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Distributors and manufacturers are reporting weak sales and profitability in Europe so far this year. While the weakness for some has been offset by stronger North American sales, many are implementing or continuing plans to reduce costs and improve profits overseas.
European distributor Wolseley plc reported sales in ongoing UK business were flat for the first half in a declining market, and sales in the Nordic region and France were down. Ian Meakins, chief executive, said the distributor will maintain tight control of the cost base in Europe.
Anixter recently reported organic sales fell 3.8 percent in the first quarter. The distributor was profitable, but profit was down 23 percent from the previous year. Anixter CFO Theodore Dosch said in the distributor’s quarterly earnings call that while margin in North America improved, the company continued to experience pricing pressure in its Europe region.
“I think Europe is going to be challenging,” Anixter President and CEO Bob Eck said. “Frankly the macros aren’t great.” That said, he isn’t extremely pessimistic about the region, but expects Europe may be a drag on the distributor for some time.
Anixter, in addition to European challenges, is also being squeezed by increasing pension costs in the U.S., hurting operating margins. It also has higher IT expense due to strategic project spending and investments in a new digital marketing platform.
In response, Anixter has implemented actions in recent months to reduce company-wide operating costs by $20 million annually; in the first quarter, Anixter reduced headcount by 2.5 percent, excluding its acquisition of Jorvex. It also announced changes to its pension plan.
“Notwithstanding the broad economic challenges, our team had a relentless focus on margins, and we've improved operating margins in each segment versus the fourth quarter of 2012,” Eck said.
Dosch said the company’s cost reduction plans are on track, and Anixter is already seeing results. Unlike in 2012, Dosch said fasteners in the region were profitable in the first quarter. The distributor also saw improved profitability in its European Wire and Cable business.
“We constantly balance short-term and long-term priorities, and we feel very good overall about our cost management,” Dosch said.