Applied Industrial Technologies(US:AIT)2022-08-11 19:07Financial Data and Key Metrics Changes - The company achieved record performance in Q4 2022, with EBITDA growing by 27% and EPS increasing by 34% on a 19% sales growth [5][22] - EBITDA margins expanded to new highs above 11% for the second consecutive quarter despite inflationary pressures [5][15] - Consolidated sales increased by 18.5% year-over-year, with organic sales growth of 18.7% [18][22] Business Line Data and Key Metrics Changes - Sales in the Service Center segment increased by 21% organically year-over-year, driven by strong demand in various industries [19][22] - The Fluid Power & Flow Control segment saw a 15% increase in sales year-over-year, with organic growth of 14% [19][22] - The automation business experienced mid-single-digit growth, with a backlog expanding despite supply chain constraints [56] Market Data and Key Metrics Changes - Underlying demand remained strong across key industry verticals, particularly in metals, aggregates, mining, and chemicals [6][11] - U.S. manufacturing capacity utilization is near a 20-year high, leading to increased maintenance and repair activity [10] - The company is capturing growth opportunities from its industry position and service capabilities, with mid-teens year-over-year sales growth sustained into early fiscal 2023 [7][11] Company Strategy and Development Direction - The company is focused on continuous improvement actions, growth investments, and debt reduction to reinforce its balance sheet [5][15] - There is an emphasis on expanding automation and engineered solutions to enhance market position and growth trajectory [27][29] - The company aims to achieve sales over $5 billion and EBITDA margins over 12% within the next five years [29] Management's Comments on Operating Environment and Future Outlook - Management remains constructive about company-specific growth opportunities despite broader economic uncertainties [24][28] - The guidance for fiscal 2023 reflects a balanced approach, anticipating decelerating sales growth trends as the year progresses [24][25] - The company is closely monitoring macroeconomic conditions and is prepared to adapt its strategies accordingly [28] Other Important Information - The company ended fiscal 2022 with a healthy balance sheet, net leverage at 1.2x, and over $1 billion in balance sheet capacity [15][23] - A new share repurchase program for 1.5 million shares was approved to enhance shareholder value [16] Q&A Session Summary Question: Balancing optimistic comments with guidance - Management clarified that the guidance reflects a conservative approach due to tougher comparisons in the upcoming quarters [32][34] Question: Pricing cadence in guidance - Management indicated that price contributions for fiscal 2023 could be similar to fiscal 2022, with expectations of higher contributions in the first half [37][38] Question: EBITDA margin outlook - Management views the 12% EBITDA margin target as a cross-cycle number, with growth expected from acquisitions and gross margin expansion [40][41] Question: Corporate expenses for the year - Management confirmed that corporate expenses are expected to be near $100 million, consistent with historical levels [44] Question: Automation business performance - The automation segment saw mid-single-digit growth, with strong order rates and backlog despite supply chain issues [56][57] Question: Capital deployment priorities - Management emphasized that growth through organic investments and M&A remains the top priority, along with dividends and share repurchases [62]