Almost all publicly-traded industrial distributors reported their latest quarterly financials by late February, before the COVID-19 outbreak became a global pandemic and began spreading rapidly in the US.
That wasn’t the case for industrial and specialty construction supplies distributor HD Supply, for which its 2019 fourth quarter fiscal reporting date was Tuesday, just a day after government, state and local mandates for social distancing and closures of public gathering places really ramped up and took hold across the United States.
Thus, the company — No. 2 on Industrial Distribution’s Big 50 List — led off Tuesday’s earnings report and conference call with analysts by stating measures the company has enacted to ensure the safety of its employees, which ID recaps here. But in the analyst call, HD Supply executives also detailed how although it hasn’t had any supply chain disruptions yet, the company has prepared for any that may be coming.
“While we have yet to see any material disruption to our business, our teams are working tirelessly to ensure we are well-positioned to support and service our customers needs during this challenging time,” said Brad Paulsen, president of HD Supply Facilities Maintenance. “With over 75 percent of our sales executed over digital platforms, our technical teams are focused on maintaining 100 percent website, path and support system availability to allow our customers to execute their orders any place, any time, regardless of property level visit restrictions.”
Paulsen detailed how HD Supply’s supply chain leadership team has developed contingency plans to allow for continued customer deliveries in the event one of the company’s local market distribution centers is impacted by a material outbreak of the coronavirus. Local delivery teams are working with HD Supply customers to customize delivery and drop-off procedures that best fit their needs.
“Our category management, global sourcing and supply chain teams have partnered with our supplier community and currently expect minimal disruptions to product availability for our proprietary brand products sourced from China,” Paulsen added.
And while HD said COVID-19 hasn’t caused disruptions yet, Paulsen said HD will experience shot-term supply issues for select hand sanitizer, cleaning chemicals, safety gloves and protective mask items due to the unprecedented spike in demand experienced in recent weeks.
On the construction side of the business, HD Supply chairman and CEO Joe DeAngelo told analysts that the company has not seen any significant construction jobs pulled as a result of COVID-19. “We are just starting to see some slowdown or delayed as a result of some of the government actions taken to curb commercial activity, but these jobs haven’t been canceled, they have been delayed,” DeAngelo said.
“On the Construction & Industrial side, (it can) certainly be impacted by government actions on when we can work and when we can't,” added Evan Levitt, HD’s senior vice president, chief financial officer and chief administrative officer. “There is a lot of project activity occurring right now. Some of these are long-term projects, multi-year projects, difficult to turn off and walk away from and they can’t be delayed. So, we have to see how that plays out.”
One analyst noted that many people think the US is headed into a recession for at least the next two economic quarters, and asked how the company expects its Facilities Maintenance and Construction & Industrial sales and margins might perform. HD Supply didn’t provide sales guidance in its earnings report due to the uncertainty with the markets regarding COVID-19, but Levitt did share some perspective.
“Certainly, the leadership team for both businesses have been through a recession before and are prepared to take the actions necessary to navigate a recession, to gain share through any recession and to take advantage of any M&A opportunities during a recession,” he said. “Recession is often an area where we can gain share and grow our business in the subsequent recovery.
So, we're not certainly, we're not scared of a recession, but we're prepared for a recession if one were to occur, although I would say, we're not ready to call it a recession. Certainly, we think there will be a bit of a pause here in certain economic activity as we get through this crisis. Whether that leads to a recession or not, we’ll see.”