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Latest reports may be good news for electrical sector

By Jack Keough

There seems to be some good news for electrical distributors and manufacturers in light of last week’s economic reports, earnings statements and conference calls with financial analysts. That doesn’t mean a strong recovery but it does appear that we may be finally seeing a light at the end of the tunnel.

Let’s start with homebuilding. The overall gain in new-home construction in September was reflected across both the single- and multifamily sectors, with the first posting an 11% gain to a rate of 603,000 units – the best pace since August of 2008 – and the second posting a 25.1% gain to 269,000 units – the best pace since September of 2008.

Combined single- and multifamily starts rose in all but one region of the country in September, with a 6.7% gain in the Midwest, a 19.9% gain in the South and a 20.1% gain in the West. Only the Northeast posted a decline, of 5.1%.

Issuance of new building permits, which can be an indicator of future building activity, also registered significant gains in both the single-family and multifamily sectors in September. Single-family permits rose 6.7% to a seasonally adjusted annual rate of 545,000 units while multifamily permits rose 20.3% to 349,000 units. In both cases, these were the highest permit numbers since July 2008.

That compares markedly to the numbers last year when home builders began construction on 434,000 single-family homes, the worst year on record. The National Association of Home Builders forecasts single family starts will be up 21% this year to 528,000 units compared to 2011. The group also expects a 26% increase in 2013. All this is good news for electrical distributors.

A number of analysts who follow the housing markets said there is no doubt that a solid housing recovery is underway and will continue.

Electrical manufacturers report relatively good numbers for the last quarter and some are crediting an improvement in the residential market.

Hubbell Inc., for example, an international electrical and electronics manufacturer, reported an overall 3% sales increase for the quarter.

Electrical segment net sales in the third quarter of 2012 for Hubbell increased 5% to $551.8 million compared to $526.6 million reported in the third quarter of 2011. The sales increase was led by higher demand in the energy and residential markets.

Timothy H. Powers, chairman and CEO of Hubbell, expressed his optimism in a conference call with financial analysts following the release of his company’s earnings report. “We expect a more meaningful and sustainable recovery in the construction markets which remain at or near trough levels,” he said in a transcript of the call provided by www.seekingalpha.com. “Those markets represent approximately 50% of our overall sales and we are well positioned to participate in that recovery. We also expect to benefit from growth trends in the energy related markets as well transmission project spending. We plan to remain active on the acquisition front looking across our portfolio for opportunities to extend our brands and value to our customers.”

Actuant , which will also be looking for additional acquisition opportunities, has reported strong sales. Robert C. Azbaecher , chairman, CEO and  president of Actuant, said his company  expects a 3 to 5 percent core growth in sales, moderating slightly from what the company saw this year, according to an earnings call transcript.

“We think the North American consumer and construction-related markets will continue to improve from the 2009 lulls, but at a modest pace,” he told financial analysts. Improved residential housing should benefit the company’s electrical segment, he said, according to the transcript.

LED lighting manufacturers also are reporting strong results, as reported last week, LED manufacturer Cree reported lighting sales for its latest quarter increased 7%.

Charles M. Swoboda, CEO, chairman and president of Cree, said  demand is strong for lighting products. LED adoption continued to gain momentum in Q1 with new installations, ranging from CR22 LED troffers in the Hart Senate Office Building, to LED streetlights in Oyster Bay, New York, to the EDGE area and parking structure luminaires for the exteriors of 7 schools in Newport News, Virginia. The lighting demand forecast is trending higher for Q2, while the LED forecast is also up, mostly due to the incremental benefit from an extra week in the company’s fiscal quarter, officials said.

Meanwhile, W.W. Grainger, the giant MRO distributor, which has a large segment in electrical sales, reported a solid 8% increase in sales for its latest quarter. Because of the sluggish global economy, the company has slightly revised its sales forecast now calling for 11 to 12 percent growth.

During the third quarter, Grainger recorded a $70 million pre-tax reserve for a settlement in principle to resolve pricing disclosure issues relating to government contracts with General Services Administration (GSA) and United States Postal Service (USPS). The proposed settlement, which covers 12 years of sales to the GSA and 10 years of sales to the USPS, remains subject to the approval of the U.S. Department of Justice (DOJ). In addition, the company has established a $6 million pre-tax reserve for resolving tax, freight and miscellaneous billing issues with these government customers.

Jack Keough was the editor of Industrial Distribution magazine for more than 26 years. He often speaks at many industry events and seminars. He can be reached at john.keough@comcast.net or keoughbiz@gmail.com

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