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Adverse Weather Hits Distributors Hard

Adverse Weather Hits Distributors Hard

February 26, 2014

While many companies expect seasonal shifts and plan for the impact these have on business, this winter has proven to be particularly challenging for distributors in the U.S. Extended periods of sub-zero temperatures and abundant snowfall have wreaked havoc on distribution networks across the country.

"The story thus far has been weather and foreign exchange," said Laura Brown, senior vice president of communications and investor relations for Grainger during the distributor's recent investor call to discuss fourth-quarter results. "In the United States, sales including acquisitions were flat the first five business days of the month due to the extreme cold and snow across much of the country. During the next 10 business days, sales rebounded to the mid- to upper-single digits. As the month progresses, cold weather and snow in the United States and Canada continue to be an issue."

One of the biggest challenges has been transportation; distributors are simply having a hard time getting their product from point A to point B.

"Trucks don't want to deliver product as they're afraid of the ice," Tony DiMare, vice president of DiMare Fresh, a produce grower and distributor based in Florida, told trade publication The Packer. "During the snow event they had a couple weeks ago, trucks were stranded and product was late in getting delivered. We couldn't get the trucks turned around and back to the f.o.b. end."

Demand also dropped in some end-use segments, as customers stayed home.

"A shortened holiday shopping season and severe weather in several areas of the United States reduced restaurant traffic, especially in the casual dining segment," Sysco reported in an investor call to discuss the distributor’s second-quarter earnings. "This trend in turn negatively influenced our sales growth. Sales growth in the early part of our third quarter of fiscal 2014 has continued at a lower rate as severe weather has continued to impact several areas that we serve."

Facility closures have also been a problem.

In its January 2014 sales report, Grainger reported that its total sales took a 2-percent hit from extreme weather that closed some of its facilities and its customers’ facilities throughout the month. U.S. sales were offset 3 percent due to the adverse weather, with sales in Canada offset 2 percent. Education sales also took a hit as schools were closed due to the weather.

In January, Fastenal's master distribution center in Indianapolis shut down for three days, and its distribution center in Atlanta closed for two days. Fastenal reported “noticeable” slowdowns in these regions. "Completely closed distribution centers are a rare event," Fastenal said in a recent investor call. "Weather was certainly difficult throughout January, with nonresidential customers seeing the greatest impact."

The Conference Board Leading Economic Index, used to measure turning points in the economy, reflects the far-reaching scope of this weather. “The increase in the Leading Economic Index reflects an economy that is expanding moderately, although the pace is somewhat held back by persistent and severe inclement weather in most parts of the country,” said Ken Goldstein, economist for the Conference Board.

Employment also took a hit from the weather. In some sectors, particularly construction, companies were forced to delay projects.

“Employment in December 2013 was held down in many areas by unusually snowy or cold weather," said Ken Simonson, an economist with the Associated General Contractors of America, in an analysis of federal employment data. "With the weather and the economy both likely to improve soon, even more metros should post employment gains in the coming months.”

According to the latest long-range outlook from the National Weather Service's Climate Prediction Center, below-average temperatures may continue across much of the country east of the Rockies.

Grainger's January sales report reflects this. "Sales growth thus far in February is trending slightly above January, although extreme weather, most recently ice storms in the Southeast United States, is once again resulting in some business disruption."

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