Amid unfavorable market conditions and continuing concerns of an economic slowdown, the wholesale distribution industry posted slower revenue growth in 2022’s October-December period compared to the year’s first nine months, according to the Fourth Quarter Baird-MDM Industrial Distribution Survey. The quarterly survey polled and collected commentary from more than 500 wholesale distribution executives nationwide.
Overall, distributors posted an annualized growth rate of 4.2% during 4Q, a significant drop from 3Q’s 9.3% and 240 basis points short of Baird’s expectations for 4Q. The 4.2% mark is also less than half of the overall growth rate seen in 2022. The survey figures largely illustrated what the Third Quarter Baird-MDM Industrial Distribution Survey predicted would be the case: 4Q was another solid revenue quarter for most distributors, albeit slower than the prior 18 months. Many publicly-traded distributors and suppliers noted that while 3Q was another “robust growth” quarter, a “softening” in demand crept in at the end of the quarter. That trend set the tone for 4Q, with executives reporting that demand continued to fall in certain segments as the quarter bore on.
The growth rate decline in 4Q was consistent with the Institute for Supply Management’s Purchasing Managers Index, which fell for a seventh consecutive month to 48.4 in December 2022, its lowest mark since May 2020 during the height of COVID-19 shutdowns. It’s also the first time in more than 20 years that the ISM PMI has decreased for seven straight months.
With 4Q’s growth rate coming in below expectations, Baird’s forecast for 2023 has taken a hit, but still calls for growth. As noted in MDM’s 3Q MarketPulse, the distribution sector has been riding high for the past two years on benefits from pricing, but economic red flags remain. A more pronounced slowdown may be yet ahead, or might have already set in in the later stages of 4Q.
Download and read the entire MarketPulse Baird Survey Report 4Q 2022 here. MDM special reports are available to Premium members. If you’re not a Premium member, you can subscribe by clicking here.
Also, be sure to also check out MDM’s recently published 2022 4Q M&A Report for a recap on distributors’ recent dealmaking activity.