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Survey Highlights Distributor Demand, Capital, & Pricing Concerns

July 21, 2010

As we've reported in this blog over the past week, the second quarter 2010 MDM/Baird Distribution Survey results are out. Overall in the survey, second-quarter revenues were up 7.8 percent on average. In the second quarter, pricing was up 1.4 percent, and gross margin was down by 40 basis points. Respondents expect on average that revenues will grow 6.6 percent in the third quarter 2010.

Here's a quick overview of some interesting trends noted in the survey; a full overview with individual sector data will be published in the July 25 issue of MDM Premium (subscribe for access).

Working capital seems to be an issue for some smaller distributors as demand picks up again. "The recovery has definitely put higher working capital demands on a lot of weaker distributors," wrote one respondent. (Read more about this issue in the recent MDM article: The Rush to Meet Growing Demand)

Many respondents said that larger distributors in their markets were growing more aggressive. Airgas, Radnor, PA, and MSC Industrial Direct, Melville, NY, were noted as two that were focused on taking market share. Some respondents said they have had to walk away from contracts because of pricing pressures in the bidding process.

Inventory levels in most segments remain low. In fact, customers continue to be conservative, making it more difficult to predict demand. "Half of our customers won't order until they have an order in hand, which is creating spikes in sales," a distributor wrote.

Pricing trends, of course, vary by product. In many cases, pricing is going up. "Fastener prices are up 15 percent to 20 percent in some cases," wrote one respondent. "We're going to be hit when we rebuy in the third quarter." Some distributors have been able to pass those increases along. A gases and hardgoods respondent wrote: "I've been able to increase my prices above the increase from my supplier and have had very little pushback." On the electrical side, copper seems to represent a "slight tailwind." "There's no doubt that we're getting a positive push from copper pricing vs. last year," said one respondent, "probably a low single-digit top-line impact." (The second quarter Inflation by Commodity Group, based on the Producer Price Index, will be published in the July 25 issue of MDM Premium.)

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