Applied Industrial Technologies, Inc. (NYSE:AIT) Q3 2018 Earnings Conference Call - Final Transcript

Apr 26, 2018 • 10:00 am ET


Applied Industrial Technologies, Inc. (NYSE:AIT) Q3 2018 Earnings Conference Call - Final Transcript


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Neil A. Schrimsher

members and Applied associates for their energy, engagement and focus to serving our customers and contributing to our overall business performance.

Throughout our business, we have significant opportunities for growth, both our product offering and expanding value-added capabilities that further enhance our differentiation, as the technical MRO distribution leader.

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

David K. Wells

Thanks, Neil, and good morning everyone. I'll begin with further details in our most recent quarter financial performance, and then move on to some additional color on our updated fiscal year 2018 outlook.

Starting with the top line, as Neil mentioned, for the quarter ended March 2018, sales increased 21.8% over the prior year quarter. This was comprised of a 6.7% organic increase coupled with an 80 basis point benefit from foreign currency exchange and 15.3% acquisition related increase. Year-over-year comparative performance also included a 1% dilutive impact attributed to one half less selling day in the quarter.

Excluding the two months of FCX Performance acquisition impact, sales per day increased 4.7% sequentially and 7.9% year-over-year. Third quarter sales in our Service Center-Based Distribution segment increased $27.4 million or 4.8%. Acquisitions within this segment increased sales by $0.9 million or 20 basis points and foreign currency fluctuations increased sales by 1%. Excluding the impact of acquisitions and currency translation, sales increased by $20.9 million or 3.6%, driven by a 4.4% core operational increase, which was partially offset by a 0.8% headwind due to the one half less selling day in this year's quarter.

Moving to our fluid power and flow control segment, third quarter sales increased $121 million or 114.6% as compared to prior year. Acquisitions within this segment generated $103 million of this increase or 97.6% year-over-year segment growth. Excluding the impact of acquisitions, sales increased $18 million or 17%, driven by a core operational increase of 18.7%. Again core operational performance was partially offset by a 1.7% decrease attributed to differential in selling days.

From a geographic perspective, sales in the quarter for our US operations were up 24.7%, with acquisitions driving an increase of 18%.Excluding acquisition impact, sales from US operations increased by $38.2 million or 6.7%, comprised of 7.7% organic growth, offset by a 1% decrease due to one half less selling day in the quarter. Sales from our businesses outside of United States, which increased 6.8% versus the prior year quarter, represented the balance of the increase over prior year sales.

Moving on to gross margins. Our gross profit percentage for the quarter was 28.9%, up 85 basis points year-over-year. Excluding the benefit from the FCX acquisition, gross profit margin for the core business was 28.4%. This represents a 30 basis point year-over-year and 15 basis points sequential improvement as a result of traction realized from various margin improvement initiatives.

Additionally, two months of FCX acquisition results drove another 56 basis points of margin expansion year-over-year. Our selling, distribution and administrative expenses on an absolute basis increased $38 million, or 26.1%