A cursory glance at the business year trends for distributors shows a steep drop culminating in the lowest possible rating in 2002. But the recovery has been dramatic, with distributors' rating rebounding from "poor" in 2003 to "excellent" in 2005. Strong demand and slightly weaker supply contributed to margin growth last year, and distributors are optimistic about 2006.
The Associated Equipment Distributors (AED) again graciously allowed us to query their membership this year, and they reported overwhelming volume growth in 2005. Nearly seven of 10 reported increases, and when the small percentage reporting decreases in volume are subtracted, a net of 63 percent remains. In 2004, that net was 62 percent, showing just how strong the distribution business was last year. Expected volume increases for 2006 are greater than decreases by a net of 33 percent.
Significant volume increases were seen in new-equipment sales (59 percent reporting an increase), parts sales (58 percent) and service (54 percent). Rental business grew, too, with 47 percent showing increases in rent-to-rent and 41 percent in rent-to-buy.
Distributors turned volume increases into margin increases last year, continuing a trend of recovery from the 2001–03 doldrums. Although 20 percent are reporting margin decline, 37 percent are reporting "somewhat" or "much" higher margins in 2004.
"Intense" or "very" competitive markets face 85 percent of distributors, which could put downward pressure on margins, but machine shortages and increasing demand from Gulf States and overseas should override that.
Machine shortages were reported as a business concern for about half of distributors, but as business continues to grow, they are also becoming concerned about interest rates, both from a capitalization standpoint and as a customer-finance hindrance.