Hughes Supply Reports Record Third Quarter Results
“As a result of strong demand across all of our end markets, and higher PVC and copper prices, net sales and earnings for the quarter exceeded our original expectations, with most of our businesses reporting double-digit organic sales growth,” Tom Morgan, president/CEO, said in a statement.
The Plumbing/HVAC segment reported organic sales growth of 5%, with particular strength in Florida, the Carolinas, Texas and Colorado. The improved sales were primarily due to increased market penetration, improved execution of management initiatives and higher PVC and copper prices, the company said.
The Industrial PVF segment reported strong organic sales growth of 21%, its seventh consecutive quarter of doubt-digit growth. The higher sales were driven by strong demand due to continued strengthening in the oil, gas and petrochemical markets, along with stable prices for nickel-based products.
The Water & Sewer segment reported record organic sales growth of 27%, attributable to strong demand for residential and municipal projects across all of its regions, particularly in Florida, Georgia, Texas and Arizona. In addition, significant price increases for PVC products, which represent about 20% of sales, contributed about five percentage points to the organic sales growth, and higher volume of PVC products contributed an additional five percentage points to the sales growth.
The MRO segment reported strong organic sales growth of 20%, partly attributable to increased sales of HVAC equipment and higher renovation business. The business also is benefiting from improvement in apartment occupancy rates in its larger apartment markets of Houston, Dallas and Atlanta, due to an influx of new tenants from hurricane-affected areas, and is now seeing gains from sales productivity and growth initiatives.
The Electrical segment reported 8% organic sales growth, driven by continued strength in commercial and residential construction in Florida, the Carolinas and Texas, hurricane-related sales, and price increases in PVC and copper products.
The Building Materials segment reported organic sales growth of 21%, primarily due to strong market demand in commercial, residential and government construction project work in Florida, Georgia, the Carolinas and Virginia.
The Other segment, which includes the Mechanical and Fire Protection businesses, reported that collectively, their organic sales were up 22% in the quarter. The higher sales were driven by growth in the fire protection business as a result of strong commercial construction, particularly in California. This was partially offset by decreased mechanical sales due to non-recurring hurricane-related activity in Florida in the prior year's quarter.
“Overall, we are highly encouraged by the strong recovery from the second quarter shortfall, with improved execution in the plumbing business and strong top-line growth in the MRO business,” Morgan said.
“This quarter we made excellent progress in the area of expense management, once again demonstrating our continued commitment to improving productivity and reducing our overall cost structure,” David Bearman, chief financial officer, said in a statement. Annualized sales per employee improved by 20% in the quarter vs. the previous year. Despite higher freight and fuel costs, the wholesaler reduced the operating expense ratio to net sales to 16.5%, Bearman said. The company had record quarterly operating cash flow and an internal return on invested capital exceeding 30% in the quarter, he added.
Bearman also pointed out that Hughes' revenue was boosted by about $15 million from sales related to hurricanes Rita, Katrina and Wilma, of which about $13 million came through its utilities division. The company does not expect the storms to have much effect on its fourth-quarter revenue.
The company's maintenance-and-repair division is expected to get a big boost from its new agreement to supply Equity Residential, which owns about 200,000 apartments nationwide.
Hughes also reported that all of its core businesses are now on the Hughes Unified operating platform. This completes the conversion onto a single platform of more than 500 branches and 46 different distribution operating systems, which began more than four years ago. This should help the wholesaler “improve customer service, inventory management capabilities and matrix pricing disciplines, driving increased efficiency and profitability across our businesses,” Morgan said.
The outlook for the fourth quarter remains favorable, with a projected increase in net sales of 11% to 13% and net income expected to rise 6% to 16%.
“We continue to be encouraged by the good demand trends we see across our end markets and by the improved performances of our businesses,” Morgan said in a statement. “Most of our businesses continue to deliver excellent growth, while plumbing and electrical are demonstrating incremental improvements as our initiatives take hold.”