Challenging Times: Rexel and WESCO 1st Half Performance

Throughout July we’ve talked to a number of distributors and manufacturers regarding their first half. A couple of weeks ago we decided to launch a survey on ElectricalTrends to ask our readers how their first half went.  We’ve received 75-80 responses and will share the results next week (and you can still contribute to it if you want).

Over the past week or two we decided to read / listen to a few electrical industry public company Q2 reports.  The companies we listened / reviewed includ Rexel, WESCO, ABB, Schneider, Rockwell, Hubbell, Acuity, and Eaton.  This provided a little “flavor” of what these companies saw, are forecasting and how they plan to react.

There’s lot’s of information and, to keep it somewhat bite-size, we’ll do distributors today (WESCO and Rexel) and post thoughts on manufacturers over the weekend so you can have it with your Monday coffee.

And we have some some observations at the end.

We’ve tried to keep the highlights factual, pulling comments from either their investor call or from the presentations that they developed (and have links to the material where possible).  We leave the conclusions to you (and feel free to add your comments anonymously or, if you don’t want to type, email them to us and we can post anonymously for you.)

WESCO

Jack Keough, writing for TEDmag.com (NAED’s publication) did a good overview.  Click here to read.  The synopsis … 300 layoffs last quarter, more coming this quarter; 6 branch closings last quarter, more coming; organic US sales flat, down 3% with currency issues;  forecast to be 0 to -3%; soft industrial business led by oil / gas and OEMs; some construction bright spots

• From their presentations (analyst call and investor presentation)
  • Expect reduced demand in 2nd half for commodity driven end markets
  • US industrial down 4%
  • US industrials adjusting stock levels and discretionary spending (i.e. projects, delayed maintenance and storerooms)
  • National account bidding is up
  • Construction down 4% in Q2 in US; reportedly more so for industrially-oriented contractors.
  • Utility up 6%, Institutional up 7% in US
  • Rate of decline from May to June increased … from down 4% to down 6%!
  • US backlog down 7% vs 2014
  • Gross margin has declined to 19.9%
  • “identified additional personnel reductions and branch closures and consolidations that will be completed during the second half.”
  • 41% of overall business is industrial. Total down 10.2% vs 2014
  • 31% of business is Construction, down 7.7% total vs 2014 (4% down US)
  • “we had growth in lighting, we had growth in our Datacom and growth in our IP security. And then where do we have declines from a product category standpoint and within wire and cable and core electrical distribution and control”
  • Lighting is 10% of business
  • Distribution equipment / controls are 23% of business
  • Wire / Cable / Conduit is 15% of business

Rexel

click here for Rexel information, for our purposes we’re going to focus on North America / US results

• Important to note that Rexel benefits from the currency issues given that the euro is lower, so overall sales is up … acquisition opportunities?
• Down 1.6% on a “constant same-day basis” mainly due to North America and oil / gas (remember when they talked about being down due to the resi market?)  Oil makes sense in discussing Canada.
• US is 77% of North America region sales and was down 4.6% (highlighted by 3.4% drop for oil / gas, 1.4% for lower cable sales and 1.2% for “branch network optimization”!
  • Merging of 23 branches, closed 9 … down to 370 from 400)
  • Reduced workforce by 237 people
    • In Canada implemented ANP (“Absence No Pay program” … cost savings move)
• Overall expects an organic sales decline of 2% (organization-wide, not US only!), which was low end of their guidance at the beginning of the year.

• US total sales were $965M vs $1.012B in 2014 for Q2, for 1st half it is $1.825B 2015 vs 1.885B in 2014.  So Rexel is now tracking about $1.9B overall in US.
  • GM is 20-22%

Some trends:

• Two companies benefiting differently from exchange rates.  Could create opportunities for one? While Sonepar is privately owned, it stands to reason that they benefit comparable (i.e. favorably).  More cash for them to spend …(for example, their recent deal for Eck?)
• The industrial markets slowdown could have accelerated, albeit, other than the oil / gas ecosystem, we’re not hearing it as bad as these two are reporting.  And doubtful oil / gas will get much better given macroeconomic activity.
• We’re hearing about cranes in many urban cities.  Interesting that neither company mentioned.  Is growth, or at least opportunity, moving to the construction market and these two are not positioned in it?
• The energy / lighting market has been a bright spot for many, but barely mentioned in these reports.
• The challenge with big companies, from an employee viewpoint, is evident from these two reports … almost 600 layoffs between the two with mention of more coming. Can’t be good for morale, let alone retention and future recruitment.

And, as a total aside, what does this mean for continued investment into major initiatives like eCommerce? Does it still get funded? What other initiatives are getting cut back?

What are your thoughts on the market?  1st half? Outlook for 2nd half?

Hint, in previewing many of the manufacturers, the challenges on the industrial side are similar and being public appears to affirm that people are the first thing to go when there is a hint of trouble.  Could be opportunities for those looking to take share and have a longer-term horizon?  Perhaps a time for these types of (independent distributors, and some manufacturers, to pick up good people?