If you want to manufacture "stuff," you need all kinds of pieces and parts to do so. Little things like ball bearings, hydraulic or pneumatic components, and other industrial stuff are critical to keeping your business in business. And that's where Applied IndustrialTechnology
Applied's fiscal first quarter was another good one for this industrial goods distributor. Sales grew more than 7%. And while some of that growth did come from passing along supplier price hikes, same-store growth was in excess of 5%. The operating margin also improved notably from 5.2% to 6.3%. As you might imagine, when your margins are in the single digits, a 100-basis-point or better improvement makes quite a difference. In this case, it helped fuel the company's 12th consecutive quarter of 25% or better earnings growth -- 29% in this case.
Beneath the headlines, things look pretty good. Inventories were up a bit, but a good-sized chunk of that rise came from an acquisition in the fluid power space. What's more, while the cash flow in this quarter wasn't so hot, that's been true for the two prior fiscal first quarters as well. So I wouldn't make too much of it at this point. Besides, I don't believe the company would be hiking its dividend or continuing its share buyback if cash flow were really a major concern.
There is certainly more than one publicly traded play on the industrial supply theme. I wrote just yesterday about Fastenal
Luckily, there is plenty of room for multiple suppliers, especially since they tend to have their own particular areas of focus and operating models. What's more, it's still a very fragmented industry, and publicly traded companies can grow, in part, by consolidating these smaller mom-and-pops into their own operations. That said, they do need a healthy manufacturing sector to keep growing. Should our economy hiccup or hit a small bump, that could be a chance to pick up any of these shares at a somewhat better price.
For more industrious Takes:
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