Net profits for electrical distributors in 2006 rose sharply to the highest level since 1993, reaching a median of 3.7 percent, according to the recently released National Association of Electrical Distributors (NAED) 2006 Performance Analysis Report (PAR) highlights.
The 3.7 percent figure represents the third consecutive year of sharp rises in net profit margins, compared to medians of 2.9 percent in 2005, 2.1 percent in 2004, and 1.3 percent in 2003. Among a select group of “high profit” distributors, the 2006 profit margin was almost twice as high at 7.3 percent.
Accompanying the increased profits were 2006 median sales increases of 17.4 percent, also the highest in a decade, and higher than the 11.1 percent increase recorded in 2005.
The report’s author, Dr. Al Bates of Profit Planning Group in Boulder, Colo., cautioned that a large part of the improvement was due to very rapid price increases in basic commodities, particularly copper and steel. “Such price increases artificially inflate the profit margin for the firm,” he said.
“Nevertheless, the underlying economic model for NAED members is strong, but not as good as it might appear on the surface,” Bates added. He suggested that the windfall “provides a unique opportunity to re-invest back into the business to ensure future growth and profits.”
PAR highlights include a five-year trend analysis of key financial ratios. The 3.7 percent figure represents the third consecutive year of sharp rises in net profit margins, compared to medians of 2.9.
Results from the 2007 survey are based on data from 179 NAED-member electrical distributors. The typical distributor surveyed, based on median figures, had annual sales of $42 million and achieved a gross margin of 22.8 percent in 2006. Inventory turnover, representing the cost of goods sold divided by average monthly inventory, was 4.5; payroll expenses were 13.8 percent of sales.
For more information on the PAR Highlights, contact NAED customer service at (888) 791-2512 or e-mail at [email protected].