By Jack Keough
While many publicly traded electrical distributors and manufacturers report business as “sluggish,” Anixter, the large electrical/ electronic wire and cable distributor, says its organic sales in North America grew 5.1 percent in Q2, a reflection of strong growth in U.S. markets.
And the company, unlike many other distributors that have reported earnings, expects future growth to continue, especially in light of its recent announcement that it was purchasing HD Supply’s Power Solution business.
“Our North American network infrastructure business continues to improve with a solid acceleration of growth in the quarter,” said Robert Eck, president and CEO of Anixter in a conference call with analysts following release of its Q2 earnings.
Sales in North America now account for 77 percent of Anixter’s revenues up from 72 percent compared to the same quarter last year.
Eck said that the improving U.S. commercial construction markets and a recovery in spending by large accounts drove growth.
However, Eck pointed out that Anixter has made substantial progress in large global accounts that are spending money outside the U.S. A big piece of that is large global customers who tended to constrain IT spending because of the uncertain economic environment.
“They had points where they have to increase spending, because even if the business is growing at a slow rate, they have the need to add capacity to their networks or their data centers and that’s a lot of what we’re seeing come back,” he added.
Anixter now expects full year organic growth of 2 to 4 percent, which is a one percent improvement at the midpoint of its previous guidance range. That is significant when many distributors expect flat to negative organic sales for the year
In the past two years Anixter has rapidly repositioned its company, selling off one major piece of its business and instead focusing to place their capital on companies that complement its existing ones.
Just two months ago, Anixter sold its fastener business for $380 million to American Industrial Partners. The company said the fastener business didn’t fit into its corporate structure and did not offer synergistic opportunities with other Anixter businesses.
And last September, Anixter purchased Tri-Ed, an independent distributor of security and low-voltage technology products from the Audax Group for $420 million. Tri-Ed had reported sales of $570 million.
Headquartered in Woodbury, NY, Tri-Ed serves four major segments of the security business including video, access control, intrusion detection and fire/life safety, and provides approximately 110,000 products to over 20,000 active dealer and integrator customers. The company employs over 600 people across 63 locations in the US and Canada.
But what really raised eyebrows in the electrical/industrial business last month was Anixter announcing that it intended to purchase the Power Solutions business of HD Supply for $825 million in cash. Many observers were surprised by both the price and that electrical giant Wesco did not make a bid. Wesco competes directly with that business in the utility area as well as in some areas of electrical distribution, particularly in the Southeast.
Anixter expects to close the acquisition, the largest in the company’s history, before the end of the third quarter.
“The acquisition provides us with a much broader product offering, improves its access to the mid-size electrical project market and expands its customer and supply relationships,” he said.
“It also transforms our existing utility business into a leading utility platform, opening up opportunities with public power and investor-owned utilities at a time when this market is in the early stages of a new capital invest,” he added. He later mentioned it creates an opportunity for synergistic savings as well as cross-selling opportunities.
Ironically, Anixter itself was reportedly put up for sale a year and a half ago. Bloomberg News reported that Rexel SA, the huge electrical French electrical company, was expected to make a bid but walked away when the asking price was deemed too high. It was reported that Anixter wanted offers above $115 a share while Rexel wanted to pay about $110 per share, according to news reports.
Eck noted that in the past 12 months his company has taken significant strategic steps to reposition its portfolio, creating a company that has improved its business and investment profile,
That decision seems to be paying off. Its Electrical and Electronic wire and cable segment in Q2 reported sales of $479 million, a slight increase on an organic basis adjusted for a nearly 6 percent of combined currency and copper headwinds.
Its North America, organic sales of $344 million compared to $353 million in the prior-year quarter. After adjusting for currency and the impact of copper prices, organic sales in North America increased 3% driven by continued growth in U.S. industrial projects. Anixter’s Canadian business continues to be adversely impacted by the softer growth trends in Western Canada, a result of weakness in the oil and gas sector.
Eck told analysts he had recently conducted a business review of the company’s operations in Western Canada, which has been hard hit by the severe drop off in the oil business. “My feeling is that Western Canada is near a bottom based on the trends we’re seeing in sales but it’s not getting worse ….So I don’t know that I want to call it a bottom but I guess we are stable at a much lower level.”
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