Applied Industrial Technologies, Inc. (AIT) Earnings & Analysis

Latest quarter

Applied Industrial Technologies reported adjusted earnings per share of $2.97 for fiscal Q1 2027, above the consensus estimate of $2.86. Revenue was below consensus, although both the reported figure and estimate round to $1.3 billion.

Applied reported revenue of $1.3 billion, up from $1.2 billion a year earlier. Its filing attributed sales growth excluding acquisitions and currency effects primarily to volume growth in Engineered Solutions and a modest contribution from pricing. Engineered Solutions sales rose 14.1%, while Service Center sales increased 4.2%; the latter included softer demand in international operations.

The filing shows gross margin rose to 30.4% from 30.1%, while operating margin increased to 11.1% from 10.8%. Diluted earnings per share were $2.97, compared with $2.63 a year earlier.

CFO Dave Wells said free cash flow was $73.4 million, down from $112.1 million a year earlier, as working-capital investment and higher capital spending offset progress in working-capital management.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Neil Schrimsher said customer activity improved during the quarter, with demand in the U.S. and sales growth led by Engineered Solutions. He said automation customers were investing in robotics, machine vision and digital technologies to address labor constraints, safety and quality requirements, and supply-chain resilience. He also pointed to Applied’s supplier relationships and engineering expertise as it brings those services to existing customers.

Schrimsher said Engineered Solutions orders rose more than 30% year over year, and automation backlog grew more than 30% both sequentially and from a year earlier. Asked about order timing, he said projects can turn in 90 to 180 days, although engineering or project phasing can extend delivery. He described the orders as “good signals on the order and the development.”

In Service Center, Schrimsher said year-over-year sales growth improved each month and continued into October. He attributed the segment’s slower growth outside the U.S. partly to muted demand in Canada and Mexico and the evolving trade backdrop. CFO Dave Wells said Service Center backlog rose about 20% year over year.

Wells estimated that product pricing contributed approximately 200 basis points to quarterly sales growth. He said gross margin benefited from internal initiatives, channel execution and the mix of business, although higher LIFO inventory expense reduced the year-over-year margin comparison. Wells also reported higher-than-expected employee health benefit costs.

Pressed on Service Center margins, Schrimsher said higher LIFO expense and a favorable prior-year receivables provision held back the comparison; he expects the year-over-year trend to improve in the second quarter. Wells said those factors and health costs were the main contributors, followed by softer volumes in Mexico and Canada.

For the quarter ahead, Wells cited tougher November and December comparisons and potential variability in customers’ production schedules and projects. Schrimsher said acquisitions remain a capital-allocation priority, with several midsized targets in due diligence.

Guidance

Applied raised its fiscal 2027 earnings guidance to $11.70 to $12.20 per share, from $11.65 to $12.15 previously. CFO Dave Wells said the revision reflected a lower diluted share-count assumption following first-quarter repurchases.