Graybar Prospers in 2012 and Other Interesting Graybar Tidbits

Last week Graybar issued it’s 2012 annual results and their annual report provides some interesting insights into the company.

While 2012 was the tale of two halves for most distributors, with many ending the year essentially flat, Graybar’s electrical business outperformed many.  The company’s electrical business grew 3.5% (datacom was another story … down over 5%).  According to the company the year was one of it’s most profitable … ever.  Many distributors would look at the net income % and question “why so low?” or state “mine is much higher”, however, with Graybar being an employee-owned and having extensive pension obligations, it is unknown how this impacts net profitability.  Suffice it to say that Graybar feels it has “financial flexibility to pursue growth opportunities”.

Some of the interesting tidbits from its 10-K:

• Graybar over 1,000,000 products from over 4300 suppliers annually but 52% of its business is generated with 25 suppliers.
• They stock 95,000 of the items that they sell, the rest being special orders or projects that are drop-shipped.
• 57% of orders are shipped from inventory to almost 116,000 customers
• Of these customers, 46.5% are electrical contractors, 20.4% are datacom customers and 21.6% are commercial / industrial customers. Their 2012 contractor business increased slightly, the commercial / industrial remained the same.  It should be noted that Graybar does much business with various government entities hence their industrial business is “small”.
• Of the company’s 7500 employees, approximately 3000 are in a sales capacity (and they have done much hiring in this area over the past year)
• The company owns many of its zone and district facilities as well as 114 of its 199 branch locations.  And of the remaining 85 branches, with a majority having a lease of less than 5 years (so they’ll either renew or seek somewhere to own as that seems to be the preference.)
• Graybar’s BOD ranges in age from 42-58.  Not that we’re being ageists, but one could infer that a young BOD for Graybar could provide consistency for their enhanced direction and continued cultural refinement)
• Gross margin, overall, is 18.8%, a 300 basis point improvement from 2011 (18.5%).  Given that SG&A increased by 5.9% and net profit improved, this infers non-sales employment cost savings, general cost savings, improved pricing discipline / processes and/or slight changes in product mix.  If Graybar actively promotes its energy efficiency solutions, this could represent some of the product mix enhancement mentioned.
• The company specifically mentions that the new Healthcare Law will impact healthcare costs and future financials, although the impact was not mentioned.  To reconcile this distributors will either need to further reduce costs (a challenge), increase margins (another challenge) or accept lower net margins (for many, unacceptable) so the question becomes … “what will you do?”

If you are a competitor, what is your view of Graybar? If you are a rep / salesperson, what is your perspective? Suppliers – have you noticed a change? Do you think Graybar can continue its trend of increasing sales and ever increasing profitability? As a Graybar employee, what’s behind the success?