] Question: Capital allocation priorities - Management confirmed that organic growth opportunities and M&A remain top priorities, with ongoing strong cash generation [63] Question: Margin guidance and dynamics - Management highlighted that LIFO expenses and non-routine rebates from the previous year would impact sequential EBITDA margins [68] Question: Hydradyne synergies - Management confirmed that Hydradyne's integration and synergy initiatives are on track, with positive contributions expected [72]

Financial Data and Key Metrics Changes - The company reported a 9.2% increase in consolidated sales year-over-year, with acquisitions contributing 6.3 percentage points to growth, while organic sales growth was 3% [17] - EBITDA increased by 13.4% year-over-year, with EBITDA margins expanding to 12.2%, up 46 basis points from the previous year [21] - Earnings per share (EPS) rose 11.4% to $2.63, benefiting from a reduced share count due to buyback activity [21] Business Line Data and Key Metrics Changes - The service center segment saw organic sales growth of 4.4%, driven by internal initiatives and firming technical MRO demand [22] - The engineered solutions segment experienced a 19.4% increase in sales, primarily due to acquisitions, but organic sales decreased by 0.4% year-over-year [23] - Hydradyne's EBITDA contribution improved by over 20% sequentially, indicating strong progress in integration and synergy initiatives [14] Market Data and Key Metrics Changes - Year-over-year organic sales growth was reported at 3%, the strongest in two years, with 16 out of the top 30 markets showing positive sales growth [6] - Strongest growth was observed in machinery, food and beverage, refining, pulp and paper, metals, oil and gas, and aggregates, while declines were noted in lumber and wood, transportation, chemicals, mining, and utilities [6][7] - The company noted a stable to slightly positive underlying demand backdrop, with positive order momentum across various segments [10][30] Company Strategy and Development Direction - The company aims to leverage ongoing operational initiatives and structural mix tailwinds to achieve mid to high teen incremental annual margin targets [13] - M&A remains a top capital allocation priority, with an active pipeline of mid-sized targets across both segments [15] - The company is focused on enhancing its technical differentiation and value-added service capabilities through strategic acquisitions [15] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the first quarter performance, highlighting stronger top-line trends and sustained positive order momentum [30] - The company anticipates that industrial activity will remain mixed in the near term, with expectations for order conversion to be more weighted toward the second half of fiscal 2026 [27][28] - Management noted that customer sentiment is gradually improving, with favorable demand signals across traditional and emerging markets [31] Other Important Information - The company ended the quarter with approximately $419 million in cash and a net leverage ratio of 0.3 times EBITDA, indicating a solid balance sheet position [25] - Free cash flow totaled $112 million, representing a conversion rate of 111% relative to net income [25] Q&A Session Summary Question: Insights on holiday shutdowns from customers - Management indicated it is still early to assess customer plans for holiday shutdowns, but some customers are expected to remain active [36] Question: Supplier pricing behavior - Management noted no significant changes in supplier behavior, with price increases being orderly and manageable [39][40] Question: Engineered solutions performance expectations - Management expects engineered solutions to potentially outperform service centers in the second half of fiscal 2026 due to order backlog conversions [44] Question: Order growth dynamics - Management explained that order growth is encouraging, but project conversion times vary based on complexity and scheduling [52] Question: Pricing expectations for the year - Management maintained a cautious outlook on pricing, indicating it may not ramp beyond the current 200 basis points without clearer market activity [55] Question: Capital allocation priorities - Management confirmed that organic growth opportunities and M&A remain top priorities, with a disciplined approach to acquisitions [63]