Revealing the profit challenges and opportunities in the power transmission/motion control industry, a recent report from the Power Transmission Distributors Association supports forecasts made by PTDA members in late 2005 of moderate growth in sales with no change in gross margins in 2006.
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The Power Transmission Distributors Association announced the results of its 2007 PT Distributor Performance Report, based on 2006 data.
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When asked in October 2005 to forecast sales for 2006, 44% of distributor respondents indicated that they expected sales to increase between 5% and 9.9%. The actual sales growth rate for a typical PTDA distributor, as reported in the 2007 PT Distributor Performance Report, fell right in the middle of that range, with sales growth in 2006 of 7.4%. As for gross margins, more than 63% of the respondents expected gross margins to remain constant in 2006. According to the data collected for the PT Distributor Performance Report, the forecast was right on target with gross margins for 2006 decreasing a negligible 0.3%.
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In addition to affirming the forecasts, the 2007 PT Distributor Performance Report also suggests that while the typical PTDA distributor generates the same amount of sales as the high profit distributors, the most successful firms continue to exhibit profits that double those of the typical firm. With respect to the bottom line, the typical PTDA distributor member generated pre-tax profit of 3.8% on annual sales of $29.8 million, compared to high-profit firms that produced an average profit of 7.6% on sales of $29.1 million. The ability to generate higher profits is not necessarily driven by sales growth. While typical PTDA distributors experienced an increase of 7.4% in 2006, high-profit distributors reported a 6.0% gain in sales growth over the same period.
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The ability to manage expenses is a primary contributor to a firm’s profitability.
High-profit firms reported a pre-tax return on assets (ROA) of 27.4%, while the typical PT/MC distributor reported ROA of only 11.8%. Total operating expenses as a% of net sales was 20.1% for high-profit firms, compared to 22.1% for typical firms.
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The PT Distributor Performance Report, conducted annually by PTDA, in partnership with the Profit Planning Group of Boulder, CO, is a compilation of operational statistics from 46 PTDA members throughout North America.&nbsp ; This valuable resource examines five-year distributor performance trends in return on investment, income statement, gross margin-related expenses, balance sheet, financial ratios, asset productivity ratios, growth and cash sufficiency ratios, operations profile and employee productivity ratios.
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Data is reported for typical PT/MC distributors and high-profit firms (top 25% of firms based on ROA). Data also is reported for five U.S. regions (Eastern, Southern, Midwest, South Central and Western) and Canada, and four sales volume categories, ranging from less than $10 million to over $75 million.&nbsp ; Additional breakouts include machinery, repair and operations (MRO) emphasis versus original equipment manufacturer (OEM) emphasis, and product mix (percentage of sales by bearings, power transmission and other).