Applied Industrial beats estimates, raises guidance on 11% dividend hike
Distributor completes Thompson Industrial acquisition as order growth shows early signs of recovery
Applied Industrial Technologies reported stronger-than-expected fiscal second quarter results, surpassing analyst earnings forecasts while narrowing its full-year outlook and rewarding shareholders with an 11% dividend increase.
The Cleveland-based industrial distributor posted net income of $95.3 million, or $2.51 per diluted share for the quarter ended December 31, 2025, exceeding the consensus estimate of $2.50 per share. Revenue reached $1.2 billion, topping analyst expectations of $1.17 billion, representing an 8.4% increase year-over-year, according to company data.
"We effectively managed through an evolving but still mixed end-market backdrop," said Neil A. Schrimsher, Applied's president and chief executive officer, in a statement. "We are seeing encouraging signs with order growth building."
The company raised its fiscal 2026 earnings per share guidance to a range of $10.45 to $10.75, up from the previous $10.10 to $10.85. Sales growth projections were also tightened to between 5.5% and 7.0%, compared to the prior range of 4.0% to 7.0%. The revised guidance reflects higher expected LIFO expenses and ongoing macroeconomic uncertainties.
Organic sales growth of 2.2% during the quarter, combined with a 6.0% contribution from acquisitions, drove the overall expansion. The Service Center segment delivered 2.9% organic sales growth, while the Engineered Solutions segment posted 0.5% organic growth, according to analyst reports.
Applied Industrial Technologies, which distributes bearings, power transmission components, and fluid power solutions, increased its quarterly dividend to $0.51 per share from $0.46, marking the company's 17th dividend increase since 2010. The dividend hike signals management's confidence in cash generation despite the challenging industrial environment.
The company simultaneously announced the completion of its acquisition of Thompson Industrial Supply, a Los Angeles-based distributor of industrial bearings, power transmission components, hydraulics, and pneumatics. The deal is expected to contribute approximately $20 million in revenue during its first year under Applied's ownership. Thompson operates two locations in Southern California and employs more than 40 people, according to filing details.
Operating cash flow for the quarter reached $99.7 million, with free cash flow totaling $93.4 million. EBITDA increased 3.9% year-over-year to $140.4 million, delivering an EBITDA margin of approximately 12.1%.
Applied Industrial Technologies' performance comes as the broader industrial distribution sector projects steady growth in 2025. The global industrial distributors market is estimated to reach $7.4 trillion this year, with a projected compound annual growth rate of 5.3% through 2032, driven by manufacturing investments and automation technologies. North America is expected to account for approximately 37% of the market, according to industry research.
Analysts maintain a positive outlook on the company, with a consensus price target of $305.83, representing potential upside from current levels. Of the eight analysts covering the stock, six rate it a buy while two recommend hold, according to market data.
The company, which commands a market capitalization of approximately $10.6 billion, has delivered 11.4% quarterly earnings growth and 9.2% quarterly revenue growth on a year-over-year basis. Institutional investors hold 95.8% of outstanding shares, reflecting strong institutional confidence in the distributor's long-term strategy.
Looking ahead, management highlighted that order growth is showing early signs of building, suggesting potential improvement in industrial demand as 2026 progresses. The company's narrowed guidance reflects both the progress made and the continued uncertainty in the broader manufacturing landscape.