April 2008 - Modern Distribution Management

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April 2008

Wading Through 2008

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Yesterday's numbers weren't surprising to most distributors, but they reinforce that this year is about doing some hard work to position and strengthen the business. GDP rose at a 0.6% annual rate in the first quarter of 2008 to mirror the fourth quarter of 2007. The Federal Reserve lowered its key interest rate by one-quarter percentage point to 2.0 percent, the lowest since November 2004.
 
What the numbers aren't saying: Certain markets are beginning to soften in the last 30-60 days for some industrial distributors, but sales levels still exceed expectations set last fall. Products bound for end-use markets in energy, export and infrastructure are staying strong.
 
Of the 142,000 attendees the CONEXPO/IFPE show last month drew to Las Vegas, about 19% were ...

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Timken Sales Up 12% in 1Q

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The Timken Company, Canton, OH, reported sales of $1.43 billion during the first quarter of 2008, an increase of 12% over the same period a year ago.  The increase was driven by strong sales in global industrial markets, as the company benefited from its capacity-expansion initiatives, as well as the favorable impact of pricing, surcharges and currency.
 
During the quarter, the company:

  • Implemented the next wave of Project O.N.E., Timken's business process improvement and global systems initiative, covering most of the company's remaining U.S. and European operations;

  • Completed construction of a new industrial bearing manufacturing plant in Chennai, India, and a new aerospace and precision products facility in ...

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Trelleborg Agrees to Buy Italian Supplier

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Through its Trelleborg Sealing Solutions business area, Trelleborg has agreed to acquire Italian company Officine Meccaniche GNL SpA, with 60 employees and sales of about SEK 90M.

GNL strengthens Trelleborg's leading global position in the area of specialty seals for heavy-duty applications, including seals for the construction industry, mining industry and agricultural machinery,"says Claus Barsöe, Business Area president of Trelleborg Sealing Solutions.

The operations will be integrated in the business area Trelleborg Sealing Solutions.

The Trelleborg Group had annual sales 2007 of SEK 31 billion, with about 25,000 employees in 40 ...

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Weyerhaeuser to Appeal Monopoly Decision

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Weyerhaeuser Company, Federal Way, WA, said it will appeal a jury decision rendered in a class action lawsuit claiming that Weyerhaeuser unlawfully monopolized an alleged market for finished alder lumber.
 
A jury in Portland, OR, awarded the plaintiffs $27.98 million, which will be trebled under antitrust laws.
 
We are very disappointed with the verdict,"said Sandy D. McDade, Weyerhaeuser senior vice president and general counsel. "We are confident it will be reversed on appeal because last year the U.S. Supreme Court decided in our favor a case presenting virtually identical issues. We fully expect that the Court of Appeals will apply that precedent. Our business conduct has been and remains within the spirit and letter of the law, and we will continue to ...

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Canadian Resource Industries Offset Durable Goods in 2007

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Soaring industrial product prices and robust demand for resource-based goods offset declines in some of Canada's key durable goods industries in 2007, according to a Statistics Canada report. Overall, there was little change in both the volume and value of manufacturing sales.
 
Manufacturers posted a modest 0.4% increase in sales to $613.4 billion, according to a year-end review, published in the Analysis in Brief series. In constant dollars, factory sales were essentially flat, following a lacklustre 2006 in which sales edged down.
 
Manufacturers had a mixed year in other respects in 2007. Employment fell by an estimated 55,300 jobs and total hours worked declined 2.9%. However, labour productivity in the sector ...

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Jackson Safety Buys Chinese Manufacturer

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Jackson Products, Inc., St. Louis, MO, manufacturer and distributor of personal and traffic safety products, has agreed to buy a 70% stake in Changzhou Shine Science &Technology Co., Ltd., of China for an undisclosed amount. Based in Shanghai, Shine is a manufacturer of welding safety products.
 
This acquisition supports our global strategy of being the preferred supplier of safety products. Shine's innovative products, broadens our welding product offering and strengthens our position as the number one manufacturer of auto-darkening filters," said President and CEO Tom Burns. "The acquisition of Shine will also provide us a manufacturing base in Asia and adds Shine's excellent engineering talent that will complement our own expertise in auto-darkening ...

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Lawson Products Sales Fall in 1Q

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Lawson Products, Inc., Des Plaines, IL, a distributor of services, systems and products to the maintenance, repair and operations (MRO) and original equipment manufacturer (OEM) marketplaces, reported sales for the first quarter 2008 were $125.0 million, a decrease of 3.6% from the prior-year quarter.
 
Profit for the quarter was $4.4 million, compared to net income of $4.6 million in the first quarter of 2007. ...

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Managing the Loss of Sales in a Down Economy

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In a recent interview with MDM, Profit Planning Group's Al Bates says that distributors must manage their loss of sales volume in a down economy.
 
If sales are down 20%, you've got to make dramatic changes. In that scenario, too often distributors do what I think is absolutely the wrong thing in an attempt to free up cash," he says. "They try to lower accounts receivable and reduce inventory to make up for selling less. Inevitably that leads to sales declines getting even worse. Back orders go up. Customer service goes down and what might be a 10% sales decline becomes a 15% sales decline." While cutting inventory and accounts receivable is a normal reaction, Bates tells MDM that the moves are compounded by the fact distributors don't have much cash.
 
The ...

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SYSCO Sales Up 6.7% in 3Q

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SYSCO Corp., Houston, TX, reported sales for the third quarter fiscal 2008 were up 6.7% to $9.15 billion, from last year's third quarter.
 
Profit was up 9% to $240.9 million. Food cost inflation, as estimated by the change in SYSCO's cost of goods, was 6.2% for the quarter.
 
Year-to-date, sales increased 7.7% to $27.79 billion from the same period last year, and profit was up 10.7% to $772 million. Food cost inflation, as estimated by the change in SYSCO's cost of goods, was 6.0% year-to-date in fiscal 2008.
 
In a challenging business environment where restaurant sales growth appears to have been flat to down, we continued to grow and we leveraged that growth to our bottom line, particularly in the Broadline segment," said Richard J. Schnieders, ...

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Regal Beloit Buys Chinese Manufacturer

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Regal Beloit Corp., Beloit, WI, has acquired Joyce Court Holdings Ltd. and Grand Delight Investments Ltd., sole shareholders of Wuxi Hwada Motor Co. and Wuxi New Hwada Motor Co. (collectively Hwada) in Wuxi, China, for $27.6 million in cash.
 
Hwada is a designer and manufacturer of Integral IEC and NEMA electric motors, which are used in various industrial applications such as compressor, pump, paper and steel processing, and power plants. The product line includes motors up to 5000 kw (6700 hp). Approximately 50% of Hwada's product sales are in the China industrial markets. The other 50% is exported to Europe (35%), the U.S. (10%) and Southeast Asia (5%). The business will be reported as part of the Company's Electrical Segment.
 
The business is expected to add ...

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There is More To Software Selection Than Selecting Software

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Architecture is the art and science of designing buildings and also describes the act of providing services. "Software selection"is the art and science of determining the best solution for automating the operation of your business, but there is more to the process than just selecting the software. Just as a home owner wouldn't spend thousands of dollars on a new home without assistance; we expect business owners would treat buying software as an equally complex task and call on similar outside assistance.
 
In some ways this complex task has become simpler. The software market is shrinking due to acquisition. The software vendors are providing graphical users interfaces (GUI) as a standard feature. The web and EDI has provided a standard approach to the sharing of data and ...

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3M to Build Coatings Facility in Singapore

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3M plans to build a new facility in Singapore to produce coatings for film-based products used in commercial, electronic and automotive applications. By establishing a local film coating center, the facility will help the company better serve the Asia market.
 
This investment brings us closer to our customers and creates a regional source of supply, which significantly simplifies our supply chain and helps us respond more quickly to our customers'needs in the fast-growing Asia market,"said Kevin Kuck, vice president, 3M film manufacturing.

Construction on the new facility, which will be located in the Tuas Industrial Park, will begin in the second quarter of this year and is expected to be completed in 2009. 3M operations already in Singapore include a customer ...

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IDG to Accept Luther King Capital Management’s Bid

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Atlanta, GA-based Industrial Distribution Group, Inc., will move forward with a plan to be acquired by Luther King Capital Management, accepting the private equity firm's $12.10 per share offer -close to $136 million. Platinum Equity notified IDG that it will not match or beat LKCM's bid.

LKCM said it would reimburse IDG for the 3% break-up fee required when IDG breaks the Platinum merger agreement.

We are very excited about this transaction with Luther King Capital Management, which we believe provides excellent value to our stockholders," said Richard M. Seigel, IDG's Chairman of the Board. "We believe that this transaction with our largest stockholder is a great fit for both IDG and Luther King Capital Management."

LKCM already owned 15% of IDG's ...

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MDM Interview: Busting Profit Myths in Distribution

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Al Bates, founder and chairman of Profit Planning Group, Boulder, CO, wants to change how distribution executives think about their business. In this interview, he addresses dysfunctional behavior, alternatives to typical mindsets and ways that distributors can manage better in a turbulent economy. Based on his experience as a corporate financial planner and decades of data analysis, he's not afraid to buck conventional wisdom. In fact, he enjoys it.
Bates has studied financial performance across dozens of wholesale distribution sectors for more than 25 years. His firm conducts the annual benchmarking report series, PAR reports, for more than 40 wholesale distribution associations. This interview discusses key themes from his new book, Profit Myths in Wholesale Distribution: ...

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Bidding War for IDG Continues

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The bidding war for industrial distributor Industrial Distribution Group Inc., Atlanta, GA, continues, but WESCO Distribution Inc., Pittsburgh, PA, has bowed out. At press time (early April 25, 2008), Luther King Capital Management, Fort Worth, TX, had the highest bid with $12.10 per share in cash, or close to $134 million.

Luther King Capital current owns 15 percent of IDG's stock. The firm presented IDG with an equity financing commitment letter from an LKCM investment fund.

Platinum Equity, the original victor with its offer of $10.30 per share for the distributor, had upped its bid to $11.80 per share in cash in response to WESCO Distribution's bid of $11.75, or $130 million.

The back and forth comes after IDG agreed in February 2008 to be purchased ...

Bidding War for IDG Continues Read More »

Commentary: A Little Context on the Fight for IDG

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Why have three investors been raising the price for Industrial Distribution Group (IDG), the traditional whipping post of the investment community?

Last year, when IDG's board pursued an exit strategy to free itself from the constraints of public ownership, the M&A market in distribution was still near its peak. In a year's time, we have shifted dramatically from a financial frenzy to a quieter, more strategic buyer's market. In today's risk-averse debt markets, show me the money has taken on new meaning in the bidding war for IDG.

The three bidders active in this deal -Platinum Equity (owns Strategic Distribution), Luther King Capital Management (owns 15 percent of IDG stock), and WESCO (owns Bruckner Supply) -know the strengths and weaknesses in IDG. Based on ...

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Inflation by Commodity Group: First Quarter 2008

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These 24 select product groups provide a snapshot of inflation trends based on the Producer Price Index from the U.S. Bureau of Labor Statistics. First quarter 2008 is compared with first quarter 2007, and fourth quarter 2007 with first quarter 2008. Download the full document below.
 
The product groups in this report:
 

Inflation by Commodity Group: First Quarter 2008 Read More »

Product Mix & Growth for MSC Industrial

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MSC Industrial Direct's latest Safety Products Catalog launch is part of its strategy to further penetrate existing customer accounts, according to Erik Gershwind, MSC's senior vice president of product management, marketing and strategy.

The interest in safety products has been building in our customer base for the past few years,"Gershwind said. "We definitely saw a demarcation point after 9/11. Our customer base has a heightened sense of awareness of keeping the workplace safe and protecting the well-being of their employees."

Gershwind said that penetration of existing accounts was a key growth strategy for the industrial distributor, based in Melville, NY. The company is also working to sell more MRO and safety products to customers acquired when it bought J&L ...

Product Mix & Growth for MSC Industrial Read More »

MDM News Digest 3808

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Crawford Electric Supply, Dallas, TX, a subsidiary of Sonepar USA, has opened a new branch in New Orleans, LA. The facility includes a 48,000-square-foot warehouse, with a full-service counter area focused on the pipe, wire, lighting, and electrical business. More

PrimeSource Building Products Inc., Carrollton, TX, will buy Miami, FL-based Coast to Coast Building Products Inc., according to news reports. The acquisition expands PrimeSource's network into the Southeast as well as the Caribbean and Central America. More

HD Supply, Atlanta, GA, has launched its two new proprietary brands, Seasons and Brigade. The ...

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MDM Inflation Index: March 2008

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Modern Distribution Management's March Inflation Index, which measures a cross-section of industrial supplies, was up 0.74% from the previous month, and up 4.24% from March 2007.
 
Summary of MDM Inflation Index for the past 12 months:
 
March 2008 Index 281.1
February 2008 Index 279.0
January 2008 Index 277.2
December 2007 Index 275.9
November 2007 Index 274.7
October 2007 Index 273.6
September 2007 Index 273.5
August 2007 Index 273.3
July 2007 Index 272.4
June 2007 Index 271.7
May 2007 Index 271.2
April 2007 Index 270.8
March 2007 Index 269.6

Please click below to view a print-ready pdf of the MDM Inflation Index for March 2008, listing the ten individual product categories that make up the ...

MDM Inflation Index: March 2008 Read More »

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