The end of an earnings season can be a great time to discover new stocks and assess how companies are handling the current business environment. Let’s take a look at how Applied Industrial (NYSE:AIT) and the rest of the engineered components and systems stocks fared in Q3.
Engineered components and systems companies possess technical know-how in sometimes narrow areas such as metal forming or intelligent robotics. Lately, automation and connected equipment collecting analyzable data have been trending, creating new demand. On the other hand, like the broader industrials sector, engineered components and systems companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.
The 13 engineered components and systems stocks we track reported a satisfactory Q3. As a group, revenues beat analysts’ consensus estimates by 2.5% while next quarter’s revenue guidance was 0.5% below.
Amidst this news, share prices of the companies have had a rough stretch. On average, they are down 8.6% since the latest earnings results.
Applied Industrial (NYSE:AIT)
Formerly called The Ohio Ball Bearing Company, Applied Industrial (NYSE:AIT) distributes industrial products–everything from power tools to industrial valves–and services to a wide variety of industries.
Applied Industrial reported revenues of $1.2 billion, up 9.2% year on year. This print exceeded analysts’ expectations by 1.1%. Overall, it was a strong quarter for the company with a decent beat of analysts’ EBITDA estimates.
Neil A. Schrimsher, Applied’s President & Chief Executive Officer, commented, “We had a solid first quarter, delivering double-digit EBITDA and EPS growth that exceeded our expectations. Total sales increased 9% year over year on stronger organic sales growth and M&A contribution. Organic growth was led by our shorter-cycle Service Center segment reflecting traction with internal initiatives, firming technical MRO demand, and our industry position. Engineered Solutions segment organic sales were relatively unchanged from the prior year but remain favorably positioned with segment orders continuing to trend positive. In addition, favorable operating leverage, cost control, and channel execution resulted in first quarter EBITDA margins of 12.2% expanding nearly 50 basis points over the prior-year period, which was ahead of our guidance. Overall, I’m encouraged by our teams’ ongoing execution and the positive momentum building across Applied.”
Unsurprisingly, the stock is down 4.2% since reporting and currently trades at $248.99.
Is now the time to buy Applied Industrial? Access our full analysis of the earnings results here, it’s free for active Edge members.
Best Q3: Timken (NYSE:TKR)
Established after the founder noticed the difficulty freight wagons had making sharp turns, Timken (NYSE:TKR) is a provider of industrial parts used across various sectors.
Timken reported revenues of $1.16 billion, up 2.7% year on year, outperforming analysts’ expectations by 3.6%. The business had an exceptional quarter with an impressive beat of analysts’ adjusted operating income estimates and a solid beat of analysts’ revenue estimates.
However, the results were likely priced into the stock as it’s traded sideways since reporting. Shares currently sit at $77.39.
Is now the time to buy Timken? Access our full analysis of the earnings results here, it’s free for active Edge members.
Weakest Q3: Park-Ohio (NASDAQ:PKOH)
Based in Cleveland, Park-Ohio (NASDAQ:PKOH) provides supply chain management services, capital equipment, and manufactured components.
Park-Ohio reported revenues of $398.6 million, down 4.5% year on year, falling short of analysts’ expectations by 4.5%. It was a disappointing quarter as it posted full-year EPS guidance missing analysts’ expectations and a significant miss of analysts’ revenue estimates.
As expected, the stock is down 6.3% since the results and currently trades at $19.74.
Read our full analysis of Park-Ohio’s results here.
Mayville Engineering (NYSE:MEC)
Originally founded solely on tool and die manufacturing, Mayville Engineering Company (NYSE:MEC) specializes in metal fabrication, tube bending, and welding to be used in various industries.
Mayville Engineering reported revenues of $144.3 million, up 6.6% year on year. This print surpassed analysts’ expectations by 2.8%. It was an exceptional quarter as it also put up a beat of analysts’ EPS estimates and an impressive beat of analysts’ adjusted operating income estimates.
The stock is down 13.5% since reporting and currently trades at $15.60.
Read our full, actionable report on Mayville Engineering here, it’s free for active Edge members.
ESCO (NYSE:ESE)
A developer of the communication systems used in the Batmobile of “The Dark Knight,” ESCO (NYSE:ESE) is a provider of engineered components for the aerospace, defense, and utility sectors.
ESCO reported revenues of $352.7 million, up 18.1% year on year. This result topped analysts’ expectations by 15.1%. Overall, it was a very strong quarter as it also logged an impressive beat of analysts’ revenue estimates and full-year EPS guidance exceeding analysts’ expectations.
ESCO scored the biggest analyst estimates beat among its peers. The stock is up 3.5% since reporting and currently trades at $217.50.
Read our full, actionable report on ESCO here, it’s free for active Edge members.
Market Update
As a result of the Fed’s rate hikes in 2022 and 2023, inflation has come down from frothy levels post-pandemic. The general rise in the price of goods and services is trending towards the Fed’s 2% goal as of late, which is good news. The higher rates that fought inflation also didn't slow economic activity enough to catalyze a recession. So far, soft landing. This, combined with recent rate cuts (half a percent in September 2024 and a quarter percent in November 2024) have led to strong stock market performance in 2024. The icing on the cake for 2024 returns was Donald Trump’s victory in the U.S. Presidential Election in early November, sending major indices to all-time highs in the week following the election. Still, debates around the health of the economy and the impact of potential tariffs and corporate tax cuts remain, leaving much uncertainty around 2025.
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