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Blog: ‘Soft’ and ‘sluggish’ describe quarterly sales

By Jack Keough

There were two words used by electrical distributors and manufacturers to describe their latest quarterly sales numbers: “soft” or “sluggish.”

Electrical/MRO distributor giant WESCO, for example, which had record sales in the  first quarter, reported  organic sales declined 3 percent and were “softer” than expected, said John Engel, WESCO’s chairman and chief executive officer.

He said the first quarter reflected solid execution in a challenging economic environment and a continuation of the market trends experienced in the second half of last year.  But WESCO, like many distributors, expect business to pick up in the second half of the year.

Kenneth S. Parks, WESCO’s Chief Financial Officer and Vice President, emphasized that point in a call with financial analysts.

“In January, we indicated that the economic recovery was expected to be weighted to the second half of the year, and our expectations were for flattish organic top line in the first half,” he said, according to a transcript of the call as provided by www.SeekingAlpha.com   “The current data trends have not altered our view. Consistent with those January comments, we continue to believe the second half of 2013 will be stronger than the first.”

The reasons for the optimism are based on an increasing backlog of orders in markets such as datacom, utilities and international business as well as a much improved residential and non residential building outlook.

At Kaman Industrial Technologies, sales from continuing operations were up 1.8% with the contribution from acquisitions offsetting a 5.9% decline in organic sales.

But the company is seeing an improvement in its OEM markets, which had been the first to turn negative during the economic downturn.

“This is supported by several months of favorable book-to-bill ratios and growing backlog in parts of the segment,” said Neal Keating, CEO, Chairman and President of Kaman in a call with analysts.

KIT is also enthused about its partnership arrangement with Schneider Electric that is leading to increased business opportunities this year. The agreement with Schneider and Kaman’s acquisition of Florida Bearings has already resulted in a contract to supply the electrical and automation panels for a wastewater treatment plant in Florida.

On the manufacturing side, Emerson reports that its industrial motors and electrical drives sales demand remained soft as well. Growth, however, was solid in the hermetic motors business driven by HVAC compressor demand.

David N. Farr, chairman and CEO, told financial analysts that orders weakened in February and throughout March and showed continued weakness in April.

“Overall, it will be a good year, but the growth is going to be the key issue for all us in the business and we’re not seeing it right now,” he said.

The company’s Industrial Automation group said underlying sales decreased 6% with the U.S. down 1%, Asia down 3%, Europe down 15%, Latin America up 11%, while the Middle East and Africa were flat. Industrial goods market conditions remained weak especially in Europe.

Based on current economic conditions, Emerson has revised its 2013 outlook and expects sales growth to be 1.5% to 2.5%.

And ABB said orders received in the quarter declined 4 percent on an organic basis (2 percent higher including numbers from newly-acquired Thomas and Betts) compared to the first quarter of 2012. Base orders (below $15 million) were 5 percent lower on an organic basis (2 percent higher including T&B), mainly reflecting softer demand for early-cycle products.

Eaton reported solid numbers from the quarter including the results from its huge Cooper acquisition completed last November. It was the first full quarter in which Cooper results were reported.

The diversified international manufacturer expects a synergistic cost savings of $90 million from the purchase, much higher than Eaton had expected. In addition, Eaton is optimistic for 2013 revenues because of new products, an expanding customer base resulting from its acquisitions, and the “transformation” of the company with more than 60 percent of its sales now coming from electrical products.

The company is especially optimistic about its outlook for LED lighting products during the year.

Meanwhile, a number of surveys indicate the overall economic outlook continues to be cloudy. Wholesale inventories grew 0.4% in March, while wholesale sales tumbled 1.6%, the Commerce Department says. The monthly sales drop was the largest since March 2009. The ratio of inventories to sales grew to 1.21 from 1.19 in February.

Other surveys show similar mixed messages. In a poll this past week conducted by CNNMoney-Manta about the state of small business today, more than a third of owners polled said the U.S. economy is in better shape than last year. But most say their own customers aren’t spending freely, and only 40% are reporting stronger sales.

Just 14 percent say they’re adding more workers than last year, while two-thirds aren’t hiring at all.

Requests to complete the survey were sent to 50,000 small business owners who are members of Manta.com, a networking website for entrepreneurs. And1,048 responded. The online survey was conducted May 9 to 10, and has a margin of error of +/- 2.86%

Jack Keough was the editor of Industrial Distribution magazine for more than 26 years. He often speaks at many industry events and seminars. He can be reached at john.keough@comcast.net or keoughbiz@gmail.com

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