Median Net Profits Slip to 2.6% in 2008 for NAED PAR Survey Distributor Participants

June 26, 2009
One of the electrical industry’s most important measures of distributor profitability clearly shows that distributors’ profit margins took a hit from the adverse economic conditions in the second half of 2008.

One of the electrical industry’s most important measures of distributor profitability clearly shows that distributors’ profit margins took a hit from the adverse economic conditions in the second half of 2008.

According to the Performance Analysis Report (PAR) report recently released by the National Association of Electrical Distributors (NAED), St. Louis, electrical distributor profit margins decreased to a median of 2.6 percent in 2008, compared to medians of 3.2 percent in 2007, 3.7 percent in 2006, 2.9 percent in 2005, and 2.1 percent in 2004. Among the top performing 25 percent of “high profit” distributors, the 2008 profit margin was more than twice as high at 6.6 percent. The report also showed 2008 median sales increases of 0.7 percent.
The report’s author, Al Bates of Profit Planning Group, Boulder, Colo., said because of economic conditions, there was a sharp downward pressure on the gross margin percentage, and that there was also an increase in the expense percentage as sales fell faster than firms could shed expenses.

“The inevitable result was a decline in profit margin,” he said. “However, the best-performing firms actually increased their bottom-line performance, even in the face of economic challenges. It’s more important than ever for firms to begin to model their operations after the high-profit firms. Insights into how to do this are available in the PAR Report.”

Results from the 2009 survey are based on data from 157 NAED-member electrical distributors. The typical distributor surveyed, based on median figures, had annual sales of $57 million and achieved a gross margin of 21.6 percent in 2008. Inventory turnover was 4.2 and payroll expenses were 11.8 percent of sales.

Featuring statistical breakouts by sales volume, customer emphasis, and warehouse sales, the 2009 NAED PAR Highlights profiles typical and high-profit NAED distributors and provides in-depth reporting on investment, income statement, balance sheet, and financial and productivity ratios. Other measures covered in the report include inventory turnover, sales per employee, average collection period, return on assets, and much more. Also included is a five-year trend analysis of key financial ratios.

PAR survey participants have already received PAR Highlights. The report is now available to NAED member non-participants for $300 (first copy) and $20 (additional copies), as well as non-members for $495 (each copy). For more information about PAR Highlights, contact NAED Customer Service at (888) 791-2512 or [email protected]. Survey forms for the next Performance Analysis Report will be distributed in January 2010. At that time, participating NAED members may also opt for purchasing customized reports for their firms.