MRO Magazine

Profit margins for PT firms dropped in 2002 and remain slim

Chicago, IL -- The Power Transmission Distributors Association (PTDA) recently announced the results of its 2003 PT...


Industry

August 8, 2003
By MRO Magazine
MRO Magazine

Chicago, IL — The Power Transmission Distributors Association (PTDA) recently announced the results of its 2003 PT Distributor Performance Report (based on 2002 data). Revealing the profit challenges and opportunities in the power transmission/motion control (PT/MC) industry, the report suggests that the typical PTDA distributor continues to produce only adequate profits, while the most successful firms use a business model that produces superior performance.

With respect to the bottom line, the pre-tax profit margin for typical power transmission/motion control distributors was 0.6% in 2002, compared to 0.7% in 2001. Meanwhile, high-profit firms recorded margins of 3.0% in 2002, as compared to 3.2% in 2001.

Typical and high profit PT/MC distributors differentiated themselves in terms of sales volume in 2002. While typical PTDA distributors experienced a decline of 1.9% in 2002, high profit distributors reported a 2.1% gain in sales growth.

High-profit firms reported a pre-tax return on assets (ROA) of 9.3%, while the typical PT/MC distributor reported ROA of only 1.6%.

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As documented in the report, high profit firms seldom perform better on all critical profit variables (CPVs). Instead, the sum of their performance on these CPVs — sales per employee, gross margin percentage, operating expense percentage, inventory turnover, average collection period — produces higher overall results.

High profit firms generally have larger sales volumes than typical firms. Combined with superior performance on many critical profit variables, the result is improved operating performance. Total operating expenses as a% of net sales was 23.3% for high-profit firms, compared to 25.6% for typical firms.

The PT Distributor Performance Report, conducted annually by PTDA in partnership with an unbiased third-party vendor, is a compilation of operational statistics from 56 PTDA members throughout North America. This resource examines five-year distributor performance trends in return on investment, income statement, gross margin-related expenses, balance sheet, financial ratios, asset productivity ratios, growth and cash sufficiency ratios, operations profile and employee productivity ratios.

Data is reported for typical PT/MC distributors and high-profit firms (top 25% of firms based on ROA). Data also is reported for three U.S. regions (Eastern, Midwest and Western) and Canada, and four sales volume categories, ranging from less than $5 million to $20 million and over. Additional breakouts include MRO emphasis versus OEM emphasis and product mix (percentage of sales by bearings, power transmission and other).

The report is designed for distributors seeking information to benchmark their company’s performance against that of their competitors, as well as manufacturers looking to obtain insight into the operational and business needs of their distributors.

The report is available for purchase to PTDA members for US$169.95, and to non-members for $299.95. For more information, contact PTDA at 312-876-9461, or visit www.ptda.org.