Applied’s 2Q Sales Slow, But Margin and EBITDA Tick Up - Modern Distribution Management

Applied’s 2Q Sales Slow, But Margin and EBITDA Tick Up

Organic sales narrowly dipped year-over-year as modest growth in Applied's Service Center segment offset a decline in Engineered Solutions.
Milan, Italy - August 10, 2017: Applied Industrial Technologies logo on the website homepage.

Fluid power and power transmission products distributor Applied Industrial Technologies reported its 2024 second quarter fiscal results on Jan. 25, showing that while sales continued to slow sequentially, margins and EBITDA grew from a year earlier.

For its 2Q24 that spanned Oct. 1 through Dec. 31, 2023 Applied posted total sales of $1.08 billion, up 1.6% year-over-year. Acquisitions drove most of the gain at a 1.4% positive impact, while foreign currency has a 0.3% positive impact. In 1Q23 (July-September 2023), Applied’s sales grew 3.1% year-over-year.

Excluding acquisitions and foreign currency, Applied’s 2Q23 organic sales declined 0.1% year-over-year, reflecting a 1.4% increase in Applied’s Service Center segment and a 3.0% decrease in its Engineered Solutions segment.

Applied’s 2Q24 gross margin of 29.4% grew 34 basis points year-over-year, driven by a favorable 51 bps impact due to lower last-in-first-out (LIFO) expense.

The company’s 2Q24 EBITDA was $130.8 million, up 4.2% year-over-year, with 12.1% EBITDA margin up 31 bps — again driven by the lower LIFO expense. Operating profit of $114.6 million increased 1.5% year-over-year.

Applied had a 2Q23 net profit of $91.2 million, up 13.4% year-over-year.

Neil Schrimsher

“I’m encouraged by our second quarter results considering normalization of industrywide end-market activity,” Applied President and CEO Neil Schrimscher said in the company’s 2Q24 earnings release. “Organic sales exceeded our expectations and held steady relative to prior-year levels, despite facing our most difficult comparison of the year, and slower technology sector activity as noted last quarter. We also sustained gross margin and EBITDA margin expansion during the quarter, reflecting normalizing LIFO expense, operational execution, and cost control. Additionally, we generated record second quarter cash flow that further expands our capacity to accelerate growth investments and other capital deployment opportunities going forward.”

By Applied business segment in 2Q23:

Service Center Distribution:

  • Sales of $729 million (67.5% of total) were up 3.4% year-over-year, comprised of +1.4% organic, +1.6% acquisitions and +0.4% currency. Segment operating profit was $91.4 million.
  • Applied said the segment continued to benefit from market position and sales initiatives, which includes solid growth across national accounts and fluid power MRO in the U.S.

Engineered Solutions:

  • Sales of $347.9 million (32.5% of total) were down 2.0% year-over-year, comprised of -3.0% organic and +1.0% acquisitions. Segment operating profit was $51.2 million.
  • Applied said the segment saw sustained growth across core industrial/mobile fluid power and flow control markets, offset by reduced activity across the technology sector and difficult prior-year automation comparison.

Other 2Q23 notes from Applied:

  • Estimate price contribution was in the low single-digits percent
  • Average daily sales were up 1% sequentially on an organic basis, relatively in-line with normal seasonality
  • Sales in 18 of Applied’s top 30 industry verticals were up year-over-year, compared to 22 during 1Q24.
  • Strong sales growth was across food & beverage, mining, refining, pulp & paper and transportation; offset by softer trends in technology, machinery, energy and rubber & plastics.

On MDM’s 2023 Top Distributors Lists, Cleveland-based Applied was No. 12 for industrial distributors, No. 1 for fluid power and No. 2 for power transmission/bearings. 

Outlook

In providing its fiscal guidance, Applied said it is now forecasting full year 2024 sales growth of 1-3% vs. 2023, narrowed from the 1-4% range issued in its 1Q24 report. Applied forecasts EBITDA margin of 12.1-12.3%, positively narrowed from 12.0-12.3% issued in 1Q23.

On an organic daily sales basis, Applied forecasts 0-2% growth for full-year 2024, excluding about 100 bps of contribution from acquisitions and foreign currency translation.

Related Posts

Share this article

About the Author
Recommended Reading
Leave a Reply

Leave a Comment

Sign Up for the MDM Update Newsletter

The MDM update newsletter is your best source for news and trends in the wholesale distribution industry.

2

articles left

Want more Premium content from MDM?

Subscribe today and get:

  • New issues twice each month
  • Unlimited access to mdm.com, including 10+ years of archived data
  • Current trends analysis, market data and economic updates
  • Discounts on select store products and events

Subscribe to continue reading

MDM Premium Subscribers get:

  • Unlimited access to MDM.com
  • 1 year digital subscription, with new issues twice a month
  • Trends analysis, market data and quarterly economic updates
  • Deals on select store products and events

1

article
left

You have one free article remaining

Subscribe to MDM Premium to get unlimited access. Your subscription includes:

  • Two new issues a month
  • Access to 10+ years of archived data on mdm.com
  • Quarterly economic updates, trends analysis and market data
  • Store and event discounts

To continue reading, you must be an MDM Premium subscriber.

Join other distribution executives who use MDM Premium to optimize their business. Our insights and analysis help you enter the right new markets, turbocharge your sales and marketing efforts, identify business partners that help you scale, and stay ahead of your competitors.

Register for full access

By providing your email, you agree to receive announcements from us and our partners for our newsletter, events, surveys, and partner resources per MDM Terms & Conditions. You can withdraw consent at any time.

Learn More about Custom Reports

Request a Market Prospector Demo

  • This field is for validation purposes and should be left unchanged.

Get the MDM Update Newsletter

Wholesale distribution news and trends delivered right to your inbox.

Sign-up for our free newsletter and get:

  • Up-to-date news in a quick-to-read format
  • Free access to webcasts, podcasts and live events
  • Exclusive whitepapers, research and reports
  • And more!