In some respects the annual reports and 10-Ks now starting to trickle in for distributors of electrical supplies provide a snapshot of the calm before the storm. If you could somehow erase what happened in the fourth quarter, some of these companies would have registered average to better-than-average sales increases. Neither publicly held nor privately held companies have that luxury, and some companies are probably very happy that they could show any sales growth at all in an economy that some economists have compared to a 100-year flood.
One company that bucked the trend was Fastenal, Winona, Minn. Although it registered a 13.5 percent increase in total sales for its 2008 fiscal year, it also felt the sting of the recession at the end of the year, when according to its 10-K average daily sales growth dropped to 6.8 percent in November and showed no growth in December.
Sales trends that had been chugging along at a respectable pace took a turn for the worse for several large distributors in the fourth quarter (see chart on page 2). While Rexel SA, Paris, saw a big decline in U.S. sales with an 11.8 percent decline in fourth-quarter 2008, its sales in Canada were solid with a 7.1 percent increase for the fourth quarter and a 4.2 percent increase overall.
In a press statement discussing its 2008 financial results, Rexel had this to say about its Canadian operations: “Full-year sales were affected by a softening economy, in particular in the industrial sector, notably in Ontario and Quebec, as well as in forestry operations in British Columbia. However, Rexel managed to gain market share as sales teams refocused on the growing sectors at regional level such as oil sands projects in Alberta and institutional and commercial projects in eastern Canada and Ontario.”
In their annual reports, WESCO Distribution Inc., Pittsburgh; Graybar Electric Co., St. Louis; and W.W. Grainger Inc., Lake Forest, Ill.; sought to offer comfort and caution to shareholders.
WESCO 10-K: “Despite anticipated weakness, we believe that there are opportunities in all our end markets, and that we are well positioned to participate in these large fragmented markets. Our strong market position, broad portfolio of products and services and extensive information technology platform, combined with our continued focus on margin, productivity improvement, and selling and marketing initiatives, should provide us with a competitive advantage and enable us to perform at an above-market rate throughout 2009.”
Graybar 10-K: ”Graybar established new record highs in both sales and net income in 2008. Significant cash flows from operations allowed the company to reduce year-end short- and long-term debt to its lowest level since 1993 and finish the year with a substantial cash balance. The company experienced modest sales growth in both the electrical and comm/data market sectors for the year ended Dec. 31, 2008, compared to the same period in 2007, though growth in the general economy decelerated throughout Graybar's North American trading area.
“The economic slowdown was particularly pronounced late in the year as the impact of turmoil in the global credit and financial markets was absorbed by the economy. Deflationary pressures on copper- and steel-based products accelerated during the fourth quarter and negatively impacted net sales during the period. … Expectations are that 2009 will be a challenging year, marked by continued turmoil in global capital markets and recession, resulting in significantly lower levels of both sales and net income to the company. Graybar believes, however, that its experienced management team, solid balance sheet and continued positive, though lower, income from operations, position the company well to weather this downturn in the economy.”
Grainger: While Grainger reported record sales, earnings and earnings per share for 2008, it also saw its sales slump 4 percent in the fourth quarter. Jim Ryan, the company's president and CEO, said in a press statement announcing the company's 2008 financial results that it was hard to gauge the future direction of the U.S. economy. “We cannot accurately predict or control the economy, but we can control how we run the business. In November, we gave annual sales guidance of -5% to +5% for 2009. Since then, the macroeconomic trends have deteriorated.
“Based on our sales run rate in January, we are somewhat below the low end of this range, so we are implementing actions now in anticipation of weak sales results. Given the great uncertainty in the economy, we are not providing 2009 annual sales and earnings guidance at this time.”
(sales in billions)