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Applied Industrial Technologies$61.30($1.05)(1.68%)

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 Applied Industrial Technologies Reports Fiscal 2017 Second Quarter Results and Increases Dividend
   Thursday, January 26, 2017 6:30:27 AM ET

Applied Industrial Technologies (AIT ) today reported second quarter fiscal 2017 sales and earnings for the three months ended December 31, 2016.

Net sales for the quarter were $608.1 million, a decrease of 0.4% compared with $610.3 million in the same quarter a year ago. The overall sales decrease for the quarter is impacted by one less selling day which accounts for a 1.6% decline and unfavorable foreign currency translation of 0.5%, partially offset by a 1.3% increase from acquisition-related volume and 0.4% organic growth. Net income for the quarter was $24.1 million, or $0.61 per share, compared with $23.9 million, or $0.61 per share, in the second quarter of fiscal 2016.

For the six months ended December 31, 2016, sales were $1.23 billion, a decrease of 1.5% compared with $1.25 billion in the same period last year. Net income increased to $51.5 million from $48.2 million, and earnings per share increased 7.4% to $1.31 per share from $1.22 per share, last year.

Commenting on the results, Applied’s President & Chief Executive Officer Neil A. Schrimsher said, "Midway through our fiscal year, we are pleased with the continued operational enhancements and efficiencies throughout our organization. We are also encouraged by the improving sales per day developments and remain focused on expanding our capabilities with new and existing customers."

Outlook

"Entering the second half of our fiscal year, we are narrowing our earnings per share and sales guidance by raising the lower-end of the ranges," he added. The updated full-year fiscal 2017 earnings per share guidance is between $2.50 and $2.60 per share on a sales change of negative 2.0% to up 1.0%.

Dividend

The Company’s Board of Directors increased the quarterly cash dividend to $0.29 per common share, representing the eighth dividend increase since 2010 and a cumulative increase of more than 70% in the quarterly dividend over this period. The dividend is payable on February 28, 2017, to shareholders of record on February 15, 2017.

Mr. Schrimsher concluded, "We are committed to driving the growth and continued success of Applied, generating shareholder value through our business performance, strategic acquisitions and returning cash via share buybacks and dividends."

Share Repurchases

During the quarter, the Company purchased 52,500 shares of its common stock in open market transactions for $2.4 million. Fiscal year to date, the Company has purchased 117,500 shares for a total of $5.5 million. At December 31, 2016, the Company had remaining authorization to purchase 1,495,000 additional shares.

Conference Call Information

Applied will host its quarterly conference call for investors and analysts at 10 a.m. ET on January 26, 2017. Neil A. Schrimsher - President & CEO, and Mark O. Eisele - CFO will discuss the Company’s performance. To join the call, dial 1-800-630-0591 or 1-303-223-4384 (for International callers). 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 1-800-633-8284 or 1-402-977-9140 (International) using passcode 21841674.

About Applied Industrial Technologies

Founded in 1923, Applied Industrial Technologies is a leading industrial distributor 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 maintenance training 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," "will" and derivative or similar expressions. All forward-looking statements are based on current expectations regarding important risk factors including 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.

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,
                                                 2016        2015                 2016          2015
Net Sales                                 $      608,123   $ 610,346       $      1,232,971   $ 1,252,250
Cost of sales                                    435,667     437,179              882,185       898,071
Gross Profit                                     172,456     173,167              350,786       354,179
Selling, distribution and administrative,
including depreciation                           134,800     134,805              269,912       274,791
Operating Income                                 37,656      38,362               80,874        79,388
Interest expense, net                            2,100       2,158                4,246         4,345
Other expense, net                               (211    )   55                   (609      )   1,059
Income Before Income Taxes                       35,767      36,149               77,237        73,984
Income Tax Expense                               11,682      12,202               25,781        25,746
Net Income                                $      24,085    $ 23,947        $      51,456      $ 48,238
Net Income Per Share - Basic              $      0.62      $ 0.61          $      1.32        $ 1.22
Net Income Per Share - Diluted            $      0.61      $ 0.61          $      1.31        $ 1.22
Average Shares Outstanding - Basic               38,985      39,262               39,015        39,437
Average Shares Outstanding - Diluted             39,371      39,485               39,352        39,661

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 2017, we early adopted Accounting Standards Update No. 2016-09, Improvements to Employee Share-Based Payment Accounting. As part of this adoption, the condensed statement of consolidated cash flows for the six months ended December 31, 2015 has been restated resulting in an increase in net cash provided by operating activities and net cash used in financing activities of $0.9 million.

(3) During the first quarter of fiscal 2017, we adopted Accounting Standards Update No. 2015-03, simplifying the presentation of debt issue costs. The retrospective adoption of this standard resulted in the reclassification as of June 30, 2016 of unamortized debt issue costs of $0.1 million from other current assets to a reduction of current portion of long-term debt and $0.4 million from other assets to a reduction of long-term debt on the Company’s condensed consolidated balance sheets.

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
                                                                    December 31,      June 30,
                                                                    2016              2016
Assets
Cash and cash equivalents                                           $      62,857     $      59,861
Accounts receivable, less allowances of $10,583 and $11,034                336,716           347,857
Inventories                                                                349,020           338,221
Other current assets                                                       33,839            35,582
Total current assets                                                       782,432           781,521
Property, net                                                              105,279           107,765
Goodwill                                                                   203,963           202,700
Intangibles, net                                                           173,460           191,240
Deferred tax assets                                                        12,424            12,277
Other assets                                                               16,958            16,522
Total Assets                                                        $      1,294,516  $      1,312,025
Liabilities
Accounts payable                                                    $      137,499    $      148,543
Current portion of long-term debt                                          3,248             3,247
Other accrued liabilities                                                  96,475            122,493
Total current liabilities                                                  237,222           274,283
Long-term debt                                                             323,940           324,583
Other liabilities                                                          51,945            55,243
Total Liabilities                                                          613,107           654,109
Shareholders’ Equity                                                       681,409           657,916
Total Liabilities and Shareholders’ Equity                          $      1,294,516  $      1,312,025
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(In thousands)
                                                          Six Months Ended
                                                          December 31,
                                                                 2016         2015
Cash Flows from Operating Activities
Net income                                                $      51,456     $ 48,238
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of property                        7,487        8,010
Amortization of intangibles                                      12,331       12,325
Amortization of stock appreciation rights and options            1,180        939
(Gain) loss on sale of property                                  (1,581  )    51
Other share-based compensation expense                           1,278        954
Changes in assets and liabilities, net of acquisitions           (27,252 )    (38,187 )
Other, net                                                       759          1,516
Net Cash provided by Operating Activities                        45,658       33,846
Cash Flows from Investing Activities
Property purchases                                               (6,710  )    (5,737  )
Proceeds from property sales                                     2,648        194
Acquisition of businesses, net of cash acquired                  -            (23,250 )
Net Cash used in Investing Activities                            (4,062  )    (28,793 )
Cash Flows from Financing Activities
Net borrowings under revolving credit facility                   1,000        18,000
Long-term debt borrowings                                        -            125,000
Long-term debt repayments                                        (1,695  )    (97,006 )
Purchases of treasury shares                                     (5,478  )    (27,767 )
Dividends paid                                                   (21,893 )    (21,369 )
Excess tax benefits from share-based compensation                -            49
Acquisition holdback payments                                    (7,069  )    (10,614 )
Taxes paid for shares withheld for equity awards                 (2,081  )    (903    )
Exercise of stock appreciation rights and options                195          264
Net Cash used in Financing Activities                            (37,021 )    (14,346 )
Effect of Exchange Rate Changes on Cash                          (1,579  )    (4,543  )
Increase (decrease) in cash and cash equivalents                 2,996        (13,836 )
Cash and cash equivalents at beginning of period                 59,861       69,470
Cash and Cash Equivalents at End of Period                $      62,857     $ 55,634
CONTACT INFORMATION

INVESTOR RELATIONS
Mark O. Eisele
Vice President - Chief Financial Officer & Treasurer
216-426-4417

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

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