Applied Industrial Technologies (AIT) Prepares to Report Q4 Fiscal 2024 Earnings: What to Expect
Applied Industrial Technologies, Inc. (AIT) is set to release its fourth-quarter fiscal 2024 earnings report (ending June 2024) before the market opens on August 15th. The company boasts a strong track record of exceeding earnings expectations, having surpassed the consensus estimate in each of the past four quarters with an average surprise of 8.2%. However, several factors, including industry trends and operational costs, may influence the company’s performance this quarter.
Key Takeaways:
- Strong Expectations: Analysts predict AIT will report revenue growth of 2.5% year-over-year to $1.19 billion and adjusted earnings of $2.52 per share, representing a 7.2% increase.
- Service Center Based Distribution Segment Strength: AIT’s Service Center Based Distribution segment is anticipated to benefit from a robust market position, successful sales initiatives, and growth across national customer accounts. Rising demand for technical MRO (Maintenance, Repair, and Operations) support and fluid power MRO services within the U.S. manufacturing sector should also drive revenue growth.
- Acquisition Growth: The company’s September 2023 acquisition of Bearing Distributors and Cangro is expected to positively impact top-line performance, particularly in the Southeast and Northeast regions of the U.S.
- Engineered Solutions Segment Challenges: AIT’s Engineered Solutions segment is projected to face headwinds due to a decline in demand within the OEM channel stemming from reduced off-highway mobile and fluid power component shipments.
- Cost Pressures: Rising selling, distribution, and administrative expenses, particularly related to deferred compensation costs, may dampen the company’s bottom line. Additionally, heightened raw material and labor costs are predicted to impact cost of sales.
A Deep Dive into AIT’s Q4:
Service Center Based Distribution: A Potential Growth Driver
AIT’s Service Center Based Distribution segment is poised for growth due to several favorable factors:
- Strong Market Position: AIT holds a well-established position within the market, providing it with a competitive advantage.
- Sales Initiatives: The company’s strategic sales initiatives are expected to yield positive results, further bolstering revenue generation.
- National Customer Growth: Expanding relationships with national customers across industries is a key contributor to the segment’s growth trajectory.
- Growing MRO Demand: Increased demand for technical MRO services and fluid power MRO solutions within the U.S. manufacturing sector, fueled by digitization and enhanced maintenance investments, is a significant growth catalyst.
Engineered Solutions: A Potential Point of Weakness
AIT’s Engineered Solutions segment, however, faces challenges due to a declining demand across the OEM channel. The reduction in off-highway mobile and fluid power component shipments is a key factor contributing to this weakness.
Acquisition Boost: Expanding Footprint and Operations
The 2023 acquisitions of Bearing Distributors and Cangro are expected to significantly enhance AIT’s footprint and strategic growth initiatives, particularly in the Southeast and Northeast regions of the U.S. These strategic acquisitions are expected to contribute to overall revenue growth.
Navigating Cost Pressures: A Crucial Factor
The company faces potential challenges related to rising operational costs:
- Selling, Distribution, and Administrative Expenses: Increased deferred compensation costs are anticipated to impact these expenses, potentially impacting profitability.
- Cost of Sales: The rising cost of raw materials and labor is expected to exert pressure on the cost of sales, influencing the bottom line.
Earnings Whispers: A Closer Look
Zacks Investment Research’s proprietary model doesn’t strongly indicate an earnings beat for AIT in this upcoming quarter. While a positive Earnings ESP (Earnings Surprise Prediction) combined with a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) often signals a potential earnings beat, this is not the case for AIT.
- Earnings ESP: AIT has an Earnings ESP of 0.00%, meaning the Most Accurate Estimate and the Zacks Consensus Estimate are both pegged at $2.52 per share.
- Zacks Rank: AIT currently holds a Zacks Rank of #2 (Buy), suggesting a positive outlook for the company.
Industry Peers’ Performances: A Benchmark
It’s helpful to look at the recent earnings performances of other industrial companies to gain insights into the broader industry landscape:
- Pentair plc (PNR): Reported strong second-quarter earnings, exceeding analyst estimates and showcasing growth in key segments.
- Crown Holdings, Inc. (CCK): While reporting a decline in revenue, Crown Holdings exceeded earnings expectations, demonstrating resilience in a challenging market.
- A. O. Smith Corporation (AOS): Missed earnings estimates but beat revenue expectations, showcasing robust demand for water heating products.
The Bottom Line: What to Watch For in AIT’s Earnings
While AIT has demonstrated a consistent track record of exceeding earnings expectations, its upcoming report faces several potential headwinds. Analysts predict revenue growth and earnings increases, but cost pressures and a weakened OEM market may complicate the picture. Investors should closely monitor the performance of its Service Center Based Distribution and Engineered Solutions segments, as well as the impact of recent acquisitions and rising costs.
