AIT - Earnings call transcript Q2 2018 | Applied Industrial Technologies, Inc.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Welcome to the Fiscal 2018 Second Quarter Earnings Call for Applied Industrial Technologies. My name is Kristina, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded. the to turn Kho. now will call Julie over I Julie, begin. you may

Julie Kho

everyone. and Kristina, you, good Thank morning,

Our issued release earnings was opened. the market this morning before

our press available for received retrieve next two replay If you noted the today's website in as from the of be haven't A at will you broadcast weeks, applied.com. release. it, it could

available disclosed. has notifications all be considered teleconference its prior will webcast of and undertakes and the Relations statement risk information statements and date company differ in made general to we'll The including as analysts forward-looking. the statements. Because outlook constituents during business Before I like our results would Applied's the considered during due we update forward-looking made of that or of or are are public to widely conference to new those discuss and content on make and call events being question-and-answer the begin, the All only media compliance that current expectations In risks, at whether Regulation success filings forward-looking our press remind hereof otherwise. everyone that SEC factors FD, are call speak unselectively forward-looking based certain revise those including this statements to this may portion to and are is investors. the as Accordingly, available materially subject Applied's the in release publicly any and from and actual of obligation or expressed identified various to the recent fully well section other with business industry and Investor which to the no and in periodic as various report SEC, are been geographies, other all provided sectors our at applied.com. website most disseminated, made in trends and teleconference the open with strategies

our Chief Dave today now will Financial to Executive turn Neil Officer, and over Officer. the Wells, Applied's Schrimsher, Chief President include call I speakers Our and Neil.

Neil Schrimsher

us. appreciate of our We results. Thank brief you, morning, joining Julie begin and a with everyone. you I'll good recap

Our from share $XXX.X same from share in prior the to rose the quarter. and per ago. $XX earnings sales $XXX.X year Net per quarter for X.X% year in $X.XX increased to quarter the XX.X% for per $XX.X to income second million grew the million XX.X% compared quarter million million, a to share $X.XX

a to Our second-half, years our and we’re fiscal results start and year distribution, broad-based FCX position of XX productive agreement definitive and execution calendar control and Overall, business Incorporated. the quarter specialty second celebrating the to year market an with performance across flow leadership off strengthening reflect environment. our groups acquire provider exciting economic to our further industrial

pending respect the yesterday, Just period of the acquisition early granted were we with Hart-Scott-Rodino of to FCX. waiting termination

and latest commitment at We’re and our announced to we of now the today, dividend expect per Also demonstrating January cash shareholder pleased Directors this transaction that value. cash Board increasing the with quarterly close XXXX. raised share, to generation on development common $X.XX XX, our

performance financial is quarter, our for a Dave. at with Now the look closer here

David Wells

provide daily our move with Starting sequentially number the in sales September translation positive from benefit. Thanks, morning, prior rate on XXXX X.X% financial to The impact of was now X.X% days the selling Neil. quarter everyone. some provided and was year-over-year. consistent quarter. had X.X% than fiscal and X.X% performance. on the a higher Acquisitions currency sales I’ll Good year quarter second top-line, foreign insights our improved on quarter, additional

at segment now Looking results.

favorable increased sales foreign or or $X.X by in sales X%. million X.X%. sales X.X%, quarter increased this our service distribution translation or million segment and center-based within currency Acquisitions by increased Second $XX.X million $X.X segment

quarter of service results X.X% the segment $XX.X increased increased of in business our translation, most sales benefited recent power positive currency all fluid or within businesses by and from million million geographies. segment from X.X%. Excluding center U.S. and increase. acquisitions sales drove Sales segment organic $XX.X the The XX% impact this Acquisitions growth or year-over-year.

acquisitions, From from a XX.X%. X.X%, increased impact Excluding including of perspective, by X.X%. for of $XX up the quarter U.S. million sales the a were acquisitions impact from or sales operations positive our geographic

Australia, other Excluding of Sales favorable which generating the the increase translation country and Canadian this X.X% this in sales from sales X.X% were quarter currency Singapore the in Zealand organically. increased increase. X.X. increased translation our same increased New with foreign impact other Consolidated XX.X% of country X.X% compared favorable currency up acquisitions, drove U.S. foreign from sales year. operations Mexico, of by include prior X.X% to Acquisitions our operations

currency acquisitions to up impact and the of the X.X% other translation, were country year. in the prior sales same Excluding quarter compared

quarter prior gross of the for gross Our recorded quarter flat The and on year-over-year basis compared income Inventory LIFO profit sequentially. XX impact swing resulted XX percentage quarter year-over-year in was XX.X%, lower year the basis generated the adverse LIFO margins. the in expense to being headwinds points a quarter. in points inflationary

in XX with of this SG&A mix resulted X.X% the lower this year-over-year quarter basis slightly quarter. sales with quarter other and driving and in was nice expenses in reflected as of adding Selling, administrative compared margins. XX offset from foreign leverage from the totaling the adverse currency $X price benefits in While impact exchange volume prior distribution XX.X% year increased sales basis margin acquisitions points. increase initiatives points another or to million XX.X%

acquisition. of enactment to quarter the blended the earnings to quarter, employment was to our revised favorable due from primarily fiscal incentives. Quarter as income non-routine impact Despite XX% statutory for the statutory the benefit further increased to for of a to translation, economics fourth wage tax XX.X% deferred slightly per majority with recently and performance-based cost, and included the tax December The $X.XX XXXX. a -- compared U.S. transaction to our tax for $X.X U.S. fiscal also XX% Cuts federal fiscal during reduces year-over-year. which Jobs acquisitions the XX, rate million record XXXX year XX.X% the Act, effective year Performance re-measurement December aggregate from The This the of we Excluding year company's was return X, the headcount year-over-year, expect is to quarter. to of this effective the January related tax ended results currency the in for the quarter associated XXXX. the prior income XX, Tax down This to XX.XX% quarter in share effective attributed the generated rate which were increase certain quarter XXXX, announced rate results SG&A XX.X% and rate. being rate corporate XX% U.S. compared which range X.X% FCX the average for XXXX. U.S. XXXX, costs the XX% however, of effective related the and our company's quarter-ended expense to we liabilities of rate assets tax a XX% rate In decrease

resulting range tax We and the we rate fiscal be year to expect XXXX to for fiscal tax XX% in to XXXX XX% rate expect XX%. year effective from effective our full our to XX%

remains sheet million. shareholders' strong balance consolidated $XXX Our equity of with

buying business strategic sequential suppliers. increase from return by impact inventory for timing on and related higher programs certain volumes of to X%. in inventory and incentives offered was assets after-tax XXXX purchases December calendar the quarter Our A the year-end resulted the

As prior year-end, cash generated $XX increases. quarter expect generated decrease million. Year-to-date, than activities to and volume-driven inventory million the year inventory to program period we million higher to year compares result million, million for was receivable $XX.X from in $XX a related June the we despite from of inventory prior million fiscal levels. as to the of activities our operating higher operational look $XX.X Cash levels forward operating $X $XX.X by quarter,

As cash despite inventory purchases of related recognize down the our initiatives fiscal are calendar generation from XXXX the for higher be working still activities the ongoing, work million we impact million, management of $XXX business operating anticipated year-end and to range targeting of volumes. benefits in currently we $XXX to capital program

average also share of market the purchased million. During for cost shares on $X total per open $XX.XX a the quarter, stock we at of treasury of an XXX,XXX

fund continuing increases. of on the focus our dividend allocation value will maintaining consistent by culmination and the transaction our Following and shareholder of FCX borrowing payments and to deliver acquisition, record priorities the to track delevering capital Performance

continued Regarding fiscal year of as our range year referenced a earnings XXXX to range outlook, $X.XX we $X.XX share balance, raised approximately full tougher a in on $X.XX estimated our of range our the today's for the and the assumes the effective of outlook solid sales strategic at and quarter equates $X.XX between tax industrial half per markets earnings share near-term to traction to and guidance under release, generate to given share. another This per $X.XX per $X.XX year, a second execution XX% for rate. our priorities. growth X% guidance from prior Despite X% productive of revised comps,

Neil we noted January that, FCX guidance As some final transaction, XXXX. acquisition the from has to which now release, impacted Performance for the with in of in back comments. of to XX, provide results call anticipated to place include conjunction close the I our the over partial will the further announcing take on year will With turn

Neil Schrimsher

and technical the profitable distribution Dave. power open expanding engineered At our to and With geographic MRO your our leadership Including generating our capabilities. strengthen and to value to we'll and that, offering, we're critical services, Through industrial we years, core added the fluid well-positioned stakeholders. leader, channels value continue as lines growing for growth questions. Thanks, is XX committed enhancing differentiated execution products business distribution reach for all investments, our market. Applied strategic and solutions, up

Operator

you. Thank

Cieslak Research. ahead. We session. Instructions] will from Northcoast Please [Operator now comes first Ryan begin go question the Your question-and-answer from

Ryan Cieslak

here, detail and any so Thanks. guys. you can to rate, on for some January provide impact, you the the any thinking Neil, are far first there just progress color some maybe around weather sales guys year-to-date? seems you regard growth Good and it I with question distributors, color quarter been that some My has can I know morning, give how guess so what far? like

Neil Schrimsher

Sure.

a surprising the a increase December November, single-digit given the improved closing QX, throughout points. not mid-single-digit had we period. sales continued of Then trends compared of improvements and just most October in Really has the per XXX day holiday as the but On and November or January around expected, [ph] from day in that overall year-over-year to development quarter-end up of month between the again know basis to kind really until we December site. it right around low

year just of right, those. for them So, some we'll look a through good in geographies way make it. most to and of got weather, weather this too, and we our time markets you us get our We working

Ryan Cieslak

of magnitude you I talk you right now inflation pricing the then the a inflation successfully. you And that benefit just are to if sort maybe you bit are that through, maybe heard Okay. seeing able inflation just said have on and that top-line seeing Dave of supplier you about little right should and here pricing type if for come we from larger pass of been what on along forward? maybe going And expect

Neil Schrimsher

you a variability Those do Again, can sales, the terms remind both terms understand and starting up be it's of to supplier inflationary being less and that on in we year-over-year Sure. this but off supplier what than pass increases. at about about of seeing point match, three the the in seem of impact we've level increases at price. quarter-over-quarter, a that SKU to like price of us. terms year-over-year to in able to of price going X% of to terms passed you repeat really have the -- on income in I'm to We're impact been have those low a just to have looking the quarter

we again, offsetting supplier to those work cetera, and Here pricing price we et work are can't of that our on with programs suppliers immediately. where a get largely through combination pass and those on

the So, impact kind in good we and a see and impact, doing move that that of business starting quarter. say to to I'd the job as inflationary offsetting stabilize,

Ryan Cieslak

question And I'll queue. and last in then, guess great. back the I hop my Okay,

about out? the from think in seeing you’re growth to those the changes the like And ability accounts still past, you the you the pricing? So, to improvements, certainly see margins, with mix basis LIFO sounds half as the regard some context of in some Neil inflation, is How the once do in it XX about of there for to that way think in well. for settle impact the some XX have of there margins back I gross expectation that you the there things that the year of points Thanks was so still and or are bogey, of and good large counting the margin talked now we it impact gross

Neil Schrimsher

grow and that. year, the start, I'll have to to we the objective say, margin have we clearly still potential right. a to XX I view XX would and points basis Yeah, do

flat in. through. talked Dave some So, move we came rising treatment sequentially understand inflation about that We the given and of as the LIFO

across matching of that nice all-in-all of talked increases the to our think and business mix little he I many passing alluded sale we as we some about side then the larger or we of just And point job through bit, had I think groups, good accounts. about a think with the growth it.

this larger nice We they as all accounts. higher with had growth few that slightly with would of accounts also just in the in other go quarter a

as we know and help us types groups point say, forward, And as then, have well. and groups potentially right we with of mix product it the also team that, us we continued of is we think is product growth, across of added line around about have. go customer goal, variation reducing there margin some I mix so to that that in believe help opportunities we and so, value through and has for it what us And can can exist in got customer services right going would our sale, objective right the sight, the

Ryan Cieslak

guys. Thanks,

Neil Schrimsher

Okay.

Operator

Jason go question Rodgers from Lakes Review. comes Please next from ahead. Great Your

Jason Rodgers

that much Could the markets sales and outlook forward? you the oil talk contributed market about and and is in gas to what your the going how for quarter increase that

David Wells

our to us, the for for the be of did growth. over drive oil markets, productive gas just quarter that point continue on overall and a Sure,

We about out tougher in gas full we of the the which mid-teens across probably to and sales drive a XX% year-over-year couple and kind see productivity, increase year is it XX% service comps, centers, expect a oil look to half as continue continued within the next gets of quarters, of growth. year, selling back for the the good of here year-over-year focused increase

Jason Rodgers

I give wonder there quarter? for if you performance an industry track update you groups And, the could the on and the XX

Neil Schrimsher

timing gas I so Sure, food. so that couple oil industries positives from we coming also machinery little chemicals, gap the had quarters, quarter with XX, bit around a the sales kind we then, and performance also that quarter was positives of top XX OEMs increases, in aggregates the metals, had positives the last with primary a around we and back, hurricanes this softness of last think some so that and in bounce in also saw more the and of

Jason Rodgers

about mind receivable you talked update efforts quarter an us a And would giving on the improve you collection? to last

Neil Schrimsher

management with the organization, completed really the to team terms within build of our with the drive to that hone in -- quarter Sure. based the to for shared of the last alluded function and We’ve the compiling for to successfully worked out quarter. process through the continuing centers, standard In of interaction out I think U.S. collections field service services work collections. building and receivables we the

benefit these new on that we expect efficiencies we activities. the drive some on as utilize consistent tools front hoarder your move to work to continue of forward drive to as end collections the So, processes, there and

Jason Rodgers

finally, would the you and And for mind tax for then XQ? the repeating rate expectation XQ

David Wells

in Sure. QX of XX% of effective for place to in XXXX. given QX that the XX% blended XXXX, isolation rate, our of for transition further fiscal effective this will be deferred rate the certain the liabilities XX% from will our be XXXX. than going to and statutory XX.X%, we to then a given as in in rate re-measurement for take of XX% statutory taxes year to isolations XX% tax balance fiscal XX% rate the range

Jason Rodgers

Thanks very much.

Operator

Longbow Chris go from Danker Research. Please from ahead. Your next question comes

Chris Danker

guys. to we of my for this how thoughts any will do to deal Good I fiscal once about at rolled taking we for that think of guide off, think first new of questions. at Thanks Hi. point? XXXX morning, this FCX how And kind clarify terms point, officially? guess about be the kind that on in or in closes should in baked

David Wells

what No, we we new the of thoughts kind transaction. beyond announced as guided

close months. forward is FCX upon updated and terms the through the we XXXX on work terms in as to packs add of continue to what business But next update business. the no will the Here will fiscal and our any announcing planning around on both view the we the and efforts do of the the guidance now, provide anticipated in we the thoughts transaction, indicated again, XXst, for our changes, now integration we that XX what in of will include

Chris Danker

now? activity looks the commentary backlog And you. power on like any to what addition in right just current bidding fluid Got then

Neil Schrimsher

continues maybe level, little there be acquisition would it's say at But back a level that. very It it's a in impact high, to productive. at historically a is in high I it. looking high

And good that. in the So, bringing the OEM those Fluid work them. Groups solutions across with about Power we these we're going feel on technical and connecting of to that customers and mobile

David Wells

We Power about the Fluid quarter. within business to backlog XX% have

So, strong order intake. continued

Chris Danker

just where then environment industries of some -- in finally have seen could. matter inventory guys step go kind in Obviously, But time I change now. if restocking And have you seen demand? how any just Thanks. no Perfect. these benefit it's of given a with you

Neil Schrimsher

I is in industries across so as right I Activity much don't think are there requirements increasing good, so at are, services pace. we now. therefore if solutions the is restocking and good and the to a know product them

good part chew up including which going them. to mechanical across, require can So activity heavy industries

environment. good the that's industrial for broader think I so, economic And

Chris Danker

Got it. quarter, on Thanks the again, and guys. congrats

Neil Schrimsher

you. Thank

David Wells

Chris. Thanks,

Operator

Instructions]. [Operator

Research. comes go from Uhlman Cleveland Adam Your from ahead. next question Please

Adam Uhlman

morning. Good Hi.

Neil Schrimsher

Good morning, Adam.

Adam Uhlman

potential environment, that mentioned incentives, of purchasing start in think your in of the next quarters, to inflationary going supplier half margin release through took that's typically. two Do or the you margin you to that over program, I of but gross some I line some pretty that that year. for would benefit December, small too gross commentary to to start needle? had And guess the move the you that's the guess Applied gross with have. the come I margin wanted think really in I it you should advantage second on is

Neil Schrimsher

Dave start, we to contributes it contributes, it contributes and I go through come ready in can it to past. like the say has in. I'll really sale when But have it And but would that. do and

sale attached capitalized it get activity, will have would those So, as we when sales. products and it a start then and to

see past occurred we but well. in years So, benefit, this as has will

David Wells

from prior may phenomenon, a change Adam. marked you No, seen, year have

Adam Uhlman

Got you, okay. top guess the XX declining for we and more do is to of industries maybe then XX you year-over-year now momentum And versus kind have what the discussion where that within the industries, pressure and Applied about could is feel better growing? of than group, changing, the I

Neil Schrimsher

we perhaps of them that segments perfectly be think line, noise growth I of, more to there's close be zero there sometimes around more fall what I they hitting and classification the in which can is could the think into.

last this not a wood but have or the in as paper connected, lighter of little numbers. again been we some by think industries one big either look maybe I at, could

So, that than about going XX it a higher think future we as I potential think quarters. there to forward, good be I about think going it's number is

Adam Uhlman

I'm guess, the last the charges rough and accretion non-cash acquisition, that in some of would you have wondering basis, aside. acquisition, a mean a doing on should Okay, just I contribution you. over rate and terms costs the are all from putting cash, charges the the the I a on absorb we just one-time of how acquisition run already and the lot And about from those dilution guess cash be of it the year years expected fiscal I think just the have non-cash for provided -- XX% lot we to seem numbers balance for numbers that’s got the the quickly fiscal FCX

David Wells

significant out terms more business cash You’re intensive, the inventory right, nature candid at charge the in the all impact conversion receivables in would the in that terms of cash of not a of carrying. the characteristics of I of generation, nice mean I and FCX terms they not are weighted. is are Applied, such say of profile very so non-cash capital

So, I together. we see think combination the nice very businesses a as you bring

we of will the initially the We get the make cost one-time with the here at in the expect that of but we end back are specific quarter contemplating. terms range tighten to as versus certainly that magnitude announcement even guidance what

Adam Uhlman

Okay. Thank you.

Operator

from question go Please Barger KeyBanc ahead. from comes Steve Capital. Your

Steve Barger

Good morning, guys.

Neil Schrimsher

morning. Steve. Good

Steve Barger

the good mid-single-digit Going considerations a the the growth is been back in operating rate past environment? base margins for in to cost price we back contribution quarters, the incremental business should the have half, about about in thinking be run two XX% that

David Wells

terms Yes, follow-through characteristics half in the incremental certainly. What expect would that so back that and see targeting in the not change of would of when those those, we’re on think we about would we dollars the that year. any

Steve Barger

have you base FCX, bit there maybe the given and right? businesses to or is reasonable that are talked not that the that about just think business incremental the a is Okay, of higher margin but little mix than gross higher necessarily

David Wells

the It tend just see, given gross profile that in we incremental higher would business. than be to what margin would

Steve Barger

of trends Yes. times in you of talk levels now, any industries products? across picking you demand a supply are to volume lot out hitches current of types pushing and about terms With chain can for relative lead in any the seeing inventory up

Neil Schrimsher

concerns We We service expectations know their feel that on on sides, of those high those is our or we be there our always levels. game, or suppliers both their have really we going inventory we deal with that close will and some stay all we’re about And will early. good our do performance. with are or at, issues but how we key if ones look productively be anticipate

inventory have DC then be our benefit it’s think how of amount service that network think I large corresponding a centers. as would a get we about we across we also that

productive of on customers. businesses how some with But both that those adjustments we're we make focused we of these I working link with leverage guess pull DCs, there serving we the So, supplier. hard very can as that be through across and on signals then the we're them some clear

Steve Barger

and last things based this me. lines, then from content bigger When those things the upstream pressure on steel get that it. I'm, seeing trying Just a is question. across inflation-oriented look Are pricing the sense highly one across And an to where or are products? increases product you you is high Got engineered? from with

Neil Schrimsher

I those together. group still think on tend to maybe all they

are largest ones that the the more think do I we'd on are despite to off-fleet. the to increases more like become

so, offerings. And that drive they're replacement make maybe have. harder They that other or capabilities of some behavior, in to either that have to they

older legacy a So, some higher of have products, others. we and can increase attached to the them versus

Steve Barger

Thanks. Understood.

Neil Schrimsher

you. thank Okay,

Operator

Your Research. next go question comes from Ryan Cieslak Please ahead. from Northcoast

Ryan Cieslak

Hey, thanks.

quick one Just follow-up.

I way in employee some think here are as some last back the the back talked Thanks. of Is through maybe cost the as IT rolling quarter a be well of year about year? what headwind incremental investments. you've incremental the cost half quantify the to the will half there in

David Wells

bet. You

and Just X employment Ryan, yes, merit of cost increases, our have did we the good X%. reminder would that kind increase the taking average which place January focused

XX% or that's given about base. SG&A of So, so our that cost

$X range to the $X We million. expect in to increase of million

As you the merit that the discussed. look inflationary increase from at the as as another we to some IT of spend well that impact

Ryan Cieslak

Okay. Thanks, guys.

Operator

am the this Schrimsher call have remarks. over for closing will questions. now any showing, At no time, I to Mr. turn we I further

Neil Schrimsher

with want forward to we for taking And everyone the you join talking quarter. just throughout to the I again thank of look to us. many time

Operator

and today's concludes gentlemen. This ladies conference. you you, for Thank Thank participating.

You disconnect. may now

Applied Industrial (AIT) 25 Jan 182018 Q2 Earnings call transcript