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What were the key takeaways from Applied Industrial Technologies’s earnings call?

- **Revenue Growth**: 9.2% YoY driven by 3% organic growth, with Service Center up 4.4% organically.
- **Profitability**: EBITDA +13.4% to $419M (12.2% margin), EPS +11.4% to $2.63.
- **Strategic Wins**: Hydradyne contributing $30M EBITDA, M&A pipeline active with $53M buybacks.
- **Key Trends**: 16/30 end markets growing, Service Center MRO demand strong, Q2 organic sales +low single digits.
- **Risks**: LIFO expense rising, but FY26 pricing guidance maintained at 150-200 bps.

**【CEO Summary Section】**
- **Revenue Growth**: Fiscal 2026 Q1 revenue increased 9.2% YoY, driven by 3% organic growth and 6.3% contribution from acquisitions. Service Center segment grew 4.4% organically, while Engineered Solutions segment sales were flat YoY but showed 5% order growth.
- **Profitability**: EBITDA rose 13.4% YoY to $419 million, with margins expanding 46 bps to 12.2%. EPS increased 11.4% to $2.63, benefiting from a 10% lower share count.
- **Market Trends**: 16 of 30 end markets showed YoY growth, with strength in machinery, food/beverage, and oil/gas. Service Center sales growth accelerated due to MRO demand and cross-selling initiatives.
- **Strategic Initiatives**: Hydradyne acquisition contributed $260 million in sales and $30 million in EBITDA, with synergies progressing well. M&A pipeline remains active, with $53 million in Q1 share buybacks.

**【CFO Financial Commentary】**
- **Top Line**: Consolidated sales of $1.1 billion reflected 9.2% YoY growth, with 200 bps pricing contribution. Service Center segment gross margin improved 70 bps to 13.9%, while Engineered Solutions margin expanded 40 bps to 13.8%.
- **Cost Control**: SG&A expenses grew 0.7% YoY, benefiting from AR provisioning and cost management. LIFO expense was $2.6 million, slightly higher than prior year.
- **Cash Flow**: Operating cash flow of $119 million supported $419 million in cash, with net leverage at 0.3x EBITDA.
- **Guidance**: Full-year EPS raised to $10.10-$10.85, reflecting Q1 performance. Q2 organic sales expected to grow low single digits, with Service Center outpacing Engineered Solutions.

**【Q&A Highlights】**
- **Pricing Dynamics**: 200 bps YoY pricing contribution in Q1, with 150-200 bps expected for FY26. Teams effectively passed through supplier price increases.
- **Hydradyne Synergies**: EBITDA up 20% sequentially, with cross-selling opportunities in MRO and field service.
- **M&A Pipeline**: Active pipeline for midsized targets, balancing share buybacks and acquisitions.
- **End Market Sentiment**: 70% of end markets showing stabilization, with positive order trends in robotics, data centers, and life sciences.
- **LIFO Impact**: Q2 LIFO expense expected to rise, but FY26 guidance assumes manageable inflationary pressures.

Applied Industrial Technologies, Inc. (AIT) Q1 2026 Earnings Call Transcript

Revenue

Sales and Services Revenue

Financing Services Revenue

Other Revenue

Cost of Revenue

Cost of Goods and Services

Cost of Financing Services

Other Cost

Gross Profit

Other Operating Income

Operating Expenses

Selling, General and Administrative Expenses

Selling and Marketing Expenses

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Research and Development Expenses

Loss on Bad Debts

Loss on Impairment of Other Assets

Loss on Disposal of Assets

Other Operating Expenses

Operating Income

Non-Operating Income (Loss)

Income (Loss) from Affiliates

Income (Loss) from Associates

Income (Loss) from Joint ventures

Gain (Loss) on Other Investment

Gain (Loss) on Change in Fair Value

Gain (Loss) on Foreign Currency Exchange

Other Non-Operating Income (Loss)

Net Interest Expense

Interest Expense

Interest Income

Pretax Income From Continuing Operations

Income Tax Expense

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Net Income from Continuing Operations

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Other Items Before Net Income

Net Income

Net Income Attributable to Minority Interests

Net Income Attributable to Owners of the Company

Preferred Stock Dividends

Other Adjustments

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Other Comprehensive Income

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Total Comprehensive Income Attributable to Minority Interests

Total Comprehensive Income Attributable to Owners of the Company

Basic EPS

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Basic EPS from Discontinued Operations

Diluted EPS

Diluted EPS from Continuing Operations

Diluted EPS from Discontinued Operations

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