Ben Mondics says it will be business as usual when he takes over as president of Applied Industrial Technologies this month. He cites the company's strong management team and solid business strategy as key reasons for maintaining the status quo. Mondics replaces former president Bill Purser, who retired in December.

But Mondics has some priorities during his first year at Applied's helm; among them, he hopes to keep growing the company's North American footprint and continue the distributor's balanced approach to adding products and services. He points to Applied's growth in the fluid power market as an example of the kind of complementary product line expansion the company is looking for. Applied specializes in bearings and power transmission products, but has steadily expanded into fluid power in the last several years; fluid power products and services comprise about 20 percent of the company's business.

Applied has also balanced its approach to the various market segments it serves and will continue to do so on Mondics' watch. For example, declining sales to industries tied to the slumping housing market have been offset by gains in non-cyclical markets such as government sales. Applied embarked on a five-year plan to expand sales to state and federal government agencies in 2006 and is making good progress, Mondics says. The company grew its government sales by 80 percent during fiscal 2007 and saw a double-digit sales increase in the program during the first quarter of fiscal 2008. Other strong sectors at the end of last year included MRO sales to manufacturing customers and the company's national accounts business.

“We're confident, but we're somewhat cautious about the remainder of the fiscal year,” Mondics says.

With annual sales of $2 billion in fiscal 2007, Applied expects to surpass that mark this year. In October, the company said it expects 2008 earnings per share to be in the range of $2.05 to $2.20 on sales of $2.10 billion to $2.18 billion.

INDUSTRIAL DISTRIBUTION spoke to Mondics in November about the company's cautious optimism, its expansion plans and some of the challenges the firm faces going into 2008. Here are some excerpts from that conversation:

Industrial Distribution: You officially take over as president of Applied this month. What are your top priorities for your first full year?

Ben Mondics: Well, I've been in the COO role since February 1, 2007 and have worked alongside Bill [Purser] for most of the [2007] calendar year. So the transition should be very smooth.

Our current strategies have served us very well and we'll continue to follow the path we're on. We have our four cornerstones that have really helped us generate excellent results—profitable sales growth, margin enhancement, cost control and asset management. We're driving continuous improvement and making Applied a more efficient and effective company in the process.

Top priorities—all sharing a great deal of importance—would be communicating internally with our management team and our associates, talking with our suppliers to better understand their needs and objectives, and, of course, spending time with our customers and understanding their needs. I think we've got a great management team, and we have knowledgeable, dedicated associates. Bill [Purser] and [Applied's chairman and CEO] Dave [Pugh] have really set me up with a great team of people, so I don't think we need to make any great changes to what we're doing.

ID: Applied reported strong results in the fiscal first quarter recently, citing strength among manufacturing customers. Would you elaborate on which segments are performing well and which are not?

Mondics: Yes, we posted strong results. For our first fiscal quarter we had a sales gain of 5.3 percent and an increase in net income of almost 16 percent. … Metal mining and primary metals showed exceptional growth. We also saw strong growth with food and beverage, transportation equipment and stone, clay, glass and concrete products. We're also seeing significant growth in our catalog sales. A portion of that is due to the additional items we've incorporated into the catalog, which hit the streets in July. [In July, Applied merged its Fluid Power Connection catalog with its Maintenance America catalog and added some bearings and power transmission items.]

We've also made progress with our government efforts. From a declining standpoint, any industries related to the housing slowdown were affected—for example, there was a decrease in lumber and wood products, as well as mobile hydraulics.

ID: How much of an effect does the slumping housing market have on Applied's business?

Mondics: If you look at the lumber and wood products alone … it's probably about 6 percent of our business. If you include the related industries, it's just short of 10 percent. At the same time, we've offset those declines by targeting non-cyclical markets such as government sales, which had a strong double-digit increase in the first quarter. So we feel that any uncertainties in the housing market should be mitigated by other opportunities.

ID: The company also said recently it expects another good year this year. Where are the bright spots in the North American economy?

Mondics: We're confident, but we're somewhat cautious about the remainder of the fiscal year. Maintenance and repair parts sales for our manufacturing customers have been strong. Also, government sales remain strong, as does our national accounts business.

ID: Is Applied looking at doing business overseas or is North America still the main focus?

Mondics: We're always looking at opportunities [abroad], however we continue to stand by our stated strategy of growing profitably in North America. We still feel there is tremendous opportunity for growth in North America.

ID: Applied has not made as much headway in Eastern Canada as it has in the western part of that country. What's your strategy for tackling that market?

Mondics: Well, it fits within our stated strategy [to expand throughout Canada]. We acquired Group GLM in Eastern Canada in 2005 and that has worked out very well for us. Additional expansion in Eastern Canada is still an area of interest for us. We're interested in finding opportunities that fit our geographical needs, our business and our culture.

ID: What about Mexico? How has business been south of the border?

Mondics: Our Mexican operations continue to do very well. We have a great team of people there, the market is good and we are looking to continue to expand throughout Mexico—both through organic growth as well as through acquisitions.

ID: Many traditional power transmission companies are branching out into new areas, such as industrial automation (controls, sensors and similar technologies). Is Applied focused on this as well? What's your stance on broadening the company's product offering?

Mondics: The way we look at it, it's really about balance—not straying too far from what we know we're good at, but at the same time venturing into new opportunities where there's a good fit. The success we've seen in our fluid power business is a good example of this. There's also balance in listening and responding to our customers' needs and anticipating their needs. So, really, listening to the customer is key.

ID: In terms of growth, will the company focus on acquisitions this year? Organic growth? A combination?

Mondics: Well, our growth will certainly be a combination of both. From an acquisition standpoint, we're interested in developing opportunities that fit our geographic needs, our business and our culture. We've had excellent cash generation, which has allowed us to keep our balance sheet in good shape to support our M&A efforts. At the same time, we think there are significant opportunities for organic growth in North America.

ID: What do you think are the greatest challenges facing large specialty distributors such as Applied today?

Mondics: Really, for any distributor, one of the greatest challenges is attracting people to the industry. And then retaining and developing that talent is also an issue. At Applied, we know people are our greatest asset. For a company like Applied, with the large footprint we have, we have numerous opportunities to suit the interests of our associates—whether they want to stay local, relocate or travel. Also, running one of our service centers is like running a small business, so it's a great opportunity for someone who's interested in that experience. In addition to that, we provide a significant amount of training to assist our associates in meeting their goals. So, that's certainly one of the greatest challenges.

Along those lines, over the years, whether it's a good economy or a bad economy, we've continued to invest in training and technology, which are keys to our business. That's helped us grow for the future. And we'll continue to do that.