Fluid power, power transmission and automation products distributor Applied Industrial Technologies reported its 2024 third quarter financial results for the January-March period on April 25, and announced a pending acquisition in Mexico.

Acquisition

Applied shared that it has agreed to acquire Grupo Kopar — a distributor of pneumatic and motion control components for emerging automation technology solutions, based in Monterrey, Mexico. 

Terms weren’t disclosed for the deal, which is expected to close “in the coming weeks,” according to Applied.

Founded in 1983, Grupo has approximately 200 employees that will join Applied’s growing automation team that has considerably expanded over the past 18 months via acquisition. Applied acquired Minneapolis-based Automation Inc. in late 2022 and acquired Rochester, NY-based Advanced Motion Systems in April 2023. Most recently, Applied added Columbia, SC-based Bearing Distributors Inc. and Long Island, NY-based Cangro Industries in September 2023.

Grupo currently has 13 total branches — 11 in Mexico, one in Costa Rica and one in El Paso, TX.

“In addition to expanding our automation footprint with a market leader in this key growth geography, Kopar has strong alignment with our strategy focused on high-value robotics, machine vision, and IIoT applications,” Applied President & CEO Neil Schrimsher said about the acquisition. “Overall, we see significant potential and synergies building across our automation platform that stand to enhance our growth and earnings potential into fiscal 2025 and beyond.”

Grupo is a member of the MAC Distributors Network — a coordinated sales and technical support network that provides distributors with specialized local technical support, local service and in-stock material.

Fiscal 3Q Results

For the three months ended March 31, Applied posted total sales of $1.146 billion that were up approximately 1.3% year-over-year, further decelerating from 2Q’s (Oct-Dec) 1.6% and 1Q’s (July-Sept) 3.1%. Acquisitions drove most of the increase (1.2%), partially offset by the impact of having a one-half lesser selling day than a year earlier (-0.8%).

The company’s 3Q organic sales improved 0.7% year-over-year, a rebound from 2Q’s 0.1% decline. Applied said the organic gain reflected a 2.6% improvement in its Service Center segment and a 3.2% decrease in its Engineered Solutions segment. Sequentially, average daily sales were up more than 2% from 2Q24.

Applied’s 3Q gross margin was 29.5%, up eight basis points year-over-year, driven by a favorable 30 bps annual impact due to lower LIFO expense. The figure was up 10 points from 2Q. 

The company’s 3Q EBITDA was $135.7 million, down 3.3% year-over-year, with 11.8% EBITDA margin down 56 bps. Sequentially, it topped 2Q’s $130.8 million and trailed its 12.1% margin. Applied said EBITDA margins were impacted by unfavorable expense absorption and mix against modest sales growth.

“We expect these headwinds to alleviate near-term, and we remain on track to achieve record cash generation for the year,” Schrimsher said in the company’s financial news release.

Applied’s 3Q operating profit of $121 million trailed the $127 million of a year earlier, while net profit of $97 million was flat.

Applied said the overall 3Q sales results exceeded its expectations, with the year-over-year growth trend gradually improving as the quarter progressed. 

“Growth was led our core Service Center operations, where its technical industry position and internal initiatives are augmenting steady break-fix demand. This encouraging trend is a favorable indicator for our broader business and growth potential moving forward. In addition, we remain positive on our Engineered Solutions segment ahead of fiscal 2025 considering a constructive outlook across technology, automation, and process markets.”

Other notes 

Also shared in Applied’s fiscal 3Q investor presentation:

• Estimated price contribution was in the low single-digits
• 15 of the company’s top 30 industry verticals had year-over-year sales growth, down from 18 in 2Q
• Strongest sales growth was across food & beverage, metals, utilities, mining and lumber & wood, offset by softer trends in machinery, energy, pulp & paper, fabricated metals and aggregates.

Outlook

In updating its 2024 fiscal guidance, Applied now expects full-year sales growth of 1.5% to 2.5% (1% to 3% prior), including 0.5% to 1.5% organic daily sales growth (0% to 2% prior) and EBITDA margins of 12.0% to 12.1% (12.1% to 12.3% prior).