Industrial products distributor Applied Industrial (NYSE: AIT) reported revenue ahead of Wall Street’s expectations in Q2 CY2026, with sales up 10.4% year on year to $1.35 billion. Its GAAP profit of $3.17 per share was 8.7% above analysts’ consensus estimates.

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Company Overview

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.

Revenue Growth

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, Applied Industrial’s 8.9% annualized revenue growth over the last five years was decent. Its growth was slightly above the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Applied Industrial’s recent performance shows its demand has slowed as its annualized revenue growth of 5.3% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs.

We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Applied Industrial’s organic revenue was flat. Because this number is lower than its two-year revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.

This quarter, Applied Industrial reported year-on-year revenue growth of 10.4%, and its $1.35 billion of revenue exceeded Wall Street’s estimates by 4.6%.

Looking ahead, sell-side analysts expect revenue to grow 4.4% over the next 12 months, similar to its two-year rate. This projection doesn’t excite us and suggests its newer products and services will not catalyze better top-line performance yet.

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Operating Margin

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Applied Industrial has managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 10.7%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, Applied Industrial’s operating margin rose by 1.7 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q2, Applied Industrial generated an operating margin profit margin of 11.8%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Applied Industrial’s EPS grew at 24.4% compounded annual growth rate over the last five years, higher than its 8.9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Applied Industrial’s earnings to better understand the drivers of its performance. As we mentioned earlier, Applied Industrial’s operating margin was flat this quarter but expanded by 1.7 percentage points over the last five years. On top of that, its share count shrank by 4.9%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Applied Industrial, its two-year annual EPS growth of 5.6% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q2, Applied Industrial reported EPS of $3.17, up from $2.80 in the same quarter last year. This print beat analysts’ estimates by 8.7%. Over the next 12 months, Wall Street expects Applied Industrial’s full-year EPS to grow 7.3% from $10.96 to $11.76.

Key Takeaways from Applied Industrial’s Q2 Results

We were impressed by how significantly Applied Industrial blew past analysts’ organic revenue expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a good print with some key areas of upside. The stock remained flat at $355.49 immediately following the results.

Applied Industrial may have had a good quarter, but does that mean you should invest right now? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here (it’s free).