Companies’ 10-K Reports Show Business Picked Up In 2004; Forecasts Good for 2005

Several electrical companies reported in their 10-Ks seeing their businesses pick up in 2004 as a result of the improving economy. They are positive about 2005 as long as economic forecasts hold true.

Rising raw material cost increases were a major challenge for Hubbell Inc., Orange, Conn., in 2004, the company said in its 10-K report.

“They occurred at frequent intervals across each of our businesses, which have products comprised of basic metals,” the company said in its annual report. “These increases required us to increase selling prices, which, due to the competitive nature of our served markets, were often not fully realized or required up to 90 to 120 days to become effective and begin to offset the higher costs, which in many cases were immediate.”

Hubbell anticipates overall conditions to slowly but progressively improve throughout 2005 in most of its major end-use markets, including commercial, utility, industrial and telecommunications. The company expects its industrial and commercial construction markets should continue to improve slowly from the low levels of activity experienced in 2004. Domestic utility markets are expected to move along with the overall economy. However, the company does not anticipate any significant increase in demand for its power products in 2005 from infrastructure changes in the utility industry.

Hubbell expects residential markets to slow in 2005 following a strong 2004. However, the company expects to continue growing the residential portion of its business with increased market share. The company expects overall growth in 2005 sales versus 2004 to be in a range of 5 percent to 7 percent, excluding any effects of fluctuations in foreign currency exchange rates. Sales increases compared to 2004 are expected to be balanced across the segments. Price increases are expected to contribute 1 percent to 2 percent of these amounts.

During 2004, Thomas & Betts Corp., Memphis, Tenn., experienced increased demand for products used by utilities and saw an improvement in demand for industrial electrical products.

Although the company experienced rising raw material costs (primarily steel) during 2004, the effect on current year results was minimal as higher raw materials costs were offset through higher selling prices for its products and through operational improvements.

Net sales in 2004 were up $194 million, or 14.7 percent, from 2003. This increase reflects raw material-related price increases, increased demand for products used by utilities and an increase in demand for industrial electrical products. Net sales were also positively impacted by approximately $37 million from foreign currency exchange driven primarily by strong Canadian and European currencies against a weaker U.S. dollar.

Electrical segment earnings in 2004 were up $54.9 million, or 83.9 percent, from 2003. Higher raw materials costs experienced in 2004 had a minimal impact on current year results, as they were offset through higher selling prices for electrical segment products and through operational improvements.

In 2005, Thomas & Betts expects to see net sales growth in the mid-single digit percentage range. “The key risks we face in 2005 include continued higher prices and volatility in commodity markets, especially for steel and copper, and a potential slow down in market growth due to macro-economic factors, such as higher energy costs or rising interest rates.”

Fastenal Co., Winona, Minn., added 219 stores to its distribution network during 2004, bringing the total at the end of 2004 to 1,533. The stores contributed $31.5 million or approximately 2.5 percent of the company’s consolidated net sales in 2004. The company believes, based on the demographics of the marketplace in the United States and Canada, that there is sufficient potential in those two countries to support at least 2,500 total stores. Many of the new store sites would be in cities in which the company currently operates.

In 2004, the company opened 21 stores outside the United States. Fastenal reported net sales of $1.2 billion in 2004.

W.W. Grainger, Chicago, said it benefited in 2004 from the economic recovery in the United States. With the improvement in industrial production and general growth in the economy, Grainger saw an increase in sales across all customer segments.

The light and heavy manufacturing customer segments, which comprised more than 25 percent of Grainger’s total 2004 sales, have historically correlated with manufacturing employment levels and manufacturing employment. Manufacturing employment levels increased less than 1 percent during 2004, while manufacturing output increased approximately 4.8 percent. This contributed to the double-digit sales growth in the light and heavy manufacturing customer segments for Grainger in 2004. Economic forecasts suggest that the manufacturing sector will continue to expand in 2005.

In 2004, Grainger launched a multiyear initiative to strengthen its presence in top metropolitan markets and better position itself to serve the local customer. The success of the market expansion program is expected to drive growth in 2005 and beyond. Grainger had implemented three phases of the program.

Grainger’s net sales for 2004 of $5.05 million were up 8.2 percent versus 2003. The increase in net sales was a result of the strengthening in the manufacturing and commercial sectors. Grainger said net sales at its branches rose 8.5 percent in 2004 over 2003 net sales of $4.2 million.

In 2005, Grainger anticipates total capital expenditures of $150 to $180 million. Grainger intends to continue its investment in the market expansion program and information technology enhancements with spending planned for the following major projects: $60 million to $70 million for continued market expansion; $35 million to $40 million for information technology; and $10 million to $12 million for Canadian branch programs.

WESCO International Inc., Pittsburgh, saw favorable market conditions during 2004 that reflected improved activity levels in its major end markets. However, capital spending in the manufacturing and construction markets the company serves still remained below the higher levels experienced in 1999 and 2000, the company said in its 10K report.

Net sales for 2004 increased by approximately $454 million or 13.8 percent compared with the prior year.

WESCO’s management believes that if the overall economic recovery forecasted for 2005 occurs, it will translate into improved product demand and solid sales growth, the 10K report said.