Anna Wells (00:05.326)
Industrial businesses are responding to ever -changing demands, making it challenging to nail down the most timely and impactful variables influencing them as they go to market. In our latest survey produced in partnership with Raymond James, we hope to take a snapshot of the market, a quarterly temperature check of manufacturers and distributors. With that, we are pleased to introduce the inaugural Raymond James Industrial Media Quarterly Survey of Current Business Trends.
Our initial survey received responses from over 600 participants across a number of relevant manufacturing and distribution verticals for our covered universe of industrial specialty distributors with respondents collectively representing a hundred billion dollars in annual revenues. My name is Anna Wells and I'm the executive editor of industrial media brands, including market leaders, industrial distribution, manufacturing net and industrial equipment news. Joining me today is Sam Darkatsh, managing director of Raymond James Equity Research.
And we hope to explore some of the high points of what Raymond James has uncovered after tapping into the market variables that influence decision making within the top industrial companies. So before we get started, we just like to add that due to compliance reasons, Sam will not be discussing his recommendations for any specific stocks. If you're interested in either his specific stock recommendations or have any other business related questions, please reach out to Raymond James or reach out to us here at Industrial Media and we can put you in touch.
Okay, Sam, let's get to it. I would like to know a little bit about the objectives that you had for this report. What were you exactly trying to achieve here?
Sam Darkatsh (01:20)
Yeah, sure. And first off, thank you, Anna, for having me on. I'm really excited about the partnership between Industrial Media and Raymond James. You know, many folks out there who subscribe to different trade organizations probably see various survey work. I know we do.
Generally speaking, surveys are terrific for the reader to either benchmark their own performance versus their peers, or in our case, try to gauge general business trends and thus make stock calls on the data with the related publicly traded companies. That said, often there are problems with many surveys. These include too small of a sample size or too specific of a category or
Findings themselves are really not all that helpful. With our survey and industrial media's scale, we try to fix a number of those issues that other surveys struggle with. For example, regarding sample size, industrial media has a subscriber list in the multiple tens of thousands. And our survey received about 600 responses, which is...
terrific from a statistical significance standpoint, especially for our first try at this. Regarding category breadth, our survey is more supply chain focused and includes both manufacturers and distributors, not just one or the other. So for reference, we have about a 70 -30 split between manufacturers and distributors across dozens of different end market verticals.
So not only does that allow for a much more comprehensive look, but we can also slice the data up further and note any differences we see in the different parts of the channel, which is really unique. And regarding applicability, a lot of surveys will ask about specific growth or margin percentages. That sounds great in theory, but in practice, giving specific percentages actually obscures what's really going on.
given different definitions and effects from different sized companies and geographically located organizations. So what we do here is more so ask how things are going versus plan. Are sales trends beating or missing plan? Are margins beating or missing plan? Has your annual forecast changed? To me, that's far more important.
and we can standardize and track those readings over time using indexes at the combination of those three elements of our survey large sample size wide category breath focus on business trends versus plan that should yield far more relevant and accurate results and so while i hesitate to place dramatic weight on the findings since of course this is our first try at this is our first quarterly survey so we don't
have historical perspective yet. I will say that the survey readings matched very closely what we've already seen out of the public companies that have reported first quarter results like Bassinol and Motion Industries and MSC Industrial Direct. So yes, it looks like the survey's accuracy and applicability is very legit and we'll keep refining the product over time so that continues.
Anna Wells (05:16)
Yeah, that's great. I really enjoyed watching the data roll in and I think that the market really values having that really, you know, in the moment data. Let's talk about some of the key takeaways that you saw with this first report. What did you find to see, you know, most notable at this point?
Sam Darkatsh (05:33)
Yeah, sure. So I'll let the listeners review the specific survey details when industrial media prints the findings. But at a high level, I think there were
four primary takeaways. First, Q1 pricing is increasing sequentially across virtually every represented vertical, both within distribution and manufacturing. This seems obvious, but it's actually a bit contrary to what most of the public distributors are saying.
and that they're only seeing mostly effects from rollover pricing from calendar 2023. Second, Q1 sales ran mildly below plan across verticals for both distributors and manufacturers. Third, Q1 margins also mildly missed plan, with where we saw the margin misses unsurprisingly contained to
respondents that were also reporting sales misses. And then fourth, forward outlooks are generally decelerating as updated 2024 forecasts are generally below that from where they were six months ago. So in all, Anna, Q1 was a bit softer than expected, which we imagine was mostly a function of poor January weather.
which only partially improved in February and March.
Anna Wells (07:13)
So then with that in mind, looking a little bit below the surface there, were there any more nuanced takeaways when you looked at the data, either anecdotally or when you compared responses between those subcategories?
Sam Darkatsh (07:24)
Yeah, good question. I'd point out maybe four other interesting tidbits from the survey. First, within distribution, MRO margins were
better versus plan then non -mro margins. Second, metalworking and fastener margins versus plan were generally in line despite sales misses, which matched what we heard from Fastenal and MSC. Third, again pricing was almost universally up sequentially, which may be a function of typical early calendar year.
pricing actions. So it will be interesting to see how pricing trends as the year progresses, especially if volumes continue to misplan. And then lastly, there were also some notable differences in trends for manufacturers that sell through distributors versus those that do not, i .e. they go vendor direct or have some sort of alternative go to market strategy. Specifically, we saw that
Pricing margins and 2024 sales forecasts were all better from vendors selling through distributors versus those who did not although Q1 sales versus plan for those selling through distributors were actually weaker versus those that go direct We're guessing that's probably due to maybe three quick things
First, distributors tend to be more welcoming of price relative to end market customers, which could make vendor price increases more feasible. Second, distributors are still de -stocking, so sales could be slightly lower for manufacturers selling through distribution. And three, manufacturers selling through distribution may be assuming eventual restock.
in 2024, which may be a positive variance versus 2023. But all in, I think the primary takeaway, Anna, was that Q1 volumes came in a little soft, mostly across the board, at the same time pricing was firm. So it will be interesting to see how those two dynamics play out as the year progresses. And my last thought here, again,
I'm very pleased to see that the survey's results jived up with what we're seeing out of the publicly traded companies. And we'll continue to fine tune the survey to hopefully continue to add value to the industrial media subscriber base. But you know, we've got something here. There's a lot of efficacy to this and I'm excited about it.
Anna Wells (10:26)
We are too. Thank you so much both for your time here today and also all the work that you've put into
generating this really important and impactful report. We look forward to more. For our audience to find more information on some of these points, we'd invite you to download the summary report of the latest survey results, which will be at the link below. I'm Anna Wells. Thank you for joining us.
