The PVF companies surveyed reported deriving 89.8% of their sales from PVF products. Their massive plunge in sales volume in 2009 was almost five times as great as the previous record drop of -5.2% in 2002.
On the plus side, PVF firms responding to the OPR survey reported what on the surface seems to be some sterling financial results. For instance, PVF firms had the highest bottom line of all the product categories, 3.9% net profit before taxes, 1.7% after taxes. I suspect this reflects the positive impact of spiraling commodity prices last year.
Moreover, gross margins for PVF firms reporting actually rose to 27.6%, up from 25.5% in 2008 and the highest level in the 20-year historical results reported in the latest OPR. Also, average receivable days for PVF firms dropped to 43, down from 44 the previous year, and was the lowest among all PHCP product categories.
I asked around for an explanation of this counterintuitive data, and got the following response from Tom Noon, a principal with Industry Insights Inc., the consulting firm that has put together ASA’s OPR throughout its 28-year history.
“While it is difficult to know why (these ratios) improved without actually interviewing the companies involved, my suspicion is that two things may have occurred. First, given the down economy and significant sales decline, many companies became fixated on expense management and receivables management in order to squeeze at least some profits from the lower sales. Second, given the decrease in industry sales, marginal customers may have been de-emphasized in favor of stronger, better-paying customers,” said Noon.
In any case, you can’t pay bills with percentages. PVF distributors all know that gaining a couple of percentage points in margins doesn’t come close to compensating for sales dollars plummeting to an abyss.
