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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Presentation
Executive
David K. Wells

Reported EPS for the quarter was $1.02 per share, inclusive of approximately $0.18 cents of discrete tax expense, primarily resulting from the reversal of the discrete tax benefit recognized in our first quarter results, as well as the effective tax regulations that were issued during the quarter. Excluding the incremental tax expense, EPS for the quarter would have been at the high end of our guidance.

Cash generated from operating activities was $103.4 million and free cash was $96.2 million, which was above the prior-year period and our expectations. We are encouraged by the rebound in our fourth quarter cash performance, highlighting ongoing traction from our shared services and other collection and inventory initiatives.

Our capital allocation strategy continues to focus on reducing outstanding debt and funding accretive tuck in M&A opportunities. We paid down $24 million of outstanding debt during the quarter and nearly $104 million since financing the acquisition of FCX. Net leverage improved to 2.6 times EBITDA at quarter end, below the prior-year period of 3.3 times and close to our targeted ongoing level of approximately 2.5 times EBITDA.

Transitioning now to our outlook for fiscal 2020, as noted in our press release, we are forecasting a sales range of down 2% to up 2% and earnings per share in the range of $4.20 to $4.50 per share. Excluding acquisition-related sales and adjusting for two extra selling days this year versus fiscal 2019, our guidance assumes organic daily sales of down 5% to down 1% year-over-year. Other assumptions in our outlook include $37 million to $38 million of interest expense, an effective tax rate of 25% to 26% and approximate 39 million diluted shares outstanding.

The guidance takes into account increased uncertainty around the industrial cycle entering our fiscal 2020, hitting weaker sales trajectory in our business over the past several months, including mid-single-digit sales declines during the month of July. We believe this outlook is prudent against the current backdrop. With that said, we remain highly focused on internal growth and margin initiatives, which combined with stabilizing technology end-market demand in our legacy fluid power operations, easing comparisons and potential lower life of headwinds provide several levers to support our earnings momentum even in a slower demand environment.

Furthermore, we expect a solid year from a cash generation standpoint, reflecting further traction from our working capital initiatives before cash generated from operations in the range of $220 million to $245 million. Capital expenditures are expected to range from $20 million to $25 million, resulting in free cash outlook of $200 million to $220 million. This represents an increase in free cash of approximately 30% over fiscal 2019 at the midpoint. Our cash generation potential during fiscal 2020 will provide flexibility for further debt pay down, accretive acquisitions, funding our dividend strategy and opportunistic share buybacks.

With that, I will now turn the call back over to Niel for some final comments.

Executive
Neil A. Schrimsher

Thanks Dave. So to recap, while the current industrial backdrop leaves us cautious with our