MRO Magazine

Survey: PTDA members express cautious optimism in face of recession

Chicago, IL -- Members of the Power Transmission Distributors Association (PTDA) aren't alone in wishing for a cr...


Industry

February 9, 2009
By MRO Magazine

Chicago, IL — Members of the Power Transmission Distributors Association (PTDA) aren’t alone in wishing for a crystal ball to predict the recovery of the world economy.

 

The mixed results of the most recent PTDA 2009 Member Forecast Survey underscore the uncertainty in the economy, revealing a healthy dose of optimism mixed in with a cautious outlook for the coming year. While two-thirds of this year’s respondents confirm that the economy is declining, nearly the same proportion project that their sales will increase or remain flat in 2009.

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Although the National Bureau of Economic Research announced that the United States has been in a recession since December 2007, PTDA members were aware of the state of the economy months in advance. Administered from October 22 to November 14, 2008, the PTDA 2009 Member Forecast Survey shows that the survey’s 79 manufacturer respondents are slightly more optimistic about 2009 sales than their 58 distributor counterparts. Nearly half of manufacturers project an increase in sales, compared to 36.2% of distributors.

 

Overall, 42.8% of all firms project their companies’ sales will increase in 2009, down roughly 15% from 2008. Meanwhile, 28.3% of companies expect a sales decrease in the coming year.

 

Although both distributors and manufacturers have significantly lowered their expectation for 2009 in comparison to 2008, PTDA member firms aren’t putting all their focus on the risks. Across the board, PTDA member companies are predominantly looking to broaden and deepen their existing sales relationships, although many are hoping to acquire new customers as well.

 

In follow-up interviews conducted with a sample of manufacturer and distributer respondents in December 2008, Michael Kenney, vice president of RBI Bearing Inc., succinctly summed up the opinion of many members, “The recession and downtimes are also opportunities.” Kenney is one of 37 manufacturers projecting sales increases in 2009.

 

“I’m expecting to lose at least 10-15% of our current business. In order to get the growth we need this year, I need to grow our business by 15-20%,” said Kenney. “Our strategy is to find those companies looking to increase their profit margins.”

 

Kenney’s firm isn’t alone in pursuing an aggressive sales strategy. Across the board, PTDA member companies are predominantly looking to broaden and deepen their existing sales relationships, although many are hoping to acquire new customers as well.

 

Pressure on margins hampers growth

 

Tempering the optimism of many firms are concerns about margin erosion in 2009. For the third consecutive year, half of the survey respondents expect gross margins to remain flat. Manufacturing firms are slightly more optimistic than distributors. Sixty-one per cent expect gross margins will remain constant and 20.8% predict increases, compared to the 50.0% of distributors projecting flat gross margins and 22.4% expecting increases.

 

Pre-tax profit margins are similarly strained. Among distributor respondents, projections of their companies’ profit margins are evenly split between increasing, remaining constant and decreasing. Half of manufacturers expect their pre-tax margins to remain constant, while 27% project an increase.

 

Max Belski, support manager at Power Rubber Supply, is concerned about the rising cost of doing business.

 

According to Belski, “The biggest challenge in 2009 is the cost of goods, especially rubber and steel. [Commodity prices] have come down, but our cost, just like everyone else’s, has gone up.”

 

Belski said his distribution firm can come out ahead in 2009, despite the pressure: “We work with a number of customers, and we offer lines in PT, bearings, conveyor belts, etc. If we have an area where there is a slowdown, we’re compensating in another area. We’re diversified enough in our product lines, so we can make it work in slower times.”

 

While there is no consensus on when the global downturn will end, one thing is clear. PTDA members are focused on implementing strong plans in 2009 and staying the course.

 

Nearly 40% of manufacturers expect the total number of distributors that carry their line to increase, and 45.8% of manufacturers expect the percentage of sales through distribution to increase. Only eight manufacturer respondents expect the total number of distributors will decrease, and 10 expect sales through distribution to drop.

 

These numbers are born out by distributors. One-third of distributor respondents expect authorized supplier lines to increase in 2009, half expect that lines will remain constant and only nine respondents predict a decrease.

 

Justin Aschenbrenner, vice president of industrial business development, PT division, for Gates Corporation, wishes for a crystal ball into 2009.

 

“Since I took the survey, the news has gotten progressively worse—not only on the U.S. economy but the world economy. If there’s anybody out there that knows what’s going to happen in the next year, I’d like to hear from them,” said Aschenbrenner.

 

“Alan Beaulieu [an economist and past PTDA Industry Summit keynote speaker] was pretty prophetic—he nailed what’s going to happen with the economy.” The mortgage crisis is going to stay with us for a long, long time, and is going to depress consumer demand for a lot of products, he added.

 

While Beaulieu predicted a rough ride for PTDA members in 2009, he cautioned against pessimism. Companies who work with economic cycles—in this case by focusing on their competitive advantages rather than trying to fix perceived weaknesses—will come out ahead when the economy inevitably rebounds.

 

Aschenbrenner is heeding Beaulieu’s advice. Even as he prepares Gates Corporation for the worst, he is honing in the company’s strengths.

 

“We have not changed our strategy, other than to prepare for the worst in 2009 …. Strategically, we just want to leverage our value proposition a bit more aggressively than we have in the past. We think we have a good one, and it’s relevant to the times we’re in.”

 

To access the full results of the PTDA 2009 Member Forecast Survey, visit www.ptda.org/ForecastSurvey.