Distributors

Nation’s largest distributors post positive results

By Bridget McCrea

Are the financial reports of the nation’s largest distributors a sign of good things to come?

The results are in and the numbers are positive in at least two cases. Last week W.W. Grainger, Inc., reported record results for the second quarter ending June 30, 2012.  Sales of $2.2 billion were up 12 percent versus $2.0 billion in the second quarter of 2011.  The distributor’s net earnings for the quarter increased 12 percent to $191 million versus $170 million in 2011.  Earnings per share of $2.63 increased 12 percent versus $2.34 in 2011. 

The numbers reported by WESCO International, Inc. were equally as positive, with the company revealing consolidated net sales of $1,672.7 million for the second quarter of 2012, compared to $1,524.5 million for the second quarter of 2011. It was WESCO’s seventh consecutive quarter of double-digit earnings-per-share growth.

The distributor’s earnings per diluted share for the second quarter of 2012 were $1.15 per share, based on 51.1 million diluted shares, and were up 15.0% from $1.00 per share in the second quarter of 2011, based on 50.3 million diluted shares.

In a conference call published by SeekingAlpha.com, Laura D. Brown, Grainger’s senior vice president of communications and William D. Chapman, senior director of investor relations, discussed the distributor’s second quarter results. “Healthy sales growth, consistent execution, and impressive market expansion was the storyline for the quarter,” said Brown. “This performance was largely driven by continued enhancements to the foundation of our business and aggressive investment in our growth programs.”

Company sales increased 12% for the quarter and daily sales growth by month was as follows:  12% in April, 13% in May, and 12% in June. According to Brown, the 12% sales growth for the quarter included 5 percentage points from acquisitions and a 2 percentage point decline from unfavorable foreign exchange. Sales in the U.S., which accounts for 77% of total company revenue, increased 7% in the quarter, consisting of 4% volume growth and 3% from price.

In breaking down performance within Grainger’s U.S. customer segments, Brown said heavy manufacturing was up in the high-single digits; light manufacturing, commercial, retail, reseller and natural resources were up in the mid-single digits; government was up in the low-single digits; and contractors declined in the low-single digits.

Grainger’s non-North American markets, which comprise about 11% of the company’s sales, are located in Asia, Europe, and Latin America. Sales for this group increased 84%, which consisted of a 75-percentage-point contribution from the acquired businesses in Europe and Brazil, 21 percentage points from volume, led by strong growth in Japan, partially offset by a 12-percentage-point decline from unfavorable foreign exchange.

Chapman said Grainger forecasts increased operating margin expansion, over the prior year, in the remaining quarters of 2012. “Gross profit margins for the remaining quarters should remain relatively consistent with the 43.5% reported for the 2012 second quarter,” said Chapman.

WESCO’s second quarter conference call was equally as optimistic, although several analysts appeared to remain cautiously confident about the distributor’s performance. John J. Engel, the firm’s chairman, president, and CEO, said WESCO’s second quarter results reflect the continued execution of the company’s “One WESCO” growth strategy. “We delivered another quarter of solid sales and earnings growth while generating good momentum in all of our end markets,” said Engel.

Engel said WESCO’s third quarter is “off to a solid start” with sales up in the high single digits. “Consistent execution of our LEAN and margin improvement initiatives continues and has translated into improved operating margins and double digit earnings growth in the second quarter,” said Engel. “Free cash flow generation was also strong in the quarter and exceeded 80% in net income. Our investments are clearly paying off.”

When analyst David Manthey of Robert W. Baird & Co., inquired about the condition of WESCO’s construction customer segment, Engel said that market hasn’t “meaningfully changed” in terms of end-market activity. “It’s been a darn tough market, quite frankly,” said Engel. “When you set the clock back a few years ago, our outlook was for this long and protracted recovery. We had thought that the non-residential construction market would have bottomed and started its recovery by now.”

Analyst Jack Stimac of BB&T Capital Markets asked Engel about his outlook for the industrial market. Engel pointed out that WESCO doesn’t typically dissect its end markets by segment. “Industrial still grows,” he said. “I think we fared very well in terms of the industrial performance during the second quarter; that’s all I’d say.”

McCrea is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at bridgetmc@earthlink.net or visit her website at www.expertghostwriter.net.

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