Applied Industrial's Q3 2025: Key Contradictions in Growth, Margins, and Market Outlook

Fluid power and automation orders growth, gross margin expectations, MRO demand trends, market and demand outlook, and automation orders and growth are the key contradictions discussed in Applied Industrial's latest 2025Q3 earnings call.



Strong Financial Performance Despite Market Headwinds:
- Applied Industrial Technologies reported organic sales decline of 3% in Q3, stable with the previous quarter, with gross margins increasing by 95 basis points and EBITDA margins by 59 basis points year-over-year.
- The performance was driven by internal growth initiatives, cost controls, and effective channel execution, despite a muted end-market backdrop.

Orders and Backlog Trends:
- Orders across the Engineered Solutions segment rose by 3% year-over-year and 8% sequentially on an organic basis, driving a book-to-bill above one for the first time in nearly three years.
- This was primarily driven by significant growth in automation, with orders up over 30% year-over-year and 20% sequentially.

M&A and Strategic Investments:
- The company announced the acquisition of IRIS Factory Automation, expected to generate $10 million in annual sales in the first year.
- This acquisition is part of a broader strategy to expand the automation portfolio and enhance cross-selling potential, supported by over 30 new associates.

Cash Generation and Share Buybacks:
- Applied Industrial Technologies saw free cash flow increase by 50% year-over-year in the third quarter, reaching $114.9 million.
- The company repurchased over 330,000 shares worth approximately $80 million for fiscal 2025 and has a new $1.5 million share repurchase authorization.