Grainger, MSC and Fastenal’s Take on Softness in Economy in the First Quarter 2013 - Modern Distribution Management

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Grainger, MSC and Fastenal’s Take on Softness in Economy in the First Quarter 2013

Sequestration had an impact on market, distributors say.

Comments by executives at Grainger, MSC Industrial Supply and Fastenal seem to jibe with comments from other distributors in the first-quarter 2013 MDM-Baird Distribution Survey. Distributors in that survey said that sales growth was inconsistent month-to-month and that they were still seeing impacts from uncertainty in the economy.

Grainger, MSC and Fastenal are among the first public companies to release results for the first quarter of the calendar year. (For MSC, the second quarter of its fiscal year went through March 2, 2013.) More will be released in the coming weeks.

Grainger cited the uncertainty in the U.S. due to sequestration, which contributed to a decline in sales to the federal government end-market, according to spokeswoman Laura Brown in Grainger’s quarterly earnings report. Grainger sales were up 4 percent in the first quarter; government represented 15 percent of U.S. sales in the quarter.

“We took a cautious approach to spending in the 2013 first quarter given the uncertainties surrounding the threat of the fiscal cliff at the end of December,” Brown said. But she noted a “modestly improving economic backdrop” and “solid performance in the quarter.” As a result, Grainger plans to increase its estimated incremental growth-related spending to $160 million from $135 million.

“We view our commitment to a higher growth spending as an example of our leadership in the MRO industry and an attractive opportunity to gain market share over the long term,” she said.

MSC also saw a drop in customer confidence in part due to sequestration. “We saw significant growth in December and January but a precipitous drop in February as sequestration fears came to a head, and that netted out to a roughly flat quarter,” MSC Industrial Supply President Erik Gershwind said. MSC saw “extreme softness” in federal spending.

MSC projects softness will continue in the federal customer segment in April and May. “We honestly don’t have a lot of visibility into what’s going on,” he said. Sales for MSC in its fiscal second quarter were up 1.2 percent from the prior-year period.

While many distributors are still focused on what will happen next with the economy, Fastenal CFO Daniel Florness said in the distributor’s earnings call that the company doesn’t “give much thought about the state of the economy.” Fastenal’s sales were up nearly 5 percent in the first quarter.

“We give thought about what we can do to execute tomorrow, next week, next month and there on.” That said, he did blame the economy in part for a decline in sales in the fastener side of the distributor’s business.

And Fastenal President LeLand Hein said he recently spent time with suppliers and customers who are still feeling cautious. But if the economy does go into reverse, CEO Will Oberton said that Fastenal will be prepared. “We found that that’s a good time to invest and a good time to take market share,” he said. “We would do that as inexpensively or as frugally as possible.”

Read Brent Grover’s take on how to weather economic woes with a worst-case business plan.

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