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

Apr 26, 2018 • 10:00 am ET

Previous

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

Share
Close

Loading Event

Loading Transcript

Q & A
Operator
Operator

[Operator Instructions] Your first question comes from Adam Uhlman from Cleveland Research. Please go ahead.

Analyst
Adam William Uhlman

Hi, guys. Good morning.

Executive
Neil A. Schrimsher

Good morning, Adam.

Analyst
Adam William Uhlman

Hey, can we start with FCX and the updated earnings guidance for the year, for that business, I guess, could you expand a bit on what you're seeing on the top line and the margin performance. And then secondly, related to that, do you think that your initial earnings accretion estimate of $0.10 to $0.20 for next year is still a reasonable target, or has that gone up as well?

Executive
Neil A. Schrimsher

I'll start and maybe let Dave come in, especially as we think about it going into next year. The business is performing very well for the first couple of months that we have, and we feel good about it coming into the coming quarter. Obviously, we get one more month. So we think in the guidance, right, our total sales are going to be in the upper 20s to maybe 30% from a growth standpoint. And we think FCX continues at its two months rate. There's some projects in that first couple of months. Maybe there will be a little bit of seasonality. But our thinking is it continues at that rate and then core Applied is in the upper single digit rate, perhaps more than seven and somewhere above the eight on the ranges of the guidance. So that's our expectations that we have.

And then from the margin standpoint, we know the added month of FCX, right? It will be accretive to our margins overall. So total margins probably improve 40 basis points to maybe 70 or so basis points in that. We believe the core, while it has some opportunities, we know we'll be getting some LIFO expense that will be coming into the fourth quarter as well. So we'll have continuous improvement initiatives, but it may be closer to its number that was in the third quarter with some work underway to make it a little bit better.

Executive
David K. Wells

Yeah. We're seeing some upside, Adam, in the fiscal 2018 guidance in terms of some volume benefit, about $0.03 volume benefit as well as about $0.08 benefit from lower amortization expense versus our initial assumptions. I think thinking about the full year 2019 guidance, we've not updated, obviously, the 2019 guidance. But you could expect some of that amortization benefit to flow through to the full-year impact there.

Analyst
Adam William Uhlman

Okay. And then just a follow-up. How big is the expected LIFO expense that you are going to see next quarter?

Executive
David K. Wells

We've not got a good estimate on that at this point, Adam, but could be 10 to 20 basis point headwind.

Analyst
Adam William Uhlman

Okay. Thank you.

Operator
Operator

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

Analyst
Avi Danda

Hi guys, good morning. This is Avi on for Ryan.

Executive
Neil A. Schrimsher

Good morning.

Analyst
Avi Danda

Could you guys just discuss some of the pricing dynamics in the quarter in terms of how much that contributed to topline growth? And how is any impact it