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Applied Industrial Technologies, Inc. (AIT)FY2026 investor yearly review
Across FY2026, management moved from choppy end-market expectations to broader organic growth, with Engineered Solutions orders and service center break-fix activity improving into Q4. Margin and cash conversion remained management-led despite LIFO-driven volatility and shifting working-capital needs, while synergy work—especially Hydradyne—continued to support the trajectory.
Overall investor read
Execution-led rebound, still inflation/LIFO-sensitive
Year-end results showed operating durability, but management repeatedly tied margins to LIFO behavior and supplier-price cadence.
Primary financial signal
FY2026 Revenue $4.97B; EPS $10.95
FY growth translated into expanding profitability, with operating margin at 11.1% and net income reaching $414.52M.
Primary call signal
Engineered Solutions order momentum strengthened
Management emphasized sustained positive order conversion momentum, with Q4 automation strength and expanding cross-selling support.
Selected FY2026 metrics summarize growth, profitability, and cash generation outcomes.
Revenue
Annual growth of 8.8% supported top-line momentum.
Gross margin
Gross margin held up despite LIFO headwinds.
Operating margin
Operating margin reflected cost control plus mix changes.
Net income
Net income rose 5.5% year over year.
Diluted EPS
Diluted EPS increased 8.2%, with margin and share count effects.
Free cash flow
FCF remained high at 9.3% of revenue.
Management’s FY2026 narrative shifted from stabilizing a mixed backdrop to showing measurable recovery through orders, technical MRO, and technology-driven Engineered Solutions growth, while LIFO dynamics stayed a key margin variable.
Backlog and conversion
Across Q1 to Q4, management described improving order momentum and tightening conversion expectations, culminating in Q4 automation-led strength. They linked technology vertical contribution (including semiconductor and data centers) and Hydradyne-related progress to stronger engineered growth and EBITDA support.
Quarter-by-quarter materiality and tone for annual transcript themes.
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| Theme | Q1 | Q2 | Q3 | Q4 | Next monitor |
|---|---|---|---|---|---|
| Engineered Solutions orders converted as automation reaccelerated | Neutral Engineered orders positive; management flagged second-half conversion optimism. |
Management showed improving top-line momentum and synergy progress, but short-term results remained sensitive to LIFO and uneven end-market activity, requiring continued caution in guidance assumptions.
Management emphasized service center organic growth across fiscal 2026 quarters, attributing strength to internal initiatives, technology investments, and One Applied cross-selling. By Q4, break-fix and technical MRO activity broadened across verticals.
Across Q2 to Q4, management highlighted engineered growth led by automation and improving technology vertical demand. In Q4, automation organic sales increased over 20% with stronger semiconductor and data-center participation.
Quarterly story progressed from stable-to-slightly-positive demand signals to stronger organic growth and order momentum, ending with a record Q4 finish.
Execution amid LIFO and working-capital timing
Product breakdown bars are scaled against the largest annual revenue item; labels show revenue, YoY change, and revenue share.
The year began with confidence in earnings and improving demand signals, then moved through a LIFO-and-seasonality-impacted mid-year period where funnels and engineered orders strengthened, and finally closed with record Q4 strength as service centers and automation delivered broad-based volume growth.
In Q1, management described stable demand with trade-policy uncertainty still affecting purchasing decisions, but service centers strengthened. They emphasized gross margin execution and cost control, and positioned engineered orders for more back-half conversion.
Read earnings transcriptIn Q2, sales and EBITDA margins met guidance despite higher-than-expected LIFO and seasonally weak December activity. Management stressed bookings momentum into calendar 2026 and highlighted engineered solutions orders increasing over 10% organically.
Guidance was adjusted during the year (notably EPS and margin drivers), but many targets were framed with accounting variables like LIFO and timing.
Sales guidance of about 4% to 7%; EBITDA margins of 12.2% to 12.5% (and gross margins expected to increase slightly sequentially); EPS in range of $10.10 to $10.85
Revenue $4.97B; Gross margin 30.3%; EPS $10.95
Q1 communication established EPS and margin ranges while stressing LIFO and conversion timing; FY outcomes later showed stronger results but exact guidance-vs-actual scoring is limited here.
Updated EPS in range of $10.45 to $10.75; LIFO expense $24M to $26M; pricing contribution 210-230 bps
EPS $10.95
Management tightened EPS and raised pricing assumptions due to performance, with LIFO expectations revised upward; cash and margins remained sensitive to accounting timing.
Key topics management repeatedly emphasized that could shape next-year estimates and risk assessment.
LIFO timing affected gross and EBITDA comparisons, and guidance ranges explicitly incorporate it.
Track management’s quarterly LIFO expense assumptions and ex-LIFO margin bridge language for stability.
Engineered Solutions growth accelerated as orders and backlog built, supporting higher-quality earnings momentum.
Technical MRO and service expansion
Service center organic growth strengthened over time, with management citing technical MRO and break-fix activity supported by internal initiatives and the One Applied cross-selling approach. By Q4, service centers reported broad-based vertical strength and continued organic growth each quarter.
Margin and cash volatility
Management repeatedly highlighted LIFO expense as a meaningful swing factor for gross and EBITDA comparisons, including guidance updates that changed expected LIFO range. Cash conversion also reflected working capital investments as sales firmed later in the year.
Capital allocation and integration
Throughout the year, management tied financial performance to Hydradyne integration progress—describing improving margins and growing sales contribution into the second half—while also emphasizing disciplined capital deployment (dividend growth, share repurchases, and ongoing M&A evaluation).
Engineered orders up double digits; technology funnel strengthening.
Positive Organic growth strengthened; automation and fluid power expanded. |
Positive Automation over 20% organic; backlog conversion supported strength. |
| Track Engineered Solutions organic growth and order/book-to-bill, especially automation, semiconductor, and data-center-related contributions. |
| Service center technical MRO and break-fix broadened | Positive Service center outperformed; technical MRO firming signaled stability. | Positive Local account momentum strengthened; break-fix and cross-selling traction. | Positive Service center organic growth accelerated; cross-selling contributed to growth. | Positive Service center organic growth 8%; vertical strength broadened. | Monitor US service center organic growth, local vs national account trends, and technical MRO/break-fix commentary under One Applied. |
| LIFO expense and accounting timing drove margin noise | Mixed Gross margin improved, but LIFO still impacted comparisons. | Negative Higher than expected LIFO expense pressured gross/EBITDA comparisons. | Mixed LIFO headwinds persisted; underlying margin improved excluding LIFO. | Mixed LIFO remained a wildcard; EBITDA incrementals stayed strong. | Watch reported vs ex-LIFO commentary, guidance LIFO assumptions, and how margins move when LIFO unwinds versus normalizing. |
| Hydradyne synergy progression improved sales and margin | Positive Hydradyne EBITDA contribution rising; synergy streams progressing. | Positive Hydradyne marked anniversary; EBITDA margins exceeded and improved. | Positive Hydradyne integration supported cash and margin momentum. | Positive Second-half Hydradyne sales up; EBITDA margins improved 200+ bps. | Monitor Hydrodyne sales and EBITDA margin trajectory, plus cross-selling outcomes mentioned across legacy Southeastern customers. |
| Capital deployment and M&A pipeline became more central | Neutral M&A pipeline active; management reiterated buybacks and dividend plan. | Positive Announced Thompson acquisition; management discussed dividend growth and buybacks. | Neutral Board approved new buyback authorization; M&A pipeline framed as active. | Positive Intermediate targets updated; management described increasingly productive M&A backdrop. | Track management’s M&A pace commentary (tuck-ins vs larger targets) and capital deployment priorities alongside cash generation. |
| Pricing contribution and supplier pass-through remained a key assumption | Positive Pricing contribution strengthened; organic sales growth leveraged both price and mix. | Mixed Pricing guidance raised; LIFO and inventory effects complicated margins. | Neutral Pricing held steady; volume growth accelerated net of pricing. | Positive Pricing above guidance; volume rebound drove stronger organic growth. | Monitor quarterly pricing contribution estimates and management guidance ranges, plus LIFO interplay as inflation effects age. |
Management described progressive improvement in Hydradyne contribution, including double-digit sales growth in the second half and EBITDA margin improvement by over 200 basis points. They also framed synergy streams as on-track.
Management pointed to cost control and countermeasures that balanced inflationary pressures and working-capital investment. Gross margin progress and operating discipline supported stronger EBITDA growth in Q3 and Q4 despite LIFO headwinds.
Across quarters, management repeatedly cited LIFO expense as a key driver of gross margin and EBITDA comparison noise, including a higher-than-expected LIFO outcome in Q2 and guidance updates for remaining quarters.
Management described choppy sales activity near term tied to trade policy uncertainty and macro variability, even as underlying demand signals improved. They maintained prudence in guidance due to evolving geopolitical backdrop.
Management noted muted or weaker flow control sales at points in the year, citing difficult prior comparisons and softer MRO activity in process end markets. Even in Q4, flow control was described as partially offsetting strength elsewhere.
Management connected free cash flow softness and quarter-to-quarter differences to working capital investments as sales firmed later in the year. They also cited initiatives to optimize receivables and inventory KPIs.
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| Quarter | Revenue | YoY revenue growth | Diluted EPS | Gross margin | Investor read |
|---|---|---|---|---|---|
| Q1Sep-25 | $1.2B | -2.1% | $2.63 | 30.1% | Service centers delivered strong organic growth and margin execution; engineered orders stayed positive with conversion expected more in 2H. |
| Q2Dec-25 | $1.16B | -3.0% | $2.51 | 28.9% | Bookings and funnels strengthened into calendar 2026, including engineered orders growth, as LIFO pressured margins but self-help offset. |
| Q3Mar-26 | $1.25B | 7.6% | $2.65 | 30.4% | Organic growth improved to 6%, with orders building; margins held up ex-LIFO as expense leverage improved into Q4. |
| Q4Jun-26 | $1.35B | 8.1% | $3.16 | 31.6% | Organic sales hit double digits; automation grew over 20% and service centers accelerated, supporting expanding EBITDA and EPS. |
In Q3, management reported the strongest organic growth in over two years and steady underlying gross margins despite ongoing LIFO headwinds. Orders, backlog, and funnel activity built, with automation and fluid power strength reinforcing engineered growth.
Read earnings transcriptIn Q4, management described a strong finish with record fourth-quarter sales and earnings, noting organic growth over 10% and improved EBITDA margin over 60 basis points. Service centers accelerated and engineered solutions led, while LIFO remained the primary margin wildcard.
Read earnings transcriptSales growth 7.2% to 7.7% (3.8% to 4.2% organic); Tightening FY EPS to $10.60 to $10.75; Full-year EBITDA margins 12.3% to 12.4%
Revenue 8.8%; EPS $10.95; Other 12.4%
Q3 guidance was adjusted toward the high end based on stronger organic growth and order momentum; FY finish exceeded the communicated EPS range but quarter-by-quarter scoring is constrained.
Full-year EPS not explicitly re-guided here; FY2027 EPS established $11.65 to $12.15; FQ4 EBITDA margins 12.6% to 12.8% (within Q4 guidance range)
Other 13.1%
Q4 capped the year with reported results exceeding expectations and leveraged margin, while management emphasized LIFO and comp-related prudence in forward assumptions.
Monitor book-to-bill, backlog conversion timing commentary, and technology vertical contribution details.
Service center organic growth resilience helps stabilize the business when engineered timing varies.
Watch US vs international service center organic growth and the pace of technical MRO/break-fix activity.
Management linked improved Hydradyne sales and EBITDA margins to integration progress and cross-selling momentum.
Track Hydrodyne contribution trends and whether synergy workstreams continue to lift engineered margin structure.
Pricing contribution drove organic growth, but management balanced it against comps and inventory/LIFO mechanics.
Monitor pricing bps commentary each quarter and compare it to guidance ranges for incremental margin drivers.
Dafinchi