The U.S. economy is “fighting” its way back after the coronavirus pandemic ravaged it through most of 2020. But while the recovery might be underway, it will be slow in the first half of the year and not truly accelerate until later in 2021.
That was the assessment of Baird industrial distribution analyst Dave Manthey in the MDM webcast, 2021 Distribution Industry Outlook. The event, sponsored by Oracle NetSuite, was hosted by MDM CEO Tom Gale and also featured NetSuite VP Ranga Bodla.
As Manthey outlined on the call, wholesale distribution improved in the fourth quarter with companies reporting a cumulative –1.5% revenue growth in the period. That was up from the third quarter’s –3.2% mark, but it also signaled slowing improvement following the trough of 2Q’s –9.8% dip.
The forecast — and most of Manthey’s discussion during the webcast — came from the most recent MDM-Baird Industrial Distribution Survey, summarized in the recent Premium article, The Pandemic Recovery is On.
Distributors, as a whole, are projecting 4% growth in 2021 but with much of that improvement happening in the third and fourth quarters. That trend mirrors the improvement the industry reported in 4Q 2020 with sequential growth in each month of the period.
“The trend got better even within the quarter,” Manthey said. “Month by month, those deltas continued to progress. As one respondent told us, ‘Conditions got progressively better through the fourth quarter, December was very good and the outlook for 2021 is also very good.’”
Green Shoots Abound
In addition to brighter days ahead for distributor revenues, the current economic landscape is ripe for increased M&A activity. For example, the favorable financial climate has bolstered PE firms’ M&A aspirations, as evidenced by the flurry of activity to close 2020.
This dynamic also bodes well for deals — both financial and strategic — to be announced at a torrid pace this year. (Click here to learn more about how to master the complex world of M&A in MDM’s upcoming virtual M&A conference.)
What’s more, Manthey cited some key benchmarks that show distribution is on the right path, such as improved manufacturing figures. And while non-residential statistics show some softness with a less-than-favorable forecast for 2021, residential construction and building materials distributors fared well.
“The outlook is bright for manufacturing,” he said. “It’s clearly coming out of a deep hole, but it’s definitely getting better as we move into 2021. What we see with non-residential construction is a little bit less optimistic.”
Not only are we seeing some improvement on various indices, as I outlined in a recent blog, but distribution stocks are likely to outperform the market in the coming weeks and months.
“We expect an upward bias to the distribution group, in addition to the fact that we think the market is fairly healthy right now and in a pretty good place,” Manthey said.
MDM will have full coverage of the public distribution company earnings reports for the fourth quarter. Be sure to stay tuned to our news page and our daily blog for the latest on what’s happening across the industry, including tips on how your company can leverage market conditions and grow your bottom line.
Learn more about what’s in store for the industry in 2021 by listening to the entire program. Click here for an on-demand presentation of the MDM webcast, 2021 Distribution Industry Outlook.