2014: A Year of Growth, Say Top Industrial Distributors

If there is a consensus among some of the largest distributors in the industrial marketplace, it is that the economy has improved but in a slow-yet-steady pace. Also, this past winter—while harsh and damaging at times to many companies—should not be used as an excuse for declines in cold-weather business. Mark Simon, vice president of sales at Allied Electronics, called 2013 “a reasonably good year” and one that improved somewhat over time.

“Things started to pick up pretty steadily [with] moderate increases along the way,” he explained. “As we moved into 2014, it has continued.”

Simon also pointed out that the overall economy seemed to be on an uptick along with the various industries Allied Electronics serves.

“The economy itself has just done better,” he said. “Medical has done fairly well. Automotive has come back over the last couple of years and been pretty stable, which has allowed a lot of the smaller companies which serve that particular vertical to do quite well.”

Tim Breen, president and chief operating officer at Motion Industries, agreed with Simon on the economy, but he did so cautiously.

“I believe that the economy is getting better. We are seeing some signs of opportunity,” explained Breen. “But I do think it will be a challenging 2014 for everybody.”

Breen spoke of anticipating the product needs of the “factory of the future,” one with more automation and related technologies. But nonetheless, he said Motion’s leaders know the company can’t completely re-invent the wheel as far as its business plans are concerned.

“We don’t want to forget what got us to the party,” Breen explained. “Bearings, the PT business, fluid power, and hoses are steady products all these years and we continue to stay focused on them to make sure we’re maximizing our opportunities.”

Both Breen and Simon agreed on the impact this past difficult winter had on their respective companies. Simon’s company, Allied Electronics, is headquartered in Ft. Worth, Texas.

“From a sales perspective, it hurt us for several weeks. There were delays in getting materials,” said Simon. “But we’ve seen a very strong backlog, so I think that for the most part … we’ve rebounded quite nicely.”

Headquartered in Birmingham, Ala., Motion Industries faced similarly difficult stretches of bad weather.

“It impacted most businesses,” Breen agreed. “You have branches closed, and we had plenty of those [closed] in January and February. Several thousands of hours [were] lost because of the weather.”

But he was quick to add that this year wasn’t the first time winter weather has affected Motion Industries.

“That’s a challenge every year. Sometimes it is worse than others and this year we’ve had kind of a rash of it,” Breen said. “You deal with that the best you can and try to recover as fast as you can and get ready for the next day. We don’t use it as an excuse.”

David Mayer, vice president of marketing and services at Kaman Industrial Technologies, described how his company also lost some business this past winter when harsh weather caused some branches to remain closed as employees could not get to their respective locations.

“We had a number of our branches that were affected by winter weather,” Mayer said. “I would say we were certainly impacted in the early part of the first quarter of 2014 by winter weather, largely on the eastern seaboard and the east coast.”

On a positive note, housing was among the industries that showed signs of improvement for Kaman in 2013.

“Durables, housing materials, lumber, shingles, roofing, asphalt all had a very strong year for us,” he said. “And metals did well last year, too. Most of the end markets to which we sell were strong.”

In remarks made during an earnings conference call this past January, Wesco president, chairman, and CEO John Engel was somewhat optimistic about the overall economy for 2014.

“We expect macroeconomic conditions to show improvement over 2013 with a strengthening recovery in nonresidential construction this year,” Engel said during the call. Wesco benefitted from the increasing demand for new lighting products as well as overall data communications.

“Solid growth in lighting, driven by LED and retrofit applications, and continued growth in data communications were the catalysts for the second half [FY 2013] improvement,” Engel explained. “We are pleased with the strength of our utility business in delivering ongoing above-market sales growth.”

Some top distributors made key acquisitions in 2013. Mayer discussed a few that Kaman made—Western Fluid Components, Ohio Gear & Transmission, and Northwest Hose & Fittings.

“All of [the 2013 acquisitions] have done well. We’re pleased with the results,” Mayer said. “For the most part, we leave the [acquired] businesses alone. We like the approach of keeping the local people and the entrepreneurial spirit. The three that we did in 2013 were all good strategic fits, both from the geographic standpoint and from a product mix standpoint.”

In late February, Kaman announced its intent to acquire B.W. Rogers, a fluid power distributor. Mayer, who said he expects that acquisition to be finalized in the second fiscal quarter of 2014, described it as the biggest acquisition in Kaman’s history.

Motion Industries also made some acquisitions, including Paragon Service & Supply in 2013 and, in early 2014, Commercial Solutions Inc. Breen anticipates more on the horizon.

“Acquisitions are certainly a key focus for us in terms of our long-term growth,” he said. “[Those] appear to have been very nice acquisitions for us so far. And we’re working on others. We are optimistic about additional acquisition activities during 2014.” 

Erik Gershwind, president and CEO at MSC Industrial Supply, referred to “a soft market environment [that] persisted in the fiscal fourth quarter” of 2014 when speaking on an earnings conference call last October. (MSC’s fiscal year for 2014 ended in August of 2013.) However, he said he was confident about what calendar-year 2014 will hold for MSC.

“We are in the midst of building a foundation that will support the next leg of our growth story,” he said during the call. “Our actions will ensure that we not only continue to outgrow the market as we have in the current low-growth environment, but accelerate our growth.”

Like many in distribution, Gershwind said he has seen customers become better educated and more technologically sophisticated, particularly when it comes to inventory management.

“A smart use of inventory management tools can help manufacturers create leaner, less complicated supply chains and increase efficiency,” Gershwind said in an interview prior to addressing the Ariba LIVE conference in Las Vegas this past March. “Today, businesses are more connected and have access to more information than ever, which creates opportunities for greater collaboration. We’re seeing how working closer with customers can improve the efficiency of their industrial supply chains, reduce costs, and drive greater value across their business.”

Applied Industrial’s president and CEO Neil Schrimsher said he is confident as his company celebrates its 90^th anniversary this year.

“Applied has a strong foundation, and we have solid momentum heading into fiscal 2014,” Schrimsher said in Applied Industrial’s annual report.

He went on to cite the goals Applied Industrial has set, among them, “Growing sales in our core business as well as in targeted industries [while] expanding our value-add with existing customers … Driving product expansion beyond our base offering—with opportunities across all of our product groups … [And] utilizing our strong financial position to accelerate acquisitions.”

Another issue on which there is general agreement is that the value that a successful distributor brings to customers will be what continues to make them successful and profitable. Simon could well have been speaking for many of his colleagues when he emphasized the service he believes Allied Electronics brings to customers, over and above price.

“Selling at a low price is easy to do. It’s easy to hand out a low price,” he said. “But to deliver and to service a customer in the way that they need to be serviced, so they can make their deliveries to their clients, is another thing.”

At Motion Industries, Breen looked ahead and saw 2014 as a growth year for the company and for most businesses.

“I do think there is opportunity for growth and we’re planning on it. I can tell you that,” he said. “It’s blocking and tackling. Just getting out there and being in front of the customer so that when they do have an opportunity to buy something, our company’s name is top of their mind. That’s what we’re trying to do. Why does a customer want to buy from us? We have to differentiate ourselves and find the value-added that we bring.”