What We're Reading

Consultative Sales Approach Differentiates Distributors1

"When LEDs first emerged for general lighting applications 5-10 years ago, their price points drove many end users and channel members to seek out cheaper alternatives from offshore and/or lesser-known manufacturers.  But are distributors still contending with that dynamic?  In Q&A led by lightED Magazine, three experts discuss their experience with current and future price points in the LED market and how they convey the value of higher-quality products by trusted manufacturers to their customers."

Read more from this article here.

Distributors Grew Revenues in 20172

"Total revenues within the U.S. wholesale distribution industry grew by 7.6 percent in 2017 to $5.7 trillion, according to the newly released 2018 Economic Benchmarks for Wholesale Distribution, published by Modern Distribution Management (MDM). But inflation also returned; real (inflation-adjusted) revenue increased 3.5 percent for the year overall. After a four-year overall deflationary trend impacting 19 wholesale distribution sectors defined by their product categories, inflation broadly returned to the industry in 2017, with 17 of the 19 sectors recording pricing increases; in 2016, 13 sectors recorded price declines.

MDM predicts that all but two of the 19 major sectors will record revenue growth in 2018 and 2019 (in nominal terms, or not adjusted for inflation). Overall, MDM forecasts 2018 industry revenues for the U.S. wholesale distribution sector to grow at 5.3 percent, slowing to 3.6 percent in 2019. After price adjustments, the wholesale distribution industry grew faster than the overall U.S. economy in 2017 by 1.2 percentage points."

Read more from this article here.

Home Depot to Spend $1.2 Billion in the Next Five Years to add 170 Distribution Centers3

"Home Depot Inc. plans to spend $1.2 billion over the next five years to speed up delivery of goods to homes and job sites as the rise of online shopping resets consumer expectations.

The home improvement retailer will add 170 distribution facilities across the U.S. so that it can reach 90% of the U.S. population in one day or less, said Mark Holifield, the company’s executive vice president of supply chain and product development. The new sites will include dozens of direct fulfillment centers for next-day or same-day delivery of commonly ordered products, as well as 100 local hubs where bulky items like patio furniture and appliances will be consolidated for direct shipment to customers.

Mr. Holifield told a logistics industry conference last week that the retailer is realigning its supply chain to a changing retail landscape.

Customers “expect delivery to be free, they expect it to be timely,” he said. “Sometimes they want it fast, and are willing to pay for that. Sometimes they want it free, and they’re willing to wait for it. We need to have the right options there.”"

Read more from this article here.

What We're Hearing

Excerpts From Recent Earnings Calls4

sysco.png“…Turning to the macro environment, the overall trends continue to be generally favorable in the United States. This led to improved spend for the retail and food services sectors and somewhat favorable conditions for foodservice operators as sales at restaurants continue to rise, offsetting somewhat lower traffic counts.  We also see continued growth with local customers as they increase their reach through innovative concepts and additional delivery methods.  Economic growth in the international markets in which we operate was mostly positive including modest growth in the foodservice sector.”

 

hd_supply.png“…[Regarding] labor inflation, the labor market has been tightening for several months. We are seeing wage rates grow at an estimated 3 percent annual rate, with variability across geographic areas and job functions. We are committed to providing competitive wages in order to attract and retain the best-of-the-best talent. When wage rate adjustments are necessary, we take a targeted approach, adjusting rates by specific job function by location as necessary to remain competitive.”

 

Public Comparables & Trading Valuations

Key Trading Stats

As of June 29, 2018
($ in millions, except per share amounts)

Specialty Distribution Public Comparables5

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Stock Prices

As of June 29, 2018

Trailing Twelve Months Stock Price Performance5

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M&A and Public Market Trends

Distribution Trends

LTM EBITDA as of June 29, 2018

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M&A Trends

Recent M&A and Private Equity Trends6

1H 2018 M&A Overview

  • Global M&A reached a post-crisis record with $1.94 trillion in total enterprise value announced across 8,560 transactions, breaching the $1 trillion mark for only the fourth time since the financial crisis
  • Almost three-quarters (72.7%) of global value has targeted the US and Europe this year, up from 64.9% in 1H 2017
  • Total US activity reached $807.9 billion in 1H 2018, the third highest YTD value on record
  • The average value for disclosed deals in 1H 2018 jumped 51.4% to $736.7 million from $486.5 million in 1H 2017

M&A Transactions

Announced M&A Transactions5

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Economic Update

A Snapshot of Key Economic Indicators

As of June 29, 2018
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Sources

1.LightED Magazine

2.Modern Distribution Management

3.MarketWatch

4.Factset Transcripts

5.FactSet

6.Mergermarket / Acuris

7.United States Census

8.U.S. Federal Reserve