Distributor respondents in the 4Q 2021 quarterly survey published by Vertical Research Partners (VRP) and Electrical Wholesaling magazine saw big increases in prices for electrical equipment and manufacturers’ lead times. It also projected solid increases in 2022 revenues.
The 4Q 2021 report by VRP (www.verticalresearchpartners.com), an independent equity research firm based in Stamford, CT, got responses from 42 distributors of electrical equipment power and distribution products and automation gear. It provides a timely snapshot of business activity and industry trends, as well as a financial analysis of publicly held electrical distributors and manufacturers. Following are some of the top-line findings of the most recent survey.
Distributor revenues and observations on pricing trends
Q4 2021 distributor revenue grew +14.7% for the second straight quarter with a growing contribution from pricing. Volumes were down slightly sequentially to +9.6%, while pricing picked up to +5.1%, from +3.9% in Q3 2021. The overall two-year growth stack accelerated to +13.2% from +10% in Q3 2021. Power reclaimed the leading growth position with a solid +17.1% result on +11.2% volume and +5.9% of price. Power was the only category to show sequential acceleration and the only category comping a positive Q420 result. This increase underscores the current strong investment cycle in utility markets. Electrical equipment posted a solid +16.1% growth rate on volumes up +11.2% and price up +4.9%. Automation sales relatively lagged on availability issues, with distributors reporting sales up +9.6% including 4.4% of price.
Respondents said OEMs have issued multiple price increases over the past year in an inflationary environment. They vary by product and magnitude (25%+ at the high end). Distributors reported a typical amount of customer pushback in passing through these increases, with some taking lower margins to preserve relationships and others able to offset the inflationary impact. Several distributors were cautious that the pricing dynamic could begin to result in some demand destruction but there is little evidence of that manifesting as of yet. The Omicron variant was described as a greater short-term headwind than pricing, depleting an already scarce labor pool.
No relief yet on lead times & availability
While underlying demand remains almost universally robust across product categories, VRP said respondents are reporting record extended lead times from many of the major manufacturers, and that large switchgear projects are already contemplating 2023 deliveries. Lead times for transformers from at least one manufacturer have more than tripled to 52 to 54 weeks, from a normal 14 to 16 weeks. More “intelligent” devices such as automation equipment are generally in shortest supply because of a relatively high intensity of electronic components, but many distributors continue to call out industry wide shortages of more basic items.
Respondents said there were a few indications of order cancellations, and that they generally see customers reluctant to cancel orders at the risk of losing their place in the delivery queue. Those cancellations that have occurred have been due to customers finding supplies at other distributors rather than outright project cancellations, which appear to be few at this point. Customers have been willing to break specifications for the sake of completing projects and distributors have sought out second- and third-tier manufacturers, but even these supplies are now dwindling.
1Q 2022 growth forecasts
Looking forward, distributors are expecting +7.6% growth on average for Q1 2022. Expectations are most robust for Electrical equipment and utility power products at +8.4%, with automation products expected up +5.4%. Here are some anecdotal comments of interest from respondents:“Inflation and product shortage are making a mess of our business, but it helps the bottom line.” “Inflation played a role for sure, but in general demand for electrical products is significantly higher than same period last year.”
“Price escalation will continue with longer lead times. We will increase inventory.”
“Turmoil is widespread: manpower, supply chain, logistics. Think it lasts another year.”
“Still demand out there, but anything with a chip is having issues.”
“Customers willing to break the spec to get the job done; finding second- and third-tier manufacturers.”
“Lighting might be the next crunch point. Manufacturers purchased chips in advance and are now running out.”
“Omicron has had more of an effect on demand (short-term) than pricing.”
“Hard to hire people and seen as risky given wage inflation.”
“Industry is short of basic things like meter pans and nail-on boxes.”
“Deliveries held up waiting for certain components, even if most of the bill of material is on hand.”
“Supply chain issues until 2024 at least.”
“I have never had this many dollars sitting on order without any idea of when I'll get it. Expediting is a waste of time, manufacturers don't even know.”
“We may have 90% of a customer order but we can't ship it without the 10% that's stuck on a boat.”
If you would like to participate in the EW-Vertical Research Partners quarterly survey, contact Nick Lipinski at [email protected]. All participants get a free copy of the analysis and results.