Slowing down its acquisitions program and heavily investing in information technology has strengthened Hughes Supply (Orlando, Fla.) and better positioned it for future growth, David Hughes, chairman/chief executive officer, said in a teleconference call on August 17 regarding the company's second-quarter results.
"We're making important strides and realizing synergies from past acquisitions," he said. "We're beginning the new decade with a strong foundation for a whole new era of growth."
Net income of $22.3 million for the second quarter ended July 31 was up 7% from $20.9 million for the same period last year. Net sales for the quarter, at $874 million, were 13% above $775 million for the prior year's period.
For the six months, net income was $36.8 million, up 7% vs. $34.3 million last year, while sales rose 15% to $1.71 billion from $1.49 billion in the prior year.
"These results illustrate the success of our strategies in the 1990s," he said. "Diversification into new product groups reduced our exposure to residential building cycles. We increased our participation in less cyclical industrial repair and maintenance and spread our operations across the country, reducing our exposure to any one state or region. Another benefit has been to create greater scale. We've seen benefits in improved gross margin and greater purchasing power."
Investing in technology
Since 1998, the company has invested $31.7 million in information technology, Hughes said. "The investment has given us state-of-the-art computer hardware and communication systems. Technology represents a formidable barrier to entry and is one of the main reasons that local and regional competitors are being forced to consolidate. Standardizing systems and processes allows us to leverage our information-technology system across various businesses."Hughes' investment in technology goes beyond achieving synergies, he said. "It is the foundation on which we are building one of the most advanced business-to-business Internet capabilities in the industry."
The wholesaler is actively involved in e-commerce on three fronts: Hughessupply.com, Bestroute.com and supplyFORCE.com. Select customers can browse and search the electronic catalog at Hughessupply. com for each product group; order online; check order and account status; get detailed product specs and application information; and obtain industry news and other information.
Bestroute.com, which became fully operational in June, currently stocks hard-to-find items from about 20 manufacturers and should be stocking about 60,000 SKUs within a year, Hughes said.
Hughes Supply views supplyFORCE.com as a vehicle to take its national accounts program to a new level. "As one of the largest wholesalers in the country, we operate in only 32 states," David Hughes said. "We need national delivery capability to meet the needs of our national accounts program and get service from a single source everywhere."
The teleconference included further discussion of Hughes' second-quarter performance by J. Stephen Zepf, chief financial officer and treasurer.
"Hughes' second quarter continued to show the same momentum we had throughout 1999 and into the first quarter of our current fiscal year," Zepf said. "Our same-store sales were up a strong 8% for both the quarter and year-to-date. The strongest growth came in the product groups most related to the infrastructure and industrial markets. Same-store sales for the second quarter in water/sewer and the industrial PVF group were up 18% and 9% respectively. Our businesses related to new residential and commercial construction were slightly impacted by rising interest rates. Same-store sales for the plumbing/HVAC and building materials product groups were up 7% and 4% respectively. The electrical product group was flat."
Hughes is setting up a program to break out the freight costs included on invoices from manufacturers on the cost of material it purchases, Zepf said. This will enable the wholesaler to bring the cost of inbound freight into its cost-management program.
Hughes also is implementing a freight expense reduction program. The number of freight providers will be reduced to a group of core carriers.
