Applied Industrial Technologies is entering fiscal 2027 with a substantially leaner balance sheet and higher long-term growth targets after using strong cash generation to repay $310 million of debt and spend $317.2 million on share repurchases during fiscal 2026.
The company repaid $310 million under its revolving credit facility during the year, while purchases of treasury shares more than doubled from $152.8 million in fiscal 2025 to approximately $317.2 million. Applied also returned $72.6 million to shareholders through dividends.
Those actions materially reduced leverage. Long-term debt declined to approximately $262.3 million at June 30 from $572.3 million a year earlier, representing a reduction of roughly 54%.
The balance-sheet changes were supported by continued cash generation. Applied produced $484.1 million of operating cash flow during fiscal 2026 and approximately $460.5 million of free cash flow after $23.6 million of capital expenditures.
Fourth-quarter cash generation also strengthened. Operating cash flow increased to approximately $165 million from $147 million, while free cash flow rose to $159.7 million from $138.2 million.
Applied used the stronger operating and financial position to raise its intermediate financial objectives. The company now targets approximately $7 billion of annual sales and a 14% EBITDA margin over the next five years, subject to macroeconomic conditions, acquisition activity and execution of internal initiatives.
The $7 billion revenue target compares with fiscal 2026 sales of approximately $4.97 billion. Full-year revenue increased 8.8%, including 5.4% organic growth, while EBITDA increased 10% to approximately $618.2 million.
Applied sees automation, industrial system upgrades and critical infrastructure investment as important drivers of the next stage of growth. Management also highlighted increasing demand for technical support inside customer plants and believes its position across both traditional and emerging industrial markets provides exposure to structural spending trends.
The Engineered Solutions segment is already growing faster than the broader company. Q4 organic sales increased 12.9%, compared with 7.9% growth in Service Center. Engineered Solutions generated approximately $503.2 million of quarterly sales and a 15.1% EBITDA margin.
Service Center remained the larger business, generating approximately $849.5 million of Q4 sales. Segment EBITDA reached $123.6 million, while EBITDA margin expanded to 14.5% from 13.6%.
Companywide Q4 sales increased 10.4% to approximately $1.35 billion, including 9.7% organic growth. Net income reached $118.6 million, or $3.17 per diluted share, while EBITDA increased 16.1% to $177.6 million.
Organic sales growth of approximately 10% was Applied’s strongest in more than three years. Management said EBITDA margins expanded by more than 60 basis points during the quarter, while EBITDA, EPS and free cash flow all increased at mid-teens rates.
The momentum has continued into fiscal 2027. Applied said organic sales were running approximately 7% above the prior year early in the first quarter, with Service Center benefiting from elevated technical maintenance, repair and operations spending and Engineered Solutions continuing to see positive order momentum.
For fiscal 2027, Applied expects total sales growth of 4% to 6.5%, EBITDA margins of 12.5% to 12.8%, and diluted EPS of $11.65 to $12.15. The guidance does not assume any contribution from future acquisitions or additional share repurchases.
That leaves M&A as another potential source of growth beyond the existing outlook. Management described its acquisition pipeline as active and said the company’s balance sheet and cash generation provide meaningful capacity to continue compounding growth through acquisitions.
Applied ended fiscal 2026 with approximately $127.1 million of cash, down from $388.4 million a year earlier. The decline primarily reflects the company’s aggressive capital deployment toward debt repayment, share repurchases and dividends rather than a deterioration in operating cash generation.
The combination of lower leverage, continued buybacks, an active acquisition pipeline and stronger exposure to automation and infrastructure spending gives Applied multiple paths toward its $7 billion revenue target. Reaching the accompanying 14% EBITDA margin objective would also require the company to continue benefiting from operating leverage, internal productivity initiatives and a more favorable business mix as it scales.
KEY QUOTES:
“We had a strong finish to fiscal 2026 with fourth quarter sales, EBITDA, and EPS achieving record quarterly levels and exceeding our expectations. Organic sales growth of 10% was the strongest in more than three years with trends strengthening across both segments.”
“Overall, fiscal 2026 was a pivotal year showcasing the ongoing positive transformation at Applied including early signs of the growth potential taking shape across our business.”
Neil A. Schrimsher, President and Chief Executive Officer of Applied Industrial Technologies
“Our ongoing evolution has positioned Applied at the intersection of exciting and powerful growth trends tied to rising technical support at customer plants, industrial system upgrades, automation adoption, and the build out of critical infrastructure across both legacy and emerging customer verticals.”
“In addition, our balance sheet and cash generation provide meaningful capacity to further compound our growth through ongoing M&A, while our margin expansion potential remains notable and supported by structural mix tailwinds, internal initiatives, and inherent operating leverage as we continue to scale the business.”
Neil A. Schrimsher, President and Chief Executive Officer of Applied Industrial Technologies
