Global Industrial's Sales Grew 11% In 2017 And Profit Doubled. Here's How

Systemax said its four-pronged effort to boost its Industrial Products Group — Global Industrial (No. 21 on ID's Big 50 List) — is paying off, as that segment achieved record sales as operating profit spiked 101 percent while operating expenses declined considerably.

Port Washington, NY-based industrial conglomerate Systemax reported its 2017 fourth quarter and full year fiscal results on Tuesday, showing another big quarter for sales growth and profit at its industrial products division, which is predominantly led by Global Industrial — No. 21 on Industrial Distribution's Big 50 List.

Systemax's Industrial Products Group (IPG) had Q4 sales of $194.5 million. It achieved year-over-year (YoY) sales growth of 10.6 percent in Q4, with average daily sales up 10.4 percent on a constant-currency basis. Those figures are up from Q3's total and daily sales growth of 9.1 percent. Q4 gross profit of $65.3 million increased 13.4 percent; gross margin improved 80 points to 33.6 percent; operating profit of $14.7 million jumped 50.0 percent; and operating margin grew 200 basis points to 7.6 percent.

For the full year, IPG's 2017 sales of $792 million — a record for that segment — increased 10.6 percent from 2016, with average daily sales up 11 percent in constant currency. Gross profit of $273 million increased 17.1 percent; operating profit of $35.2 million spiked 101.4 percent and operating margin increased 400 basis points to 9.0 percent as the company considerably lowered its operating expenses.

In Systemax's earnings call with analysts, CEO Larry Reinhold said the company's four-pronged effort to boost the IPG is paying off. That plan includes 1) the conversion of a legacy warehouse system — which has facilitated better fulfillment and services levels and overall efficiency; 2) investment in IT and tata tools for its sales organization to "better target profile and services the almost 1,000 new business accounts that we generate every business day"; 3) modernizing out interactive voice response and overall telephony infrastructure to now allow real-time access to customer data; and 4) completing numerous continuous improvement initiatives.

"Industrial's 2017 performance reflects the dedication and efforts of our management associates over the past several years and the completion of a number of projects that will enhance the customer experience as well as drive long-term cost efficiencies," Reinhold said. "As we enter 2018, industrial is well positioned for further success and we're implementing additional initiatives to drive both top-line sales as well as enhanced profitability throughout the year."

Reinhold said those initiatives include launching significant functionality enhancement to IPG's e-commerce website, completing an engineered standards project in its distribution centers and other warehouse optimization projects.

"We're organizing and our sales operations functions under a newly hired executive to better leverage one of our most important assets our sales force of over 400 customer facing team members," Reinhold added. "And continued investment in product and technical expertise that will allow industrial to enhance both our core product lines as well as accelerate the growth of emerging categories."

As a whole, Systemax — which besides IPG is comprised of a European Technology Products Group — had total Q4 sales of $330.6 million. Sales increased 12.1 percent YoY, with daily sales up 8.7 percent in constant currency. Gross profit of $88.5 million increased 13.9 percent; gross margin increased 220 basis points to 26.8 percent; operating profit of $20.0 million increased 46.0 percent and operating margin increased 140 basis points to 6.0 percent.

For the full year, Systemax had total 2017 sales of $1.265 billion, up 11.7 percent from 2016. Gross profit of $351.4 million increased 16.0 percent; gross margin increased 110 basis points to 27.8 percent; operating profit of $75.1 million increased 109.2 percent; and operating margin increased 270 basis points to 5.9 percent. The company reduced its operating expenses by 10.6 percent YoY. 

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