Caution is the word for 2000
By Jeffrey Germanotta -- Industrial Distribution, 12/1/1999
Once again, it's quarterly reporting season for distributors. Of the 22 firms we monitor, 15 have earnings estimates published by analysts. Thirteen have reported already, with four exceeding estimates for their most recent quarter -- Applied Industrial Technologies, Hughes Supply, Industrial Distribution Group and Kaman. Airgas, Genuine Parts, JLK, Pentacon, and MSC met expectations, while Fastenal, Grainger, SunSource, and WESCO experienced shortfalls.Year-to-date, the ID/ Baird index has declined 12.2 percent, while large cap and technology stocks have fared much better, with increases of 10.2 percent and 35.3 percent respectively in the S&P 500 and NASDAQ Composite.
Distributors have experienced softer sales growth since international economic and political events triggered a decline in U.S. export activity last summer -- moderating activity in the domestic industrial economy. In addition to more moderate sales growth rates, profits have been impacted by commodity price deflation; significant spending on technology, telecommunications and e-commerce initiatives; rising interest rates; rising transportation costs; and a tight labor market.
Multiple compression associated with slower earnings growth has reduced acquisition currencies, further hindering consolidation activity. We remain cautious in our 2000 outlook, as several of these issues are not likely to dissipate quickly, and higher rates may slow recovery of an already weak industrial economy. Longer term, we expect the Fed's efforts to control inflation, combined with improving economic trends in Asia and Europe, and a generally weaker U.S. dollar, should stimulate export activity and help revive domestic industrial activity.
Jeffrey Germanotta is senior vice president of equity research at R.W. Baird & Co. He can be reached at 414-765-3572, or e-mailed at jgermanotta@rwbaird.com
DISTRIBUTORS
Company 10/12 close Year change 52 wk. High/Low
Applied Industrial APZ 16.63 19.8 19.06 11.13
Airgas ARG 9.94 11.2 14.00 7.88
Barnes Group B 19.50 -33.3 31.88 15.88
DXP Enterprises DXPE 2.13 -68.5 10.00 0.75
Fastenal FAST 36.88 -16.2 60.56 33.63
Genuine Parts Co. GPC 26.25 -21.5 35.75 24.38
Grainger (W W) GWW 45.06 8.3 58.13 36.88
Hughes Supply HUG 22.44 -23.3 30.00 17.88
Industrial Distr Group IDG 3.44 -54.9 8.50 2.25
JLK Direct JLK 8.63 -15.3 13.50 7.00
Kaman Corp. KAMNA 12.19 -24.1 17.00 10.56
Lawson Products LAWS 22.00 -4.3 28.06 20.38
MSC Industrial Direct MSM 8.88 -60.8 27.31 7.50
Noland Co. NOLD 17.91 -32.4 29.00 16.50
Pentacon JIT 2.25 -47.8 6.19 2.13
Premier Farnell PFP 10.25 105.0 10.38 4.81
Questron Technology QUST 4.50 0.0 5.63 2.75
Sunsource SDP 4.00 -78.7 21.75 3.88
Strategic Distribution STRD 1.97 -19.2 3.25 1.75
Vallen Corp. VALN 19.75 -1.3 22.00 13.38
WESCO International WCC 7.50 NA 22.88 5.50
White Cap Industries WHCP 14.75 -3.3 18.00 9.50
DISTRIBUTION TECHNOLOGY
Company 10/12 close Year change 52 wk. High/Low
Datastream Systems DSTM 14.38 25.0 16.69 6.63
Edwards J D JDEC 28.06 -1.1 38.50 10.88
Harbinger Corp. HRBC 19.88 148.4 22.75 5.06
Prophet 21 PXXI 8.50 -20.5 14.00 5.25
Sterling Commerce SE 26.19 -41.8 46.44 17.94
MANUFACTURERS
Company 10/12 close Year change 52 wk. High/Low
Baldor Electric BEZ 19.56 -3.4 21.69 17.25
Black & Decker Corp. BDK 48.50 -13.5 64.63 41.00
Columbus Mckinnon Corp. CMCO 11.13 -38.2 30.00 10.75
Cooper Industries CBE 45.06 -5.5 56.75 40.88
Danaher Corp. DHR 47.00 -13.5 69.00 42.75
Dana Corp. DCN 26.56 -35.0 54.06 26.00
Emerson Electric EMR 56.69 -6.3 71.44 51.44
Fairchild Corp. FA 7.75 -50.8 16.38 6.88
Federal-Mogul Corp. FMO 23.06 -61.2 65.25 22.00
Illinois Tool Works ITW 62.63 8.0 82.00 54.75
Ingersoll-Rand Co. IR 47.56 0.7 73.81 40.69
Kennametal KMT 27.81 30.9 31.31 16.38
Makita Corp. MKTAY 8.56 -19.4 12.38 8.56
Milacron MZ 14.63 -24.0 24.50 14.25
Minnesota Mining & Mfg Co MMM 95.69 34.5 100.00 69.31
Parker-Hannifin PH 44.69 36.5 50.56 29.50
Pentair IPNR 38.06 -4.4 49.44 29.88
Starrett (L.S.) Co. SCX 22.56 -34.2 34.50 22.38
Textron TXT 68.94 -9.2 98.00 65.88
Timken Co. TKR 18.19 -3.6 25.81 15.63
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