Applied Industrial Technologies — one of the few publicly-traded companies on Industrial Distribution's Big 50 List (No. 9) with a non-traditional fiscal calendar — reported its 2022 second quarter financial results on Jan. 27. The results were led by continued strong year-over-year sales growth for the industrial distributor and technical solutions provider that has recently ramped up its automation offerings via acquisitions.
Cleveland-based Applied — which distributes industrial motion, fluid power, flow control, automation and related maintenance supplies, posted total Q2 (October-December) sales of $877 million, up 16.7 percent year-over-year and up 16.4 percent on an organic daily sales basis. The company said the sizable increase included a 1.6 percent gain from acquisitions, with the vast majority of the gain coming from organic gains in its Service Center and Fluid Power & Flow Control segments.
By business segment in Q2:
- Service Center — which includes Applied's legacy distribution operations that include about 400 local service centers — sales of $587 million (about 68 percent of total business) grew 13.9 percent year-over-year, with organic sales up 15.1 percent. Operating profit was $67.5 million. The company said the segment benefitted from greater break-fix MRO activity, stronger local account growth, sales process initiatives and a greater recovery across heavy industries.
- Fluid Power & Flow Control sales of $290 million (about 32 percent of total business) grew 22.9 percent year-over-year, with organic sales up 19.3 percent. Operating profit was $36 million. The company said the segment benefitted from strong demand across technology, off-highway mobile, life sciences, chemical, utilities, metals, and machinery industries.
Applied's Q2 gross profit of $258 million jumped 23.0 percent year-over-year on margin of 29.4 percent that was up 51 basis points. Operating profit was $78 million, a reversal of a $2.4 million operating loss a year earlier in which the company took impairment charges of $49.5 million and $7.8 million amid COVID-19 pandemic initiatives, Applied's Q2 net profit was $57 million, likewise a reversal of a $5.3 million loss a year earlier.
Applied said that, during Q2, 25 of its top 30 industrial verticals saw year-over-year growth, with the strongest trends in technology, metals, lumber & wood, industrial machinery, mining and chemicals.
Applied updated its fiscal 2022 full-year sales growth outlook with considerably higher expectations. The company is now forecasting total sales growth of 11.5 to 12.5 percent growth, with organic growth of 10.5 to 11.5 percent. Those figures are up from a forecast of 8 to 10 percent overall growth and organic growth of 7 to 9 percent, respectively, given in its Q1 report. For Q3 (January-March), Applied expects organic daily sales to grow by a high single-digit percentage year-over-year, with gross margins at or slightly above 29 percent.
"Sales growth accelerated as the quarter progressed reflecting positive industrial activity and solid execution across our expanding addressable market," said Neil Schrimsher, Applied president and CEO, in the company's Q2 earnings release. "At the same time, our team is responding well to broader inflation and supply chain dynamics with gross margins and EBITDA margins improving during the quarter."