Distributor sales showed some solid improvement in 1Q 2024 over 4Q 2023, according to several dozen distributor respondents in the quarterly Vertical Research Partners (VRP)/Electrical Wholesaling survey.
Nick Lipinski, VP with VRP, wrote in the latest report that Q1 distributor sales were up +3.3% on roughly equal contributions from both volume (+1.7%) and price (+1.6%). “Pricing held steady sequentially overall though there does seem to be an emerging divergence with some distributors actively pushing price in support of margins while others appear to be ceding price to win share,” he said. “By category, Power (T&D) led with solid +6.9% growth including volumes up +5.1%. Electrical Equipment sales improved sequentially to +2.7% growth, while Automation sales were softest, as distributors had anticipated.”
Troublesome Lead Times for Switchgear
Lipinski said lead times and inventories were lower than the last report, and that branch inventory levels came in at the lowest level reported since Q3 2015, pointing to potential replenishment dynamics through the year. “Lead times took a step lower for the third consecutive quarter,” he wrote. “Availability overall has improved but continued shortages of switchgear are still holding up project activity. Pockets of medium-voltage electrical products are also still challenging as well as electrical fuses and other small circuity components (contributing also to the switchgear shortage). The definition of “normal” may well be a moving target influenced by dynamics in the post-COVID environment, but the improvement in lead times and inventories over the past three quarters does point to a stabilization in underlying operating conditions.”
Respondents forecasted growth of about +4% for Q2 2024. Election-related uncertainty may hold up the release of certain projects, but backlogs remain broadly above pre-COVID levels and should support a steady pace of activity through the year, said Lipinski. “There are no signs of cancellations or push outs to date and quoting activity sounds healthy, he added. “Reshoring continues to drive industrial and general manufacturing activity, while construction has generally held in better than feared in the face of higher interest rates. Several distributors did highlight a change in posture around the EV ecosystem with non-Tesla participants starting to tap the brakes as underlying demand ramps more slowly than anticipated. Rates remain more of a focal point for distributors than the political news cycle.”
Respondents’ anecdotal comments (see box at right) showed some caution around release of projects given election year uncertainty, but backlogs remain generally strong and comps ease through the year, said Linpinski. “This suggests we may have successfully managed through the slowdown after the post-COVID recovery period without sales ever turning negative,” he said.
The Q1 2024 proprietary North American Distributor Survey had input from 39 distributor branch managers in total throughout North America, capturing more than an estimated $900 million in revenues. Although the sample revenue represented by the VRP survey’s coverage universe is a relatively small proportion of the group’s total revenue, Lipinski said the true power of the survey revolves around the directional growth and anecdotal commentary about end market conditions, which are salient indicators for the entire group.
