Just when you thought it couldn’t get muddier than a political debate, the new CEO of Fastenal described an industrial environment in recession. That negative viewpoint usually doesn’t emerge from Minnesotans until February each year – this from the perspective of someone who lived there for decades.
But Daniel Florness’ comments were to provide context for Fastenal’s third-quarter results. The company’s sales increased 1.5 percent, outpacing many other industrial distributors. (The exception was those with stronger footprints into construction markets.)
It’s not getting any easier to separate the true signals from the noise in the headlines and headwinds. Distributors may not be battening down the hatches, but they are trimming the sails. WESCO is cutting branches and staff, including management. Grainger is doing the same to align its cost structure, after reporting a 1.1-percent decline in third-quarter revenues.
And the third quarter seemed to put an exclamation point on just how deeply the oil and gas markets impacted so many supporting sectors beyond the primary equipment suppliers.
We’re hearing consistent reports of delayed hiring and accelerated retirements, with some growth plans put on hold. At the same time, the current climate is fragmented. Certain geographies and customer segments are keeping distributors whole in these choppy waters. Automotive markets continue to be the best news, but aerospace is a strong second place in select markets.
It’s not all doom and gloom. In fact, in the same Fastenal call, growth programs for 2016 were outlined. Overall, the macro forecasts pretty consistently predict slow growth overall for the year ahead, with skies clearing as we move into the second quarter of 2016.
What’s the key takeaway from this? It feels a little like the early 2000s, where markets were coming out of the dot-com hangover. The difference today is the strength of consumer saving and spending is building the bridge to a brighter future. As a result, it is now construction’s turn to do the heavy lifting, though it is by no means the workhorse it once was.
The other difference is the need to keep resetting the model to a leaner one in increasingly shorter cycles – what worked just a few years ago isn’t as effective today. It requires much finer segmentation of market opportunity and resources to mine the data. That’s a very different model than even five years ago.
The third-quarter recalibration in the industry is likely to be the norm for the continued slow-growth, fragmented markets that define the new U.S. economy.