Applied Industrial: Strengths Offset Weaknesses in its End-Markets
End Markets
As CEO David Pugh says, anything related to housing is a problem," and "anything related to energy is a boom situation." According to Pugh, about half of the top 30 industries Applied serves were down, and the other half were flat to up in the past year. The distributor is seeing double-digit declines in sales to the lumber and wood products industry (about 15% of sales), as well as in transportation (4% of sales). Pugh says "some, but not all, of that sales decline was countered by strong increases in power generation, ...
End Markets
As CEO David Pugh says, anything related to housing is a problem," and "anything related to energy is a boom situation." According to Pugh, about half of the top 30 industries Applied serves were down, and the other half were flat to up in the past year. The distributor is seeing double-digit declines in sales to the lumber and wood products industry (about 15% of sales), as well as in transportation (4% of sales). Pugh says "some, but not all, of that sales decline was countered by strong increases in power generation, primary metals, food and metal mining."
Government sales are strong for Applied, with double-digit increases. "Our sales force continues to expand their efforts to include all types of government entities -local, county, state and federal," Pugh says.
Fluid Power Growth
Fluid power, a growing business for Applied, comprised 20.2% of the product mix for the fourth quarter; 79.8% came from industrial products. For the fiscal year, Applied fluid power subsidiaries grew sales by 2.6%. Sales in Canada for fluid power were flat. Applied recently bought seven fluid power distribution businesses from Fluid Power Resource LLC. (Click here to read that story.)
"It is obviously becoming a larger part of our business," COO Ben Mondics says. "But it is still very, very fragmented. And we continue to expand our product portfolio, continue to expand our geographic footprint, but there is still a tremendous amount of room for growth here."
Outlook
"We have opportunities in all geographic areas," says Mondics. "We're looking at both fluid power and the bearing and power transmission side. Some of it is proactive; some of it is reactive. We have geographic holes we need to fill, and our business is still so fragmented that we have a lot of opportunities."
Pugh says the distributor will not shy away from larger acquisition opportunities. "I think we have the credit facilities in place to allow us to do that. We certainly expect the FPR acquisition to give us some additional opportunities to do some tag-ons to grow that out. We are still on an aggressive path with regard to acquisitions."
A full transcript of the conference call is available here.
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