AIT 2027财年第一季度业绩电话会：工程解决方案推动增长lg...

核心要点

• Applied Industrial Technologies (AIT) 公布 2027 财年第一季度销售额增长 7.6%，其中包括 7.1% 的有机增长。公司整体销量增长 5%，价格因素贡献了约 200 个基点。
• 尽管受后进先出法（LIFO）费用增加影响产生 23 个基点的同比阻力，但列报 EBITDA 仍增长 9.6%，EBITDA 利润率扩大 22 个基点至 12.4%。
• 摊薄后每股收益（EPS）从 2.63 美元增长 12.7% 至 2.97 美元。鉴于第一季度完成了股票回购，管理层将 2027 财年全年每股收益指引上调 0.05 美元至 11.70-12.20 美元。
• 工程解决方案部门领涨，有机销售额增长 14.1%，EBITDA 增长 24.7%，EBITDA 利润率扩大 120 个基点至 15.1%。该部门订单量增长超过 30%，订单出货比达到四年多来的最高水平。
• 服务中心部门有机销售额增长 3.5%。美国业务增长约 6%，但被加拿大和墨西哥较为疲软的需求部分抵消。
• 管理层预计第二财季有机销售额增长率为 6%-8%。截至目前，10 月有机销售额本月迄今增长约 10%，不过 11 月和 12 月的对比基数将更加艰难。

核心财务数据

后进先出法（LIFO）费用为 560 万美元，而去年同期为 260 万美元。该费用的增加使 EBITDA 同比增速降低了 2.1 个百分点。

业务与运营表现

工程解决方案部门

工程解决方案部门实现了 14.1% 的有机销售额增长。部门 EBITDA 增长 24.7%，EBITDA 利润率达到 15.1%，上升 120 个基点。

自动化业务的有机销售额连续第二个季度增长超过 20%。管理层提及，由于客户致力于解决劳动力限制、安全、质量和供应链韧性等问题，市场对机器人、机器视觉、数字技术、协作机器人和自主移动机器人的需求表现突出。自动化积压订单在环比和同比维度上均增长了 30% 以上。

受半导体和数据中心市场以及工业和移动 OEM 需求的支撑，流体动力（Fluid Power）业务的有机销售额实现了 15% 至 19% 梯度的增长。其积压订单在季度末达到了四年来的最高水平。

流体控制（Flow Control）业务的有机销售额增长超过 6%，较上一季度有所改善。金属、公用事业与能源以及科技领域的需求走强，而化工和炼油活动开始回升。管理层指出，流体控制是该部门中利润率较高的业务之一。

服务中心部门

服务中心部门有机销售额增长 3.5%。美国业务增长约 6%，主要受应急维修（break-fix）和技术性 MRO（维护、维修与运营）活动的支撑。本地客户需求也持续走强，美国服务中心的订单量环比增长 7%，优于正常季节性表现。

部门 EBITDA 增长 1.6%，而 EBITDA 利润率下降 35 个基点至 13.6%。较高的 LIFO 费用以及与去年同期有利的应收账款计提基础相比，对 EBITDA 增长造成了合计 3.3 个百分点的阻力，对利润率造成了超过 40 个基点的阻力。此外，较高的员工医疗成本也拖累了盈利能力。

加拿大和墨西哥约占服务中心销售额的 12%，在工业状况偏软和贸易环境变化的背景下，表现依然偏弱。管理层表示，进入第二季度后，这两个地区均显现出复苏迹象。

管理层业绩指引

管理层将 2027 财年摊薄后每股收益指引从 11.65-12.15 美元上调至 11.70-12.20 美元，这反映了第一季度股票回购后摊薄后股数的减少。

公司维持以下 2027 财年全年展望：

• 销售额增长 4%-6.5%
• EBITDA 利润率为 12.5%-12.8%
• 价格调整对销售额同比增长的贡献为 150-200 个基点

针对 2027 财年第二季度，管理层预计：

• 有机销售额增长 6%-8%
• 毛利率环比保持稳定至略有上升
• EBITDA 利润率为 12.3%-12.5%

在全年指引的中点，管理层预计增量利润率（incremental margins）约为 16%-17%。指引的高端则假设增量利润率约为 18%。

风险与关注点

鉴于贸易政策、地缘政治状况和利率相关的不确定性，管理层保持审慎态度。此外，2027 财年下半年的对比基数也将更加艰难，11 月和 12 月的对比基数平均比 10 月高出约 200 个基点。

其他需要考虑的因素包括与员工相关的成本、运费和车队成本的通货膨胀；LIFO 费用的潜在波动性；持续的增长性投资；客户的生产计划；项目进度；以及秋冬季节的季节性波动。

自由现金流同比下降，原因是与需求转强相关的营运资金投资增加以及资本支出上升。此外，受工程要求或项目分期影响，工程解决方案部门的部分订单可能需要比通常的 90-180 天更长的时间才能转化为收入。

分析师问答亮点

• 工程解决方案部门订单转化：管理层指出，订单已连续四个季度实现两位数增长。通常转化周期为 90-180 天，但一揽子订单（blanket orders）和较大项目的转化时间可能会超出这一期限。
• 自动化业务增长势头：管理层表示，需求呈现广泛性，而不仅仅是推迟项目的恢复。客户正在扩大自动化应用，而 AIT 也在投资额外产能以支持吞吐量。
• 服务中心部门盈利能力：第一季度的主要压力来自 LIFO 费用、与去年同期应收账款计提的对比以及走高的员工医疗成本。加拿大和墨西哥销量的疲软是一个较次要的因素。
• 项目规模：工程解决方案部门的项目金额通常在数十万美元级别，而非数百万美元。管理层表示，客户兴趣和应用范围正在不断扩大。
• 利润率可持续性：管理层表示，工程解决方案部门利润率的提升并未反映异常项目。高利润率的流体控制业务增长以及销售额两位数增长带来的运营杠杆支撑了这一结果，不过公司并未将该季度定义为新的利润率基准。
• 资本配置：并购（M&A）仍是 2027 财年的优先事项。管理层提及两个部门均有活跃的并购储备项目，包括数个中型标的，并得到约 8.06 亿美元的循环信贷额度和额外的 8 亿美元弹性增额选项（accordion option）的支持。

业绩电话会议完整文字记录

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完整财报电话会议逐字稿

管理层陈述

Operator

Welcome to the fiscal 2027 First Quarter Earnings Call for Applied Industrial Technologies. My name is Al and I'll be your operator for today's call. [Operator Instructions]

Please note that this conference is being recorded. I will now turn the call over to Ryan Cieslak, Vice President of Investor Relations and Treasury. Ryan, please go ahead.

Ryan Cieslak

Okay. Thanks, Al, and good morning to everyone on the call. This morning, we issued our earnings release and supplemental investor deck detailing our first quarter results. Both of these documents are available in the Investor Relations section of applied.com.

Before we begin, just a reminder, we'll discuss our business outlook and make forward-looking statements. All forward-looking statements are based on current expectations subject to certain risks and uncertainties, including those detailed in our SEC filings.

Actual results may differ materially from those expressed in the forward-looking statements. The company undertakes no obligation to update publicly or revise any forward-looking statement. In addition, we will use non-GAAP financial measures during the conference call, which are subject to the qualifications referenced in our SEC filings.

Our speakers today include Neil Schrimsher, Applied's President and Chief Executive Officer; and Dave Wells, our Chief Financial Officer. With that, I'll turn it over to Neil.

Neil Schrimsher

Thanks, Ryan, and good morning, everyone. We appreciate you joining us. I'll begin today with perspective and highlights on our results, including an update on industry conditions and expectations going forward. Dave will follow with more financial detail on the quarter's performance and provide additional color on our updated fiscal 2027 guidance. I'll then close with some final thoughts.

So overall, we had a nice start to fiscal 2027. We delivered strong earnings performance in the first quarter with EBITDA and EPS, growing 10% and 13%, respectively, over the prior year. Customer activity was directionally positive throughout the quarter with organic sales growth of 7%, in line with our outlook provided in mid-August.

On a 2-year stack basis, organic growth of 10% was up modestly compared to the seasonally strong trend we had in the fourth quarter. We also drove solid margin performance in the quarter against ongoing inflationary headwinds with EBITDA margins expanding year-over-year and achieving the high end of our guidance.

Favorable mix, ongoing internal margin initiatives and cost leverage are supporting our margin trajectory. Of particular note, our Engineered Solutions segment delivered a strong quarter on both the top and bottom line with orders continuing to strengthen. Underlying demand across our Service Center segment also remains positive with sales growth strengthening as the quarter progressed and into October.

Overall, we're executing well with a productive growth environment and on track to deliver solid performance for the year. Digging more into the sales trends, underlying demand remained favorable throughout the quarter. Market conditions were strongest across our U.S. operations, where organic sales increased 8% year-over-year.

Company-wide volumes were up 5% from the prior year, reflecting greater technical MRO and capital spending activity combined with ongoing benefits from our internal sales initiatives and industry position. From an end market perspective, 18 of our top 30 market verticals generated positive sales growth, which is down from 20 last quarter, but up from the prior year quarter.

On a 2-year stack basis, 18 were positive compared to 17 last quarter. highlighting a sustained positive underlying trend. Growth was strongest across metals, technology, machinery, utilities and energy, mining and oil and gas. This was partially offset by the declines primarily in lumber and wood, aggregates and rubber and plastics and food and beverage.

Sales growth during the quarter was led by our Engineered Solutions segment, which delivered 14% organic sales growth year-over-year, up slightly from 13% last quarter. Segment order trends also remained positive during the quarter, increasing by more than 30% year-over-year with backlog continuing to strengthen and book-to-bill at its highest level in more than 4 years.

Sales growth in the quarter was strongest in automation, where organic sales increased by more than 20% year-over-year for the second straight quarter. Demand for our automation solutions focused on robotics, machine vision and digital technologies remain solid as customers address structural labor constraints, safety and quality requirements and supply chain resiliency initiatives with a favorable production environment.

It is increasingly evident customers are investing in automation to meet lasting operational requirements and strengthen their competitive position long term. Our scaling footprint across the U.S. and Mexico, combined with the leading engineering and application expertise and strategic relationships with premier automation suppliers is providing a clear competitive advantage as we connect these solutions across our legacy customer base.

With our automation backlog growing more than 30% sequentially and year-over-year during the quarter, we see sustained solid growth momentum moving forward. Fluid Power also remains a bright spot with organic sales, increasing by a high teens percent over the prior year, reflecting strength within semiconductor and data center markets, as well as positive demand across industrial and mobile OEM customers.

The growth outlook across Fluid Power remains strong as well, with related backlog ending the quarter at its highest level in 4 years. Secular tailwinds within both legacy and emerging customer verticals are driving durable demand for fluid conveyance, industrial power, pneumatic automation and next-generation hydraulic systems. We're in a great spot to leverage these growth catalysts as the largest fluid power distributor and solutions provider in the U.S. with premier system engineering and assembly capabilities.

I'm also encouraged by the stronger demand developing within our flow control operations where organic sales increased more than 6% year-over-year, a solid pickup from last quarter. We're seeing stronger flow control demand across metals, utility and energy and technology end markets, while customer activity across process heavy chemicals and refinery verticals is starting to firm.

Overall, all 3 areas of our Engineered Solutions segment are trending nicely to start the year, a positive sign for the segment's growth durability as well as earnings contribution potential. This was evident in the quarter where the segment's inherent operating leverage read through nicely, with 14% sales growth translating to 25% EBITDA growth representing incremental margins of 24%.

Demand signals across our Service Center segment also remained positive. Organic sales growth of 3.5% moderated from 8% last quarter, though primarily reflecting a more difficult comparison with a 2-year stack of 8% up modestly from the seasonally strong trend last quarter. Year-over-year growth improved every month in the quarter with the positive trend continuing into October, where segment organic sales are up a high single-digit percent month-to-date.

Demand conditions were strongest across the U.S. service center operations during the quarter, where organic sales increased approximately 6% over the prior year, with brake fix and technical MRO activity remaining firm throughout the quarter. We also continue to see stronger demand across local accounts, providing another positive signal on the durability of the cycle. In addition, customer sentiment and demand indications remain constructive, reflecting elevated technical MRO requirements and a positive U.S. manufacturing backdrop.

Of note, U.S. service center bookings increased 7% sequentially from the fourth quarter, which was nicely ahead of normal seasonality. Segment growth was partially offset by muted end market demand in Canada and Mexico, which is consistent with more subdued manufacturing and industrial indicators within those regions over the past several quarters and partially reflects the evolving trade backdrop.

Canada and Mexico represent approximately 12% of our Service Center segment sales, and while near-term trade dynamics remained uncertain, we expect improving trends within these regions as the year progresses based on current business pipelines, easy comparisons, and internal actions. Overall, our core service center business is tracking directionally in line with our expectations year-to-date, with demand indicators remaining supportive moving forward.

In addition to an overall positive demand backdrop, we're in a great position to continue to translate the current trajectory of sales growth into greater earnings growth and ongoing EBITDA margin expansion through cost leverage and internal initiatives as well as benefits from favorable mix. Our first quarter performance is a good reflection of this.

Of note, gross margins expanded 25 basis points over the prior year or nearly 50 basis points, excluding the impact of LIFO. This was ahead of our first quarter guidance with underlying gross margin performance, favorable across both segments during the quarter. We benefited from positive mix during the quarter, reflecting stronger growth across Engineered Solutions segment and local accounts.

We're also executing well across various margin initiatives, which are helping offset higher employee-related costs, freight and fleet expense inflation and ongoing growth investments. As a result, we achieved 15% incremental margins on EBITDA during the quarter or 19% when excluding LIFO, which was at the high end of our first quarter outlook and against a difficult prior year comparison.

Our underlying business model, combined with ongoing operational initiatives and structural mix tailwinds and provide solid support levers to continue to expand EBITDA margins and drive solid earnings growth in the current demand backdrop.

And lastly, we remain on track to have another active year of capital deployment to further supplement our growth potential and shareholder returns. M&A remains a top capital allocation priority for fiscal 2027. Our pipeline is active with varying sized targets across both segments. This includes several midsized targets at various stages of due diligence that could enhance our technical differentiation and value-added service capabilities.

Our balance sheet and cash generation provide meaningful capacity to further compound our growth through M&A. As always, we remain disciplined with our approach with a primary focus on generating appropriate returns while enhancing our competitive position and long-term growth opportunity.

At this time, I'll turn it over to Dave for additional detail on our results and outlook.

David Wells

Thanks, Neil, and good morning to everyone joining today. Just another reminder before I begin. As in prior quarters, we have posted a supplemental investor presentation to our Investor site for your additional reference. We hope that you will find this useful as we recap our most recent quarter performance.

Turning now to details of our financial performance in the quarter. Consolidated Sales increased 7.6% over the prior year quarter. Acquisitions and Foreign Currency grew a modest tailwind in the period, adding 30 and 20 basis points, respectively, of growth. The number of selling days in the quarter was unchanged year-over-year. Netting these factors, sales increased 7.1% on an organic basis.

As it relates to pricing, we anticipate the contribution of product pricing to year-over-year sales growth was approximately 200 basis points in the quarter.

Moving to consolidated gross margin performance. As highlighted on Page 7 of the deck, gross margin of 30.4% was up 25 basis points compared to the prior year level. During the quarter, we recognized LIFO expense of $5.6 million compared to $2.6 million in the prior year quarter and $6.4 million last quarter.

On a net basis, this resulted in an unfavorable 23 basis point year-over-year impact on gross margins. Excluding LIFO expense, gross margins were up nearly 50 basis points year-over-year, reflecting ongoing progress with our internal margin initiatives, solid channel execution and favorable mix. As it relates to operating costs, selling, distribution and administrative expenses increased 7% compared to prior year levels.

On an organic constant currency basis, SG&A expense was up 6.5% year-over-year. As a percentage of sales, SG&A expense improved 12 basis points year-over-year to 19.3%. I would note, the prior year period included a favorable AR provision recovery, which negatively impacted the fiscal 2027 1st quarter year-over-year SG&A trend by 1.2 percentage points.

We also experienced higher-than-expected employee health benefit costs in the quarter from claims activity, which we self-insure and expect to return to more normalized levels moving forward. Our team remains disciplined on spend, while auto focusing on various efficiency initiatives tied to technology investments, shared services and sales productivity tools. This is helping to balance inflationary headwinds and growth investment in the business.

Overall, organic sales growth, combined with solid gross margin performance and cost leverage resulted in reported EBITDA increasing 9.6% over the prior year. This is inclusive of greater LIFO expense, which negatively impacted year-over-year EBITDA growth by 2.1 percentage points in the quarter. Reported EBITDA margin of 12.4% was up 22 basis points from the prior year level with year-over-year LIFO headwinds negatively impacting EBITDA margin by 23 basis points.

Earnings per share of $2.97 increased 12.7% from prior year EPS of $2.63. On a year-over-year basis, EPS was favorably impacted by a lower diluted share count, partially offset by higher interest expense.

Turning now to our performance by segment. As highlighted on Slides 8 and 9 of the presentation, sales in our Service Center segment increased 3.5% year-over-year on an organic basis. This excludes 40 basis points of contribution from acquisitions and a positive 30 basis point impact from foreign currency translation. Growth was primarily driven by volume growth across our U.S. Service Center operations, reflecting favorable end market demand and benefits from our internal sales initiatives, partially offset by softer end market demand in Canada and Mexico.

Segment EBITDA increased 1.6% over the prior year, while segment EBITDA margin of 13.6% declined 35 basis points year-over-year. The year-over-year trend in segment EBITDA and EBITDA margins was negatively impacted by higher LIFO expense and the tough comparison against favorable prior year AR provisioning, which combined represent a 3.3 percentage point headwind to year-over-year EBITDA growth as well as more than 40 basis point year-over-year headwind to EBITDA margins.

Within our Engineered Solutions segment, organic sales increased 14.1% over the prior year quarter. The year-over-year increase was primarily driven by double-digit growth across our automation and fluid power operations, reflecting solid end market demand, including positive technology vertical contribution as well as improving demand across our flow control operations. Segment EBITDA increased 24.7% over the prior year and segment EBITDA margin of 15.1%, expanded 120 basis points year-over-year, inclusive of higher LIFO expense compared to the prior year period.

Moving to our cash flow performance. Cash generated from operating activities during the first quarter was $86.4 million, while free cash flow totaled $73.4 million, representing a conversion of approximately 67% and relative to net income. Compared to the prior year first quarter, free cash was down as a result of working capital investment tied to stronger demand and higher capital expenditures, partially offset by ongoing progress with internal working capital management initiatives.

From a balance sheet perspective, we ended September with approximately $112 million of cash on hand and net leverage and approximately 0.3x EBITDA, which was unchanged from the prior year period. Our current revolving credit agreement has available capacity of approximately $806 million and an additional $800 million accordion option. Combined with availability under our AR securitization facility, we have significant financial capacity to support our capital deployment initiatives moving forward, including accretive M&A, dividend growth and share buybacks.

During the first quarter, we repurchased more than 245,000 setters for approximately $80 million.

Turning now to our outlook. As indicated in today's press release, and detailed on Page 12 of our presentation, we are modestly raising full year fiscal 2027 EPS guidance to reflect an updated diluted share count following first quarter buyback activity. We now project EPS in the range of $11.70 to $12.20, compared to prior guidance of $11.65 to $12.15. That said, we are maintaining our sales guidance about 4% to 6.5% as well as EBITDA margins, up 12.5% to 12.8%. Guidance continues to assume 150 to 200 basis points of year-over-year sales contribution from pricing. Our sales outlook remains largely unchanged from the views we provided in mid-August. End market demand indicators remain favorable, and we are encouraged by positive order and business phone momentum that continues to develop. However, guidance continues to take into consideration ongoing economic uncertainty tied to current geopolitical, interest rate and trade policy dynamics as well as more difficult comparisons in the back half of the year.

Combined with sales trends month-to-date in October, we currently project fiscal second quarter organic sales to increase by 6% to 8% over the prior year. We would also note prior year comparisons are slightly more difficult in the November and December periods relative to October. In addition, while holiday timing is more favorable this year, we remain balanced with our near-term sales expectations given variability that can occur in a seasonally slower fall and winter months as customers adjust production schedules project phasing and capital investments within a still dynamic macro backdrop.

Lastly, from a margin standpoint, we're encouraged by our first quarter performance and reiterating the outlook provided in mid-August. We continue to assume ongoing inflationary pressures and growth investments. For the second quarter, we expect gross margins to be stable to up slightly on a sequential basis and EBITDA margins up 12.3% to 12.5%.

We are assuming a more normalized level of margin performance in the second quarter following solid execution in the first quarter, which we believe is prudent considering the inflationary backdrop, potential variability in LIFO expense and ongoing growth investments. That said, we remain focused on a number of ongoing margin and productivity initiatives that should continue to provide support moving forward.

With that, I will now turn the call back over to Neil for some final comments.

Neil Schrimsher

So to wrap up, we are encouraged by our first quarter performance, including double-digit earnings growth, solid margin execution and sustained positive order momentum. Organic sales growth month-to-date in October of approximately 10% highlights positive momentum entering our fiscal second quarter. We continue to take a prudent approach with our outlook, given limited visibility on how current trade policy, geopolitical and interest rate dynamics might impact end market demand as the year progresses. That said, we remain positively biased considering the current growth backdrop, our market position and internal initiatives.

Customer demand is showing solid durability year-to-date with support from both structural and secular tailwinds that are more meaningful than prior cycles. Broader industrial macro indicators all continue to signal a positive U.S. manufacturing environment, with the ISM-PMI above 50 for 9 straight months following 3 years of sub-50 readings. In addition, U.S. industrial capacity utilization remains well below its pre-COVID highs, while several of our core industrial markets have yet to fully participate in the current up cycle -- and could begin to inflect moving forward, including chemicals, petrochem, refining, transportation and lumber and wood.

Considering these dynamics and the fact our positive volume growth trajectory is only 3 quarters into the current recovery within a potentially structural stronger technical MRO and capital investment backdrop, we believe we remain particularly early in our growth cycle.

Further, our market position is driving new and meaningful company-specific opportunities as we support elevated technical MRO requirements in many of our core legacy end markets as well as increased exposure across areas of automation and the technology vertical.

Within our core service center business, our overall share of the addressable market continues to progress nicely across a still highly fragmented market. We see significant opportunity to continue to expand our presence in this technical aftermarket as customers partner with more capable providers with breadth and scale. In addition, our deep capabilities and strategic supplier relationships across areas of fluid conveyance, pneumatics, industrial power, process flow control and robotics are opening up new addressable markets, supporting the build-out of advanced industrial systems and related energy infrastructure as AI proliferates.

Within this, we see a potential meaningful aftermarket opportunities in the future on this essentially new industrial installed base. We are well positioned to capitalize on these trends given our domain knowledge, engineering expertise, service facility density and scale. In addition, our team's collaboration and alignment on selling one Applied value proposition is gaining nice momentum, supporting greater cross-selling contribution to our growth profile as the demand cycle continues to move forward.

And then lastly, our balance sheet and liquidity provides strong support to opportunistically pursue ongoing organic investment and strategic M&A in the current environment as well as other capital deployment that could augment returns for all stakeholders going forward. So overall, a great start to fiscal 2027 with a significant opportunity still ahead for the Applied team.

With that, we'll open up the lines for your questions.

Operator

[Operator Instructions] Your first question comes from the line of Chris Dankert with D.A. Davidson.

分析师问答

Christopher Dankert

I guess to jump in, the things stood up most of the ES orders up 30% plus I guess, can you give us a little bit more color there? Anything you can share in terms of just average delivery time line there? Is this kind of pointing us towards double-digit growth in the segment for '27? Any additional color would be really helpful.

Neil Schrimsher

Sure. So I think, hey, overall pleased with the continued order development, double digit for the fourth straight quarter. So nice really good participation across automation, fluid power and a high single-digit pickup in flow control. So encouraging there as well. I think timing, as we've talked about before, can vary, it can be a 90- to 180-day turn. That said, I know some of the projects based on engineering or the phasing of the overall project could extend slightly longer than that. But a good signals on the order and the development. We're pleased with the backlog progress and as we've shared the book-to-bill highest in over 4 years, all positive signals for us.

David Wells

We did, I think, see a little bit more in terms, Chris, of some of the blanket orders that did positively impact the most recent quarter as well. So you do have some of that mix. So could you just solidify to your point, our view on the back half of the year for Engineered Solutions, we continue to be pleased with the order development. But not all of that is going to follow that 90- to 180-day type of time frame for delivery. So but nonetheless, very encouraged by the continued momentum we see there.

Christopher Dankert

No, that's really helpful, guys. And nice to see the progress in Flow Control in particular. I guess as my follow-up here to focus more on the second quarter signposts you laid out, with October up at least so far, 10% and some of the timing comps around holidays being a little bit easier, I guess, maybe what's kind of implied in the low end of the guide here? Kind of what are we sort of assuming would go wrong to get us near the bottom end there?

Neil Schrimsher

Yes. I think on the low end, Chris, I mean nothing that we're seeing today for the low end of the guide on that. I think at midpoint and high just working to be prudent on things that we talked about that as they develop, whether pricing tariff or some of the geopolitical on that side. There is a comparable step-up for November and December of a couple of hundred basis points in the comparable of that. And as we've talked about in last year as well, right, each holiday season can kind of take some of their own nuances.

We're connected with customers well right now. I think it's early to know their firm plans. And so clearly, we're serving the production and project requirements well in October. And we'll be there for them in the November and December. I do think the holiday set up post-Christmas is with 4 days together is positive, but obviously, we'll see how that plays out and develops.

David Wells

We don't talk a lot about servicing our backlog because it is such a book and turn. But it was encouraging there as well where we saw a backlog of about 20% year-over-year on the service center segment, up 7% sequentially. So give some further confidence in both the upcoming quarters, and you're seeing some of the back half activity to the extent that phases out.

Operator

Your next question comes from the line of Andrew Obin with Bank of America.

Andrew Obin

Just maybe a question on service center profitability and maybe this was a function of sort of how we modeled it. But I think the margin came in a tad weaker than we thought. You sort of highlighted some headwinds outside of North America. Could we just talk a tad more about sort of what were the key moving pieces up and down in service centers? And also maybe if there were sort of any unusual things in the corporate line. I apologize if I missed it.

Neil Schrimsher

No worries, Andrew. I can start. And so I'd say, overall, we expected a somewhat muted year-over-year service center segment margin trends in the first quarter, given the really more difficult comparison. There was a negative impact that we touched on, right, with the higher LIFO expense and also prior year of favorable AR provisioning.

So if you combine those, that was a 3.3 percentage point headwind to year-over-year EBITDA growth as well as 40 basis points headwind to the EBITDA margins. And as you pointed out, that trend was also impacted by softer volumes outside of the U.S. as well as some of the higher medical on the employee-related costs in the period. So we do expect year-over-year margin trends in the second quarter for the Service Center segment as LIFO and the AR provision impact normalizes to combine with stronger top line trends that we have to be at an improved higher level.

Andrew Obin

And then any positives on the corporate line?

David Wells

I mean corporate was pretty much in line with expectations. Nothing unusual there, Andrew.

Andrew Obin

Okay. Got you. And then maybe a question you sort of highlighted strength in automation. Was that sort of as expected? Or is automation coming in better than expected because we're sort of hearing similar commentaries from OEMs, ABB, Schneider, both highlighted pretty strong automation trend. I'm a bit surprised by that we're seeing as my strength as we are so early. I don't know, maybe just expand on that, if you can.

Neil Schrimsher

Yes. We've seen high interest. I think as customers look to operate and see the demand requirements that they have, deal with labor scarcity and and other market drivers. So we see high interest in activity in collaborative robots and mobile robots on the side from a growth standpoint in the 20s for 2 straight quarters, orders have been strong in that. So we're carrying good productive backlog and add to it.

And so really helping customers across our legacy base. I think about food and beverage, technology, segments, others bring automation into their operating plan. So we're encouraged. He's got a very good position. Team is clearly focused on making some investments in additional capacity for a throughput to serve some of that demand that will go this quarter. And so we're pleased about automation as well as the rest of Engineered Solutions.

Operator

Your next call comes from the line of Ken Newman with KeyBanc Capital Markets.

Kenneth Newman

Good morning. So maybe for my first question, maybe I'll ask Andrew's question on incremental margins for Service Center a little bit differently. Dave, is there a way to help us quantify just how much the margins in Service Centers were impacted by lower Canada and Mexico demand in the quarter. And I hear you that you're expecting that to kind of normalize here 1Q to 2Q, but are you already seeing evidence of that in the 10% October growth?

David Wells

Yes. We're seeing recovery out of both areas. I would say it was down the list in terms of factors. I mean, obviously, we add some natural buffers as business levels slowed down in terms of incentives, things variable at that nature and pull back some of the temp and over time, things of that nature. So really less of a contributing factor. I mean as I look at it, the year-over-year comparison on the they are provisioning was significant impact. LIFO, like I said, you combine those 2, as Neil said, a 3.3 percentage point headwind to EBITDA growth 4 basis points impact on EBITDA margin.

So a much different scenario if we just roll those 2 back the employee health care costs, a lot of those were kind of more focused in the service center segment as you read through that. So those are really the top 3 contributing factors of before, the last on the list would be that the softer volumes in Mexico and Canada. So makes encourage you, we're seeing some of that recovery as we move through this quarter. And I would expect, like I said, to see the continued progress as both the liposome of the medical and the -- obviously, the the don't have the AR provisioning issue to deal with in the quarters going forward, more normalized comparators, I would expect to see that nice trend we've been seeing in terms of EBITDA profitability growth out of both segments.

Kenneth Newman

Got it. Okay. And then just maybe if we just -- the incremental margin lines of questioning here, obviously, you've got some visibility here in operating margins improving quarter-over-quarter. But how do we think about the setup for incremental margins for the full year? And is the back half potentially able to do high teens, low 20% type of incremental margins? Or is that still too early of a call at this point?

Neil Schrimsher

I'd say overall in the setup, right, at the midpoint on incremental margins would be the mid- to high teens. But with the midpoint on the guide, assuming 16% to 17% incrementals than at the high end, assuming 18% incrementals in. And with the goalpost that we shared for the second quarter at the midpoint, that would have incremental at 17% versus 15% in Q1 in that. And so -- and that's got some normalizing level of gross margins in that. So that would be the view on the incrementals, say, clearly, we've demonstrated opportunities to be better in those fronts, but we think those are the right expectations now.

I was very encouraged by the gross margin performance, I mean, even inclusive of the 23 basis point LIFO headwind kind of being up to the order of magnitude, it was in terms of 25% -- or 25 basis points year-over-year even with LIFO headwinds. So you get that favorable mix impact, as we've talked about with some of the ES segment contribution, and that's going to continue to be a contributor here as we move through the balance of the year.

Operator

Your next question comes from the line of Brett Linzey with Mizuho.

Brett Linzey

Good morning all. My first question is just on ticket size and breadth. So I guess as you drill down on the order book and backlog, are you seeing the average ticket sizes or any evidence that customers are moving forward with larger, more comprehensive project scope. So as the ticket size going up -- or do you think that some of this acceleration is just simply pent-up projects that have been delayed and they're probably converting?

Neil Schrimsher

I think the interest in the aspects of the area of the plants or the facilities that are going to get included are expanding. And so there can be an increase in size. I mean that said, these -- on the Engineered Solutions side are still often a few hundreds of thousands of dollars and not these multimillion dollar investments. I do not think it's just pent-up and deferral.

So interest is higher activity new applications into that front. So given that engineered solutions have been positive even quarters now, double-digit 4 into the front. I take that as all positives and really led thus far by automation and fluid power, both encouraging but we're starting to see that pick up in process flow control as they move up into that area, which will be very good as well.

Brett Linzey

Yes, that's great. And then maybe just a follow-up on ES and the margin uptick you saw there up 130 basis points. I guess as you look at the contribution and the attribution to the performance, is it higher valued engineered content just becoming a bigger part of the share of ES? And then where are the normalized margins ultimately going to land? Should this be the building off point, I guess, is the question?

Neil Schrimsher

Yes. And so we may be early to fully call all of that for the rest of the year. But we are encouraged by the solutions that we're providing, appropriately positioning to the value that they create and impact into that. And so we feel like we're in a very good position across the automation and the fluid power side, increased service work plus projects that we're seeing on Flow Control will be good as well. So -- and maybe we'll stop short of saying, this is the jump of total on the go point clearly. Clearly, we have demonstrated that in the capability. We're not so far off mid-August when we established guidance. So we're probably wanting to work through a little bit more of this quarter as well.

Ryan Cieslak

Yes. Brett, I just would add, I think there's nothing in the current quarter that was unusual. I mean it really reflects the positive trends we're seeing in the business, to your point on, selling our engineered solutions as well as the inherent operating leverage in the segment when you're able to grow at double-digit rate. So good sign moving forward. And then I just would reiterate as well that again now that flow control starting to grow year-over-year and is one of the higher-margin businesses within the segment. So it's helping the mix, which we think can continue as the year progresses.

Operator

Your next question comes from the line of David Manthey with Baird.

David Manthey

My question is on the progression years we're thinking sequentially. So you had a couple of strong sequential quarters, and I guess, it's normally maybe moderate a bit after a couple of really strong sequentials. But the 5% quarter-over-quarter that you had this quarter, seems lower than what would be a normal low single-digit kind of progression. I just wondered if you had a comment on that.

And then when you're looking at like 7% midpoint growth in the 10% in October. I'm just trying to understand what you said about November and December comps. Should we think that November and December are each 200 basis points more difficult? Or was there a rising influence or moderating one? I'm just trying to understand if it's a straight line or if it's moving up or down.

Ryan Cieslak

Yes, Dave, this is Ryan. I would say that from a comp perspective, to your last part of that question. So the November and December period, on average, is about 200 basis points more difficult than October. I think November probably a little bit more difficult than December. But it does step up over that period relative to October I think the 10% month-to-date in October, great to see off to a nice strong start.

We're seeing nice improvement across both segments. Engineered Solutions would be up double digits, the supercenter segment, up high single digits. The 6% to 8% guide that we gave really is consistent with how we thought the quarter would play out back when we established guidance in mid-August. So we're not changing it, which is sort of how we progressed through the year this early part of the year, but very nice to see how October started off and then just being prudent in the context of hey, as you know as you get into this offer seasonal months of November and December, you could always have some nuances there. But very encouraged by what we've seen so far. And then your point, I think you were maybe talking about the sequentials, Dave, as it relates to -- in the second -- in the first quarter. Is that what your first part of the question was focused on?

David Manthey

It was, yes.

Ryan Cieslak

Yes. And so I think on a day coming off of a really strong fourth quarter, where we had, I think normal seasonality was -- or seasonality was well above normal seasonality in the fourth quarter, a very strong backlog conversion in the fourth quarter. So we knew going into this quarter probably have some normalization there. I'd say nothing that we saw as the quarter played out that concerned us. We saw improving year-over-year trends through the service center as the quarter played out, local count grow very, very nice in the high single digits. And then obviously, the order and backlog trends continuing to move in the right direction. So just more a function of coming off a pretty strong fourth quarter trend.

Operator

Your next question comes from the line of Patrick Schuchard with Oppenheimer.

Patrick Schuchard

Could you give us a refresher on the main technology areas within automation beyond robotics and vision. You talked about linear motion in the past. I'm wondering where that sits today and which other capabilities are becoming more meaningful growth opportunities.

Neil Schrimsher

Yes. I think linear motion has continued in the offering as well as IoT, connectivity-type devices and products. I mean, we're helping customers extract data off their operating equipment and knowing or establishing with them the key performance indicators to continue to watch, monitor and track. So that's an area vision for -- to your point on quality control and inspection and then robotics on both sides, greater use and adoption of mobile robots in -- and I think the prediction and the outlook on growth on the collaborative robot side continues to be very strong.

I mean, I've seen outlooks there for the for the next 5 years, perhaps the CAGR is 15% a year to 2030. So there's clearly going to be more collaborative. There's more autonomous mobile, but there's more to Andrew's point on the physical AI, you want to be connecting to the data on that equipment to drive informed actions and behavior. And so that's a growth area for us as well in automation.

Patrick Schuchard

Okay. And maybe just a follow-up on linear motion specifically. Is the opportunity there primarily supplying components into OEM equipment? Or are you increasingly combining it with controls, vision and robotics and broader engineered solutions?

Neil Schrimsher

Depending on the application, there is more because like linear motion allows for very fine precision movement that can be required into the area. And so that's where we're going to be called in and be working with. So for very precise precision movements that are required. That's where linear motion has clear advantages in use and application. And so those are the ones that would -- we would be involved with and we would be helping those providers how to think about the rest of that solution. So not simply just reselling a component of our product also.

Operator

There are no further questions at this time. I will now turn the call over to Mr. Schrimsher for any closing remarks.

Neil Schrimsher

I just want to thank everyone for taking the time to join us today, and we look forward to talking with you throughout this quarter.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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