Breaking Down Applied Industrial Technologies, Inc. (AIT) Financial Health: Key Insights for Investors

You're looking at Applied Industrial Technologies (AIT) and trying to figure out if their story is about industrial resilience or just a distribution cycle peak, and honestly, the fiscal 2025 numbers show a mixed, but defintely strategic, picture. The company closed its fiscal year with solid headline growth, pulling in $4.6 billion in full-year Net Sales, up 1.9% from the prior year, and delivering Net Income of $393.0 million, or $10.12 per share. But here's the quick math: that growth was acquisition-driven, as organic daily sales actually declined 2.3%. Still, they generated a record Free Cash Flow of $465.2 million, which is a huge green flag for capital allocation and their dividend-currently $0.46 per quarter. We need to look past the top-line noise and see how their Engineered Solutions segment is capitalizing on the high-growth automation and data center trends, because that's where the real opportunity is, even as the core Service Center business faces a muted industrial backdrop.

Revenue Analysis

You want to know where Applied Industrial Technologies, Inc. (AIT) is actually making its money, and the simple answer for fiscal year 2025 is that acquisitions saved the top line from a soft industrial market. AIT reported total net sales of approximately $4.6 billion for the year ended June 30, 2025, which was a year-over-year increase of 1.9%. But here's the quick math: that growth was entirely driven by M&A activity, not core market demand.

The core business, measured by organic daily sales, actually declined by 2.3% for the full fiscal year 2025. This is a crucial data point for investors, as it shows underlying demand was muted, especially in off-highway mobile OEM verticals and heavy industry segments. The 1.9% total revenue increase was largely due to a 6.5% boost from acquisitions in the fourth quarter alone, including the Hydradyne acquisition.

AIT's revenue comes from two primary business segments, and understanding their individual trends is key to your investment decision. The Service Center Based Distribution segment is the key revenue driver, focusing on Maintenance, Repair, and Operations (MRO) supplies like bearings, power transmission, and fluid power components. The Engineered Solutions segment provides more complex, value-added services like automation technologies and fluid power systems.

The segments showed different trends throughout the year, which is typical for a diversified distributor.

• Service Center Segment: This segment, which derives key revenue, saw its organic daily sales decline by 0.4% in the fourth quarter of FY2025, after declines of 1.6% and 1.9% in the third and second quarters, respectively. It held defintely steady against a muted market backdrop.
• Engineered Solutions Segment: This segment, which is a key area for strategic growth, showed a late-year recovery with organic daily sales increasing 1.8% in the fourth quarter. This followed significant organic declines of 6.5% and 6.3% in the preceding quarters, showing that recent order strength in automation and technology is finally starting to convert to sales.

You can see the shift: the reliable, high-volume Service Center segment is slowing down, but the higher-value Engineered Solutions segment is starting to pick up steam, which is a positive mix shift for future margin potential. For a deeper dive into the company's valuation, check out our full report: Breaking Down Applied Industrial Technologies, Inc. (AIT) Financial Health: Key Insights for Investors.

Here is a snapshot of the full-year revenue performance and its drivers:

Profitability Metrics

If you are looking at Applied Industrial Technologies, Inc. (AIT), the first thing to note is that their profitability in fiscal year (FY) 2025-which ended June 30, 2025-hit some significant milestones. They've successfully navigated a mixed demand environment by focusing heavily on margin expansion, which is defintely a green flag for investors.

For the full FY 2025, Applied Industrial Technologies, Inc. delivered net sales of approximately $4.6 billion and a net income of $393.0 million. This strong performance underpins a clear operational shift toward higher-value services and products, which is exactly what you want to see in an industrial distributor.

• Gross Profit Margin: The company's gross profit margin for FY 2025 peaked at a five-year high of 30.3%.
• Operating Profit Margin (EBITDA): A robust measure of operational efficiency, the full-year Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) was $562.1 million, translating to an EBITDA margin of roughly 12.22% on sales.
• Net Profit Margin: The net profit margin for the fiscal year stood at 8.61%, reflecting solid conversion of revenue to bottom-line earnings.

Operational Efficiency and Margin Trends

The trend in gross margin is the most compelling story here. Applied Industrial Technologies, Inc. has expanded its gross margin by nearly 50 basis points (0.50%) over the prior year, surpassing the 30% mark for the first time in company history. This isn't just luck; it points to disciplined cost management and a strategic shift in product mix. They are successfully moving away from low-margin, legacy distribution and into higher-margin areas like automation and fluid power solutions.

Here's the quick math on the gross margin trend: it has steadily climbed from 28.9% in FY 2021 to the current 30.3% in FY 2025. That consistent upward trajectory shows that their internal initiatives, like channel execution and better pricing strategies, are working. Still, you should know that their net profit margin of 8.6% has remained relatively steady, which suggests that while gross profit is improving, selling, general, and administrative (SG&A) expenses are growing to support the higher-margin segments, or that interest and tax expenses are a factor.

Industry Comparison: AIT vs. Peers

Applied Industrial Technologies, Inc.'s profitability ratios stack up very well against the competition in the industrial distribution sector. Their ability to command a premium gross margin suggests a differentiated value proposition-they aren't just selling parts; they are selling technical solutions and expertise.

You can see this clearly when comparing their gross margin to key competitors:

Applied Industrial Technologies, Inc.'s 30.3% margin is significantly higher than the general industrial average of 28.8%, and substantially above a major peer like WESCO International Inc. at 21.3%. This margin advantage gives them a crucial buffer against macroeconomic headwinds and allows for greater reinvestment in their high-growth segments. For a deeper look at the company's full financial picture, including valuation and strategy, check out the full post: Breaking Down Applied Industrial Technologies, Inc. (AIT) Financial Health: Key Insights for Investors.

Debt vs. Equity Structure

You need to know how Applied Industrial Technologies, Inc. (AIT) funds its growth, because a company's debt-to-equity mix is the clearest signal of its financial risk and capital strategy. The good news is that for fiscal year 2025, Applied Industrial Technologies, Inc. maintains a deliberately conservative financial structure, relying significantly more on shareholder equity than debt to fuel its operations and acquisitions.

The company's Debt-to-Equity (D/E) ratio stood at approximately 0.42 as of the fiscal year ended June 30, 2025. This low ratio is a clear indicator of financial stability, meaning for every dollar of equity, the company uses only about $0.42 in debt. This is defintely a strong position, especially when you compare it to the broader industrial sectors, where comparable industries like 'Building Products & Equipment' often see a ratio closer to 0.67 or 'Business Equipment & Supplies' around 0.58.

Here's the quick math on the balance sheet structure for the end of FY 2025 (in millions USD):

Applied Industrial Technologies, Inc. manages its debt load actively, balancing its capital structure between long-term obligations and short-term liquidity needs. The long-term debt component is substantial at approximately $572.3 million, which is typical for a distributor that uses debt to fund strategic, accretive acquisitions like the Hydradyne acquisition that closed in December 2024.

The core of their financing strategy is to use debt judiciously to drive growth without compromising the balance sheet. They are not chasing the highest possible leverage. The company's conservative approach is further supported by its investment-grade credit rating of BBB with a stable outlook from S&P. This rating helps keep their borrowing costs lower, which is a major advantage in a high-interest rate environment.

In terms of recent capital deployment, Applied Industrial Technologies, Inc. is using its strong cash flow to return capital to shareholders while still pursuing growth. For instance, year-to-date in FY 2025, the company deployed over $380 million in capital, which included the Hydradyne acquisition and approximately $30 million in share repurchases. They also announced a significant 24% increase in the quarterly dividend during the year.

• Maintain a low D/E ratio to minimize financial risk.
• Fund acquisitions like Hydradyne with a mix of debt and equity.
• Return capital via a dividend increase and a share buyback plan.

This capital allocation strategy shows a preference for equity funding and retained earnings, plus a willingness to use debt for specific, high-return strategic moves. You can read more about the broader financial picture in Breaking Down Applied Industrial Technologies, Inc. (AIT) Financial Health: Key Insights for Investors.

Liquidity and Solvency

You want to know if Applied Industrial Technologies, Inc. (AIT) has the cash to cover its near-term obligations and fund its growth, and the short answer is yes, defintely. The company's liquidity position is strong, underpinned by excellent current and quick ratios, plus a record year for operating cash flow in fiscal year 2025.

The core of a company's immediate financial health is its liquidity (the ability to meet short-term debts). For FY2025, ended June 30, 2025, Applied Industrial Technologies, Inc. showed exceptionally healthy ratios, far above the typical 1.0x benchmark for safety. This means the company has a significant buffer to handle unexpected costs or a dip in sales.

• The Current Ratio (Current Assets / Current Liabilities) for FY2025 was 3.32x. This is down slightly from 3.53x in FY2024, but it still shows that for every dollar of current debt, Applied Industrial Technologies, Inc. holds $3.32 in current assets.
• The Quick Ratio (Acid-Test Ratio), which excludes inventory (a less liquid asset for a distributor), was 2.36x in FY2025, down from 2.56x in FY2024. A ratio this high, well over the 1.0x safety level, is a clear strength.

Here's the quick math on the balance sheet position, using the actual figures from the end of FY2025 (in thousands of USD):

The slight dip in both ratios from FY2024 to FY2025 is not a concern; it's mostly due to a modest increase in current liabilities and a small decrease in total current assets. The company's net Working Capital (Current Assets minus Current Liabilities) remains robust at $1,221,322 thousand at the end of FY2025, though it decreased by about $47.5 million year-over-year. This decrease is manageable and reflects a slight normalization after a period of high inventory build-up, plus an increase in accounts payable, which is a normal part of business. You can read more about their operational focus in their Mission Statement, Vision, & Core Values of Applied Industrial Technologies, Inc. (AIT).

The Cash Flow Statement provides the real-world proof of this liquidity. Applied Industrial Technologies, Inc. generated a record $492.4 million in cash from Operating Activities in FY2025, an increase of 32.6% over the prior year. This massive cash generation is the primary strength. The company's cash flow trends show a clear capital allocation strategy:

• Operating Cash Flow (CFO): $492.4 million inflow. This is the engine of the business, and it is running hot.
• Investing Cash Flow (CFI): ($318.8 million) outflow. This large outflow is primarily due to strategic acquisitions, which is a key growth lever for the company.
• Financing Cash Flow (CFF): ($246.0 million) outflow. This outflow reflects the company's commitment to shareholders, mainly through dividend payments and debt repayments, demonstrating financial discipline.

What this tells us is that Applied Industrial Technologies, Inc. is generating more than enough cash internally to cover its capital expenditures ($27.2 million in FY2025) and its dividends, while still funding significant merger and acquisition (M&A) activity. The overall liquidity position is a major strength, showing no near-term concerns about meeting obligations. The risk here is not liquidity, but the execution risk on the M&A-fueled growth strategy. If the acquired businesses don't integrate well, that large investing outflow won't pay off.

Valuation Analysis

You're looking at Applied Industrial Technologies, Inc. (AIT) and trying to figure out if the market is giving you a fair deal, or if the price has run ahead of the company's fundamentals. The quick answer is that AIT looks slightly expensive on traditional metrics but is still viewed by analysts as undervalued based on its growth trajectory in automation and fluid power solutions.

The stock closed recently at $248.96, but the valuation multiples suggest you're paying a premium for quality and future growth. The trailing twelve-month (TTM) Price-to-Earnings (P/E) ratio sits at 23.64, which is higher than the industrial distribution industry average of around 20.6x. This premium suggests investors are baking in the expected earnings growth from AIT's strategic shift toward higher-margin, value-added services. Here's the quick math on the key multiples:

• Price-to-Earnings (P/E): 23.64
• Price-to-Book (P/B): 4.8x (Fiscal Year 2025)
• Enterprise Value-to-EBITDA (EV/EBITDA): 15.48x

The Price-to-Book (P/B) ratio of 4.8x for the fiscal year ended June 2025 is also elevated, signaling that the market values AIT's equity significantly above its tangible book value. This is common for distributors with strong intangible assets like supply chain efficiency and technical expertise, but it defintely warrants a closer look at return on equity to justify the multiple.

Stock Performance and Analyst Consensus

The stock's near-term performance has been mixed, which is where the opportunity lies. Over the last 12 months, the share price has seen a decrease of about 6.6%, a pullback that followed a significant run-up. The 52-week trading range shows the volatility, moving between a low of $199.96 and a high of $282.98. This cooling-off period is precisely when a seasoned investor steps in to assess the long-term value against the short-term noise.

What this estimate hides is the analyst community's conviction. The consensus rating from analysts is a 'Moderate Buy', with a heavy skew toward 'Buy' recommendations. The average 12-month price target is $298.33. Compared to the current price of $248.96, that target implies a significant upside, suggesting the stock is currently undervalued by nearly 20%.

Dividend Health and Payout

For income-focused investors, AIT offers a modest but highly sustainable dividend. The annual dividend is $1.84 per share, translating to a current dividend yield of 0.74%. The real strength here is the dividend payout ratio, which is a very healthy 17.71% based on trailing earnings. This low ratio means AIT is only paying out a small fraction of its earnings, leaving a massive cushion for future dividend increases and, more importantly, for reinvestment into the business-think strategic acquisitions and automation infrastructure.

To put the valuation into perspective, here are the key metrics for Applied Industrial Technologies, Inc. (AIT) based on 2025 fiscal year data and current market prices:

The bottom line: AIT is not a value stock based on multiples, but it's a growth-at-a-reasonable-price (GARP) candidate, especially if its strategic investments in automation and fluid power continue to drive margin expansion. You need to read the full breakdown on Breaking Down Applied Industrial Technologies, Inc. (AIT) Financial Health: Key Insights for Investors to see how the balance sheet supports this premium valuation.

Risk Factors

You need to look past the strong headline numbers-like the full-year net income of $393.0 million in fiscal 2025-and focus on the underlying risks that could derail Applied Industrial Technologies, Inc.'s (AIT) growth story. The biggest near-term challenge is a muted industrial demand environment, which is forcing the company to rely heavily on M&A for top-line growth. Simply put, AIT's organic growth is lagging, and that's a risk you can't ignore.

The core issue is that while total sales for FY2025 hit $4.6 billion, up 1.9% year-over-year, the critical organic daily sales metric actually declined by 2.3%. This means acquisitions, which contributed about 6.5% to sales growth, are masking softness in the core business. This reliance creates a distinct set of operational and financial risks.

• Macroeconomic Uncertainty: Ongoing trade policy and interest rate uncertainty are causing customers to conservatively manage their operational and capital spending (capex).
• Integration Risk from M&A: AIT's strategy centers on acquisitions, but any stumble in integrating new businesses, like Hydradyne, or failing to capture anticipated synergies can magnify problems when organic growth is weak.
• Valuation Premium: The stock trades at a premium, with a forward EBITDA multiple around 18x compared to peers at 14x to 16x. This leaves little margin for error if they underdeliver on growth targets.
• Competitive Pressure: AIT's projected earnings growth of 5.67% and revenue growth of 4.9% annually are actually falling below broader industry benchmarks for U.S. industrial distributors.

Here's the quick math: if the $4.6 billion in sales relies on a constant stream of successful acquisitions just to offset organic declines, the execution risk is high. If you want a deeper dive on who is buying into this growth story, you can check out Exploring Applied Industrial Technologies, Inc. (AIT) Investor Profile: Who's Buying and Why?

To be fair, management is defintely aware of these headwinds and has clear mitigation strategies. They are strategically pivoting to the higher-margin Engineered Solutions segment, which showed a better organic growth trend of 1.8% in the fourth quarter of fiscal 2025, and focusing on automation and digital platforms. This shift is intended to raise the net profit margin, which stood at 8.6% for the trailing twelve months, to a projected 9.0% within three years.

On the financial side, they are using their strong cash flow-which led to a record free cash flow in FY2025-to return capital to shareholders. They repurchased over 330,000 shares for approximately $80 million in the first nine months of fiscal 2025, a classic move to support EPS and signal confidence. They're also managing inflation risk through structural mix tailwinds and operational self-help countermeasures, which is a smart way to protect their EBITDA margin, which was 12.2% for the full year.

What this estimate hides, still, is how long the broader industrial market demand will remain muted. If the industrial production recovery is delayed, AIT's ability to hit its fiscal 2026 guidance of $10.00 to $10.75 in EPS will be tested.

Growth Opportunities

You need to know where Applied Industrial Technologies, Inc. (AIT) is heading, not just where it's been. The direct takeaway is this: AIT's future growth is defintely anchored in its strategic shift toward high-margin, value-added Engineered Solutions, buttressed by a disciplined acquisition strategy and powerful U.S. manufacturing tailwinds.

The company closed fiscal year 2025 (FY2025) with solid results, posting full-year net sales of $4.6 billion, a 1.9% increase YoY, and an impressive full-year Earnings Per Share (EPS) of $10.12, up 3.8% from the prior-year adjusted EPS. This growth came despite organic daily sales declining 2.3%, showing that acquisitions and margin management are doing the heavy lifting right now. The focus is clearly on profitability, with gross margins exceeding 30% for the first time in company history during FY2025.

Strategic Initiatives: Acquisitions and Engineered Solutions

AIT's growth model is not about waiting for a rising tide; it's about buying better boats. Mergers and Acquisitions (M&A) remain a core growth driver, specifically targeting high-margin segments like flow control and engineered solutions. The strategic acquisition of Hydradyne, which closed in December 2024, is a prime example, enhancing the company's fluid power capabilities and contributing positively to the Engineered Solutions segment.

The Engineered Solutions segment is the future margin engine. It provides distribution, design, and integration for hydraulic and pneumatic fluid power technologies. This segment returned to positive organic growth in the fourth quarter of FY2025, a critical sign that the investment is paying off. You can see their commitment to this long-term vision in their Mission Statement, Vision, & Core Values of Applied Industrial Technologies, Inc. (AIT).

Competitive Advantages and Market Tailwinds

AIT is uniquely positioned to capitalize on structural shifts in the U.S. economy. The company's high U.S. exposure, with 88% of its sales coming from the domestic market, makes it a key beneficiary of the reshoring trend-the movement of manufacturing back to the United States. This is a massive, multi-year opportunity.

Plus, the company has transformed itself from a simple parts distributor to a value-added engineering services firm. This shift means higher margins and deeper integration with customer operations, which is a powerful competitive moat. They have a strong balance sheet to fund this model, too. Here's the quick math on their financial flexibility:

• Net leverage is only 0.2x.
• Free cash flow exceeded $465 million in FY2025.
• Capital is deployed predictably, with over $560 million used for acquisitions and share buybacks in FY2025.

The company is simply well-capitalized to continue its disciplined growth strategy.

Future Revenue Growth Projections and Earnings Estimates

Looking ahead into fiscal year 2026, management is constructive, even with ongoing macro uncertainty. The most recent guidance, updated in October 2025, projects continued growth, primarily driven by the benefits of acquisitions and a gradual re-acceleration of industrial production.

The company's guidance for FY2026 is for total sales growth in the range of +4% to +7%. This includes organic sales growth of 1% to 4%. On the bottom line, the expected earnings are strong, with the updated EPS guidance set between $10.10 and $10.85. This is a tight range, but it shows confidence in their operational execution and the compounding effect of their strategic initiatives. EBITDA margins are expected to be between 12.2% and 12.5%. The key action for you is to monitor organic growth in the Service Center segment; that's the canary in the coal mine for broader industrial demand.