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PT industry sees brighter days ahead

Chicago, IL -- Feb. 26 , 2003 -- Distributors and manufacturers in the North American power transmission/motion con...


Chicago, IL — Feb. 26 , 2003 — Distributors and manufacturers in the North American power transmission/motion control (PT/MC) industry forecast brighter days ahead for their businesses in 2003. That’s based on responses to the most recent annual member survey conducted by the Power Transmission Distributors Association (PTDA).

Most expect no worse than moderate sales increases in 2003. And on balance, PTDA member firm projections for the coming year are more optimistic than in 2002. The outlook, however, isn’t without caution and caveats.

Concerns about the lingering recession in the U.S. — one that has hit industrial markets especially hard — remain top-of-mind for many North American power PT/MC distributors and manufacturers. Moreover, general business uncertainties tied to possible repercussions of U.S. military action in Iraq are ill-timed distractions heading into 2003.

“I think we’re facing another struggle until things are settled with Iraq,” said Carlton Harvey, general manager of Jamaica Bearings Co. Inc. of New Hyde Park, N.Y. “Not only is there angst about what’s going in the Middle East, we’ve got issues with markets here at home because of the Enrons.”

Mike Pelehach, president of the Jeffrey Chain Corp. of Morristown, Tenn., echoed the sentiment, but believes many firms can succeed in the current climate.

“I think a lot of what will happen this year has to do with the political situation,” Pelehach said. “But I’m cautiously optimistic for the year. I think companies that get back to the fundamentals of providing their customers with value in their products and services have the best chance to grow.”

“But companies that expect to grow will have to outperform competitors,” he added. “The overall market isn’t growing; it’s a question of increasing market share.”

Distributors mostly positive

Even if the PT/MC marketplace is mature, over 80% of the 51 distribution firms that responded to PTDA’s survey project sales increases for 2003. Last year, 64% of distributors expected sales growth.

For the second straight year, a distinct group of distributor respondents (21.6%) envision sales gains of more than 10%. However, nearly three-fifths of the overall sample (58.9%) forecast sales will grow between 2% and 7.9%. Roughly 12% of the respondents project sales increases of 2% or less.

“Once things in Iraq are resolved — and assuming nothing else bad happens — I think a lot of pent-up demand will be released,” said Philip Derrow, president/CEO of Ohio Transmission Corporation based in Columbus. “We’re generally optimistic. We achieved many of our objectives in 2002, including an increase in revenue. We’re forecasting single-digit revenue growth in 2003 and a nice growth in profitability.”

Many PTDA member distribution firms, such as Transmission Engineering Co. Inc, based in Hatfield, Pa., expect business upturns based on their strategic plans and changes, not just improved conditions.

“I think we’re going to see a turnaround in the economy,” said Scott Bishop, Transmission Engineering’s president and CEO. “We’re also optimistic because of the way we’ve positioned our organization with new product lines and partners. We’ve made a change in how we’re going to market.”

Meanwhile, just under 10% of distributor survey respondents said sales will remain constant. Another 10% think sales will slip in the coming year.

Although most distributors are optimistic, about two-thirds of distributor survey respondents said the overall economy remains in decline. However, 82% projected the downturn would finish by the end of Autumn 2003. Of this group, members were evenly split whether an upturn would begin in spring, summer or fall.

Manufacturers’ outlook also upbeat

Nearly all (92.8%) of the 42 manufacturer respondents to the member forecast survey project sales gains in 2003. Last year, slightly more than 60% envisioned sales growth.

For 2003, the bulk of manufacturer respondents (61.9%) expect sales will grow between 2% and 7.9%. Meanwhile, 23.8% project sales expansion of more than 8%, and 16.7% are gunning for gains of more than 10%.

Relatively few manufacturers (7.1%) think sales will grow by less than 2% or remain constant (4.8%) in 2003. Only 2.4% of manufacturers forecast sales decreases in the coming year.

By contrast, in 2002, only slightly more than 60% of manufacturer respondents forecast sales increases for the year. Most of them believed gains would be under 5%. Last year, 20% of manufacturers forecast sales declines.

Like distributors, many manufacturers say internal changes and response to the market — not just a stronger economy — will make the difference in 2003.

“If you’re trying to live just on what the economy can do for you, you may not be viable long-term,” said Bob Daniel, general sales manager, North American division of The Timken Company, based in Canton, Ohio. “You have to bring new products to market.”

Most manufacturers (71.1%) believe the economy currently remains in decline. Seventy per cent of manufacturers think the slump will end by the end of summer 2003. Roughly one quarter think it will drag on longer.

Tight margins remain a concern

Again in 2003, both distributor and manufacturer respondents believe profitability will lag behind sales gains. Distributors maintain adverse margin pressure has been the biggest fallout of the current recession.

“We all want bigger margins, but we’re beating each other up and driving margins down,” said Steve Jones, sales manager of A&M Supply Inc. based in Hermiston, Or.

Regardless, both distributor and manufacturer optimism for improved margins in 2003 is stronger than in 2002.

Among distributors, just under half (47%) expect gross margin improvement in 2003. Of this group, roughly 38% anticipate margin increases of more than 5%, while 46% see margins growing in a range of 2% to 4.9%, and 16% project improvement of less than 2%. One-third of all distributor survey respondents said margins will remains flat; 20% expect them to slip.

By contrast, only about one-third of distributor respondents forecast margin gains in 2002, while 44% projected them to remain flat.

“Our profitability is better because we’re not trying to be the source for everything for everybody,” said Chris Hughes, president of Transmission & Fluid Equipment Inc., based in Fort Wayne, Ind. “We are more disciplined in what we sell. We’ve found a focus and we’re sticking to it.”

Manufacturers’ margin projections for 2003 are similar to the distributor’s forecasts. Just over half (51.3%) look for improvements. Most of this group (86%) expect the gains to be under 5%.

Over a third (36.6%) of manufacturer survey respondents project margins will remain flat this year. Twelve per cent think they’ll slip. In 2002, only 35% of manufacturers forecast margin gains, one-third believed they would remain flat and slightly less than one-third thought margins would decline.

Caution on employment levels

Both distributor and manufacturer respondents are guarded when it comes to employment levels in 2003.

Most distributors (56.9%) expect staffing numbers to remain constant at their firms in 2003. Of the 31.4% who plan to add employees in the coming year, most envision the growth at under 5%. Just under 12% of distributors anticipate trimming employees in 2003.

Among manufacturers, just under half (47.6%) think their company’s employment levels will remain constant in the coming year. Among the 38% expecting staff expansion, half believe it will be under 5%. Roughly 14% of manufacturers plan to reduce staff in 2003.

Distributor-supplier partnerships strong

PT/MC industry distributors and manufacturers expect to do more business with each other in the coming year.

Just under one-third of distributors intend to increase the number of supplier lines they carry in 2003. Roughly 10% plan to decrease the
ir lines, while 58% say they’ll continue with the same number of lines.

Sixty-two per cent of manufacturers say they plan to increase the percentage of their sales through distribution in the coming year. Only 7% envision a decrease in sales through distribution in 2003, while 31% expect sales through the channel to remain steady.

Roughly 40% of the manufacturer respondents said they plan to increase the number of distributor partners who carry their lines this year.

“We work closely with our distributors to increase market share and take advantage of the opportunities that are out there,” said Paul Ross, vice-president of sales and marketing of Douglas Manufacturing Co. Inc. of Pell City, Ala. “We do this out of a desire to succeed and grow in difficult times.”

About 20% of manufacturers plan to trim their distributor rosters. That, however, doesn’t necessarily mean lower distributor sales.

“We’ve been reducing our distribution base and concentration more on companies we want to partner with, like those in the PTDA membership,” said Cliff Bannon, director of sales and marketing for Transcom Inc. of Burnsville, Minn.

Other 2003 survey finding included:

— Among distributor respondents, 38% said they gained new customers in fourth quarter 2002. Some 57% reported they both added and lost customers. No respondent said they only lost business during the period.

— Almost 40% of distributors said customer requests for local inventory had increased. Only 12.5% noted customer decreases in this category.

— Beyond pressures on margins, distributors reported the biggest effects of the current recession were: customers closing facilities (82.4%); consolidation of suppliers (58.8%); competitors going out of business (41.2%); and new competitors emerging (31.4%).