Industrial equipment wholesaler Applied Industrial Technologies, Inc. AIT reported lower-than-expected bottom line for second-quarter fiscal 2016 (ended Dec 31, 2015). The company’s earnings came in at 61 cents per share, lagging the Zacks Consensus Estimate of 62 cents and below the year-ago tally of 72 cents.
Despite the weak results, Applied Industrial Technologies announced an increase in its quarterly dividend rate, reflecting a strong cash position as well as its commitment toward rewarding its shareholders. This triggered positive reactions in the market as the company’s share price rose by 1.48% since the declaration on Jan 28.
Revenues: Applied Industrial Technologies’ top-line performance was weak, as revenues fell 11.8% year over year to $610.3 million. Also, revenues missed the Zacks Consensus estimate of $624 million.
In the quarter, the top line suffered from a 10.5% decline in organic revenues due to lower demand in oil & gas and other industrial end markets and 3.1% negative impact from unfavorable foreign currency movements, partially offset by a 1.8% gain from acquisitions.
Margins: Applied Industrial Technologies’ cost of sales declined 11.9% year over year, representing 71.6% of total revenue, down 10 basis points (bps) year over year. Selling, distribution and administrative expenses, as a percentage of total revenue, came in at 22.1%. Operating margin decreased 50 bps year over year to 6.3%.
Balance Sheet & Cash Flow: Exiting second-quarter fiscal 2016, Applied Industrial Technologies had cash and cash equivalents of $55.6 million versus $64 million at previous quarter-end. The company’s long-term debt increased 3.5% sequentially to $363.6 million.
Also, in first-half fiscal 2016, the company generated net cash of $32.9 million from its operating activities compared with $1.2 million recorded in the year-ago comparable period. Capital spending declined 26.5% to $5.7 million. Cash used for dividend payment totaled $21.4 million; while approximately $27.8 million was used for repurchasing 701,100 shares in open market.
Applied Industrial Technologies’ board of directors approved an increase of 1 cent per share or 3.7% in the company’s quarterly dividend rate. The revised rate of 28 cents per share will be paid on Feb 29, 2016 to shareholders of record as on Feb 16.
Outlook: For fiscal 2016, Applied Industrial Technologies anticipates facing headwinds from weak demand in some of its end-markets. Earnings are now predicted within $2.45−$2.60 per share, down from the previous projection of $2.65−$2.85. Revenues are expected to decline by 8−10% as against a fall of 5−7% anticipated earlier.
With a market capitalization of $1.5 billion, Applied Industrial Technologies presently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the machinery industry include II-VI Incorporated IIVI, Astec Industries, Inc. ASTE and Kaman Corporation KAMN. While II-VI Incorporated sports a Zacks Rank #1 (Strong Buy), Astec Industries and Kaman Corporation carry a Zacks Rank #2 (Buy).
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