Applied Industrial Technologies (AIT) Q2 2025 earnings summary

Executive summary

• Q2 FY25 net sales were $1.07B–$1.1B, down 0.4% year-over-year, with organic daily sales declining 3.4% and Hydradyne acquisition expanding capabilities.

• Net income was $93.3M ($2.39 per share), up 6.7% from prior-year adjusted EPS, and EBITDA rose 3.3% year-over-year, with margin expansion driven by cost controls and gross margin strength.

• Gross and EBITDA margins expanded by 114 and 45 basis points year-over-year, respectively, supported by channel execution, cost controls, and lower LIFO expense.

• Hydradyne acquisition for $276M closed December 31, 2024, funded with cash, expected to add $260M in sales and $30M in EBITDA in the first year, and be accretive to EPS by $0.15 within 12 months.

• Quarterly dividend increased 24% to $0.46 per share, reflecting confidence in financial position.

Financial highlights

• Q2 2025 sales were $1,073M–$1.1B, down 0.4% year-over-year; organic daily sales down 3.4%.

• EBITDA was $135.1M (+3.3% YoY), with a 12.6% margin (+45 bps YoY); EPS was $2.39, up 6.7% from prior-year adjusted results.

• Free cash flow for the quarter was $89.9M, with year-to-date free cash flow up 34% year-over-year and at 114% of net income.

• Gross margin improved to 30.6%, up 114 basis points year-over-year.

• Operating income for the quarter was $120.9M, up from $114.6M year-over-year.

Outlook and guidance

• FY25 EPS guidance raised to $9.65–$10.05, with sales growth of 1%–3% and EBITDA margins of 12.2%–12.4%.

• Organic sales expected to decline 3% to 1% for the year, with gradual improvement in the second half.

• Third-quarter gross margins expected to normalize to around 30%, with EBITDA margins moderating to 12%–12.2%.

• Initial EPS accretion from Hydradyne to be modest in Q3, ramping up in Q4 and fiscal 2026.

• Management expects the full-year effective tax rate for FY2025 to be 23.0%–24.0%.