The 2020 Mid-Year Economic Update_long

Day: February 10, 2009

Mitigating Commodity Deflation

While many consumers were cheering the drop in the price of oil this fall, the sentiment was mixed when it came to wholesaler-distributors.
 
Certainly, transportation costs may come down - particularly for distributors who rely on their own fleets for delivery. But for those who sell oil-based products like plastics and industrial lubricants, the value of inventory has also plummeted.
 
The trend is not limited to oil. The prices of most products on the commodities markets are falling as the world economy continues its downward spiral. Copper has lost more than 60 percent of its value since last summer; lumber has fallen to the lowest prices in 20 years. Corn and wheat saw similar spikes and falls in the past year.
 
The bubble has ...

HVACR Sales Dip Slightly In December

National HVACR distributor sales for the month of December 2008 were down 0.3% below December 2007, according to the Monthly Targeted and Regional Economic News for Distribution Strategies Report produced by Heating, Airconditioning and Refrigeration Distributors International.
 
The HARDI Central Region posted the best sales gain at 7% with Canada at 5.2%. Great Lakes Region failed to benefit from the onset of winter and experienced a 3.7% sales decline from December last year.
 
The Southwestern Region reported the poorest performance with a sales decline of 13.7%. The West, Southeast and Mid-Atlantic regions experienced sales declines when compared to same month last year. Median Days Sales Outstanding stood at 46.85 down almost 2 days from November 2008. ...

Rockwell Automation Agrees To Buy Rutter Hinz

Rockwell Automation, Inc., Milwaukee, WI, has agreed to purchase engineering company Rutter Hinz Inc., Saskatoon, Canada. Rutter Hinz is a wholly owned subsidiary of Rutter Inc., a publicly held Canadian company. Rutter Hinz has annual sales of about US$35 million. Terms of the transaction were not disclosed.
 
Rutter Hinz has engineering expertise in industrial automation, process control and power distribution, specifically for the oil and gas industry, in addition to the pipeline, utility, mining, forestry and food and beverage sectors. The company's management team and approximately 220 employees will join Rockwell Automation's Systems & Solutions business unit.
 
This acquisition accelerates the growth of Rockwell Automation's ...

Bain Capital to HD Supply: Goodbye Goodwill

According to a Reuters report earlier this month, private equity firm Bain Capital wrote down 35 percent of its investment in HD Supply to $617 million. Like many banks and other investors during the M&A boom period, Bain is now taking a hit on the value of its investment made in better times.
 
Home Depot sold its HD Supply wholesale distribution unit to a trio of private equity firms - Bain Capital, Clayton Dubilier & Rice, and Carlyle Group - in August 2007. The terms were as follows: Purchase price of $8.5 billion, The Home Depot to own a 12.5% equity interest for $325 million, and The Home Depot guaranteed a $1 billion senior secured loan. The acquisition included a portfolio of 11 businesses and HD Supply Canada, and total annual revenues of $12 ...

Is It Possible to Avoid Layoffs?

Knowledge@Wharton asks what the strategy is behind recent layoffs in an article on their site. More than half a million jobs have been lost since September outside of the financial services world, the article estimates. The author says that the job cuts "highlight operational weaknesses and strategic issues that have been lurking under the surface for years." And now the downturn has brought those issues to the surface.
 
In the recent MDM Webcast, "Manage the Panic of 2009: New Rules for New Economic Realities, Evergreen Consulting's Brent Grover told participants that managing cash is key ...

Ingersoll-Rand 4Q Sales Increase 58%

Bermuda-based Ingersoll-Rand Company Ltd., diversified industrial manufacturer, reported fourth quarter sales of $3.67 billion, an increase of 58% over fourth quarter 2007. Excluding the impact of currency, sales declined 8% for the quarter. The company reported a net loss of $3.29 billion, compared to profit of $2.52 billion in fourth quarter 2007.
 
Full-year 2008 sales were $13.23 billion, a 51% increase over 2007. A net loss of $2.62 billion was recorded for the year.
 
The company accelerated previously announced restructuring plans to streamline its manufacturing footprint and general and administrative costs. About $71 million of the estimated $110 million in costs associated with these actions were incurred in the fourth ...

Rexnord Core Sales Contract 2% in 3Q

Rexnord LLC, Milwaukee, WI, a diversified industrial company focused on power transmission and water management products, reported third quarter sales of $443 million, a decline of 1% from the prior year. The company recorded a quarterly loss of $355 million. Core sales contracted 2%.
 
Third quarter power transmission sales declined 6% from the prior year third quarter to $316 million. Core sales were flat.
 
Water management third quarter sales were $128 million, an increase of 11%. Core sales declined 6%.
 
In response to economic conditions, Rexnord took actions during the third quarter to reduce its cost structure. Headcount was reduced by 500 employees,  7% of the employee base, and will be reduced by an additional 7% in the fourth quarter. ...

MDM Survey: Lower Profitability Expected

MDM and Dr. W.R. McCleave, PE, recently surveyed readers on how they are responding to changes in the economic environment as it pertains to profitability in 2009. This article is an overview of those results. McCleave advises readers to reflect on the results and act accordingly with respect to their own situations. More than 250 industry executives responded to the survey from more than a dozen distribution sectors.

In a nutshell, the idea that resonated throughout the survey results was: Now is the time to act. As one respondent wrote, Climb into bed with your income statement, and act now. Responses to the profitability survey indicate that distributors and manufacturers are indeed responding to the new market conditions. ...

MDM February 10, 2009

This is the pdf of this issue of Modern Distribution Management. Apply the full $24.95 pay-per-view cost toward an annual subscription (within 30 days of purchase), which includes two issues a month plus access to more than six years of online archives and market data. Call 1-888-742-5060 or email info@mdm.com to ...

MDM News Digest 3903

Grainger, Chicago, IL, has named Court Carruthers to a newly created position as president of its international businesses in Canada, Mexico, and China. Carruthers' new responsibilities include growing and improving Grainger's international business operations, which had sales of more than $800 million in 2008. Carruthers is currently president of Grainger's Canadian subsidiary, Acklands-Grainger. More

Grainger reported sales of $6.9 billion for the year ended Dec. 31, 2008, up 7 percent from 2007. Profit of $475 million was up 13 percent. Grainger reported that it is somewhat below the low end" of the range it provided in November for 2009 of -5 percent and +5 percent. In ...

Managing the Risk of Rebates

Manufacturers have for the past couple of decades commonly offered pricing tiers to distributors, setting purchase quotas to qualify for price discounts and offered rebates based on growth and penetration. These rebates have been of great benefit to distributors - actually we buy our bottom lines - and have been the primary driver behind the growth of buying groups.

In some industries, rebates based on quantity purchases alone have been removed from the table. Pricing at the time of purchase, and special rebates or pre-bates to grow specific markets seem to be the emerging trends.

This means that many in distribution will have to rethink their purchasing strategy and start to look at shorter term growth and market penetration. Pre-bates are paid ...

Commentary: New Opportunities for New Models

Amazon.com surprised everyone in late January when it announced North American revenues were up 18 percent for the fourth quarter of 2008, and its earnings grew almost 10 percent compared to the year earlier fourth quarter. Worldwide sales of electronics and other general merchandise sales grew 31% to $2.89 billion for the quarter.
 
One aspect of Amazon's success was that they had a successful new product that generated a lot of interest and did well: the Kindle electronic book reader.
 
What does that have to do with distributors? I think there are several important lessons for distributors when you start to look beyond the numbers. To start, last quarter was the worst holiday shopping season in decades for traditional retail across all categories. ...

Distributors Left with High Levels of Devalued Inventory

The convergence of declining demand and rapidly deflating commodity prices has left many distributors holding onto significantly devalued inventory, no matter how good their inventory management systems were.
 
Why? Because distributors began stockpiling last year as prices climbed. When the prices plummeted, that stockpile didn't look quite as good. Inventory levels jumped $6.2 billion in the fourth quarter, according to the U.S. Commerce Department.
 
(The Wall Street Journal recently ran an article, Firms Race to Regain Control Over Inventories, looking at how manufacturers are approaching the growing inventory problem.)
 
There are ways to mitigate this ...