August 21, 2024
Electric Avenue — News Impacting Lighting Markets: August 2024
Big name distributors show their numbers. Plus, one construction economist states, "America is headed into recession."
Welcome to Electric Avenue, where each month we explore the intersections between the electrical industry and our beloved lighting industry.
With a focus on news, trends, and economic factors shaping the landscape of electrical distribution, construction, contracting, and manufacturing, Electric Avenue is your resource for staying informed of some of the more notable electrical industry events that may impact North American lighting markets.
Each month, Electric Avenue delivers important news on macro market conditions and changing business dynamics affecting commercial lighting projects and general lighting "stock & flow" distribution across North America.
Here's what's happening since our last Electric Avenue digest was published on July 25:
Electrical Distributor News
There have been no notable electrical distributor acquisitions since Sonepar announced its acquisition of 23-location Midwest distributor Echo Electric Supply on July 25. However, several major names in electrical distribution have released their quarterly earnings reports.
Graybar Exceeds $3 Billion in Second Quarter Net Sales
Graybar reported record net sales of $3 billion in the second quarter of 2024, marking a 7.6% increase from the same period last year. Despite this achievement, the company saw a decline in net income to $110.4 million, down 11.1% from the second quarter of 2023. The dip in earnings is partly attributed to investments in Graybar Connect, the company's strategic business transformation project.
For the first half of 2024, Graybar's net sales reached $5.7 billion, a 5% increase compared to the same period in 2023. However, net income dropped by 13.4% to $215.6 million due to ongoing investments in the company's future growth initiatives.
Kathleen M. Mazzarella, Graybar's chairman, president, and CEO, emphasized the company's commitment to balancing short-term success with long-term strategic investments, ensuring it remains resilient and innovative in an evolving market.
Grainger Reports Results for the Second Quarter 2024
W.W. Grainger, Inc. reported its second-quarter 2024 results, showing a 3.1% increase in sales to $4.3 billion, or 5.1% on a daily, organic constant currency basis. The company's adjusted diluted earnings per share (EPS) rose by 5.2% to $9.76 compared to the same quarter in 2023. Operating margin decreased by 70 basis points to 15.1%, or 15.4% on an adjusted basis, as continued investments impacted margins. Grainger generated $411 million in operating cash flow and returned $345 million to shareholders through dividends and share repurchases.
Despite a generally stable demand environment, Grainger narrowed its 2024 earnings outlook, forecasting daily, organic constant currency sales growth of 4.0% to 6.0% and adjusted diluted EPS between $38.00 and $39.50. The company's gross profit margin remained flat at 39.3%, with growth in key segments balanced by challenges in customer and product mix.
Looking ahead, Grainger remains confident in its operational execution and ability to deliver results in the second half of the year.
Wesco Lowers 2024 Outlook Amid Mixed Economy
Wesco International has reduced its full-year 2024 outlook due to continued weakness in the utility market and mixed economic conditions. In its Q2 2024 earnings report, the company noted a 1% decline in organic sales and a 5% drop in reported sales year-over-year. Although the Electrical & Electronic Solutions (EES) and Communications & Security Solutions (CSS) segments saw sequential growth, overall performance was impacted by a slowdown in utility customer purchases. Wesco now expects reported sales to decrease between 1.5% and 3.5% for the year, with adjusted EBITDA margins forecasted at 7.0% to 7.3%.
The company also highlighted record first-half free cash flow of $500 million and significant share repurchases amounting to $300 million. However, challenges persist, including customer delays in the utility and broadband sectors, which are expected to continue through the second half of the year. Despite these hurdles, Wesco remains on track to achieve $800 million to $1 billion in free cash flow for the full year, supported by strategic acquisitions and ongoing cost control measures.
The Home Depot Announces Second Quarter Fiscal 2024 Results; Updates Fiscal 2024 Guidance
The Home Depot reported sales of $43.2 billion for the second quarter of fiscal 2024, a 0.6% increase from the prior year. This includes $1.3 billion from the recent SRS Distribution acquisition. However, comparable sales decreased by 3.3%. Operating income stood at $6.5 billion, and net earnings were $4.6 billion, slightly down from $4.7 billion in the same period last year. Adjusted diluted earnings per share were $4.67.
For fiscal 2024, the company updated its guidance, expecting total sales to rise by 2.5% to 3.5%, bolstered by a 53rd week of sales and contributions from SRS. However, comparable sales are projected to decline by 3% to 4% for the 52-week period. The Home Depot plans to open around 12 new stores and estimates a gross margin of 33.5%.
Marketing Prowess Recognized at NAED Summit
As reported by tED Magazine: Van Meter, Inc. and ABB Electrification claimed top honors at the publication’s "Best of the Best Marketing" awards. Van Meter, Inc. secured the top prize in the distributor category, while ABB Electrification triumphed on the supplier side.
The tED Magazine awards were presented at the National Association of Electrical Distributors (NAED) Marketing Summit 2024 in Charlotte, North Carolina, with over 250 marketing professionals in attendance. Finalists for the distributor category included Parrish-Hare, Sonepar USA, and Summit Electric Supply, while Intermatic and Legrand were among the supplier finalists.
In total, 30 NAED member companies earned recognition, with 61 awards distributed across various categories. Notable winners included Sonepar USA, Intermatic, Eaton’s Wiring Devices, and Atlantic Coast Electric Supply in areas such as brand awareness, digital media campaigns, and product launches. The awards highlighted excellence in marketing initiatives across multiple segments within the electrical distribution sector.
Distributor Medal Counts:
- OneSource Distributors: 6
- Summit Electric Supply: 5
- Van Meter Inc.: 4
- Sonepar USA: 3
- Parrish-Hare Electrical Supply: 3
- Granite City Electric Supply: 3
- Atlantic Coast Electric Supply: 3
- Electrical Wholesalers & HZ Electric Supply: 2
Sonepar Recognized as “Best Place to Work for Disability Inclusion” by Disability Equality Index
Sonepar has been recognized as a "Best Place to Work for Disability Inclusion" after earning a score of 80 on the Disability Equality Index, an independent benchmarking tool developed by Disability and the American Association of People with Disabilities (AAPD). This index evaluates corporate disability inclusion policies and programs in areas such as culture, leadership, employment practices, and community engagement. Sonepar’s Director of Diversity, Equity, and Inclusion, Selenah Njoloma, expressed pride in the achievement but emphasized the company's commitment to further enhancing opportunities for associates with disabilities.
For the second consecutive year, Sonepar sponsored the 2024 Disability Global Conference & Expo, where its score was revealed. Representatives Jason Bullock and Amy Daigle, who are involved in the company's disability inclusion initiatives, attended the event. Sonepar's employee resource group, Abled and Disabled Associates Partnering Together (ADAPT), focuses on increasing disability representation and promoting well-being and mental health within the company. Rob Taylor, President of Sonepar Americas, reinforced this commitment by signing the CEO Letter on Disability Inclusion in 2023.
Electrical Agent News
Prysmian Consolidates Representation, Retains 100% of Encore Wire Reps
Prysmian rattled electical markets when it recently announced its acquisition of Encore Wire, a leading wire manufacturer with $2.4 billion in annual revenue. The company has now consolidated its electrical agent representation in U.S. markets.
David Gordon of Electrical Trends noted that all Encore Wire reps were retained and were awarded both the Prysmian and Encore product lines. Despite industry speculation that Prysmian might operate a split organization for its industrial wire and construction groups, the company opted to keep 100% of Encore Wire's representatives, moving Prysmian's representation to Encore.
In its August 1 announcement, Prysmian stated, "Prysmian and Encore Wire believe these agencies bring strength and expertise, ensuring both companies continue to deliver top-quality products and services to customers." Customers are encouraged to visit the 'Where to Buy' section on the company's website to connect with local representatives.
What We are Reading
Insights into Regional U.S. Markets
At Inside Lighting, we love market reports that provide data-driven insights into the design and construction markets in the United States. One of our favorite reports comes from Cumming Group, a global construction management firm that offers many macroeconomic indicators and delves into the details of certain local markets throughout North America.
In Q2 2024, the U.S. construction market continues to adjust to the ongoing effects of COVID-19, as detailed in the Cumming report. The office sector has experienced a shift toward smaller, higher-quality spaces due to hybrid work models, leaving many traditional office buildings vacant and unsuitable for residential conversion. Meanwhile, in the residential sector, rising costs and zoning restrictions have pushed developers toward luxury housing, exacerbating the shortage of affordable homes.
Geographically, smaller cities like New Haven, Connecticut and Milwaukee have seen population growth from remote workers seeking lower living costs, while larger cities struggle with high expenses and vacant office spaces.
Impact of 2024 Election on U.S. Energy Policy
As the 2024 election draws near, energy policies remain a focal point, with substantial differences between the Republican and Democratic approaches, as highlighted in a recent article by Adam Ferrari in Offshore Magazine on August 13. The article outlines that the Republican platform, heavily influenced by former President Donald Trump, focuses on deregulation and the expansion of domestic oil and gas production, aiming for energy independence and economic growth.
On the other hand, Offshore Magazine notes that the Democratic stance is expected to emphasize renewable energy and environmental regulations, reflecting the party's dedication to sustainability and climate change mitigation. According to the article, these significant differences in policy approaches will be pivotal in shaping the future of U.S. energy policy.
More Women Choosing Trades Over College for High-Paying Careers
An increasing number of women are bypassing college to pursue lucrative careers in trades like electrical work, auto repair, and trucking, according to an article in the New York Post. With rising tuition costs and nearly $2 billion in student loan debt, many are finding success and financial stability in vocational fields. The trend reflects a broader shift as more young women, despite the traditionally male-dominated nature of these industries, are thriving in hands-on professions and reshaping perceptions about gender roles in the trades.
Eaton CEO Craig Arnold to Retire in 2025
With Eaton’s seven-year ownership of Cooper Lighting last decade, CEO Craig Arnold is well known in both electrical and lighting industry circles.
Eaton's Board of Directors has appointed Paulo Ruiz as president and chief operating officer, effective September 2, 2024, and as CEO, effective June 1, 2025. Ruiz, who currently leads Eaton's Industrial Sector, will succeed Arnold, who will retire after serving as CEO since 2016.
Gregory Page will assume the role of non-executive chair of the board upon Arnold's retirement. Ruiz's extensive experience, including leadership in the company's portfolio transformation and global manufacturing operations, positions him to lead Eaton going forward.
Eaton reported revenues of $23.2 billion in 2023 and serves customers in over 160 countries.
Economic Factors
Construction Backlog Remains Steady
The Associated Builders and Contractors (ABC) reported that its Construction Backlog Indicator remained steady at 8.4 months in July, a decline of 0.9 months from a year ago. The decrease was primarily driven by smaller contractors with less than $50 million in annual revenue, while larger contractors saw longer backlogs. ABC's Construction Confidence Index also showed declines in sales, profit margins, and staffing levels, although all indicators remain above 50, suggesting growth expectations. ABC Chief Economist Anirban Basu highlighted that rising interest rates and high construction material costs are impacting the industry, with hopes for lower rates in the near future.
Above: Construction Backlog data, courtesy of Associated Builders and Contractors
“Contractor confidence regarding profit margins now stands at the lowest level since November 2022, which comes as little surprise," said ABC Chief Economist Anirban Basu. “There are now strong indications that elevated interest rates have finally taken their toll on a number of privately financed construction segments as well as the broader economy.
Nonresidential Construction Employment Increases in July, But Recession Looms
The construction industry added 25,000 jobs in July, marking a year-over-year increase of 239,000 jobs, or 3.0%, according to an analysis by Associated Builders and Contractors. Nonresidential construction saw a net gain of 16,200 positions, with nonresidential specialty trade contractors adding the most jobs.
Despite this growth, the construction unemployment rate rose to 3.9%, with concerns of a potential recession looming. ABC Chief Economist Anirban Basu noted that while the industry remains optimistic for the next six months, the broader economy is weakening, particularly in construction sectors not supported by federal subsidies, though manufacturing-related construction remains strong.
“It appears that America is headed into recession,” said ABC Chief Economist Anirban Basu.
Copper
Copper prices surged above $5.00 per pound in May but have recently retreated to slightly lower levels.
Global Container Freight Rates
Above: 90-day container rates from China to West Coast USA. Image: Courtesy of Freightos, used under license
The FBX01 global ocean freight container pricing index tracks the cost of shipping 40-foot containers between major ports in China and East Asia and the West Coast of North America. This index, developed in partnership with the Baltic Exchange, includes key Chinese ports like Shanghai (PVG) and Ningbo (NGB), and U.S. ports such as Los Angeles (LAX) and Chicago (ORD).
This trade route is a vital artery for global commerce, facilitating the movement of billions of dollars' worth of goods across the Pacific. Commonly shipped items on this route include electronics, clothing, furniture, toys, and machinery.
