Applied Industrial Technologies, Inc. (NYSE:AIT) Q4 2019 Earnings Conference Call - Final Transcript

Aug 14, 2019 • 10:00 am ET

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Applied Industrial Technologies, Inc. (NYSE:AIT) Q4 2019 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions]

Your first question comes from Chris Dankert with Longbow. Your line is open.

Analyst
Chris Dankert

Hey, good morning, guys. Thanks for taking my question.

Executive
Neil A. Schrimsher

Good morning.

Analyst
Chris Dankert

I guess, first off, kind of, looking at the midpoint of the guidance figures you provided here, seems to imply you can hold EBIT margin flat or actually improve it by 10 basis points, 20 basis points into fiscal 20. I mean, that will be really impressive given the slowing demand and pricing. Just can you walk us through the moving pieces there or the plan to, kind of, to support margin in this environment?

Executive
Neil A. Schrimsher

You bet. We think, we still see good traction for our price initiatives. But more importantly, Chris, some of the other margin levers that we have at our disposal in terms of the expansionary product sales, etc to -- continue to drive in a tougher environment. So modest margin improvement something in the range of flat to 20 basis points in operating for gross margins. Beyond that, the SG&A leverage you saw in the quarter was positive. And we've got additional work around that in terms of continuing to manage through and recognize the benefit of some of our technology investments and productivity initiatives.

So I think, here again, you saw it in Q4, we know the levers. We've got the discipline around being able to size and react in any environment, and we'll manage through some tougher macroeconomic conditions just fine.

Analyst
Chris Dankert

Got you. So it really is more just, kind of, flexing the Applied DNA and really, doing which typically we do to get cost out, rather some kind of explicit expense reduction program?

Executive
Neil A. Schrimsher

Chris, exactly. On the margin side, we continue to use the technology, the systems and the investments that's reducing variation around customer groups and product groups. We benefit from mix and products and services as we expand those with our customers in the side. And then on the customer mix, we're representing our selling not only to larger accounts, but representing the local economy. And then from a SG&A standpoint, we will maintain or be cost accountable. But some of the technology investments that we've had are really allowing us to leverage more central services, shared services and let our local teams to be more forward facing in doing work that's touching customers and adding value to customers.

Executive
David K. Wells

I'd add to Chris that, certainly, we still reflect a fairly significant level of LIFO headwinds in the guidance. We would see that an opportunity is potentially some of that would ease both with our continued reduction of our inventory position as well as some easing of inflationary pressures, which could be an additional tailwind for us there.

Executive
Neil A. Schrimsher

Perhaps, timing wise on that, maybe a little more back half. So then it is the first half with what we would see right now.

Executive
David K. Wells

Good clarification.

Analyst
Chris Dankert

Got it. Yes, again that's really, really helpful, guys. Thank you. And I