Energy sector powers Big 50 sales
The energy sector, acquisitions and the Internet helped spur sales for this year's Big 50 distributors
By Jack Keough, Editor -- Industrial Distribution, 6/1/2007
And this year's Big 50 are...Click here to find out.
If you were one of our Big 50 distributors servicing oilfields, rigs, mining, petrochemical or other energy sectors you didn't have a good year in 2006—you had a fantastic year. Distributors serving these sectors saw increases of anywhere from 20 percent to more than 30 percent, and expectations are that those numbers could continue in 2007.
“Business just couldn't have been stronger for us because of the energy sector,” said Gale Helton, vice president of Hydradyne Hydraulics in Harvey, La., No. 42 on this year's list. Sales for this hydraulic/pneumatic distributor rose more than 30 percent. Hydradyne sells to oilfields, oil rigs and offshore drilling markets.
Other distributors grew by the following methods: acquisition, increasing international sales, opening more domestic branches, adding complementary product lines and selling via the Internet.
Overall, industrial distributors had a strong 2006, buoyed by an excellent economy, although they were hampered and continue to be hurt trying to find qualified people to fill important positions, particularly in sales.
Wilson Industries, No. 8 , which sells pipe, valves, fittings and other products both downstream to petrochemical industries and upstream to exploration and production companies associated with North American drilling, saw a 22 percent increase in sales compared to 2005.
“We sell across the entire energy chain,” said Wilson president John Kennedy.
Kennedy points to increased offshore drilling in the Gulf of Mexico and a new phase of energy exploration in the United States as key reasons for growth. Meanwhile, the oil rig count continues to increase as drillers seek to take advantage of rising energy prices.
Other companies such as Lewis-Goetz, No. 31 , saw growth in the coal industry for the second consecutive year. With oil prices continuing to climb, those sales are expected to continue this year.
Sales at Hydradyne Hydraulics blew by forecasts the company made at the beginning of 2006, in large part because of its 2005 acquisition of Tex-A-Draulics, a Houston-based hydraulics distributor. Tex-A-Draulics exceeded its sales projections for 2006 by 150 percent, Helton says, primarily because of its ties to the energy business.
Over and over we heard from distributors serving petrochemical markets in Texas, Louisiana and other states that business surpassed expectations.
More of our Big 50 distributors are looking to grow internationally as customers move their plants outside the United States.
“We're seeing a slowdown in the economy in the U.S., but in Europe business is very strong,” said Mark Alexander, general manager of Würth Industry, which checked in at No. 3 this year. “That's the nice thing about being a global company, when parts of the world are slow other parts are growing, so overall we support each other fairly well.”
He points out that Würth has added 25 companies worldwide since 2005, either by acquisition or startup.
“That's a constant thing. We're always looking for acquisitions,” Alexander notes.
Dan O'Leary, president of Edgen Murray Corp., No. 16 , said his company's international growth was helped by the acquisition of United Kingdom-based Murray International Metals.
“We had a full year of the acquisition of Murray. That expanded our international footprint and we had an outstanding year. … We've had growth in Asia Pacific, the Middle East, the United Kingdom and Australia. We've also expanded significantly in Western Canada from our acquisition of Western Flow Products.”
Other companies grew by adding branches in Canada and Mexico. Kaman Industrial Technologies, No. 17, opened new branches in both countries, while Motion Industries (No. 6 ) and Lewis-Goetz added to their presence in Canada.
Red Man Pipe & Supply, No. 15 , grew its Canadian business in 2006 through a major acquisition a year earlier.
“We have a company that we acquired in 2005 called Midfield Supply Ltd. They've got about 70 locations in Canada,“ says Randy Adams, vice president of sales and marketing. “As far as Canadian locations [in 2007] it's going to be status quo. We're still trying to get our arms completely around [the Midfield Supply] acquisition, but there will be more openings in the United States, probably about the same [as in 2006]—about 4.”
Fastenal, No. 11 , also continues to look abroad. The company has a successful purchasing operation in China, sourcing products that are of high quality and good price, says president Will Oberton.
“We know our customers demand good value, and the only way to provide that is by having a lot of feet on the street and doing a tremendous amount of checking,” Oberton said.
The company has a certified lab for testing fasteners in Taiwan and will open one shortly in the Shanghai area. Oberton adds that Fastenal is considering expanding into other countries as well.
Of course, No. 4-ranked W.W. Grainger opened a Shanghai master branch last year, and is also looking to expand into other countries.
Barnes Distribution, No. 20 , is also growing abroad, with last year's purchase of European specialty distributor Kent increasing its presence across the continent and into Eastern Europe. Based in France, Kent was a division of distributor Premier Farnell.
Domestically, Fastenal continues to lead the pack in branch expansion, opening new stores at the rate of 13 percent to 18 percent a year for the last several years. Oberton says this will continue; the company opened 73 stores during the first quarter of this year.
Acquisitions and branching out
Although many of our Big 50 companies, such as Wolseley, No.1, and Airgas (No. 5 ), continued hot on the acquisition trail, many others seemed to take a break as they worked to absorb major purchases made in 2005.
For example, No. 6 WinWholesale made one of the major buys of 2005 when it acquired the Noland Co., with more than $800 million in sales. WinWholesale president Richard Schwartz said Noland far exceeded its sales and market share projection's in its first full year with WinWholesale. He said the acquisition brought the strengths of both companies together as a unified source.
And Schwartz says he's still looking to expand. In April, WinWholesale acquired Tri State Electrical, a $24 million electrical distributor headquartered in Ohio.
MSC, No. 13 , saw tremendous growth last year, partially due to its acquisition of $260 million distributor J&L Industrial Supply in June. Shelley Boxer, MSC's chief financial officer, said at a recent financial markets conference that the purchase brought much to the table—particularly in new customer opportunities, as there was little overlap between the two companies.
MSC is planning to continue that growth by opening sales offices in the Western United States, expanding its product offering and making some “select acquisitions,” Boxer said.
Also last year, Lewis-Goetz celebrated its first year with Goodall Co. under its corporate umbrella. The acquisition helped Lewis-Goetz grow sales substantially in 2006, and Goetz says “there have been no unexpected difficulties” absorbing Goodall. The deal also shows how smaller companies can grow to be big players in distribution. In 1981, Lewis-Goetz had sales of just $11 million.
Meanwhile, Grainger focused on its branch expansion in 2006. The program contributed about 2 percent to the company's overall growth last year, and company president Jim Ryan says it continues to exceed expectations. Grainger grew in double digits in many of the markets where they've already expanded, such as Atlanta, Denver, Southern California, Houston, Tampa and St. Louis.
During 2006, Grainger opened 43 branches as part of its expansion program.
This March, Grainger announced yet another market expansion in the tri-state area of New York, New Jersey and Connecticut. Grainger has 23 locations in the region now, and plans to increase that number by about six. The company will open new facilities, relocate others and enhance existing facilities as part of the project, which is expected to be completed by the end of 2008.
The ultimate goal of the market expansion is to have more products closer to customers, says regional branch services vice president Mike Hade, who covers the Northeast market.
“We answered the call of the customers,” Hade says. “We're moving products out of the warehouses and closer to the customer.”
One company to watch on the acquisition/branch expansion trail is McJunkin Corp., No. 12 , which now has room to grow through its alliance with investment bank Goldman Sachs.
“We have been growing through mergers and acquisitions and organically over the last five years pretty aggressively. This will help us take it to the next level over the next five years,” says John Carte, general manager for supply management, valves and specialty products.
“McJunkin is looking at a variety of opportunities for M&A and organic growth in existing and expanding markets,” he adds. “Our alliance with Goldman will allow us to look at all these opportunities with a different set of lenses. In the way we operated in the 86-plus years prior to that we were pretty focused on the U.S. with a little bit outside, but not much. Now if those opportunities make business sense we have a lot more backing and options to do it. All options are on the table at this point.”
E-business continues to play an important role in growth for most Big 50 distributors, with many companies saying the Internet has become an integral part of their operations. But there are some that say they do little or no business over the Internet, particularly those who sell to large OEM customers.
“E-commerce will play an increasing role in Wolseley's business strategy,” according to a statement from the company. “We see the Internet and e-commerce as tools that will strengthen our relationships with customers by letting them choose how they want to transact with us, whether they prefer to walk in, call in or click in. … We are looking at the channel holistically to understand its impact on the entire supply chain.”
E-business also has become very important at Kaman Industrial Technologies.
“Within the U.S., the large customers are placing a lot of their orders electronically,” says company president Jack Cahill. “The next generation of transition will include more of the smaller customers transmitting their orders electronically. For international exposure it's a tremendous opportunity because we don't have a sales force that's out in other parts of the world actively soliciting business, but we have a tremendous amount of products available around the world. It makes our products available globally.”
Kinecor, No. 28 , looks at the Internet as a device, not a strategy.
“One of the things we're looking at is to improve our productivity, and we look at technology as the main vehicle to achieve that,” says Gordon Duncan, president. “We do a lot of sourcing in this business and we use technology.”
The Internet is very important for the long-term business strategy of Mahar Tool, says president Barbara Mahar Lincoln. The company recently launched phase one of an improved corporate Web site featuring more technical support, product inquiry and service information.
“Phase two is currently in development and will provide a more comprehensive, user-friendly product experience for our customers,” Mahar Lincoln says.
Some companies, such as No. 40 Dillon Supply, are rolling out new Web catalogs.
“Some customers had requested one,” says president Dean Wagoner, noting that Dillon will be carefully watching customer reactions. “We see this as being very important to our future.”
Fastenal's Oberton views the Web a bit differently than other CEOs.
“Really, for us a good Web strategy is the ability for our existing customers to easily access data or information on products, place orders and collect or receive information,” he says. “As an ability to go out and attract new customers, the Internet has not been as successful for us. It's really about creating a better supply chain tool; that's really what we're focused on.”
Other distribution executives told us that the Internet is merely a tool, and that actual sales still come from a person-to-person approach.
“It's an informational tool to let people know who we are and where we're focused,” says O'Leary of Edgen Murray. “We do better in a situation where we can have face-to-face [contact] or communicate with an individual. The Internet seems to have worked for us to get people initially interested in our organization as they do some research. It's an advertising/marketing vehicle.”
Adds McJunkin's John Carte: “For us the Internet is one tool in a pretty wide toolbox we can use to conduct business electronically.”
Not all top executives of the Big 50 agree. Rodney Lee, president of Tencarva Machinery, No. 46 , says he's not “enthralled” with business on the Internet.
“It's like the car: People do a lot of research before they make a deal, but in the end they go to the dealer to buy.”
Distribution's biggest challenge
Recruiting and retaining qualified people remains every distributor's biggest challenge.
“The number one issue is finding and hiring good employees,” says Bob McCollum, CEO of R.S. Hughes, which checked in at No. 33 . He says he's also concerned about the attitudes of some of the younger hires.
“Some of the younger people today, and it's been going on for a while, have this mentality that they deserve something and they don't have to work for it. But to get ahead in the world, you still have to work for it,” he says.
Getting and retaining good people was such a problem for IBT, No. 41 , that the company turned to a new market with the formation of IBT Recruiting, a service that helps IBT and its business partners find good people.
Fastenal hires part-time workers nationwide from schools and colleges where it operates. The theory is that hiring young, motivated people to work part time gives both the employees and Fastenal the equivalent of a multi-year interview process.
Tencarva Machinery is working hard at retention.
“We put an initiative in place 29 years ago when we went into business by making this 100 percent employee-owned,” says Lee. “The stockholders are the employees, and they have the same opportunities as management. … That remains our best retaining tool.”
Hydradyne's Helton says his company has placed ads in newspapers and magazines to attract new talent, but many of its hires have come from word of mouth.
“We've got a pretty good name in the marketplace,” he says, noting that the company is focused on finding the right people to fill the right job.
Most of the Big 50 distributors polled for this article aren't as optimistic about 2007 as they were about 2006. Several said they saw a slight softening in the market during the first quarter, especially those serving the housing market.
However, many expect sales to increase more than 10 percent and believe that housing and remodeling will come back.
“We see opportunity in residential construction,” says Gary Gettle, president-CEO of Carlson Systems, No. 44 . “We feel strongly it's going to come back. The [backlog] of housing inventories is coming down. We feel strongly about our opportunities in commercial construction and in packaging and [related] consumables.”
Those distributors serving the energy market and the government are especially optimistic. One distributor says he expects sales to increase 13 percent.
If there were any negatives, they were focused on a weakening OEM market, questions surrounding the housing market, and the trend of more manufacturers moving overseas. Time will tell if their forecasts are correct.
ID editors Victoria Fraza Kickham, Alison Lutes, Joe Nowlan and Brad Perriello contributed to this report. In January, we asked each company that appeared in our 2006 Big 50 to provide us with updated financial information so they could be listed this year. Companies were asked to fill out an online nomination form on our Web site, www.inddist.com. That information was confirmed in follow-up interviews with company executives and, when possible, in recently published financial documents. As happens each year, the Big 50 landscape has changed in the last 12 months. Three of last year's top companies do not appear on this year's list due to acquisition. Hughes Supply, which ranked fourth last year, is now part of HD Supply, which moved up three spots to No. 2. J&L Industrial Supply became part of MSC last June; MSC rose one slot to No. 13. And Goodall Rubber, No. 44 last year, was purchased by Lewis-Goetz and Co., which checks in at No. 31, 19 spots higher than its No. 50 ranking last year. In addition, two other longtime Big 50 companies did not return to the list this year: Strategic Distribution and Redlon & Johnson. SDI was acquired by private equity firm Platinum Equity late last year and did not publish sales figures for 2006. The company did not respond to our requests for an interview. Likewise, privately held Redlon & Johnson, which sells plumbing and industrial supplies, did not respond to our interview requests. We also have some newcomers—four of them, to be exact: • Fluid Power Resource has 35 locations and 700 employees, selling fluid power solutions to customers in the Midwest, Northeast, Southeast, Pacific Northwest and California. The firm, which was built by a series of acquisitions, checks in at No. 24 , with $369 million in sales. • Baton Rouge, La.-based Gas & Supply debuts at No. 35 , with $188.2 million in sales. The company sells industrial gases, welding equipment, safety supplies and tools throughout the Southeast and in Texas. • Rockford, Ill.-based SupplyCore Inc. comes in at No. 37 , with about $150 million in sales. The general MRO supplies distributor has built a strong business selling to the U.S. government, particularly the Defense Department. • And State Industrial Products makes its debut at No. 50 , with $100 million in sales. The company sells chemicals, cutting tools and other MRO supplies to customers across the United States, Canada and in Puerto Rico. As always, we provide a separate list of the top 10 electrical distributors at the end of this report. Big 50 companies W.W. Grainger and HD Supply appear on this list as well, as significant portions of their sales are in the electrical market. All companies are ranked according to total, worldwide sales, and all figures are reported in U.S. dollars. Currency conversions based on rates for the last day of each firm's fiscal year were done by ID for non-U.S.-based companies Wolseley, Würth Industry, Hagemeyer NA, Bossard US and Kinecor. Canadian firms BC Bearing Group and Canadian Bearings Inc. provided their year-end totals in U.S. dollars. Information on publicly traded companies was obtained from annual reports, earnings statements and interviews with top executives. For privately held firms we rely on self-reported data and follow-up interviews.
— Victoria Fraza Kickham
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