Applied Industrial Technologies, Inc. Q1 FY2026 earnings call

• Strong earnings performance: EBITDA and EPS grew 13% and 11% respectively over prior year. Sales growth in line with outlook, EBITDA margins expanded exceeding first quarter guidance.
• Segment performances: Service Center segment had strong top and bottom line, organic sales growth led by national accounts. Engineered Solutions segment orders sustained positive momentum, with fluid power operations showing order growth.
• Hydradyne integration: EBITDA contribution improving, sales synergies and operational efficiencies progressing.
• Capital deployment: M&A remains top priority, pipeline active; expected to remain active with share repurchases.

Service Center segment: Organic sales increased 4.4% year-over-year. Segment EBITDA increased 10.1% over the prior year, with segment EBITDA margin of 13.9% expanding over 70 basis points. Engineered Solutions segment: Sales increased 19.4% over the prior year quarter with acquisitions contributing 19.8 points of growth. On an organic basis, segment sales decreased 0.4% year-over-year. Hydradyne's EBITDA contribution continues to improve, with EBITDA up over 20% sequentially in the first quarter and EBITDA margins improving.

• Modestly raised full year fiscal 2026 EPS guidance to $10.10 to $10.85 from prior $10 to $10.75.
• Maintained sales guidance of about 4% to 7% (including 1% to 4% organic) and EBITDA margins of 12.2% to 12.5%.
• Second quarter outlook: Expect gross margins to increase slightly sequentially, EBITDA margins 12% to 12.3%, with stronger relative year-over-year EBITDA margin trends in the second half.

• Near-term sales expected to remain choppy due to customers balancing production schedules, project phasing, and capital investments during slower fall and winter months.
• Broader trade policy uncertainty lingering, impacting customer purchasing decisions.

Q: Comment on holiday shutdowns and second quarter guide.

A: Still early, mid-week holiday, but easier December comparison could balance.

Q: Supplier notification periods for price increases.

A: Overall orderly, price contribution increased, some manufacturers contemplating country of origin impacts.

Q: Engineered Solutions orders and backlog conversion.

A: Good order activity, MRO component improving, setup for second half.

Q: Capital allocation for M&A and share repurchase.

A: Prioritizing organic growth, pipeline active, will continue share repurchase.

Q: Margin dynamics and Hydradyne synergies.

A: LIFO and mix factors, Hydradyne synergies on track.

Q: Automation growth and cross-selling.

A: Combination of secular market and internal initiatives, cross-selling in early innings.

Q: Second quarter top line guidance.

A: In line with August guidance, choppy near term, backlog conversion back-half weighted