AIT - Earnings call transcript Q2 2019 | Applied Industrial Technologies, Inc.

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Operator

Welcome to the Fiscal 2019 Second Quarter Earnings Call for Applied Industrial Technologies. My name is Mariama, 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 this conference is being recorded. call Julie the turn now over Kho. to I'll you may begin. Julie,

Julie Kho

quarter everyone. Mariama, two supplemental in we latest Web are site and of of you, next A broadcast Investor This in investor These press the available the good detailing at and Thank the our release will noted morning, morning, be weeks Relations for documents as earning issued deck release. replay applied.com. results. today's our available

discuss various to are like the are geographies, the during industry current or recent in our whether undertakes in events are the from provided date factors outlook of remind forward-looking I'd results business are of the Investor statements. and Applied's begin, SEC, we'll at and success that Accordingly, business portion, any expectations the that of statements Relations as made statements, our we available most press our and Company subject which considered based and at call applied.com. risks, conference speak that section actual and in update certain identified various no other otherwise. revise other Before or filings site due the with risk Web statements, publicly the question-and-answer on in sectors only obligation made to during everyone materially expressed All strategies including make and hereof those forward-looking trends including to forward-looking. The new to or forward-looking may Applied's those periodic release differ report information

widely has is explained investors. constituents compliance the the the are prior financial are call in presentation to be non-GAAP qualifications the use disclosed. in notification material to the to to teleconference in are In and content all and being all open FD, and unselectively as with conference our measures and those referenced the Because In call and disseminated, its and addition, Regulation teleconference this the available of the These supplemental analysts well been public of will media SEC general includes press subject fully as documents. release and webcast considered made measures.

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

Neil Schrimsher

Julie, you, We Thank guidance. will appreciate joining recent developments, an morning, Dave of start and I by detail, you good our follow-up financial will our everyone. to and updated overview us. cover in also review more then results providing

increases second in release, referenced year-over-year quarter As fiscal our pleased post press results. 'XX our to in we are

planned quarter, within and However, were the in below sales decelerating were the X% the week our More to specifically, of growth one, performance sales to December which core culminating through range month our earnings growth full-year full key year. XX we in date sales December. that guidance the of the final weaker performance. from drivers X% the less calendar to than significantly for month We sales X% understand included: year-over-year went of

drive measures technology softer more from of project related $X.X softness plans. businesses, experienced demand component and quarter. alongside light million business And pronounced cost we our some equipment and initiated manufacturers. timing in experienced top impact in we In inflation lastly Fluid delays adverse appropriate continued our including primarily efficiencies to our markets, had headwinds, our charge inventory the Power the we in lower a inflationary from on electronic margins to execute Second, LIFO and an line actions

rates X% half first service the acquisitions. rates morning half moderating guidance half sales this reflects issued compared and Further daily excluding second increase Fluid in nearly first assumed guidance Fluid to market the to 'XX the second our with fiscal industrial full-year this Power sales current year, sales in of assuming environment segment. daily a the and sales Power remaining second to fiscal dynamics & with Flow daily revised down, Our Control the X% center essentially half, rates half X% the broken X% flat in increase

further we the FPS company. to components, power to Fluid from engineering in During specializing units. pleased in welcome manifolds manufacturer Power of Fluid to product Power Their leadership, were the strong a repair. distributor design shopping fit includes enhances industry which Power all quarter, a strategic provides and is in Fluid the fabrication range the and Power sales November, edition Fluid of the and needs Announced market broadest that and one-stop our for

anniversary their premier one-year be high recognize movement members FCX not custom progress flow technical the innovative solutions products, and into acquisition proud date. touch tech engineered more we're high specialty Additionally, could -- the brands, team with of FCX pleased service. performance our to with and to I control and

our are entering prospects about We more excited year ongoing second growth our together.

streams, Our profitability. and combined and across including work resources revenues, on positively are operations impacting plans our the delivering synergy customers

and acquisitions Overall, Flow differentiated as the reach our active and will leader Control through channels customers. XXXX, to pursuing technical solutions, business Looking critical extend a to distributor continue distribution with additions services, expanding in Fluid offering, core and our market. enhance forward, in engineered position with Power our we multiple remain growing leadership we value-added products capabilities as industrial & we new current strategic and move our that calendar reach strengthen geographic

time, detail turn this additional our the results. Now on call over to at for financial I'll Dave

David Wells

morning, good Neil, and Thanks, everyone.

talking available our investor site. recent on details reminder move points key we deck cover to this investor a further your the supplemental financial most is our and recapping for on that on performance, morning issued reference quarter Before financial performance

to the benefit X.X% reported grew quarter currency to XX.X% by results. second was a one day the year selling generated quarter exchange in acquisitions December with sales which foreign quarter X.X%. impact organic sales driving while extra XXXX over year's ending prior Sales There increase. decreased now for increased year-over-year Organically, our this the growth. XX.X% of Turning X.X%, quarter, a

million center by Second segment year-over-year. our or quarter service sales in based X.X% $XX.X increased distribution

impact year's foreign translation, adverse currency includes sales day one This by X.X% increase the from a benefit quarter. of Excluding in additional selling X.X%. this

well service the in based reduced distribution activity. Fluid X% but center impact up our year. Control mentioned, through growth December & As Flow as Overall, was than calendar maintenance we year-end organic up nearly December Power including adverse timing for segment, final shutdown the as holiday previously XX, Applied of of saw XXXX segment, after less finished of sales month the our X% the week

Fluid segment Power XXX.X%. Power recently namely Flow sales more Fluid within compared or increased addition our second sales segment, this the increased $XXX.X year. and performance quarter as Control to by Acquisitions Moving the FCX of prior XXX.X% sales million & to both

the one as acquisitions, decline the the $X was selling a Excluding partially million benefit of sales impact down quarter. of by in day X.X% additional were or offset X.X% X.X%

from & projects Our timing Control demand and comps, lower growth well of adverse year-over-year markets Power Fluid performance. as was segment down Flow tougher supplier some impact larger recent as the from given technology quarters of

million the XX.X% in From and of the perspective, recent organic strong FCX XX.X% Power a end sales million up this for Power or Fluid year-over-year backlog the remained backlog modest increase. operations quarter most sales were legacy geographic acquisition, $XXX.X our the or U.S with in quarter quarter. at Fluid acquisitions increase further driving Excluding with $XXX.X to a

of which our all Excluding in day the States from from organically growth. performance X.X% extra this X.X% of acquisition quarter drove extra The year's X.X% solid growth increase, this this sales day outside impact, sales quarter. sales with included the a a across grew from U.S Sales businesses benefit organic year's operations reflected United in X% geographies.

markets Foreign as currency impact, resulting year however, a sales was quarter. to a our compared prior the X.X% reported in X.X% headwind foreign in increase

Moving on to margins. gross

profit basis of percentage for year-over-year. gross expansion year-over-year. quarter was XX XX.X%, points Our basis drove the margin Acquisitions XX points up

quarter. LIFO charge to for share headwind margin basis impact. a equates purchase XX $X.XX which point inventory adverse gross point This basis XX a profit for benefit, non-cash business lower for impact. year-over-year and accretive increase points core prior XX This in XX%, an the year, inflationary EPS this impact generated costs in driven the a quarter, quarter $X.X Excluding adverse million basis than by was a the the per represented

We increases. supplier QX margins in recent on price the pass normalize expect as to we

absolute Our the currency Acquired rates the accounted $XX.X or quarter on the year. businesses XX.X% same in increased for in quarter selling, prior quarter. an compared of foreign when decreased or million XX.X% $XX.X distribution and the fluctuations to for administrative to basis million while compared year-over-year expenses SG&A .X% prior growth, SG&A by year

per $X.XX XXX impact was nominal along up quarter. of the basis point in expense year-over-year EPS the several XX.X% impact XX.X% attributed medical our quarter increases. the medical tax Resulting cases, The the a to effective year-over-year. included in costs merit for increase annual income of with self-insured increase Excluding the was major SG&A rate for X.X% acquisitions, share,

year-over-year. of income Excluding tax rate, effective pre-tax XX.X% lower the benefit increased

balance capital increase year-to-date. sheet equity from generated which for results strong traction X% demonstrated of with initiatives. operating Cash $XXX million remains quarter, million year a million, improvement management continued $XX was represents generated shareholders' from the operating $XX.X more activities a prior the quarter. consolidated Quarter Our than representing by working

We the debt just existing covenants based acquisition on our quarter quarter, end. with facility leverage to credit additional continue our net the assumed to over In EBITDA now was of revolving extinguish on FCX X.Xx million million the first fund as of our as performance FCX $XXX utilization recent quarter. most previously the in revolving credit fund extinguished $XXX.X credit communicated, we initial our taken to draw There line fully line acquisition. no

quarter, XXth As environment. X.X% underscores Board commitments the that our strong represents common performance Directors was the strong to sales, played we improvement flow quarterly while in quarter point raised $XXX since in recap, XXXX quarter. generated our share. of in $XX on million second value. dividend for of some and our the we inflationary cash conditions, To release, of and the which a focused noted EBITDA reflects our press XX we out and generation cash or shareholder strategic in remain priorities increase per basis and have any economic our dividend delivering recent execution continued announced today This the impact of quarter cash

and to position continue Control based Our Fluid remains Power for Flow broad in growth geographies. we all see segment businesses & opportunities backlog and strong

to share year-over-year. to revising business. $X.XX and we're a As our XX% another remain and on Transitioning in up with given sales per current and in contributions between be the our full-year operations of share year-over-year now conditions, of legacy one-year of to in XX.X% our FCX share anniversary increase earnings we the we to the $X.XX quarter. the forecast neared FCX environment X% the up moderate share performance industrial outlook with sales from per revised XXXX earnings of to fiscal X% pleased the business range contributed acquisition, growth per per to the sales $X.XX guidance full-year

X% remain a service to X% half our Power in daily versus our and X% assumes While would showing half excluding tech growth daily X% continued half, a half first center half step We're acquisition. second and Control X% still our to increase X% softer X% comps. driven line, business, benefit in segment segment. in Power in a second top sales daily the second essentially a organic This FPS Flow tougher half X% with sales in from decline service our legacy rates rates guidance Fluid the assuming with in second given sales to to Fluid softness center sales we generate consistent what saw half rates up recent the & first second

by second turn will a With final I half the of lower to comments. point up initiatives. partially in Neil and the impact our other over for interest offset back to some pricing guidance assumes now margin expense that, will and Additionally, driven favorability XX XX margin expansion adverse call line. performance, basis SG&A top step

Neil Schrimsher

Thanks, Dave.

strategic to our continued commitments, into product of 'XX control, growth, year operational expansion, power excellence focus we team our know elements, fiscal doing and including our & business, five on acquisitions. flow deliver responsibilities fluid our and Moving XX core individual a

driving current half core 'XX, with customers and move we on new through capabilities. will value-added business maintain the fiscal leveraging reaching As our profitable we our second growth of end-users growth sales an emphasis

the and pressures, inflationary that, for business improvements, fueling our to the management, we're strengthening strong Our expanding each working operational open-up spend diligence and capabilities and our in margin mitigating business day. foundation, capital we'll win with continued And We’ve investments. and working maintaining potential SG&A questions. your expansion, outstanding every lines a future and

Operator

question comes Instructions] Rodgers Great first Thank you. with Your from Review. [Operator Lakes Jason

is line Your open.

Jason Rodgers

Good morning, guys.

Neil Schrimsher

morning. Good

Jason Rodgers

the Power and that week weakness beginning talking from hearing far could just deceleration commentary is you’re widespread those a was lines, here of So think talk a about concentrated I this January? so wonder about last the if of quarter, the also sales the technology customers? in And along trend the They then or you mainly in and the in area? the Fluid

Neil Schrimsher

Right.

week really say I would aspects participated. the of the So last all business

half is that on they about specifically, had what than roughly were nonexistent, productive, of we on output for And the the those was that and if back past you look it year, XX% If day XX/XX. I of almost years, to essence or of but impact. it -- think across. being day we of an an few while less with this and that week if half rest of is at the And a had look more us were December XX efficient been I performance two days productive half work as days sales we were back XX/XX,

with weekend and not of to customers type X as that -- or either could took projects, op with days. think the and operational teams, think customers And with on last not really longer maybe X just the to then projects, maintenance advantage be to preventative took and not to X on have days. I between plan we type many And as day the work so be X holiday or our open ones those extended would more to in timeout the I talking

the or if mean, of activity break in timeframe more X on that of we day rate. year mean as activities or looking in preventative look so performing And January, year, in it X forward projects the maintenance July in mean those longer single-digit half I what in now to get or going there. could fix the does overall, half the mid the first could first mid It the year. additional And then, we're occurring of some the sales forward,

Jason Rodgers

like have could around Power are is that And technology you none just provide that? looks much half. assuming And of projects you if talk about I these if around backlog? guidance delayed some figures in of the you second it the Power wonder realized could Fluid how Fluid visibility

Neil Schrimsher

over our as Many of projects of linkage couple second some work including to bit the book into single Power Fluid or look but get a of half we impacting impact given there. little those little really our those have have those half at if that quarter. XX% of we look year-over-year, So through improvement Fluid Power probably and off. guidance the those remainder around or bill very up into backlog expect it it's output projects at segments, then growing. these we'll half. we’ve continue industries a XX% that technology, and group company And to at that’s fiscal But other of or we productive outlook we digits it and we had sequentially higher And that higher, the the we of of are will performance, projects second to a if the our technology the year. the will in further Out is close, continue

Jason Rodgers

Okay. you. Thank

Operator

next Research. from with comes Chris question Your Longbow Dankert

is open. Your line

Chris Dankert

Thanks guys. morning, taking question. my for Good

Neil Schrimsher

Hi, Chris.

Chris Dankert

of further, that of I top other some build bit could on you’re across give us markets seeing technology? kind and XX total guess market of besides the and little what energy a kind you the breakdown to

Neil Schrimsher

Sure.

this had in quarter showing XX increases. So past have industries we’d

So last down QX would've of XX back, think, we had sequentially. up. I that's year, I look in

and aggregate, metals, machinery around oil later primary products I the December, and So and and OEMs fabricated positive especially building such. In softened continues think quarter up. gas, in

around were we be out wood weaker some could computer durable comparables segment goods, as the and timing. that well. manufacturing around electronic the lumber think I products, And mining then coal called the would of that be and some more

Chris Dankert

Thanks. helpful. very That’s it. Got

Neil Schrimsher

Okay.

Chris Dankert

a just kind on the here? more, just of the bit in broad the kind you quarter. little was impact similar strokes could of in the then first a of half 'XX kind back what expect pricing Do or of still level And you

Neil Schrimsher

which at good see But set forward. additional manufacturers work expand if So If aside coming or margins. half some job those we is do going standpoint, our business we if will set the year-end we in we up process aside quarter performance, how that our don't into going increases through but and we LIFO this will with matching look to in the would from very and a we’re and inflation of I we as can result well. and second businesses local and building on XXX local very of of our will a processed handling really doing based be list that come at matching it, I look think business of accounts, with the we're the tariffs in tariffs in performance we whether segment they right other XXX now. I the we teams seeing And and various aluminum steel be our we

a from So believer, end feel We’ve The they we of and a end-user that, have get especially pay. on do at continue. pretty shared household, that are the perfectly like I’m the through the come don’t lumpy. right. in side times we They we will but to I order. tariff fundamental has committed customer, it, in large period, in and when they fast end

Chris Dankert

any Got could. just quarter it. difficult to it. or know whether but headwind of or if one in managers did at all? just destocking breakout, as negative it's highly I Got anyone And the a broader one with -- last your December last I then

Neil Schrimsher

course big be no. those us and heavily criticality can relying think in think also. user We the fix demand there They’re there services short on random solutions phenomenon serve to the with prepare occur the technical answer our of are customers stocking the our destocking not products. about products. break We side, to and be business I our that and not a talk on MRO, around a with from business stocking is especially of standpoint

Chris Dankert

guys. Thanks Understood. Yes.

Neil Schrimsher

Okay. Thanks.

Operator

Cleveland from Uhlman Your with Adam comes next Research. question

open. is line Your

Adam Uhlman

Good morning. Hey, guys.

Neil Schrimsher

Adam. morning, Good

Adam Uhlman

circle again. we the Applied back how to big sales? that is electronics percent for a business of Can Exactly as business

Neil Schrimsher

it So industry. in our our our general it's maps segment And reported industries. in top to XX

right, it's any below So of other the callouts.

in low think bit definitely progression it's of a And steady and digits periods. So recently, if a but had prior a And growth I little the this it's quarter step in quarter, that. I down. just of back, single right in past maybe little kind look over more more

like expect if I we and participation right, forward, look segment we around to the Now a return our growth.

have artificial growing bit of that about trend, industries, demands. and humans at players internet and cannot those we the through those some working of or of that we those expect now perfectly, to Data, equipment of machining will I we if Big think call decisions but XXXX. just of through computer growth timing making that about we to electronics supporting Now more turning than be as those about point some that think if end little right but products, think markets are intelligence, if XG we think we’re XG things, a or cycle calendar feeding those go providers

Adam Uhlman

to that organic reasonable it forward? is you. of point to price what's about the going this margin Got question or quarter? contribute the much Chris's than Okay. X% And realization. a now? gross for sales the that bigger the two, of then think half back estimate second as rate on then a And Was like year, past growth I How that

David Wells

service that volume, in again, We the seeing in truly are view price about our tracking the one-third of extrapolates in that lower improved that our seeing Once of center just the that in to our network. randomness given Adam, up across of center business margin. realization balance sales step we discreetly the the again, some of Fluid same realization business that Power X% year-over-year, X% price represents and piece think the particularly that is But SKU despite of very here, we demand. business. you’re service for just up terms

those So, of the clearly tracking the don't we unique offsetting SKU piece inflationary same have where business impact in that year-over-year.

did very about any a comes when take think it for you half, it don’t it inflation we’ve about We this quarter. slow, talked good always industrial certainly, given lumpier back distributors perfectly little in the If like bit quarter. steady

ability to referenced pass well the that Neil as accounts doing local with on. smaller and So the

price really that and up points will driver we more We realization step in some through quarter our gross key our in this as margin to XX see we XX performance guidance. move is basis second had the net by assumed half that high

Adam Uhlman

SG&A That’s countermeasures. then you. helpful. got had Okay, And you mentioned some

Is everything obviously and come of could going is that’s commissions other rationalization but there's plan where wondering if I’m Some -- on come any to now, talk you areas tightening? color? facility more doing their you’re with through to if that about else, belt

Neil Schrimsher

our will we or facilities co-locate we’ve see opportunities in continue and look at Yes, as to markets. footprint, to expanded combine we some

we’ve QX And in serve bit will more little happened so there's we’re and opportunities help going forward, ability those which and cost of confident that really to productivity.

business get efficient to level more the retirements differentiated continuing get touch to transitions. our just resources, investments or have to of there a forward that’s that to also are facing But continue and us the operations as customers in help back continue in We staffing strong grow. to biases allowing office and have those we resources our

that investments productivity. we technology to and benefits reaping our made or business just operations the improvement be have that in we our continuous service in we’re continue branches our would initiatives shop helps DCs across it centers whether drive that So or or will from and

David Wells

does we’ve in investments indicated, as technology to excellence continue reflect well the QX that ongoing. we leverage as think nice operational I Neil exploit And as that initiatives there. and have made the

priorities think quarter. the in we're some strategic funding So still of our I

merits some made another that driven it, with we year-over-year. costs given the claims quarter just spend, driven came through quarter. of And X.X% that for So by terms by our self-insured unusual of higher to reference SG&A up X.X% focal in this X.X% medical

we plus Fluid will of Power in initiatives year, the that while in a leverage an that with workaround of place bit expense still of to initiatives offset the that half so those strategic technology have the take increase operational the do continue sales to of funding the diligence, continue X will see we back the back January of SG&A X, would but focal So and place that the offset. year did our reflect impact driving addition January or as to take an merits half we

Adam Uhlman

it. Got Thank you.

Operator

Your next comes with Research. from Ryan Instructions] [Operator Northcoast question Cieslak

line is Your open.

Ryan Cieslak

called Hey, go lot and sort December late first to even guys. wanted the of market the here Power. guys if out at would the maybe seems end I they back, line the trended this into below, distributors which question, in point? My a certainly of experience markets good January. Are quarter what that. in like Fluid you characterize early you And just Neil, and out strip morning, or expected How through other you how they weakness trending relatively in maybe tech you’ve

Neil Schrimsher

If Yes, shared, step been would week look look days. of December right, have final that we the really the guidance it's those back, went lower. in XX that then so I mid sequentially especially right, was range little I down improved and single of time really year-over-year if slightly that sales range. in through that so a that comparable middle a on as same. November middle driven I guidance And If the of period probably at still October couple forward, as really digits by look I

or were in days Just seen I single-digit yesterday, range of that. in but XX mid today XX haven't that yet

side. continuing. talked we're are from So, spillover I the the into industries, this think I probably those XX big getting don't about a that likely things shutdown know in those we on concerns

we some get more government would to they They for then a got something in at bit good optimistic. earthmoving infrastructure heavy can't positive front aggregate up a will and good productive some from I forward, billings as so work That do equipment. for and look for standpoint, look to do, get of through. type industry, settle which be somebody's more which that cement projects, and in little could us we point As once bode highway XXXX's, that’s

forward that So for us. fiscal back could as help early look or of the also a either of part things in those our into 'XX fiscal year the half be we are

Ryan Cieslak

Okay.

that what call really change underlying you’re I right clear, not the be you’re end of out? so seeing your is mean, would material now saying a to Just momentum markets in you

Neil Schrimsher

big same. not seeing down last the now from right December week and No, in is we're the step more of it

Ryan Cieslak

can year-over-year some had back missed, oil recent growth there sorry Was I to then, give And your you as you about in Is those revision there you growth in Okay. gas the the it any what the of and businesses? quarters? couple is around And if to then second just color guidance the half? businesses, that the quarter. relates think assuming next

David Wells

From and in perhaps, standpoint, the we for are gas really guidance and really quarter We a the year. performance of our an rest in there's oil in potential that's outlook think, rigs mid-teens be to we at better. drilling probably nice to the Xx Activity around Permian wells, XXx. is I look presence. if have ratio And the uncompleted the continues to where but drilled, the

is the really with So improve, but to guidance continuing in our mid-teens along view is potentially the activity that at, remains solid at the get are level that ability range. we

Ryan Cieslak

what saying? year-over-year you’re basis a On is

David Wells

Yes.

Ryan Cieslak

outside the What other one look back or declines. segments declines expect it sales sales organic Okay. half And markets as of the you when guess growth be down year-over-year? Fluid then business market do the in to organic the in that Fluid Applied at Power tech Power, year, I being like within in or end seems you the

David Wells

some know that mining, got in around agriculture, I support we declines don’t is steep we’re gas. mean, and other There generation. there oil in any power markets. participants broad-based in I in

many OEMs industrial plan. So good mobile we good of think continuing are outlook, and have to those

fully that the groups bit that end clearly done and around a segments. one participate with now segment but which looking right or seeing as tech. utility well also, diversify projects is has at softness couple little a of A to it's around we So, little well, ways in other other can understand

Ryan Cieslak

Dave, that is, out. the Okay. the it the like accretion seems terms you FCX And laid original that I running guess, guidance question you there in is can then reaffirm, ahead of just my guidance last I of half at to assumed back guidance now in was original Have have? accretion of this what Thanks. $X.XX. you the rate sort in you $X.XX run What the have updated that point?

David Wells

Yes.

the we to out up in recall fiscal 'XX did of you terms So, gate, accretion. talk if $X.XX about $X.XX

saw a of kind amortization you the that to $X.XX range that. in to we of strung terms to what in quarter. settle was XX. -- benefit, XX that favorable We’ve was expense for a a quarters in basically updated impact can so that the of $X.XX the bit together now assumed of As couple We take

end top slightly synergy the higher now it's certainly of exceed range, a on So line to of month doing trending like basis I continuing the and to ownership the on case. said that XX of plan did ahead

pleased the would progress be expect guidance. to second that with second continuing to continue our half the there So half -- into we and

Ryan Cieslak

great. Okay, guys. Thanks,

Neil Schrimsher

bet. You

Operator

question comes with from Barger Your KeyBanc Steve Capital next Markets.

is line open. Your

Ryan Mills

Neil morning, is on This Steve. Mills Good for Dave. Ryan and

Neil Schrimsher

Hi, Ryan.

Ryan Mills

lot cycle. And some Yes, out you the there's machinery of around heavy been I OEM know called concern softness. a investor equipment

I are cautious more question and production? on is my visibility seeing view So your around that get order what's and you machinery customers guess cycle OEM

Neil Schrimsher

plans talked now we in I don’t know think December on is timing as we guys cautious. that our you're many early, what with that guys shutdowns We of of We're we'd worked and the or Fluid right? for not be larger Power outlook, they plant We see that is some that as more would segment market business. end do it is supporting calendar their equipment. saw an maintenance obviously, their for that midsize through

We are those are equipment, the controls. products plus electronics on part we in of the including solution,

year. continue of a start it's the think I to on So the

positive they as 'XX. is work through think many still or I there

with that positive percent, into or a Association 'XX. show a of percent weakening probably some is not pneumatics some but much those hydraulics I others softness think in a feed solutions and to, would around may a two more or outlook Fluid there Power and

we will be period. lull to fruition, is content to working there Some a to in that that. in some through grow 'XX? our So comes right, in But it that are if time pointing calendar

As seeing we year, year that start days necessarily know into XX this don’t or would it, we that. calendar I this so be

Ryan Mills

couple questions in cash free balance Okay. Free And flow realization flow in sheet. of then the around the quarter. good a cash was I’ve

about reduce debt you more focused. how allocation Do of You have is do is share are question on Board sheet. the to cash moderate deal more quite plan? my from a bit I thinking the or still here, is you And balance opportunistic guess repurchases? things capital what of start

David Wells

to continue that into capital your We allocation best the of evaluate point.

cash the flow the cash some quarter. in quarter, given have the in cumulated stronger We

can M&A we Control to board robust still stock-price going just opportunistically discipline committed drives. terms given to buyback, kind looking in nice We the So true about, space to are remain think had value opportunities significant of our in while we on Flow share the then accretive of where drive our Power continuing maintain we shareholder you funnel. our on think to making delevering as progress potentially ultimately obviously Fluid priorities depending there, that there evaluate at particularly, the

Ryan Mills

guidance enough Okay. achieve the the around implied that to year-to-date And flow to flow cash then half generation Did is $XX confident free million. you in of million the feel $XXX million. cash in back $XXX

David Wells

Yes, sure I do.

business. So I the flow take this about think of in seasonality the cash

most We some posted recent we some like are initiatives, of back the in I collections the payables of in the quarter really the typically that of committed year, the is momentum of initiatives. our half at terms which stronger.

terms cash delivery that's shore confidence the underscore that flow. would of in helped at full-year free we socialized, we’ve that the reiterate and of level that -- So commitment on to so up guidance really

Ryan Mills

And Okay. the conservative in call just in December. that about take you is to you confident fair? what more Did back up, half ongoing just press conditions more release, on then because of the the sound today happened commentary a than approach wrap the

Neil Schrimsher

Go ahead.

David Wells

underscore the some up a call balanced Power but that step so a of of half in again, Flow that I Power up picture backlog well -- about that the think as first the to guidance kind that that Fluid service the those some confidence. And think when seen last up power comps, in the business did trying pleased our we've of given market here growth we of and on the nice do single-digit back Okay. sure to helped and much again in with We we’re terms exposure few that and but that’s back half, doing business, still we try have represent the difficult draw trying yield make specific assumes, growth pretty mid given really very of trying tough business, to what that just what quarters -- couple of we’ve the some nuances side in between portfolio and of nuances to growth of That’s the have weeks kind view seen we comps you Control do to think of fluid a the there. here the Fluid continuation Segment. center

Neil Schrimsher

standpoint, changing letting not go internal internal we’re plans. or And not from we’re an

hard can. everywhere working be will we growth profitable secure we to So

Ryan Mills

said on tech sure to thinking Good to I you Power color then, to just last Fluid question And was it about little if your And single-digit. business? that so, low exposure the right. you believe give make was the companywide? exposure know. one Was could a I

Neil Schrimsher

the end across side. one and -- business that user it is it's there in is Ryan, that company just would not across one be segments participants just It or

center breaks maybe Fluid So, perfectly they up. more And be Power down, but little would participation. both a know on I than it then don’t service there how have that break

Ryan Mills

Thanks my for questions. taking

David Wells

Okay. Ryan. Thanks,

Operator

Jason the Lakes from comes question next Rodgers Your with Great Review.

line open. Your is

Jason Rodgers

the for taking follow-up. Thanks

just So say other or is and the that you a to Fluid half makes quarter in two cautious up technology Clearly shortfall that project there second items. due more two it see reduction those and the sum to Power. delays that items is something statement fair those guidance, the the is second you the than to

Neil Schrimsher

both well you in QX charge we as of impact key the that top obviously as about line quarter. non-cash LIFO terms of think the were softer as the Those the some in recorded drivers, the Jason, LIFO,

is in that step power drivers tech trend the would looking those the the service and be guidance. fluid here and in again, in continued certainly exposure of balance forward kind the terms out the that business, But key just particularly of So up the segment. incorporating the center

those So key were the drivers.

Jason Rodgers

the these quicker you we what’s that get expected. -- not get possibility realize delayed, And than could projects

David Wells

said terms and There's potential. and your call. key customers that discussions they’re seeing what certainly based that it, with taken, in view a realistic tough think demand, to I’ve on the I We’ve but activity there's potential, of secondary that project

Jason Rodgers

few flow 'XX. questions, All right. And of Do just for target I updated the have you fiscal could. if a number cash

David Wells

to XXX. XXX again, once flow cash Free

Jason Rodgers

how in like XX bought he million. like right. the shares repurchased All were had looks It many And quarter?

David Wells

[indiscernible] shares dividends repurchase on most maintained No debt to We the for M&A quarters. focus and paydown activity. recent and

Jason Rodgers

cash at flow statement. Okay. I looking was just the

in far the half. the As half as rate second the tax second

David Wells

in is second favorability Yes, some quarter, key there ongoing That half We XX half to being the XX% some tax that from credits mix global most quarter. didn’t plus of our saw discrete earnings in the we rate, a to was driver we guiding some Certainly second benefit. XX% foreign that intangible this we’re repeat we able again seeing of tax and favorability the to recent talked had the where a were with QX $X.XX offset to seeing. item the obviously guided XX. tax

Jason Rodgers

ratio what leverage finally by target is the what period. And and time

David Wells

long-term to balance generate putting on continue see drive the that cash flow average accretive and It's we kind MLA but sheet wanting be as to down the will target we back moving really we X.Xx year. shareholder doing maintain are would balance We half our flow, As and significant think in going an a to leverage. ebb the on value. that based deal of talked as of X.Xx And of work can between we’ve kind we Where took to target. to

Jason Rodgers

Thanks very right. much. All

Neil Schrimsher

very All right. Thanks much.

Neil Schrimsher

Thanks, Jason.

Operator

question Research. next from comes Your Northcoast Ryan Cieslak with

Your line open. is

Ryan Cieslak

as next just prior of sort mid-teen that’s mid represent back question, today. growth And of those sales, year. percentage growth sales and into growth within back to gas sounded the or or make you remind quarters visibility that have felt just sure just it half like implied -- you’re want And I just just that going would I rate in softness Neil businesses follow-up. But sustain see the Neil, single-digit imply seeing Is sorry, can there. sure certainly. confident guidance. understand understand there your for quick the back lower, the could Do you Yes, so? you I oil half what’s at my in that us there what thanks. Dave would the of then businesses a type visibility make you you some businesses again a gives you Thanks. guys have deceleration Hey, of I oil two -- what or what are to there, least. those some to your confidence want it

Neil Schrimsher

Right.

start, the So the Dave maybe business. I will percentage in to get will

reminder, a So right. just

lot the really upstream production. ongoing ongoing participation about is of drilling of predominantly segments as upstream Our completion and in and a we think and its upstream

do really as going Permian good the around to for to look requiring point. mechanical. and price parts worked and now. in part or components those XX and the of wells if in at on free and that from our activity deposits that’s the flow, so, business or and through their we’ve lift well oil that and XXs the To which of on good Permian. breakeven some go they change it's mean, There's count and and place other that, participation activity And producers, is I lot I we for really rig official believe activity, from A

drilled But above right rate at lot that So into down that? supply what’s not And or effect look demand especially point will I year It supply There's play geography its global a ahead five to been seem can its our be X% hey, geographies. in its some is if play does continues we activity doesn’t now, that the that those take online into at and is view Does slow having completed. to that? the what now, refinery. average. in think given away a come

So our that’s driving what’s view.

potential our half. probably half is that’s with little -- there's first course the our a to be and view that in Maybe there, customers driving second bit but a like with what lot Of discussions better. producers our

David Wells

elaborate the Neil growth teens Yes, seen we’ve business. again. just referenced that here to that high in

customers our through sales point. this last than of Given worked breakeven terms of here that And again, energy still, overall our have this businesses. XX% in on less the related downturn

be they could So at view is barrel. a $XX productive

any seen all not oil and we’ve gas prices. these adverse at lower from So impact

Ryan Cieslak

color, the guys. Appreciate Thanks. Okay.

Neil Schrimsher

Okay.

Operator

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

Neil Schrimsher

throughout you many thank of And forward to the to us to talking look quarter. I joining we want for just today. everyone

Operator

concludes today's call. conference This

You may now disconnect.

Applied Industrial (AIT) 24 Jan 192019 Q2 Earnings call transcript