6309 Monarch Park Place, Suite 203
Niwot, CO 80503, USA
Phone (303) 443-5060
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Hughes Supply,Orlando, FL, a distributor of construction, repair and maintenance- related products, reported revenues for the fourth quarter ended Jan. 31, 2005 were $1.12 billion, an increase of 41% from $796 million in the previous year's fourth quarter. Organic sales growth was 16%, with double-digit growth reported in the majority of the business segments for the fourth consecutive quarter. Net income grew 120% to $20.7 million compared to $9.4 million in the prior year's fourth quarter.
Fiscal year 2005 annual revenues were $4.42 billion, up 36% from $3.25 billion in the previous year. Organic sales grew at a record 16%, with double-digit growth reported in six of eight business segments. Annual net income grew 114% to $123.7 million from $57.7 million in the previous year. Internal return on invested capital improved to over 25% from 16% in the previous year.
The company saw some gains from higher commodity prices, including PVC, ductile iron pipe, copper and steel products across several business segments. The company's fourth quarter and fiscal year revenues reflected a higher level of commercial construction and industrial activity, continued strength in residential construction, and higher commodity prices across most businesses from one year ago. Higher prices were estimated to account for approximately one-half of the company's fourth quarter and full year same store sales growth of 16%.
In the fourth quarter, the company's gross margin ratio was 22.6%, down 10 basis points from the previous year, due primarily to a higher mix of lower margin Utilities business, partially offset by purchasing leverage. With the acquisition of Southwest Power / Western States Electric in the fourth quarter, the Utilities segment, which has lower gross margins, now represents 15% of consolidated sales, up from 10% previously. The sequential decrease in gross margin of 90 basis points was due primarily to the Utilities business mix, and, to a lesser extent, the impact of higher prices on moving average cost inventory.
For the year, the company's gross margin ratio grew to 23.5%, a 90 basis point improvement over the previous year due to improved business mix, purchasing leverage, and the favorable impact of lower average cost inventory in the first half of the year.
In the fourth quarter, the company expanded its operating income ratio to sales by 10 basis points to 3.4%. Sales leverage was partially offset by higher expenses primarily related to variable compensation, sales tax-related costs, and Sarbanes-Oxley and other consulting fees
For the year, the operating income ratio to sales grew to 5.0%, a 120 basis point improvement over the previous year, despite a higher level of investment spending in fiscal year 2005.
"In fiscal year 2006 we expect high, single-digit organic sales growth, with some moderation in gross margins from the fiscal year 2005 levels," said Tom Morgan, president and CEO. "We also anticipate expenses as a ratio to sales to be lower, as we begin to benefit from our various operational initiatives, and are targeting earnings per share growth of 10% to 20% for the year.
"In the first quarter, we expect demand to continue to be good, with stable to moderately increasing commodity prices. While we expect good organic growth in the quarter and for the year, we do not expect the extraordinary level of growth experienced last year. Gross margin in the first quarter of last year was the highest gross margin in the company's history, as rapidly rising commodity prices and strong demand expanded margins considerably. Accordingly, we expect gross margins to return to a more normal level in the first quarter of fiscal 2006 compared to last year's first quarter; however, expenses as a ratio to sales should improve as our level of investment spending begins to moderate," concluded Morgan.