April 23, 2009 / 5:06 PM / 10 years ago

UPDATE 2-Applied Industrial Q3 profit beats Street, shares rise

* Q3 EPS $0.27 beats est $0.24

* Q3 revenue drops 15 pct

* Maintains full-year profit view

* Shares rise as much as 11 pct (Recasts, adds analysts’ comments, updates share movement)

By Bhaswati Mukhopadhyay

BANGALORE, April 23 (Reuters) - Industrial parts distributor Applied Industrial Technologies Inc (AIT.N) posted a better-than-expected third-quarter profit as it reaped the benefits of its cost-cutting measures, sending its shares up 11 percent.

Strong quarterly profit and the implications for future earnings based on the low level of operating costs is what is driving the stock up, analyst Brent Rakers of Morgan, Keegan & Co said. Applied Industrial, which distributes bearings, power transmission components and industrial rubber products, maintained its fiscal 2009 profit view of $1.30 to $1.70 a share. Analysts were expecting $1.39.

However, the company expects fiscal 2009 sales to be at, or close to, the low end of its prior forecast of $1.95 billion to $2.1 billion.

“Sales generation and margin management will continue to be our greatest challenges for the near term as our customers respond to significant consumer withdrawal,” Chief Executive David Pugh said in a statement.

The next couple of quarters would be challenging for the company, with capacity utilization remaining under pressure and inventory channels continuing to see destocking, as people hold back on spending, analyst Jeffrey Hammond of KeyBanc Capital Markets said.

Applied Industrial competes with U.S. industrial distributors W.W. Grainger (GWW.N), nuts and bolts distributor Fastenal Co (FAST.O), and tools and industrial services provider MSC Industrial Direct Co Inc (MSM.N).

“The destocking drag that has been so limiting to sales over the last four months starts to decrease in the June quarter and that would be the positive inflexion point that I would look at,” said analyst Rakers, who has an “outperform” rating on the stock.

For the third quarter ended March 31, the company reported net income of $11.6 million, or 27 cents a share, compared with $23.6 million, or 55 cents a share, a year ago.

Analysts on average were expecting earnings of 24 cents a share, before special items, according to Reuters Estimates.

The company has been able to aggressively cut costs and maintain their gross margins, supporting a respectable profitability level, said KeyBanc’s Hammond, who rates the stock “hold”.

Selling, distribution and administrative costs, including depreciation, fell 5 percent to $101.2 million. Cost of sales fell 15 percent to $329.4 million in the quarter.

Revenue declined 15 percent to $451.6 million, coming in below Wall Street estimates of $463.3 million.

Shares of the company rose $1.87 to $21.31 Thursday afternoon, making them one of the top percentage gainers on the New York Stock Exchange. They touched a high of $21.66 earlier. (Additional reporting by A.Ananthalakshmi; Editing by Ratul Ray Chaudhuri and Deepak Kannan)

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