The industry's first-quarter financial statements are encouraging — with several electrical manufacturers and distributors registering double-digit increases in sales and earnings over the same period in 2003.
Factors at play for the boosted sales performance include manufacturers and distributors passing commodity steel and copper price increases on to their customers, and additional sales days in first-quarter 2004 over first-quarter 2003.
As of much interest as the numbers in these financial reports are the forecasts by senior electrical industry executives for the business climate in the year ahead. Samplings from these forecasts follow.
DISTRIBUTORS
Anixter CEO bullish on the future
Robert W. Grubbs, president and CEO of Anixter, said the company's 8 percent increase in year-over-year sales reflects the combined effects of higher copper prices, particularly on industrial wire and cable products and higher data cabling prices, and it offered evidence of the initial pick-up in capital spending and overall improvement of the economic environment.
“The first quarter was an encouraging start to the new fiscal year,” Grubbs said. “Sales trends in the quarter seem to support the increasingly widely held belief that the economy is showing signs of improvement. If the trends of improving end market demand continue and if the factors that underlie the recent manufacturer price increases remain intact, then we should see an improving earnings trend as the year unfolds.”
Fastenal opens 49 new locations
During the first three months of 2004, Fastenal Co., Winona, Minn., opened 49 new sites. Rising steel prices had the largest impact on gross profit margins. As a reseller of industrial products, primarily steel-based industrial products, Fastenal has been forced to increase its selling prices. These increases resulted in approximately 2 percent of additional sales dollars in the first quarter of 2004.
Grainger online sales surge 25 percent
W. W. Grainger Inc., Lake Forest, Ill., reported first-quarter sales processed through grainger.com increased 25 percent to $143 million from $115 million in 2004. In other news at Grainger, the company opened its ninth distribution center in New Jersey. CEO Richard Keyser said all of the company's distribution centers are now up and running. “We continue to see productivity improvements while increasing product availability. The new logistics network provides the platform to grow our business.”
Hughes Supply feeling bullish on sales and earnings for first-quarter 2004
Hughes Supply Inc., Orlando, Fla., is experiencing stronger sales in most of its businesses due to increased commercial and public sector construction activity and continued strength in the residential construction market. In addition, the recent price increases in commodities such as steel, PVC, copper, nickel and lumber have contributed to higher sales and improved margins over last year's first quarter. The price increases are estimated to account for approximately one-third of Hughes estimated same store sales growth rate in the quarter.
Tom Morgan, president and CEO said, “Strength in the commercial construction sector and higher commodity prices were expected to favorably impact sales and margins in the first quarter, but we clearly underestimated the magnitude of the impact. Stronger than expected demand, driven in part by our sales and marketing programs, coinciding with a higher pricing environment has resulted in an abnormal quarter that has not been experienced at Hughes in recent years. While this clearly translates into higher margins and earnings, and demonstrates the leverage that can be achieved in a distribution business, we remain cautious regarding the outlook for the remainder of the year.”
Noland says let the good times roll
At Noland Co., Newport News, Va., Chairman Lloyd U. Noland III said an improving economy and good weather fueled strong construction activity, benefiting sales in plumbing, air conditioning and electrical/industrial products. Electrical/industrial sales rose 12 percent.
Noland is optimistic about the company's short-term sales prospects. “Assuming the weather cooperates, we expect to continue our recent sales momentum in the second quarter.”
MANUFACTURERS
Belden excited about CDT merger
At Belden Inc., St. Louis, Baker Cunningham, chairman of the board, president and CEO, saw broad improvement in end-user markets. “In addition to the effect of exchange rates, our North American electronics business experienced sales improvements across all markets, especially data networking and the industrial business,” he said. “Much of this was due to our price increases, which we, like others in the industry, have implemented to recover the rising cost of copper and other materials. But the underlying volume also improved. The boost in volume helps our cost absorption, and we have been able to maintain and improve our margins. This improving trend gives us even more enthusiasm for the planned merger between Belden and Cable Design Technologies Corp. (CDT), which we expect to complete during this second quarter of 2004.”
In other company news, Belden announced a definitive agreement to sell assets of its North American Communications business to Superior Essex Inc., which will buy inventory and certain equipment, and will take over Belden's supply agreements with major telecommunications customers, for an amount not to exceed $95 million. After the sale takes place, Belden will close its communications cable plant in Phoenix, Arizona.
Cooper Industries raises earnings outlook for the year
All of the electrical products businesses of Cooper Industries Ltd., Houston, experienced real revenue growth during the quarter. Retail channel sales were very strong during the period, accounting for about one-third of the quarter's incremental revenue growth and positively impacting sales in both the company's lighting and wiring devices businesses. Continued strong residential construction and improving industrial and electronic markets as well as new product introductions and the company's key market penetration programs bolstered sales of Cooper's hazardous-duty, circuit protection and support systems products. Increased maintenance spending by utilities resulted in revenue gains in Cooper's power transmission and distribution equipment business. Cooper's European lighting and security businesses benefited from new product introductions and improved penetration of European industrial markets.
“We are off to a very good start for 2004, and we are progressing nicely with the execution of our key initiatives to improve productivity, reduce costs, generate excess cash and grow our businesses globally,” said John Riley Jr., chairman, president and CEO. “As we enter the second quarter, we are encouraged by what we see as signs of an improving economy both here in North America and on a global basis. It remains to be seen, however, if this momentum does indeed foretell a broad-based recovery that will continue throughout the balance of the year. We are mindful of the increasing pressure of rising commodity prices as well as the threat of possible increases in interest rates, and the potential impact these measures may have on our performance going forward. Despite this, we are seeing positive commercial dynamics both inside and outside our businesses.”
Eaton first-quarter sales surge 16 percent
After establishing a new first-quarter sales record at Eaton Corp., Cleveland, Sandy Cutler, Eaton chairman and CEO, said growth appears to be accelerating modestly in end-user markets. “But significant pockets of weakness still exist, particularly for larger industrial and commercial projects,” he said. In other Eaton news, the company announced in early March the acquisition of the Electrum Group. Cutler said the acquisition, while small in size, significantly expands Eaton's capabilities to serve the telecommunications, data center and government power markets.
Encore Wire CEO says pricing discipline helps wire and cable market set records
Vincent Rego, chairman and CEO, Encore Wire Corp., McKinney, Texas, likes the margin improvement he is now seeing in the wire and cable industry. “Margins are returning to levels last seen in the 1996-to-1998 time frame,” said Rego. “Our industry has historically enjoyed strong margins when raw copper prices increase. Our highest gross margins in 1998 occurred when copper averaged 85 cents for the quarter, illustrating that the most important factor driving margins is pricing discipline in the wire market. Over the last few quarters we have seen increased pricing discipline in the marketplace from our competitors.”
Fiberstars excited about new partnership to market EFO lighting system
At the recent International Light Fair trade show in Las Vegas, Gensler, a leading architectural and interior design firm, announced a strategic partnership to help develop the Fiberstars EFO fiber-optic lighting system, which is intended to replace conventional office lighting systems. “This is a significant endorsement from a respected organization that has long been at the forefront of the movement for ‘green’ technologies and materials for construction,” said David Ruckert, president and CEO Fiberstars, Fremont, Calif. “We have entered into agreements whereby Gensler is expected to assist the company in the development of new fixtures to be used with EFO and to help advance EFO as a practical application for commercial use.”
Ruckert also said although it's early in the period and the year, the outlook for the second quarter and for 2004 remains positive. As part of the expected growth, two of the company's customers are expanding their use of EFO to multiple locations, and several other national accounts have authorized initial installations of EFO lighting systems.
Genlyte announces 16.6 percent increase in first-quarter sales
Larry Powers, chairman, president and CEO, Genlyte Group Inc., Louisville, Ky., said the company had a solid first quarter despite relatively soft commercial and industrial construction market conditions. “We are experiencing extreme cost increases from steel, ballasts, medical insurance, pension expense, freight, energy, and packaging materials,” Powers said.
“The market price of cold-rolled steel has surged by 68 percent from December of last year. Insurance costs are up over 24 percent and energy costs are also up significantly. The impact of these cost increases outweighs the benefit of a 1.8 percent increase of the comparable sales. We have announced a price increase ranging by product from 5 percent to 8 percent to offset some of these cost increases. We are optimistic that these price increases will hold in the marketplace.”
Powers added that the commercial construction markets have been forecasted to improve later this year and continue in 2005. “For the present time, however, we are doing our best to control expenses and take opportunistic product and marketing initiatives until the overall market conditions improve,” he said. “These actions include continuous product development and focusing our sales force toward the more active markets such as retail, schools and health care.”
Hubbell CEO sees renewed growth late in 2004 and 2005
Rising raw material costs were a major challenge for Hubbell Inc., Orange, Conn., said Timothy Powers, president and CEO. “Steel, copper, nickel, aluminum and other commodity costs rose significantly over the last six months,” he said.
“As a result, we've announced price increases to partially counter the impact. The net impact of the cost and price increases had only a small effect on the first quarter. The greater impact on our costs and pricing will be seen in the second quarter and the remainder of 2004. The first quarter was stronger than we expected. As a result, we are raising our full-year projection for sales to increase 4 percent to 8 percent, year-over-year. As we've noted in recent months, about 70 percent of our products are sold to markets that are bottoming or showing a positive trend. That bodes well for renewed growth later in 2004 and in 2005.
“We are cautiously optimistic about the remainder of 2004. However, commodity costs are high and volatile. It's difficult to forecast whether these costs will continue to increase or begin to decline, and at what rate. The amount of realization of recent price increases across the industry is still uncertain. And the question remains whether the increase in activity in our markets will be sustained for the remainder of the year.”
Pentair first-quarter sales spike 25 percent
At Pentair, Golden Valley, Minn., the company's Enclosures Group, including Hoffmann and Schroff, delivered 25 percent sales growth in part because of strong industrial demand, a rebound in telecom markets, and growth initiatives targeting medical, security, defense, and food and beverage markets to drive increased sales activity in the quarter.
Commodity price spikes concern Thomas Industries CEO
Thomas Industries Inc., Louisville, Ky., enjoyed record first-quarter 2004 earnings, and strong performance by its Genlyte Thomas Group, which contributed a 21 percent increase in equity income over the first quarter of 2003.
But the company's CEO remains concerned about commodity price increases. Timothy Brown, chairman, president, and CEO said, “We are pleased with the continued strong performance of Genlyte Thomas Group. We do have concern going forward over increases in commodity prices for steel, copper, aluminum and energy, all of which impact our component costs. We are encouraged that orders and shipments for the first quarter were higher than anticipated, although we don't expect to see quite as robust activity for the remainder of the year.”
ELECTRICAL CONTRACTORS
Electrical contractors were not immune to challenges caused by rising prices. At Integrated Electrical Services (IES), Houston H. Roddy Allen, president and chief executive officer, said the company continued to experience gross margin pressure during the first quarter from the sharp spike in copper prices because IES has not been able to pass the copper price increases through to clients on some fixed-price contracts.
In other IES news, the company added $170 million of new larger project work, which it defines as projects greater than $300,000, to backlog during the second quarter compared to $189 million added during its first fiscal quarter of 2004 and $187 million added in its second fiscal quarter of 2003. The new work includes $108 million of new commercial projects; $30 million of new industrial projects; $17 million of new utility and transportation projects; and $15 million of new apartment projects.