We're about to begin another fiscal earnings reporting season, and if the past few are any indicators of what to expect, it's going to be another round of downtrodden numbers across industrial distribution.
Anyone expecting sales and profits to suddenly rebound overall is sure to be sorrowly disappointed. All data and expert analysis points to the ongoing industrial recession sticking around throughout 2016.
Here is how sales and profit in the most recent quarter for some of the companies on Industrial Distribution's 2015 Big 50 List:
- Airgas (No. 9): Q3 sales decreased 2.6 percent year-over-year, and decreased 5.5 percent from Q2. Profit decreased 20.7 percent, and decreased 24.6 percent from Q2. Organic sales decreased 4 percent.
- Applied Industrial Technologies (No. 16): Q2 sales were down 11.8 percent year-over-year, and down 4.9 percent from Q1. Profit decreased 19.5 percent.
- DXP Enterprises (No. 20): Q4 sales decreased 27 percent year-over-year, and decreased 8 percent from Q3. DXP took a net loss of 2.9 million.
- Fastenal (No. 12): Q4 sales were down 0.4 percent year-over-year, and down 7.3 percent from Q3. Daily sales decreased 2.0 percent. Profit declined 5.5 percent YOY, and 18 percent from Q3.
- Grainger (No. 3): Q4 sales were down 1.3 percent year-over-year, while profit declined 2.4 percent.
- Lawson Products (No. 39): Q4 sales decreased 7.6 percent year-over-year, and decreased 7.4 percent from Q3. Organic sales decreased 3.2 percent. Lawson took a net loss of $3.7 million in Q4, ompared to a loss of $2.7 million a year earlier.
- MRC Global (No. 8): Q4 sales decreased 36 percent year-over-year, and decreased 10 percent from Q3. MRC took a net loss of $400 million in Q4, compared to a profit of $31.2 million a year earlier.
- NOW Inc. (No. 11): Q4 sales declined 36 percent year-over-year. The company had a net loss of $249 million, compared to a $16 million profit a year earlier.
- Kaman Industrial Technologies (No. 21): Q4 sales decreased 12.2 percent year-over-year. Kaman Corp. sales were down 5.4 percent, while profit sunk nearly 42 percent.
- WESCO International (No. 6): Q4 sales decreased 7 percent year-over-year, while profit sunk 35 percent. Organic sales decreased 7.6 percent.
Many large industrial distributors have resorted to restructuring operations, selling off non-core businesses, and/or closing or consolidating branches. Most notably, Grainger announced in its Q4 report that it had closed 47 branches worldwide in Q4, and plans to close another 55 throughout 2016.
The biggest exception to this trend was HD Supply, which had Q4 sales increased 6.8 percent YOY, while profit of $871 million was an epic reversal from a net loss of $93 million a year earlier. Organic sales grew 7.0 percent.
The first of ID's Big 50 List companies to report is MSC Industrial, which will share its 2016 Q2 fiscal performance figures on Wednesday before the market opens. MSC posted Q1 sales of $706.8 million, down 3.3 percent year-over-year, while its profit of $55 million was down 4.2 percent. In Q4, MSC had sales of $727.4 million and a profit of $59.2 million.
"Our fiscal 2016 first quarter performance reflected continued share gains, sustained gross margin stabilization, and another quarter of strong expense controls in an increasingly challenging market environment," said Erik Gershwind, MSC President and CEO in the company's Q1 earnings release. "Ongoing lower oil prices, the strong U.S. dollar with its negative effect on export demand, and the soft pricing environment driven by low commodity prices all continue to negatively impact broader manufacturing activity."
The its Q1 report, the MSC is expected further sales declines in Q2. The company projected Q2 sales to be between $680 million and $692 million, with daily sales expected to decline roughly 3 percent at the midpoint. MSC's Q2 2015 had sales of $706.4 million, and a profit of $51.5 million.
So what should readers keep an eye on as another earnings reporting season starts Wednesday?
Rather than watching if sales and profits are just up or down — which is a given — we should be watching how much sales and profits are up or down. This will tell us if these large industrial distributors have stopped, or at least slowed, the bleeding. Many distributors spent the second half of fiscal 2015 reorganizing and/or downsizing to better navigate these tough times, so it'll be interesting to see with Q1 if their efforts are starting to work. No one should expect these companies to make a 180-degree turn in three-months' time, but I'm optimistic that these distributors' cost-savings measures will start to show signs of paying off in these Q1 reports.
Grainger and Fastenal: The two companies with perhaps the highest name-recognition in the U.S. each posted year-over-year daily sales improvements in January and February. For Grainger, January sales increased 4 percent (+2 percent organic), and February sales improved 1 percent (-2 percent organic). At Fastenal, daily sales increased 3.3 percent in January — snapping a four month streak of declining growth — and February sales increased 2.6 percent.
Cost-savings measures: While many large distributors have already undergone, or at least started, measures to reduce costs, it's likely others will announce similar measures in these reports. Things to always watch for is statements of branch closures, headcount reductions, and business divestitures.