Lawson Products Q2 Sales Dip, Rep Expansion Drags On Profit

Lawson attributed weaker sales to current industrial market conditions and said its lower profit was driven by the recent expansion of its sales force.

Chicago-based MRO distributor Lawson Products — No. 39 on Industrial Distribution's 2015 Big 50 List — reported its 2016 first quarter fiscal results on Thursday, highlighted by year-over-year declines in sales and profit.

Lawson posted Q2 sales of $69.3 million, down 1.9 percent from a year earlier, and essentially flat compared to Q1.

"While sales were softer than we would have liked for the quarter, our results were consistent with slower industrial activity impacting the MRO marketplace," said Michael DeCata, Lawson president and CEO.

Profit of $0.2 million was down from Q2 2015's $2.9 million, which Lawson said reflects the additional costs associated with its sales organization expansion.

Lawson added 60 sales representatives in Q2 and has added 83 year-to-date, bringing its total to 1,020 as of June 30. Year-over-year selling expenses increased by $1.4 million, while operating profit was break-even compared to last year's $3.2 million.

"We accelerated investments in our organization primarily through adding new sales representatives, investing in our veteran reps and pursuing acquisitions that fit our business model," DeCata added. "As expected, the rapid growth in the sales force has a short-term negative impact on our operating income; it generally takes two to three years for a newly hired sales rep to build a strong book of business. Increasing our sales force and making the right acquisitions will provide us opportunities to expand and increase our geographic coverage in the large, fragmented MRO marketplace."

DeCata said Lawson expects sales rep growth to slow down in the second half of the year as it concentrates on training and supporting its new reps.

Lawson also completed its recent acquisition of Ontario, Canada-based F.B. Feeney Hardware, a move announced in May.

"These ongoing investments, in conjunction with our strong financial position, provide us with a strong foundation for growth when the market improves and as our newly hired sales reps generate additional sales for the organization," DeCata said.

DeCata went on to say Lawson's strategy of using small acquisitions as small steps toward making increasingly large acquisitions is proceeding as planned.

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