Profits for electrical distributors in 2006 rose sharply to the highest level since 1993, reaching a median of 3.7%, according to the National Association of Electrical Distributors (NAED) in its annual Performance Analysis Report (PAR). 

The 3.7% figure represents the third consecutive year of sharp rises in profit margins, compared to medians of 2.9% in 2005, 2.1% in 2004, and 1.3% in 2003. Among a select group of “high profit” distributors, the 2006 profit margin was almost twice as high at 7.3%.

Accompanying the increased profits were 2006 median sales increases of 17.4%, also the highest in a decade, and higher than the 11.1% increase recorded in 2005. 

The report’s author, Dr. Al Bates of Profit Planning Group in Boulder, CO, cautioned that a large part of the improvement was due to very rapid price increases in basic commodities, particularly copper and steel. “Such price increases artificially inflate the profit margin for the firm,” he said.

“Nevertheless, the underlying economic model for NAED members is strong, but not as good as it might appear on the surface,” Bates added. He suggested that the windfall “provides a unique opportunity to re-invest back into the business to ensure future growth and profits.”

The Performance Analysis Report (PAR), produced annually, contains a wealth of information to help distributors analyze the financial performance of their operations. Other measures covered in the report include inventory turnover, sales per employee, average collection period, return on assets and much more. Also included is a five-year trend analysis of key financial ratios. The report is available in two formats, a Personalized PAR, which is a customized, company-specific report and as PAR Highlights, an overview of all the statistics. 

Results from the 2007 survey are based on data from 179 NAED-member electrical distributors. The typical distributor surveyed, based on median figures, had annual sales of $42 million and achieved a gross margin of 22.8% in 2006. Inventory turnover, representing the cost of goods sold divided by average monthly inventory, was 4.5; payroll expenses were 13.8% of sales. 

Copies of the PAR Highlights report can be purchased by NAED members for $300 each (first copy) and $20 (additional copies). However, distributors who participate in the survey receive the PAR Highlights at no charge. Personalized PAR is only available to participating distributors at the time of the survey for an additional cost. For more information about PAR Highlights, contact NAED Customer Service at (888) 791-2512 or customerservice@naed.org. Survey forms for the next Performance Analysis Report will be distributed in January 2008. 

NAED is the trade association for the $70+ billion electrical distribution industry.