Executive Summary
Applied Industrial Technologies (AIT) reported a solid QQ3 2025 with a modest top-line gain driven by acquisitions and improving market mix, alongside meaningful margin and cash-flow expansion. Revenue totaled approximately $1.167 billion, up 1.78% year-over-year, while organic daily sales declined about 3.1% after netting acquisitions and currency effects. The quarter featured a notable shift in the Engineered Solutions segment where orders rose 3% year-over-year and 8% sequentially, lifting the book-to-bill ratio above one for the first time in nearly three years, signaling upside potential into fiscal 2026. Automation orders surged more than 30% year-over-year, underscoring the cross-sell and productized automation strategy, and Hydradyne’s initial contribution aided gross margin expansion. Consolidated gross margin rose to 30.5% (up 95 bps YoY), and EBITDA margin improved modestly, culminating in GAAP earnings per share of $2.60 (diluted $2.57). Free cash flow reached $114.9 million for the quarter, with year-to-date free cash flow up 39% and cash generation anticipated to remain a structural strength given a robust balance sheet (net leverage ~0.4x). The company also announced strategic capital deployment, including Hydradyne integration progress, a new $1.5 million share repurchase authorization, and an M&A pipeline highlighted by a definitive agreement to acquire IRIS Factory Automation. Management reiterated a constructive longer-term outlook anchored by reshoring tailwinds, margin expansion from mix and pricing initiatives, and enhanced cross-selling through the automation platform. In the near term, management acknowledged macro uncertainty, tariff dynamics, and volatile demand, guiding for fiscal 2025 EPS of $9.85–$10.00 and Q4’25 EPS of $2.52–$2.67 with flat-to-up 1% sales for the year and gross margins remaining largely stable.
Key Performance Indicators
Key Insights
Revenue: $1.1667B; YoY +1.78%; QoQ +8.74%
Gross Profit: $355.29M; Gross Margin 30.45%; YoY +9.15%; QoQ +8.30%
Operating Income: $129.40M; Operating Margin 11.09%
EBITDA: $129.40M; EBITDA Margin 11.09%
Net Income: $99.80M; Net Margin 8.55%
EPS (GAAP): $2.60; EPS (Diluted): $2.57
SG&A (excl. D&A): $225.93M; SG&A as % of Sales 19.34%
Cash Flow: Operating Cash Flow $122.45M; Free Cash Flow $114.90M; Free Cash Flow YTD ~$327.0M (YoY +39%)
Balance Sheet: Cash and equivalents $352.8...
Financial Highlights
Revenue: $1.1667B; YoY +1.78%; QoQ +8.74%
Gross Profit: $355.29M; Gross Margin 30.45%; YoY +9.15%; QoQ +8.30%
Operating Income: $129.40M; Operating Margin 11.09%
EBITDA: $129.40M; EBITDA Margin 11.09%
Net Income: $99.80M; Net Margin 8.55%
EPS (GAAP): $2.60; EPS (Diluted): $2.57
SG&A (excl. D&A): $225.93M; SG&A as % of Sales 19.34%
Cash Flow: Operating Cash Flow $122.45M; Free Cash Flow $114.90M; Free Cash Flow YTD ~$327.0M (YoY +39%)
Balance Sheet: Cash and equivalents $352.84M; Total Assets $3.116B; Total Liabilities $1.289B; Stockholders’ Equity $1.828B
Leverage: Net Debt $219.46M; Net Debt/EBITDA ~0.40x
Capital Allocation: Share repurchases ~$50.0M in Q3 (205k shares); YTD buybacks 332k shares for ~$80.0M; Hydradyne integration contributing to margin mix; IRIS Automation acquisition announced (expected ~$10M first-year sales)
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
1.17B |
1.78% |
8.74% |
| Gross Profit |
355.29M |
9.15% |
8.30% |
| Operating Income |
129.40M |
3.77% |
7.06% |
| Net Income |
99.80M |
2.66% |
6.98% |
| EPS |
2.60 |
3.59% |
7.00% |
Key Financial Ratios
operatingProfitMargin
11.1%
operatingCashFlowPerShare
$3.19
freeCashFlowPerShare
$2.99
dividendPayoutRatio
17.7%
Management Commentary
Themes and takeaways from the QQ3 2025 earnings call:
- Strategy and execution: Management highlighted ongoing margin expansion and a disciplined capital allocation framework, with Hydradyne integration underway and initial synergy benefits expected to accelerate into Q4 and FY2026. Quote:
“Gross margins, EBITDA margins, EBITDA and EPS exceeded our expectations and prior year levels.”
— Neil Schrimsher
“We are adjusting full year fiscal 2025 guidance to reflect our third quarter performance and updated fourth quarter expectations.”
— Dave Wells
Forward Guidance
Management lifted full-year fiscal 2025 guidance to EPS of $9.85–$10.00 on flat-to up 1% sales (organic down 4% to 3%), with EBITDA margins of 12.3%–12.4% in the core year and fourth-quarter EPS guidance of $2.52–$2.67 on revenue down 1% to up 3% year-over-year. The quarterly guide assumes average daily organic sales in Q4 down mid-to-low single digits (~500 bps below normal sequential trends at the low end) with the higher end reflecting a relatively better seasonal trajectory. The company expects gross margins to remain broadly stable; LIFO expense is anticipated to be around $2.0M in Q4, modestly adverse year-over-year due to prior-year liquidation benefits. Tariff-related and broader inflationary dynamics are recognized as potential headwinds; however, management expects supplier price increases to layer in through Q4 and into 2026, and notes the margin uplift from Hydradyne synergies and Engineered Solutions expansion. The company maintains a constructive setup into FY2026, aided by reshoring tailwinds, cross-selling through automation, and a resilient U.S.-centric model. Key monitorables: progress on Hydradyne integration, Iris acquisition integration and contribution, continued order growth in Automation, and potential tariff policy clarifications driving price realization and demand patterns.