PTDA members cautiously upbeat about 2003

Distributors and manufacturers in the North American power transmission/motion control (PT/MC) industry forecast brighter days ahead for their businesses in 2003. That's based on responses to the most recent annual member survey conducted by the Power Transmission Distributors Association.

Most expect no worse than moderate sales increases in 2003. And on balance, PTDA member firm projections for the coming year are more optimistic than in 2002.

The outlook, however, isn't without caution and caveats.

Concerns about the lingering recession ' one that has hit industrial markets especially hard ' remain top-of-mind for many North American power PT/MC distributors and manufacturers. Moreover, general business uncertainties tied to possible repercussions of military action in Iraq are ill-timed distractions heading into 2003.

"I think we're facing another struggle until things are settled with Iraq," said Carlton Harvey, general manager of Jamaica Bearings Company, Inc. of New Hyde Park, N.Y. "Not only is there angst about what's going in the Middle East, we've got issues with markets here at home because of the Enrons."

Mike Pelehach, president of the Jeffrey Chain Corporation of Morristown, Tenn., echoed the sentiment, but believes many firms can succeed in the current climate.

"I think a lot of what will happen this year has to do with the political situation," Pelehach said. "But I'm cautiously optimistic for the year. I think companies that get back to the fundamentals of providing their customers with value in their products and services have the best chance to grow."

"But companies that expect to grow will have to outperform competitors," he added. "The overall market isn't growing; it's a question of increasing market share."

Distributors Mostly Positive

Even if the PT/MC marketplace is mature, over 80 percent of the 51 distribution firms that responded to PTDA's survey project sales increases for 2003. Last year, 64 percent of distributors expected sales growth.

For the second straight year, a distinct group of distributor respondents (21.6 percent) envision sales gains of more than 10 percent. However, nearly three-fifth of the overall sample (58.9 percent) forecast sales will grow between two and 7.9 percent. Roughly 12 percent of the respondents project sales increases of two percent or less.

"Once things in Iraq are resolved ' and assuming nothing else bad happens ' I think a lot of pent-up demand will be released," said Philip Derrow, president/CEO of Ohio Transmission Corporation based in Columbus. "We're generally optimistic. We achieved many of our objectives in 2002 including an increase in revenue. We're forecasting single-digit revenue growth in 2003 and a nice growth in profitability."

Many PTDA member distribution firms, such as Transmission Engineering Co. Inc, based in Hatfield, Pa., expect business upturns based on their strategic plans and changes, not just improved conditions.
Meanwhile, just under 10 percent of distributor survey respondents said sales will remain constant. Another 10 percent think sales will slip in the coming year.

Although most distributors are optimistic, about two-thirds of distributor survey respondents said the overall economy remains in decline. However, 82 percent projected the downturn would end by the end of Autumn 2003. Of this group, members were evenly split whether an upturn would begin in spring, summer or fall.

Manufacturers' Outlook Also Upbeat

Nearly all (92.8 percent) of the 42 manufacturer respondents to the member forecast survey project sales gains in 2003. Last year, slightly more than 60 percent envisioned sales growth.

For 2003, the bulk of manufacturer respondents (61.9 percent) expect sales will grow between two and 7.9 percent. Meanwhile, 23.8 percent project sales expansion of more than eight percent, and 16.7 percent are gunning for

gains of more than 10 percent.

Relatively few manufacturers (7.1 percent) think sales will grow by less than two percent or remain constant (4.8 percent) in 2003. Only 2.4 percent of manufacturers forecast sales decreases in the coming year.

By contrast, in 2002 only slightly more than 60 percent of manufacturer respondents forecast sales increases for the year. Most of them believed gains would be under five percent. Last year, 20 percent of manufacturers forecast sales declines.

Like distributors, many manufacturers say internal changes and response to the market ' not just a stronger economy ' will make the difference in 2003.

"If you're trying to live just on what the economy can do for you, you may not be viable long-term," said Bob Daniel, general sales manager, North American division of The Timken Company, based in Canton, Ohio. "You have to bring new products to market."

Most manufacturers (71.1 percent) believe the economy currently remains in decline. Seventy percent of manufacturers think the slump will end by the end of Summer 2003. Roughly one quarter think it will drag on longer.

Tight Margins Remain a Concern

Again in 2003, both distributor and manufacturer respondents believe profitability will lag behind sales gains. Distributors maintain adverse margin pressure has been the biggest fallout of the current recession.

Regardless, both distributor and manufacturer optimism for improved margins in 2003 is stronger than in 2002.

Among distributors, just under half (47 percent) expect gross margin improvement in 2003. Of this group, roughly 38 percent anticipate margin increases of more than five percent, 46 percent see margins growing in a range of two to 4.9 percent, and 16 percent project improvement of less than two percent.

One-third of all distributor survey respondents said margins will remains flat; 20 percent expect them to slip.

By contrast, only about one-third of distributor respondents forecast margin gains in 2002, while 44 percent projected them to remain flat.
Manufacturers' margin projections for 2003 are similar to the distributor's forecasts. Just over half (51.3 percent) look for improvements. Most of this group (86 percent) expect the gains to be under five percent.

Over a third (36.6 percent) of manufacturer survey respondents project margins will remain flat this year. Twelve percent think they'll slip.

In 2002, only 35 percent of manufacturers forecast margin gains, one-third believed they would remain flat and slightly less than one-third thought margins would decline.

Caution on Employment Levels

Both distributor and manufacturer respondents are guarded when it comes to employment levels in 2003.

Most distributors (56.9 percent) expect staffing numbers to remain constant at their firms in 2003. Of the 31.4 percent who plan to add employees in the coming year, most envision the growth at under five percent. Just under 12 percent of distributors anticipate trimming employees in 2003.

Among manufacturers, just under half (47.6 percent) think their company's employment levels will remain constant in the coming year. Among the 38 percent expecting staff expansion, half believe it will be under five percent. Roughly 14 percent of manufacturers plan to reduce staff in 2003.

Distributor-Supplier Partnerships Strong

PT/MC industry distributors and manufacturers expect to do more business with each other in the coming year.

Just under one-third of distributors intend to increase the number of supplier lines they carry in 2003. Roughly 10 percent plan to decrease their lines, while 58 percent say they'll continue with the same amount of lines.

Sixty-two percent of manufacturers say they plan to increase the percentage of their sales through distribution in the coming year. Only seven percent envision a decrease in sales through

distribution in 2003, while 31 percent expect sales through the channel to remain steady.

Roughly 40 percent of the manufacturer respondents said they plan to increase the number of distributor partners who carry their lines this year.

About 20 percent of manufacturers plan to trim their distributor rosters. That, however, doesn't necessarily mean lower distributor sales.

"We've been reducing our distribution base and concentration more on companies we want to partner with, like those in the PTDA membership," said Cliff Bannon, director of sales and marketing for Transcom, Inc. of Burnsville, Minn.

Other 2003 survey finding included:

'Among distributor respondents, 38 percent said they gained new customers in Fourth Quarter 2002. Some 57 percent reported they both added and lost customers. No respondent said they only lost business during the period.

'Almost 40 percent of distributors said customer requests for local inventory had increased. Only 12.5 percent noted customer decreases in this category.

'Beyond pressures on margins, distributors reported the biggest effects of the current recession were: customers closing facilities (82.4 percent); consolidation of suppliers (58.8 percent); competitors going out of business (41.2 percent); and new competitors emerging (31.4 percent).

Details from the PTDA 2003 Member Forecast Survey are included in the attached data summary, provided in Microsoft Word and Excel formats.

Founded in 1960, PTDA is an US-based trade association representing 220 power transmission/motion control (PT/MC) distributor firms with almost 3,000 locations throughout North America and 14 other countries, as well as over 190 manufacturers that supply the PT/MC industry. PTDA is a member-driven organization dedicated to advancing distribution and strengthening members to be successful, profitable and competitive in a changing market environment.