Executive Insights: The Worst is Over

Aug. 13, 2010
2010 has been a rough year in the stock market, as publicly held companies struggle to gain their footing in uncertain market conditions

2010 has been a rough year in the stock market, as publicly held companies struggle to gain their footing in uncertain market conditions. Judging from the most recent batch of quarterly financial reports, many executives of publicly held electrical manufacturers, distributors and contractors believe the worst of the recession is over. Some are starting to see single-digit growth for the rest of the year. However, since the electrical market is so closely tied to the economic fortunes of the non-residential construction market, many of these electrical executives expect the recovery to be slow with more false starts along the way.

Wall Street investment analysts are scouring all markets looking for any sign of future growth and judging even their most popular picks harshly when they don’t meet earnings forecasts. For instance, one Wall Street darling, Cree Inc., Raleigh, N.C., has seen its stock price more than double in the past 12 months, topping out at more than $80 per share this spring. But when the company announced earlier this week that revenues for its financial quarter ending in September would be $4 million lower than previously forecast, bears unloaded the stock, sending Cree’s share price down 13 percent. At press-time Cree was selling for less than $60 per share.

Cree’s share price took this hit despite the fact that the record revenue of $264.6 million it announced for its fourth quarter of fiscal 2010 represents a 79-percent increase compared to revenue of $148.1 million it reported for the fourth fiscal quarter last year and a 13-percent increase compared to the third quarter of fiscal 2010. The financial news for other publicly held companies in the electrical market wasn’t quite as dramatic. Following is a quick recap of the most recent results for several other companies.

Littelfuse Inc., Des Plaines, Ill. The company reported strong sales for the quarter and showed why it’s starting to appear on many stockpickers’ screens. Its electrical sales increased 31% year-over-year due to continued strong growth for protection relays and steady improvement in power fuse demand. Electrical sales increased 4% sequentially due to seasonal increases in power fuse volume.

WESCO Distribution Inc., Pittsburgh. Sales were up in the high single digits for WESCO, and CEO John Engel said the increases were spread across the company’s key business segments. WESCO’s consolidated net sales were $1,259.1 million for the second quarter of 2010, compared to $1,159.2 million for the second quarter of 2009, an increase of 8.6%. Said Engel, “We are pleased with our sales and operating margin results and the improving momentum across our business. All four of our major end markets and all six of our major product categories experienced positive sequential sales growth during the quarter. The last time we saw all our end markets and product categoriesgrow sequentially was the second quarter of 2008, and the third quarter of 2004, respectively.”

Cooper Industries, Houston. Sales in the company’s Electrical Products Group for the second quarter of 2010 increased 6.9% to $557.6 million, compared with $521.4 million in the second quarter 2009. Core revenues were 6.4% higher than comparable prior year periods and the segment’s operating earnings were $82.6 million, an increase of 29% from the $64.1 million in the prior year’s second quarter. Revenues for the first six months of 2010 increased 2.3% to $1.07 billion, compared to $1.05 billion for the same period last year.

Kirk Hachigian, the company’s CEO and chairman, is cautious in his assessment of the state of global economy. “While we are encouraged by improving conditions in our end markets, we remain cautious about the global economic recovery and will continue to stay focused on cost management, funding strategic core investments and delivering solid incremental earnings growth. Long-term, we remain optimistic about the future of our electrical products portfolio and our diverse end market exposure that allows us to capitalize on emerging technologies and key market trends.”

Hubbell Inc. Orange, Conn. Timothy Powers, chairman, president ‑and CEO, says market conditions have been better than expected this year and that Hubbell is enjoying strong volume increases in the industrial maintenance and repair markets.

“Overall, our end markets were slightly better than expectations while commodity cost increases in excess of pricing actions caused some headwind,” he said. “Looking ahead, we now expect our overall sales for the full year 2010 to be up in the mid-single digit range compared to 2009, inclusive of Burndy’s contribution, due to a more modest decline in non-residential construction driven by spending in the public sector and increased activity in the renovation, relight and controls markets.”