Plenty of recent talk throughout the industrial supply market — including here on Industrial Distribution — has focused on recovery in the industrial economy. After a 2015 and 2016 that were very rough on distributors and suppliers alike, it appears that market conditions have grown considerably since bottoming out in late 2015/early 2016.
This is evidenced by: oil prices holding mostly steady near $50 over the last seven months; the manufacturing PMI being above 54.5 since December (anything above 50 indicates expansion); the Industrial Supply Association’s Distributors and Manufacturers Indexes each checking in at least 63.0 their past three months; and a U.S. combined oil and gas rig count that is now up 107 percent year-over-year.
Obviously, these are all positive things for the industrial supply market. But are industrial distributors actually experiencing business recovery that matches these numbers? We know many large distributors are. Fastenal’s sales in Q1 increased 6.2 year-over-year, far outpacing Q4’s growth of 2.7 percent. Sales in MSC’s Q2 — ended March 4 — increased 2.9 percent YoY after declining in each quarter of 2016. At Motion Industries, Q1 sales increased 6.9 percent YoY. Even DistributionNOW — which, like fellow Houston-based distributors MRC Global and DXP Enterprises, was hurt badly by the downturn in oil in gas — posted YoY sales growth of 15.1 percent, and 17.3 percent sequential growth from Q4 2016. WESCO, Applied Industrial Technologies and Würth Industry of North America each saw similar growth that outpaced Q4 of 2016.
But what about the small and mid-sized industrial distributors that don’t comprise ID’s Big 50 List? Their fiscals aren’t publicly available like those large distributors mentioned above. So to get their perspective on current market conditions, I interviewed nearly a dozen executives from such companies during the recent ISA Convention, held April 22-24 in Denver.
Here’s what they had to say regarding how recent business has fared for them, and their thoughts on the overall market:
Stellar Industrial Supply (Tacoma, WA) —John Wiborg, President (also ISA Chairman): It’s been lackluster for a long time. Starting this January, it was if someone suddenly gave it a boost. I’m hearing that from my friends in AD, across different verticals. We’re seeing it. We just had an all-time record month in March. So definitely, there’s more optimism out there. Our customers are receiving less risk for the future — regulatory or whatever that might be. They’re more willing to invest. We’re going to see more of that and I think that’s going to accelerate. We’ve had such a lackluster economy for so long. The suppliers adjusted their inventory levels to a low level of business. Now, as typical when things start picking up — especially when it’s happening rapidly — those inventory levels are getting stressed. My worry is that suppliers will think this is just a temporary moment and not a longer trend, and it will become self-limiting because they’re not investing in inventory and production, making sure they’re supporting the whole supply chain. I think it has more legs than just a post-election positive movement.
Cline Tool (Newton, IA) — Jim Long, President: it’s really kind of segment-driven. In the ag (agriculture) segment — where we’re located in Iowa — it’s still pretty flat. We haven’t seen a big bump in ag. We also have a location in Houston, TX. In oil & gas we’ve seen a big bump up. We’re seeing a lot of improvement in that. We also have a location in Fletcher, NC — more automotive and general machine shop — a little bit of uptick in that area, but not huge. I would say optimism has definitely improved in the overall market. When you go and talk to people, they seem to have a real sense of optimism right now. We haven’t seen a lot of capital expenditures. Right now people still seem to have a lot of excess capacity and haven’t started buying new equipment, so we haven’t had a lot of help from new machine tools and tooling equipment. I would say our business is generally up. Not huge, but has definitely been improving since last fall.
AgoNow (Tulsa, OK) — Larry Davis, CEO & Chairman: You see a lot of good signs in the fundamentals. But there’s still concerns. The energy business is such a big piece of the overall fabric. Is it up substantially? Yes. But up from way, way, way down — 70-80 percent. So being up 20 off of negative 80 is a start. I don’t think we’re out of the woods yet. I certainly think it appears we have an administration that’s more conducive to business and manufacturing staying in the U.S., which benefits us all. I think he’s going to take on the tax code, which again, would bring money and manufacturing back to the U.S. I think we all need to play our part to contribute a better value proposition and make our ultimate end users more competitive in the global landscape. If we do that, not only will we get the market lift, but some share lift too.
VP Supply (Rochester, NY) — Vice President Gary Perkins: We currently are not seeing any increased demand. In fact, we had a higher demand last year while everyone else was down. Now this year, people appear to be going up. We’re hoping things will start going soon. I also think a lot of it was weather-related. We’re in the northeast and we had some two big snowstorms and a large windstorm that took everyone’s attention. For 2 ½ months they’ve been doing damage control, so I think that has a big effect.
Western Link (Orange, CA) — Jim Peztel, Sales Manager: We’ve stayed steady, we’re growing slowly. We’d like to grow faster, as anybody would. We’re seeing a lot of ups and downs in industries. It seems like month-to-month — we’re pretty diversified in terms of automotive, marine, aerospace, etc. — when one month is really good for automotive, the others dip. So the key for us has been diversification. Overall the market hasn’t been terrible for us, but it doesn’t seem like we can get traction on every market at one time.
Tiger Tool Supply (Glendale Heights, IL) — Lance Steffey, Co-Owner/Sales: We’ve been having tremendous growth regardless. I don’t know if it was a coincidence that it all came together at the right time (when they launched 1 ½ years ago) — that’d be really lucky. But even when things were kind of slower we were still growing month-over-month. If the pace has picked up, we’re not sure how we’d attribute that to. We’re getting better at what we’re doing and the economy is turning around.
Hagerty Supply (Peoria, IL) —Whitney Vincent, Executive Vice President: “We had a pretty slow fourth quarter, but things are trending upward. We had a strong March, so that was great. We’re in Peoria, IL, so Caterpillar seems to be showing some signs of recovery, which is great for us. We’re anticipating hopefully seeing the trend continue the rest of the year.”
MHS Industrial Supply (Mansfield, OH) — Brad Downs, Sales and Marketing Manager: I think there’s a lot of optimism right now. Our fiscal year we started off really strong the first two months, but the month after that really fell off. After the next edition of the (Industrial Distribution) magazine came out (after ID’s 2016 July/August Distributor Profile of MHS), we realized it wasn’t just us, it was pretty much everybody. Things have started to turn around a bit since then and seem to be picking back up. There’s still some uncertainly out there to go along with it. (See ID’s Distributor Profile of MHS Industrial Supply from our 2016 July/August Issue)