Given the favorable comp of last year’s fiscal fourth quarter when COVID-19 was ravaging the economy, Applied Industrial Technology Inc.’s resounding revenue and earnings beat for the period ending June 30 doesn’t come as a surprise — but it doesn’t make the performance any less impressive.

The Cleveland-based company this week reported fiscal fourth-quarter sales of $895.9 million, a 23.6% increase from the same period in 2020 and $52.3 million above Wall Street’s expectations. Applied notched earnings per share of $1.51, which beat last year’s mark by 25% and toppled predictions by 34 cents.

The company “saw continued improvement across both our segments as the quarter progressed, driving daily sales above normal seasonal patterns and our expectations,” CEO Neil Schrimsher said on Tuesday’s earnings call. “Combined with the lapping of prior-year pandemic-related weakness, sales increased nearly 20% on an organic basis over prior-year levels and were positive on a two-year stacked basis. Trends were stronger in the second half of the quarter versus the first half as break/fix and maintenance activity continued to ramp.”

The company has seen strength in its fluid power and flow control segment, where “shipments accelerated following strong order activity in recent months, with backlog remaining at record levels,” Schrimsher continued. “This positive sales momentum has continued into early fiscal 2022, with first quarter organic sales through mid-August up by a high-teens percent over the prior year across both our service center segment and fluid power and flow control segment.”

Upbeat Guidance Amid Challenges

But while Applied’s fourth-quarter performance was stellar, it’s what lies ahead for the company that has Schrimsher — as well as analysts that cover the distributor — especially upbeat.

“Overall, the momentum we see building from our industry position and initiatives leaves us optimistic heading into fiscal 2022,” said Schrimsher, adding that the company is seeing strength particularly in certain end markets. “When looking across our customer end markets on a two-year stacked basis, the strongest areas include lumber and wood, food and beverage, aggregates, technology, chemicals, transportation, mining and construction. We’re also seeing improved order momentum across other heavy industries, including machinery as well as stronger demand within our longer-cycle specialty flow control market verticals after lagging some in recent quarters.”

Schrimsher acknowledged challenges, like the ongoing supply chain congestion, that threaten Applied’s growth path, as it does for many distributors, but Applied’s near- and long-term outlook is bright.

“We remain cognizant of ongoing supply chain constraints across the industrial sector, which has been widely conveyed throughout the industry in recent months,” he said. “Lead times remain extended across certain product categories, driven by component delays and an increase in fulfillment timing. However, the backdrop does not appear to be getting materially worse and the direct impact to our operations and performance remains relatively modest to date. Our technical scale, local presence and supplier relationships have been and will continue to be a competitive advantage in managing through current supply chain dynamics and driving share gain opportunities as the cycle continues to unfold.”

The company’s optimism resulted in reinstating formal full-year guidance — something other publicly traded companies are doing as they lap last year’s pandemic-fueled dip.

For the fiscal year ending June 30, 2022, Applied is “introducing EPS guidance in the range of $5.00 to $5.40 based on sales growth of 8% to 10%, including 7% to 9% on an organic basis, as well as EBITDA margins of 9.7% to 9.9%. Guidance assumptions include a steady industrial demand environment relative to current trends, ongoing inflationary headwinds including greater LIFO expense and lingering uncertainty related to the COVID-19 pandemic.” The company’s reinstated guidance does not include potential future acquisitions.

As mentioned, the Street has viewed Applied favorably in recent months. The company’s shares (NYSE: AIT) are up more than 50% since last fall and have grown slightly after Tuesday’s fiscal 4Q report.

In a note to investors, Dave Manthey of Baird wrote that the investment bank has no changes from its previous favorable outlook.

“AIT reported excellent 4QF21 (June) results, beating our EBITDA estimate by 20%,” Manthey wrote. “This was consistent with our positive preview into the quarter based on Distribution Survey/Motion results. Organic daily sales growth nicely exceeded guidance and normal seasonality as heavy industries continue to gain momentum and capital projects are being released. Gross margin was also solidly above expectations, while AIT continued to demonstrate excellent cost control. Looking forward, QTD organic daily sales are trending up high-teens y/y. F2022 guidance was also introduced, implying nice upside to our/Street expectations. Net, building momentum in core end markets and strong execution continue to power good results/guidance for AIT.”