The American Supply Association’s 2010 Operating Performance Report (OPR), a detailed examination of PHCP distributor financial performance metrics, showed PVF firms reporting a staggering -24% median decline in sales last year. This compares with a -17.2% drop for all PHCP product categories combined. (See “In Closing” on page 78 for an analysis of the cumulative results.)
The PVF companies surveyed reported deriving 89.8% of their sales from PVF
products. Their massive plunge in sales volume in 2009 was almost five times as
great as the previous record drop of -5.2% in 2002.
On the plus side, PVF firms responding to the OPR survey reported what on the
surface seems to be some sterling financial results. For instance, PVF firms
had the highest bottom line of all the product categories, 3.9% net profit
before taxes, 1.7% after taxes. I suspect this reflects the positive impact of
spiraling commodity prices last year.
Moreover, gross margins for PVF firms reporting actually rose to 27.6%, up from
25.5% in 2008 and the highest level in the 20-year historical results reported
in the latest OPR. Also, average receivable days for PVF firms dropped to 43,
down from 44 the previous year, and was the lowest among all PHCP product
I asked around for an explanation of this counterintuitive data, and got the
following response from Tom Noon, a principal with Industry Insights Inc., the
consulting firm that has put together ASA’s OPR throughout its 28-year history.
“While it is difficult to know why (these ratios) improved without actually
interviewing the companies involved, my suspicion is that two things may have
occurred. First, given the down economy
and significant sales decline, many companies became fixated on expense
management and receivables management in order to squeeze at least some profits
from the lower sales. Second, given the decrease in industry sales, marginal
customers may have been de-emphasized in favor of stronger, better-paying
customers,” said Noon.
In any case, you can’t pay bills with percentages. PVF distributors all know
that gaining a couple of percentage points in margins doesn’t come close to
compensating for sales dollars plummeting to an abyss.