Back at the Top?

Sept. 28, 2010


New England trailed the rest of the distributor nation last year, reporting an "average" business year after predicting an "excellent" one. The other regions met or exceeded expectations, with six of nine regions reporting last year as "excellent." Mid-Atlantic and Great Plains distributors said last year was "very good."
After 2005 proved to be an overall "excellent" year for distributors, they are paring back expectations for 2006. Four regions say they expect business to continue "excellent," but Mid-South and South Atlantic distributors are calling for a "very good" year. New England continues to lag, forecasting a "good" 2006.
New-equipment sales, parts sales, and service were primary growth areas for distributors last year. The percent of distributors reporting increases in equipment sales outpaced the percent reporting decreases by nearly 60 percentage points.
Distributors' business ratings topped the chart last year, making the drastic dip in the early 2000s a memory. Expectations remain high for 2006.
The top three concerns remain the same for distributors, although interest rates have moved to the top of the list for 2006. Two-thirds of distributors cite rates as the single most pressing concern. Recession has returned to the list after dropping off last year.
Nearly four of 10 distributors reported higher margins in 2005, a larger group than the previous year.

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.