Industrial Distribution & Logistics (D&L) Quarterly 2Q 2011
END MARKET CYCLE [1] Ag Equipment General Industrial Automotive Steel Heavy Truck Peak Growth Oil & Gas Mining Equipment Construction Machinery (Light) Commercial Aerospace (Aftermarket) Semiconductor Equipment
Non-Cyclical Early-Cycle Mid-Cycle Late-Cycle
Commercial Aerospace (OEM) Residential Construction Water / Wastewater
Military/Defense Accelerating Decline
Decelerating Decline
Trough Decline
Accelerating Growth
Decelerating Growth
Nonresidential Construction Power Generation Construction Machinery (Heavy) Chemicals
Ag Equipment General Industrial Mining Equipment Heavy Truck Oil & Gas Commercial Aerospace (AM) Water / Wastewater Commercial Aerospace (OEM) Construction Machinery (Light) Military/Defense Residential Construction
Automotive Steel Semiconductor Equipment
Power Generation Construction Machinery (Heavy) Nonresidential Construction Chemicals
The industrial end market cycle showed signs of improvement in the first quarter of 2011 as early and mid-cycle industries continued their recovery of accelerating growth, in addition to three late-cycle industries that continued their transition from trough into the recovery phase of the business cycle
Market Factors Demand for manufactured goods increased 6.2% YoY, supporting the thesis that a turnaround in industrial distribution and logistics channels is continuing – Durable goods orders decreased 0.9% in February, excluding transportation, new orders decreased 0.6% – Machinery orders, down two consecutive months, declined 4.2% MoM to $26.1 billion, representing the largest decline in February – Unfilled orders for manufactured goods have increased ten of the last eleven months, most recently growing by $2.9 billion, or 0.4% in February
The Purchasing Managers Index (PMI) showed signs of continued growth in the manufacturing sector during March, at 61.2, representing an 80 basis point increase over the last year ― March is the 20th consecutive month of PMI levels over 50, indicating that the manufacturing sector is growing “If“Ifyou youremember rememberlast lastyear, year,we wewere werejust justbeginning beginningtotoemerge emergefrom fromthe thedepths depthsofofaarecession, recession,so sowe westill stillhave haveaaways waystotogo gobefore beforewe’re we’reall allthe theway wayback backtotothe thepreprerecession recessionlevels, levels,but butwe’re we’redefinitely definitelymoving movingininthe theright rightdirection, direction,and andwe weare arehitting hittingon onall alleight eightcylinders cylindersright rightnow.” now.”––David DavidPugh, Pugh,Chairman Chairmanand andCEO CEOofof Applied AppliedIndustrial IndustrialTechnologies TechnologiesInc. Inc.––1/21/2011 1/21/2011 “Although the market environment stabilized throughout the year, several of our markets operated “Although the market environment stabilized throughout the year, several of our markets operatedunder undersome someuncertainty uncertaintyininterms termsofofthe theactual actualpath pathofofrecovery. recovery. We Weare are encouraged encouragedby bysigns signsof ofimprovement improvementinineach eachofofour ourend endmarkets. markets. More Moreimportantly, importantly,we weare arebetter betterpositioned positionedtoday todayhaving havingexited exitedthe theyear yearstronger strongerthan thanwhen whenwe we entered.” entered.”––Michael MichaelGrebe, Grebe,Chairman Chairmanand andCEO CEOofofInterline InterlineBrands BrandsInc. Inc.––2/25/2011 2/25/2011 [1] KeyBanc Capital Markets; Industrial Distribution Index = AXE, AIT, B, BECN, DXPE, FAST, GWW, IBI, KAMN, LAWS, MSM, PKOH, WSO, WCC Disclosure: KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC, and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A. This report was not issued by our research department. The information contained in this report has been obtained from sources deemed to be reliable but is not represented to be complete, and it should not be relied upon as such. This report does not purport to be a complete analysis of any security, issuer, or industry and is not an offer or a solicitation of an offer to buy or sell any securities. This report is prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual person or entity.
Industrial Distribution & Logistics (D&L) Quarterly 2Q 2011
INDUSTRY FUNDAMENTALS PMI and Manufacturing Inventories (through March 2011) 80
The Institute of Supply Management’s PMI for the month of March 2011 was 61.2, 20 basis points below the February reading of 61.4
PMI PMIabove above50 50indicates indicates expansion expansionininmanufacturing manufacturing
70
60
According to the PMI, the manufacturing sector continued to experience expansion through 1Q 2011, the seventh consecutive quarter above 50.0
50
40
Manufacturing inventory levels decreased 140 basis points, to 47.4 in March
Above Above42.7 42.7considered considered economic economicexpansion expansion(GDP) (GDP)
30
PMI
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
20
Inventories [1]
The current manufacturing inventory levels are greater than 42.7, a figure representing economic expansion according to the Bureau of Economic Analysis (BEA)
Value of U.S. Construction – Annualized & Seasonally Adjusted (through February 2011) $800
According to the U.S. Census Bureau, February 2011 construction spending totaled $760.6 billion, a decline of 6.8% YoY
$700
Construction spending decreased 1.4% over the revised January estimate of $771.0 billion
Billions of Dollars
$600
Residential spending decreased 3.8% MoM, to $237.4 billion in February, down 7.8% YoY
$500
$400
Nonresidential spending decreased 0.2% MoM to $523.2 billion in February, down 6.3% YoY
$300
$200 2002
2003
2004
2005 Residential
2006
2007
2008
2009
2010
2011
Non-residential
Source: Institute of Supply Management, U.S. Census Bureau [1] Measures inventory levels of 18 manufacturing industries
2
Industrial Distribution & Logistics (D&L) Quarterly 2Q 2011
INDUSTRY FUNDAMENTALS Industrial Production and Capacity Utilization (through March 2011) 95.0%
10.00%
90.0%
5.00%
85.0%
0.00%
80.0%
Industrial Production
Industrial production has increased in nineteen of the past twenty months Capacity utilization remained flat in March at 76.9% compared to 76.9% in February and 76.8% in January Capacity utilization remains well below its long-term average of 80.4% (1970-2010)
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
65.0% 1979
-15.00% 1977
70.0%
1975
-10.00%
1973
75.0%
1971
-5.00%
Industrial production increased modestly by 0.1% in March after a revised increases of 1.4% and 0.2% in January and February, respectively
Capacity Utilization
Industrial Production (% change YoY)
15.00%
Capacity Utilization
Durable Goods Orders (through February 2011) 30.0%
Durable Goods Orders
New orders for manufactured durable goods decreased $1.9 billion, or 0.9% to $199.9 billion in February The decrease in February orders was largely due to defense orders; excluding defense, February orders increased 0.4% MoM Durable goods orders have increased on a YoY basis every month in 2010 and 2011
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
(30.0%) 1997
$0 1996
(20.0%)
1995
$50
1994
(10.0%)
1993
$100
1992
0.0%
1991
$150
1990
10.0%
1989
$200
1988
20.0%
1987
$250
1986
$ in billions
$300
% Change YoY
Source: Federal Reserve, U.S. Census Bureau
3
Industrial Distribution & Logistics (D&L) Quarterly 2Q 2011
PUBLIC COMPANY TRADING DYNAMICS Operating, Trading and Credit Statistics (as of March 31, 2011) $ in millions, except per share data Company
Market Cap
Enterprise Value
LTM EBITDA
Sales
% Margin
EPS
2011E EBITDA EPS
LTM EV/EBITDA
P/E Ratio
2011E EV/EBITDA P/E Ratio
Anixter International Inc.
AXE
$69.89
$2,388
$3,202
$5,472
$300
5.5%
$3.72
$389
$5.08
10.7x
18.8x
8.2x
13.8x
Applied Industrial Technologies, Inc.
AIT
33.26
1,412
1,358
2,066
163
7.9%
$1.99
171
2.05
8.3x
16.7x
8.0x
16.2x
Barnes Group Inc.[1] Operating & Trading Statistics
Current Price 3/31/2011
Ticker
B
20.88
1,136
1,481
1,133
139
12.3%
0.72
161
1.25
10.6x
29.2x
9.2x
16.7x
Beacon Roofing Supply Inc.
BECN
20.47
938
1,110
1,647
102
6.2%
0.80
124
1.09
10.9x
25.7x
9.0x
18.7x
DXP Enterprises Inc.
DXPE
23.08
325
439
656
47
7.1%
1.36
60
1.70
9.4x
17.0x
7.3x
13.5x
Fastenal Co.
FAST
64.83
9,558
9,388
2,389
509
21.3%
1.99
599
2.32
NM
NM
NM
27.9x
W.W. Grainger, Inc.
GWW
137.68
9,561
9,824
7,182
991
13.8%
7.43
1095
7.87
9.9x
18.5x
9.0x
17.5x
Interline Brands Inc.
IBI
20.40
680
910
1,087
96
8.8%
1.08
116
1.29
9.5x
18.9x
7.8x
15.8x
Kaman Corporation[1]
KAMN
35.20
918
1,034
1,319
91
6.9%
1.62
112
1.95
11.4x
21.7x
9.3x
18.1x
Lawson Products Inc.
LAWS
23.04
197
157
317
18
5.8%
1.06
0.30
8.5x
21.7x
NM
NM
MSC Industrial Direct Co. Inc.
MSM
68.47
4,342
4,280
1,868
331
17.7%
3.00
3.56
13.0x
22.8x
10.9x
19.2x
Park-Ohio Holdings Corp.[1]
PKOH
20.66
245
525
814
58
7.1%
1.01
74
1.90
9.1x
20.4x
7.1x
10.9x
Watsco Inc.
WSO
69.71
2,268
2,316
2,845
176
6.2%
3.31
211
3.14
13.1x
21.0x
11.0x
22.2x
WESCO International Inc.
WCC
62.50
2.47
321
3.50
17.8x
NM 392
2,690
3,394
5,064
254
5.0%
13.3x
25.3x
10.6x
Average
$2,618
$2,816
$2,418
$234
9.4%
$294
10.6x
21.4x
8.9x
17.6x
Median
$1,274
$1,419
$1,757
$151
7.1%
$171
10.6x
21.0x
9.0x
17.5x
$ in millions Company
Ticker
Net Debt
Total Debt/ EBITDA
Net Debt/ EBITDA
Total Debt/ Cap
AXE
$892
$814
3.0x
2.7x
46.9%
5.6x
Applied Industrial Technologies, Inc.
AIT
0
(54)
0.0x
NM
0.0%
NM
B
358
345
2.6x
2.5x
33.5%
7.0x
Beacon Roofing Supply Inc.
BECN
348
172
3.4x
1.7x
41.8%
6.3x
DXP Enterprises Inc.
DXPE
115
114
2.5x
2.4x
48.0%
9.0x
Fastenal Co.
FAST
0
(151)
0.0x
NM
W.W. Grainger, Inc.
GWW
494
181
0.5x
0.2x
Interline Brands Inc.
Consensus ConsensusFinancial FinancialOutlook Outlook
EBITDA/ Interest
Anixter International Inc.
Barnes Group Inc.[1]
Credit Statistics
Total Debt
0.0x 17.8%
NM NM
IBI
317
230
3.3x
2.4x
39.0%
5.1x
Kaman Corporation[1]
KAMN
148
116
1.6x
1.3x
29.0%
9.0x
Lawson Products Inc.
LAWS
1
(40)
0.1x
NM
0.0x
NM
MSC Industrial Direct Co. Inc.
MSM
0
(76)
0.0x
NM
0.0%
NM
Park-Ohio Holdings Corp.[1]
PKOH
316
281
5.5x
4.9x
87.2%
2.4x
Watsco Inc.
WSO
10
(116)
0.1x
NM
1.1%
NM
WESCO International Inc.
WCC
757
704
3.0x
2.8x
39.7%
4.4x
Average
$268
$180
1.8x
2.3x
27.5%
6.1x
Median
$232
$144
2.0x
2.4x
31.3%
6.0x
2011 2011vs. vs.2010 2010 –– Revenue Revenueisisexpected expectedtotoincrease increase10.9%, 10.9%,on on average average –– EBITDA EBITDAisisexpected expectedtotoincrease increase21.4%, 21.4%,on on average average –– EPS EPSisisexpected expectedtotoincrease increase20.1%, 20.1%,on onaverage average 2012 2012vs. vs.2011 2011 –– Revenue Revenueisisexpected expectedtotoincrease increase7.2%, 7.2%,on on average average –– EBITDA EBITDAisisexpected expectedtotoincrease increase17.2%, 17.2%,on on average average –– EPS EPSisisexpected expectedtotoincrease increase21.3%, 21.3%,on onaverage average
Three-Year Stock Price Performance: Industrial Distribution Index vs. S&P 500 (through March 31, 2011) 60% 40% 20%
Industrial Distribution Index
S&P 500 Index
LTM
31.9%
12.5%
YTD
4.7%
4.2%
In the last twelve months, the Industrial Distribution Index and the S&P 500 43.3% posted positive returns of 31.9% and 12.5%, respectively
0%
(3.2%)
(20%) (40%) (60%) Apr-08
Sep-08
Mar-09 Industrial Distribution Index
Sep-09
Mar-10
Sep-10
Mar-11
During 1Q 2011, the Industrial Distribution Index grew 4.7% vs. 4.2% for the S&P 500 Index Improving fundamentals and dynamics inherent to the industry support a favorable long-term investment thesis for the distribution industry
S&P 500 Index
[1] Companies with prominent manufacturing and distribution operations Sources: Capital IQ, Reuters, SEC Filings Note: LTM equals “Last Twelve Months”, data for most recent fiscal quarter ended; “NM” denotes if EV/EBITDA multiple is greater than 15x or less than 0x, if EBITDA/Interest multiple is greater than 30x or if P/E multiple is greater than 30x or less than 0x; KeyBanc Capital Markets Industrial Distribution Index = AXE, AIT, B, BECN, DXPE, FAST, GWW, IBI, KAMN, LAWS, MSM, PKOH, WSO, WCC
4
Industrial Distribution & Logistics (D&L) Quarterly 2Q 2011
VALUATION, PROFITABILITY & FINANCIAL OUTLOOK Five-Year Historical Valuation and Profitability Analysis (as of March 31, 2011) EV/LTM EBITDA 15.0x
LTM EBITDA Margin
8.5%
8.0%
12.0x
10.6x 8.9x 8.8x
9.0x
7.5%
7.2% 7.1% 7.1%
7.0%
6.0x 6.5%
3.0x
0.0x Jul-06
6.0%
5.5%
Jan-07
Jul-07
Jan-08
Aug-08
Feb-09
Aug-09
Mar-10
Index Median
Sep-10
Mar-11
Current Average
Industrial Distribution Index is Long-term trends suggest trading at median 10.6x EV/LTM industrial distribution companies EBITDA vs. 5- and 10-year have returned to normalized averages of 8.8x and 8.9x, valuation levels witnessed at the respectively end of previous cycles
Jul-06
Jan-07
Jul-07
5-Year Average
Jan-08
Aug-08
Feb-09
Aug-09
Mar-10
Sep-10
Mar-11
10-Year Average
On average, the Industrial Distribution Index generated EBITDA margins of 7.1%, vs. 5and 10-year averages of 7.2% and 7.1%, respectively
EBITDA margins have returned to long-term averages as sales revenues have recovered and continue to remain strong
INTEREST RATE RISK MANAGEMENT – RECENT INTEREST RATE AND ECONOMIC ENVIRONMENT Note: as of 4/4/2011
The U.S. exerted a government shutdown as legislators agreed on budget compromises before the deadline on April 8, 2011
Short Term Rates
Today
Last Week
Change
1-Month LIBOR 3-Month LIBOR Fed Funds Fed Discount Prime
0.24% 0.30% 0.25% 0.50% 3.25%
0.25% 0.31% 0.25% 0.50% 3.25%
(0.01% ) (0.01% ) 0.00% 0.00% 0.00%
} } } } }
U.S. Treasury Yields 2-Year Treasury 5-Year Treasury 10-Year Treasury
0.80% 2.24% 3.44%
0.74% 2.16% 3.44%
0.06% 0.08% 0.00%
Ç Ç }
Swaps vs. 3M LIBOR 2-Year 5-Year 10-Year
1.03% 2.50% 3.60%
0.98% 2.43% 3.60%
0.05% 0.07% 0.00%
Ç Ç }
U.S. existing home sales declined in February following several consecutive monthly increases. Sales fell by 9.6% to 4.9 million for the month, representing the first decline since October 2010. New home sales also decline 16.9% to a record low of 250k for the month The S&P / Case-Shiller Home Price Index also posted a decrease of 1.4, to 140.9, for January from the revised December report of 142.3 U.S. factory orders declined 0.1% while shipments increased by 0.3% in February. The recent stagnation in orders and shipments was largely due to companies adjusting for higher petroleum prices
– The new legislation is expected to cut spending in 2011 by approximately $39 billion As evidenced in recent Central bank meeting minutes, a number of Fed Presidents have been increasing their attention towards inflation – Fed Chairman Ben Bernake and Vice Chairman William Dudley continue to downplay the threat from inflation, stressing the importance of a full recovery of labor markets before the Central bank begins fiscal tightening – A number of dissenting Fed Presidents have argued that price increases in grocery stores and gas stations show signs of concern
Following a bottom in late 2010, Treasury rates have rebounded back to levels reached 1-year ago. Inflationary pressures are the main concern for interest rates. The increase of dollars in the economy are expected to have a significant impact inflation as the economy continues to recover
Source: Capital IQ, Reuters, SEC Filings Industrial Distribution Index = AXE, AIT, B, BECN, DXPE, FAST, GWW, IBI, KAMN, LAWS, MSM, PKOH, WSO, WCC
5
Industrial Distribution & Logistics (D&L) Quarterly 2Q 2011
SELECT RECENT MERGER AND ACQUISITION ACTIVITY (1Q 2011) Closed Date 3/23/2011
Acquirer (Parent) Stewart & Stevenson, LLC
Target (Seller) E.M.D. Services International, Inc.
Highlights
Stewart & Stevenson, LLC acquired E.M.D. Services International, Inc. for $26.5 million in cash on March 23, 2011. The acquisition was funded from available cash and Stewart & Stevenson’s revolving credit facility E.M.D. Services International, Inc. distributes diesel engines and electro-motive diesel engine parts for marine, drilling and power generation
3/15/2011
WESCO International Inc.
RECO, LLC
WESCO International Inc. acquired RECO, LLC on March 15, 2011. The financial terms of the transaction were not disclosed RECO, LLC distributes industrial automation parts from five regional offices located in Cincinnati, Indianapolis, Louisville, Nashville and Birmingham
3/1/2011
Singer Equities Inc.
Spartan Industrial Products, LLC
Singer Equities Inc. acquired Spartan Industrial Products, LLC on March 1, 2011. The financial terms of the transaction were not disclosed Spartan Industrial Products, LLC distributes industrial hydraulic and safety products to oilfield service and marine industries in South Louisiana
2/22/2011
Arborview Capital
Drexel Metals Inc.
Arborview Capital acquired Drexel Metals Inc. on February 22, 2011. The financial terms of the transaction were not disclosed Drexel Metals Inc. supplies equipment, materials and technical support for metal roofing manufacturers, contractors and distributors
2/15/2011
EnPower Systems, Inc.
Plan It Solar, Inc.
EnPower Systems, Inc. acquired Plant It Solar, Inc. on February 15, 2011. The financial terms of the transaction were not disclosed Plant It Solar, Inc. distributes solar electric systems and parts
2/11/2011
United Central Industrial Supply Company, LLC
Gooding Rubber Company
United Central Industrial Supply Company, LLC acquired Gooding Rubber Company on February 11, 2011. The financial terms of the transaction were not disclosed Gooding Rubber Conmpany distributes rubber products from four regional offices located in the Midwest
2/1/2011
Pfingsten Partners, LLC
TPC Wire & Cable Corp. (Premier Farnell Corp.)
Pfingsten Partners, LLC acquired TPC Wire & Cable Corp. from Premier Farnell Corp. for $43 million in cash on February 1, 2011 TPC Wire & Cable Corp. distributes electrical wire, cable, connectors and electrical components for design, maintenance and industrial applications Premier Farnell Corp. manufactures electronic parts and equipment
1/28/2011
Interline Brands, Inc.
Northern Colorado Paper, Inc.
Interline Brands, Inc. acquired Northern Colorado Paper, Inc. for $9.8 million on January 28, 2011 Interline Brands, Inc. agreed to pay $9.5 million in cash and an earn-out of up to $0.3 million in cash Northern Colorado Paper, Inc. distributes facilities maintenance products
1/11/2011
Richelieu Hardware Ltd.
Outwater Hardware
Richelieu Hardwar Ltd. Acquired Outwater Hardwar for $11.7 million in cash on January 11, 2011 Outwater Hardware Corporation operates as a wholesale distributor of specialty hardware products to the commercial woodworking industry in the United States
1/4/2011
Ajax Tocco Magnethermic (ParkOhio Holdings Corp.)
Pillar (ABP Induction, LLC)
Ajax Tocco Magnethermic acquired Pillar from ABP Induction, LLC on January 10, 2011. the financial terms of the transaction were not disclosed Pillar designs and manufactures induction heating and melting systems and aftermarket parts
SELECT RECENT CAPITAL MARKETS (EQUITY / DEBT) ACTIVITY (1Q 2011) Offer Date
Company
Type
Gross Amount (MM)
Maturity
Offering Price
Coupon
3/8/2011
Park-Ohio Holdings Corp.
Senior Subordinated Notes
$250.0
4/1/2021
$100.0
8.125%
3/11/2011
The Hillman Group Inc.
Senior Unsecured Notes
$50.0
6/1/2018
$109.25
10.875%
SELECT RECENT CREDIT TRANSACTION ACTIVITY (1Q 2011) Date 4/8/2011
Company Anixter International Inc.
Type Revolving Credit Facility
Use of Proceeds General / Acquisitions
Amount (MM) $400.0
Maturity 4/8/2016
Spread LIBOR + 200 bps
Source: The Daily Deal, MergerMarket, Thomson Reuters, Capital IQ, SEC Filings
6
Industrial Distribution & Logistics (D&L) Quarterly 2Q 2011
KEY COMPANY NEWS (Reported in 1Q 2011) Anixter International Inc.
2/18: Announced that it has named Theodore Dosch the Company’s Executive Vice President and Chief Financial Officer. Dosch has served as Anixter’s Senior Vice President since 2009. Before joining Anixter, Dosch served in several senior financial management positions with Whirlpool Corporation. Dosch’s promotion will follow the retirement of Dennis Letham at the end of June 2011. Letham served as Anixter’s Chief Financial Officer for 18-years
Applied Industrial Technologies, Inc.
2/22: Announced that it was awarded a 2010 Silver Boeing Performance Excellence Award. The Boeing Company issues the award annually to recognize suppliers who have achieved superior performance throughout the year. The Company provides Boeing a wide range of MRO parts and supplies for its manufacturing operations, including bearings, power transmission products, fluid power systems and specialty maintenance items
Barnes Group Inc.
3/2: Announced that it is using its senior credit facility to finance the redemption of the $92.5 million principal amount of its 3.75% Convertible Senior Subordinated Notes Due 2025. Barnes plans to pay cash to the holders for conversion, including the value of any residual value shares of common stock
Fastenal Company
1/13: Announced that it has signed a settlement agreement with the Civil Division of the Department of Justice (DOJ) which includes a one-time payment of $6.25 million. The settlement follows recent action from the DOJ advising they intended to commence litigation regarding a contract Fastenal entered with the U.S. General Services Administration (GSA). The DOJ and GSA claimed that the Company overcharged government customers under the contract. Fastenal elected to settle the disagreement instead of continuing the dispute with the DOJ and GSA
Interline Brands Inc.
2/17: Announced that it has named Kenneth Sweder the Company’s President. Sweder will continue to serve as the Company’s Chief Operating Officer which he has held since 2008. Before joining Interline in 2007 as Chief Merchandising Officer, Sweder served as First Vice Preisdnet of Property Operations Strategy at Equity Residential Properties, a Management Consultant at Bain & Company and several senior positions at PNC Bank
MSC Industrial Direct Co. Inc.
3/30: Announced that it has named Jeffrey Kaczka as Executive Vice president and Chief Financial Officer following the retirement of Charles Boehlke on April 8. Before joining MSC Industrial Direct Kaczka served as Chief Financial officer of Genworth Financial, Inc., Senior Vice president and Chief Financial Officer of Owens & Minor, Inc., Chief Financial Officer of Allied Wordwide, Inc., Chief Financial Officer of I-Net, Inc. and several financial positions at General Electric
Park-Ohio Holdings Corp.
3/31: Announced that its has priced its offering of $250 million in aggregate principal amount of 8.125% Senior Notes due 2021. In connection with the offering of Senior Notes, the Company intends to enter into a new revolving credit facility by amending and restating the agreement governing it existing credit facility
Watsco Inc.
3/2: Announced a joint venture with Carrier Corporation’s HVAC distribution network in the northeast U.S. Watsco will own 60% and Carrier will own 40% of the joint venture. Carrier’s network includes 230 employees in 11 states at 28 locations
Source: Company websites
7
Industrial Distribution & Logistics (D&L) Quarterly 2Q 2011
KEYBANC CAPITAL MARKETS’ END MARKET SPOTLIGHT – Trends in Inventory Levels Through the Cycle As the broader economy recovers, industrial distributors and manufacturers have continued to re-build their inventories to near pre-recession levels in order to meet growing demand for manufactured goods In Q3 ‘08, both the Industrial Distribution Index and U.S. Manufacturers reached the highest inventory levels in the last decade Through the downturn, distributors and manufacturers alike depleted inventory levels due to depressed demand, reaching a trough in Q4 ‘09 Since bottoming in 2009, distributors and manufacturers have steadily rebuilt inventories, nearly reaching pre-recession inventory highs at the end of Q1 ‘11 Trough to Today
Peak to Trough
(12.2%) (15.7%)
Distribution Index
10.8% 14.5%
$5,000
$600,000
$4,900 $4,800
$580,000
$4,700 $4,600
$540,000
$560,000
$4,500 $4,400
$520,000 $500,000
$4,300 $4,200 $4,100 $4,000 Q3 '08
$480,000 $460,000 Q4 '08
$ in millions
Q1 '09
Q2 '09
Q3 '09
Q4 '09
Q1 '10
Industrial Distribution Index Total Inventories
Q2 '10
Q3 '10
Q4 '10
U.S. Manufacturers Inventory
Industrial Distribution Index Cumulative Inventory
U.S. Manufacturers
$440,000 Q1 '11
U.S. Manufacturers Inventories [1]
Industrial Distributor Management Commentary
“We are improving our inventory turns while also improving service levels to our customers.” Robert Eck, President & CEO – 4/26/2011
“Inventory turns continue to improve in the quarter and reached another all-time high” Mark Eisele, CFO – 4/21/2011
“Inventory turns were up nicely from last year.” David Grace, CFO – 2/9/2011
“We also invested in approximately $14 million of inventory at the end of the year. This … resulted in the yearover-year increase in inventory of $30 million.” Kenneth Sweder, President & COO – 2/25/2011
“We’re pretty comfortable that by building the inventory that’s translating into world-class service levels and that’s translating into the share gains that we’re seeing.” Erik Gershwind, COO – 4/6/2011
– Industrial Distribution & Logistics Team For additional information on KeyBanc Capital Markets please contact any of the individuals listed below. Raj Trikha Greg Munsell 216.689.4089 212.424.1831 *Note all transactions listed above have been completed as of June 30, 2009
[email protected] [email protected]
T.J. Monico
Tony Allio
John Ebert
216.689.3079
216.689.0575
216.689.3553
[email protected]
[email protected]
[email protected]
Source: Capital IQ, U.S. Census Bureau, KeyBanc Capital Markets Investment Banking; [1] U.S. Census Bureau Total U.S. Manufacturers Inventories Disclosure: KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC, and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A. This report was not issued by our research department. The information contained in this report has been obtained from sources deemed to be reliable but is not represented to be complete, and it should not be relied upon as such. This report does not purport to be a complete analysis of any security, issuer, or industry and is not an offer or a solicitation of an offer to buy or sell any securities. This report is prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual person or entity.
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