Q1 2025 Global Industrial Co Earnings Call
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Good day and welcome to the global Industrial Company first quarter 2025 earnings call.
All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
Speaker Change: After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone and Swift draw. Your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Mr. Mike Smart Jossey with Investor Relations. Please go ahead Sir.
Speaker Change: Thank you and welcome to the global Industrial first quarter 2025 earnings call. Today's call will include formal remarks from any such high be Chief Executive Officer, and Tex Clark Senior Vice President and Chief Financial Officer.
Speaker Change: Formal remarks will be followed by a question and answer session.
Speaker Change: Today's discussion may include certain forward looking statements that should be understood that actual results could differ materially from those projected due to a number of factors, including those described under the forward looking statements caption and under risk factors in the company's annual report on Form 10-K, and quarterly reports on form 10.
Speaker Change: Q.
Speaker Change: The press release is available on the company's website and has been filed with the SEC on a form 8-K.
Speaker Change: This call is the property of global Industrial company I will now turn the call over to an Isa.
Isa: Thank you Mike Good afternoon, everyone and thank you for joining us.
Speaker Change: In the first quarter, we generated revenue of $321 million a decline of less than 1% just.
Speaker Change: This performance was significant given the soft start in January which was impacted by the midweek timing of the new year's holiday.
Speaker Change: Excluding the holiday impact rebate revenue would've been up low single digits in the quarter strength by endorse and our largest strategic accounts enhanced our results.
Speaker Change: Performance improved as we moved through the period and we ended the quarter with growth in March.
Speaker Change: Gross margin increased 60 basis points over the first quarter of 'twenty 'twenty, four and with strong cost controls operating income improved four 6%.
Speaker Change: These results reflect good execution across the business and I'm very proud of the team.
Speaker Change: Since joining global industrial and mid February I've spent a significant amount of time visiting our locations in the United States and Canada meeting with the teams and getting a greater understanding of the business.
Speaker Change: I've been impressed with the culture and the level of engagement of our management team and our dedicated associates.
Speaker Change: It is clear we bring significant value to the market through a broad offering of high quality exclusive brands and vendor partner products and our extensive product knowledge helps customers solve their problems to better operate their businesses.
Our customer centric focus is enabling our ability to deliver a frictionless end to end experience and we continue to enjoy high customer satisfaction scores.
Speaker Change: These core attributes provide an outstanding foundation for growth and are a point of differentiation in the market.
Speaker Change: Global industrial has an exceptional platform and the ability to scale the business organically, we can and intend to broaden whom we serve by expanding existing account relationships and accelerating our growth initiatives.
Speaker Change: This will open the aperture of the total addressable market that we pursue.
Speaker Change: We have seen good momentum in sales progression in our largest strategic accounts N G. P O base.
Speaker Change: I believe we can accelerate the success going forward, but being very targeted focused and intentional in how we go to market along with further refining our value proposition and our sales approach.
Speaker Change: In this regard we are taking steps to enhance our performance by developing an account based marketing program and improving the alignment of marketing and sales to capture and nurture the customer relationships that we anticipate will drive growth.
Speaker Change: In addition, the implementation of our new CRM will enhance the visibility into our customers across all functions and remains on track for completion. This summer.
Speaker Change: We've been pleased with the progress of these initiatives to date and I look forward to sharing additional details on our efforts as the year progresses.
Speaker Change: Turning now to the tariffs that were enacted in April they have created a disruption not only in our business, but to the entire supply chain and our customers impacting price and demand dynamics.
Speaker Change: Our teams remain and I'll hand status, making sure we proactively manage through the current environment.
Speaker Change: Our focus is on what we can control working closely with manufacturers and vendor partners, ensuring product availability and providing customers with as much visibility as we can in a very fluid environment.
Speaker Change: Our core attribute which I noted earlier, specifically our customer centric culture, along with our strong balance sheet will serve us well as we look to mitigate the impact of tariffs on our business and for our customers.
Speaker Change: Further I believe we are well positioned to support and strengthen customer relationships. During this period of disruption.
Speaker Change: In closing we delivered a solid first quarter global industrial has a unique go to market platform strong customer relationships and an exceptional team.
Speaker Change: I'm excited about the potential of the business and taking it to the next level.
Speaker Change: We remain well positioned to continue to invest in our growth initiatives and to evaluate strategic opportunities.
Speaker Change: I will now turn the call over to tax.
Speaker Change: Thank you Vanessa.
Speaker Change: First quarter revenue was $321 million down 0.7% over Q1 of last year.
Speaker Change: U S revenue was up <unk>, 3% and Canada revenue was down two 5% in local currency, but off approximately 9% in U S dollars given the negative headwinds in the extreme exchange rate.
Speaker Change: Revenue performance on a sequential quarterly basis improved from both the third and fourth quarters.
Speaker Change: Top line results reflect a very soft start in January which was impacted by the timing of the new year's holiday and to a lesser extent a benefit from the Easter holiday moving into the second quarter of 2025.
Speaker Change: <unk> did improve as we move throughout the period.
Speaker Change: Price was slightly positive in the quarter, reflecting modest pricing actions taken in the second half of 2024 in reaction to increased Ocean transit costs, we did not take any tariff specific pricing actions in the first quarter and believe pull forward forward demand was immaterial as average order value was in line with historical norms and volume was off modestly in the quarter.
Speaker Change: Regarding tariffs as it Lisa mentioned, we haven't been actively monitoring the situation, which remains fluid and are focused on the management of our supplier relationships and logistics operations.
Speaker Change: We included the first quarter with a strong inventory position and brought in summer seasonal products earlier in the year. This provides.
Speaker Change: Some flexibility on price cost management in the immediate term.
Speaker Change: Over the past five years, we have diversified the supply chain for our exclusive brand products.
Speaker Change: Our direct imports from manufacturers looking to China remain amongst our largest sourcing channels.
Speaker Change: The multiple additional tariffs being applied to goods sourced from China are significant and we are continuing initiatives to shift the sourcing of select product lines to less impacted countries.
Speaker Change: These efforts will take time, given our commitment to high quality products, which is imperative for our exclusive brands and our customers and always the top consideration when evaluating manufacturing relationships.
Speaker Change: We anticipate these actions will mitigate some of the market risk, but no way to eliminate our exposure to the Chinese market, given we have well established manufacturing relationships.
Speaker Change: We have taken some initial pricing actions in April and expect additional adjustments as the impact of tariffs flow through the business.
Speaker Change: Well customers remain cautious in their purchasing decisions, we've seen modest topline growth in the first several several weeks of the second quarter a continuation of results seen in March.
Speaker Change: Gross profit for the quarter was $112 $1 million gross margin was 34, 9% up 60 basis points from the year ago period, and up 110 basis points sequentially.
Gross profit benefited from price capture and overall freight management, including both outbound and inbound logistics.
Management of our margin profile remains a key area of focus performance will continue to reflect the impact of strategic promotion are afraid actions as part of our competitive competitive pricing initiatives tariff related actions and ocean freight costs.
Speaker Change: We anticipate that there may be increased volatility in our margin rates going forward given the timing dynamics of on hand inventory market inflation associated with tariff related cost increases and our efforts to continue to diversify our supply chain.
Speaker Change: Selling distribution and administrative spending for the quarter was $93 $9 million, an increase of only <unk>, 4% from the year ago period.
Speaker Change: As a percentage of net sales S. DNA was 29, 3% an increase of 40 basis points from last year.
Speaker Change: SG&A reflected strong general and discretionary cost control and modestly lower marketing and selling expenses.
Speaker Change: Operating income from continuing operations was $18 2 million in the first quarter and operating margin was five 7%.
Speaker Change: Operating cash flow from continuing operations was $3 $3 million.
Speaker Change: Depreciation and amortization expense in the quarter was $1 $9 million, including approximately zero point $8 million associated with the amortization of intangible assets related to the handoff acquisition, while capital expenditures were zero point $2 million.
Speaker Change: We continue to accept that I expect 2025 capital expenditures in the range of $2 million to $3 million, which primarily reflects maintenance related investments and equipment within our distribution network.
Speaker Change: Let me now turn to our balance sheet, we have a strong and liquid balance sheet with a current ratio of two one to one.
Speaker Change: As of March 31st we had $39 million in cash no debt and approximately $125 million of excess availability under our credit facility.
Speaker Change: We maintain significant flexibility to fully execute on our strategic plan and continue to fund our quarterly dividend.
Speaker Change: As a result, our board of directors declared a quarterly dividend of 26 cents per share of common stock.
Speaker Change: This concludes our prepared prepared remarks today operator, please open the call for questions.
Speaker Change: Yes, Sir we will now begin the question and answer session.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys if.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.
Speaker Change: And the first question will come from Anthony <unk> with Sidoti. Please go ahead.
Anthony <unk>: Good afternoon, everyone and thank you for taking the questions and welcome aboard and it's nice to get your perspective on the business. Since we joined the company a couple of months ago.
Anthony <unk>: So first I guess as far as the quarter itself can you just provide more color as far as the impact of the off I know thats largely a project based business. So just wanted to get a better sense of whether there was something highly unusual there.
Anthony <unk>: Maybe some pre tariff.
Anthony <unk>: <unk> and also maybe talk about how your core SMB clients did in the quarter as well.
Anthony <unk>: Yes, Anthony I'll go ahead.
Anthony <unk>: Yeah. Thank you and you say, yes, so I mean, when we think about our <unk> business, we really saw a broader growth across our larger continue to see good growth across our large customer segments. When we think about you asked about pull forward, we really didn't see pull forward demand based on different metrics that we look at within our business. So we think we've just continued to see we did see some strength as we move through.
Anthony <unk>: Throughout the third quarter I'm, sorry, the first quarter and up it actually it was growing very nicely in the second half of last year on new order generation and they continued that trend into the first quarter. This year. So that's an area that they've just continue to execute on really core very pretty standard sized projects and just getting back to what they really do well they did have a soft prior year.
Anthony <unk>: Here, but that came through in terms of our SMB customers. We did see again that was a group that also accelerated improved as we move from the beginning of the quarter towards March into April and that's an area that even though I really all of our customer segments did grow as we got into the March period. So overall, we saw some some good strength in getting there.
Anthony <unk>: I think that's an overly indicative that there was pull forward demand. So clearly the for the future is a little bit.
Anthony <unk>: Opaque in terms of what the demand environment may look like given some of the macro economy or macro tariff issues, but again ultimately we're here to continue to execute as well as we can and serve our customers.
Anthony <unk>: Gotcha. Thank you and then in terms of the S. D. I think expenses. So those were actually barely up some from last year.
Anthony <unk>: Was there anything unusual I think you spoke about lower marketing costs, but just how do we think about.
Anthony <unk>: D&A costs from here can you kind of sustain this type of move.
Anthony <unk>: Gross although year over year basis or will it be more lumpy, how do we think about that.
Anthony <unk>: Yeah, Anthony as we had talked about on our last earnings call. We had announced that we did take some some discretionary actions in terms of of head count and other cost containment measures and really focused on cost control across the business marketing.
Anthony <unk>: Marketing spend and sell our marketing and overall selling expenses are an area that we have to look at them and make sure that we're continuing to invest into the right areas that will deliver the right return, but our goal is to continue to really try to try to manage that that SG&A level and also as you think about our revenue continued to improve from where it was in the fourth quarter in the third quarter last year.
Anthony <unk>: And that really will help us as we got close to breakeven on revenue our year over year flat on revenue, we started getting a little bit better leverage on that that's an area. If we can get that growth rate to sustain we will continue to see leverage across our fixed cost structure.
Anthony <unk>: Got you, Okay, and then switching gears to the terrorists. So obviously as you point out. This early it's been disrupt full since early April.
Speaker Change: Can you just comment as far as how do we think about it going forward as far as the pricing and gross margins.
Speaker Change: I know, it's still a fluid situation, but.
Speaker Change: If you could just kind of maybe help us out as we look to refine our.
Speaker Change: Our financial models now.
Speaker Change: Any sort of advice Oh, it would be.
Speaker Change: Certainly appreciate it.
Speaker Change: Yeah, I guess I'll jump in Anthony Thanks for the question you know look it's still moving around on us a bit right. So we are tracking it we've got a daily standup calls with everyone. That's involved in kind of being part of the decision, making within the business and you know what I will tell you is we've taken the appropriate acts.
Speaker Change: <unk> to mitigate the risk as best we can.
Speaker Change: We have raised some prices, but we're being very prudent and very mindful to make sure that were in line with what's happening dynamically in real time, and we're making sure that we have the inventory in stock to be able to service our customers and to help them run their business and their operations. So at this point.
Speaker Change: I don't know that I can give you any guidance in particular other than we are managing it daily and what were you know anticipating are watching very closely is the fact that there have been you know some some specific headlines recently that indicate that there might be a change in the overall stance of our government are administered current administration, but.
Speaker Change: I don't know if you'd like to add anything to that.
Speaker Change: The only thing I'd add and he says that again, we are in a very good inventory position. So in the short term.
Speaker Change: <unk>, where we're confident in our margins.
Speaker Change: Much of our spring and seasonal assortment already in stock you can see that in our balance sheet with our inventory values, a little bit up from the fourth quarter level, that's somewhat normal seasonal planning, but that gives us more runway to be able to really understand what the market's doing but again clearly once again, the fluid or the changing tariffs kind of come in to really full understanding of where they will ultimately settle.
Speaker Change: Out at that's what we'll have is the best idea of exactly which levers we need to poll, which sourcing partners, we need to to work with and how we need to the overall manage our assortment. So in the short term inventories in a good position.
Speaker Change: But we'll continue to monitor the overall situation.
Speaker Change: Got you, Okay, and then just a quick follow up so as you raised prices in April what's been the impact on unit.
Speaker Change: Volume demand have you seen much.
Speaker Change: The difference in terms of your customer behavior as you raise prices.
Well I'll go ahead, and Nissan that one.
Speaker Change: Yeah, Anthony it's one that's been very early and then again as it needs had mentioned and for your prior remarks was they were very small.
Speaker Change: Small changes that we've taken so far so we're always when we moved the price on any product we look at what the competition is doing what the market will oh, well absorbed so we've not seen a change in trend from what we accomplished in March to what we're seeing in April so far yeah.
Speaker Change: You're back to your original question Anthony on pull back we havent seen pull back in the context of of what we're observing with ourselves.
Speaker Change: Despite taking some small incremental price very surgically and very targeted very intentional.
Speaker Change: Very good alright, well, thank you very much and best of luck.
Speaker Change: Yeah.
Speaker Change: The next question will come from Michael Francis with William Blair. Please go ahead.
Michael Francis: I guess in Hyannis are nice to nice to meet you and thanks for taking the questions.
Michael Francis: First thing for me you talked about shifting some sourcing out of China. I believe you said in the past, it's about 35% of your Cogs.
Michael Francis: Can you put a finer point on maybe a goal or where you're trying to get that and give an idea of where some of that shifting is going to.
Michael Francis: Yeah, Michael How're, you doing that that number that youre referencing is probably a little bit of an older number well, we haven't disclosed our specific mix recently it is quite a bit lower than that and I'd say as you know a couple of years ago, we did acquire the <unk> business.
That business absolutely didn't have the same excuse.
Michael Francis: Exclusive brand sourcing our direct import profile the global industrial had so that lowered that overall mix as part of our total cogs, but with that said it is it still a fit.
Michael Francis: Major.
Michael Francis: Sorts of record so about getting under that 35% and that's an area that really starting back in 2019, we really started taking strategic actions to start diversifying away from some of that enterprise risk of having that country of origin beings.
Michael Francis: As centralized it in China. So we have changed into other markets and this is an area that again, we have broad sourcing teams across the globe and really sourcing we're looking at what different opportunities. We have so it's an area that while we haven't published a goal. It's an area that we do believe that we can continue to take down but again like we said in the remarks, a few moments ago that doesn't happen.
Michael Francis: Overnight given that that we really focus on finding the right partners that can develop quality products deliver on time and have the right products in our assortment. So we'll make those changes but again.
Michael Francis: That's again, a little bit of a longer term or midterm to longer term strategy versus something that can happen in one month or one quarter.
Speaker Change: Okay Gotcha, and then I noticed in your in your prepared remarks, you teased expanding the Tam and talked a bit about some some markets you could potentially address is there any sort of color you could give to to that comment and maybe some some low hanging fruit that you see out there that could be a good place for you to expand it to.
Speaker Change: Yeah, good to meet you, Michael and Yeah I'm. The one that made them. So I think there's there's definite potential to kind of open and brought in who we target. So I believe the business over the last kind of what maybe four to five years has shifted focus and.
Speaker Change: Small medium and I think there's just tremendous opportunity to broaden who were pursuing enterprise customers. The G. P o's and the strategic accounts that we already have so I think there's opportunity to gain greater share of wallet by further penetrating that also looking at our assortment expansion.
Speaker Change: And then pursuing just broader broader opportunities across different sectors. So it's still early days you know just a couple of months in and I am formulating all of that strategically so that I can share it with us.
Speaker Change: The organization and that team shortly but I'm still formulating all of that at this point.
Speaker Change: Okay.
Speaker Change: And then last one for me.
Speaker Change: You talked about nice growth in strategic accounts and you just touched on wanting to grow that part of the business was the growth in this quarter in that business was it more of a bringing on more accounts was it.
Speaker Change: Strong growth from those accounts you have there it was it was it a mixture.
Speaker Change: Yeah. It was from a lot of those accounts, specifically and then I would say, it's a mix across just the the the diverse business that we have.
Speaker Change: Okay. That's all I had thank you so much.
Speaker Change: Okay. Thank you. The next question will come from Matt Cal Bear with Grand or peak advisors. Please go ahead.
Speaker Change: Hey, and NESA great to meet you in Texas are great to hear from you just just a couple ones for me here.
Speaker Change:
Speaker Change: And I you know you.
Speaker Change: You guys talked about gross margin, obviously I get that there's this pretty low visibility.
Speaker Change: In terms of going forward, how much should I read into though just.
Speaker Change: Bucking the trend of a sort of.
Speaker Change: A down gross margins in this turnaround here for a couple more quarters I mean, taking out the tariff impact is there still is there still room for that that to go.
Speaker Change: Yeah, and I'll I'll jump in and he said on that one so I think yeah. If you eliminated terrorists on there I mean is it something you can't eliminate it but if you take that out of the picture again, we do absolutely think there's opportunity to continue to improve our gross margin rate and that's gonna be it through a combination again, we always have talked about sourcing channels being one of those vehicles, but efficiencies in our freight.
Speaker Change: And continuous strategic pricing actions understanding where you can take individual pricing and really continuing that investment in in both our CRM to know our customers better can also help us really to pin.
Speaker Change: Pinpoint that right pricing for the right customers. So again, we do believe that there's opportunity but in the short term again, we know that there's there's a lot of outside factors that will have to be dealing with as we are.
Speaker Change: Again in the past, we obviously would love to say, we wanted to have a cost price cost neutral approach to terrorists absolutely with some of the levels of tariff that's being talked about that may not be possible and may requires some shifting given some of the the theyre pretty extreme numbers that have been talked about out there.
Speaker Change: And being a fresh set of eyes on the business I think there is definite opportunity, but the wildcard is the you know the position of tariffs and what is firmly entrenched going forward in <unk> or if any of that gets walked back.
Speaker Change: Yeah that was sort of my next question I mean these numbers are.
Speaker Change: These numbers are big and I'm, just curious you know.
Speaker Change: 150% tariff coming out of China.
Speaker Change: Whats the math on that for you does that mean you need it at 30% if they were to stay the same today would you need a 30% price increase to make any money on products you bring in from China or I'm, just I know the ex factory price is very different than the retail price, but just curious that the price increases needed if tariffs were to stay the same from China.
Speaker Change: Yeah, I mean, you can do the math, if if it's 150% of the underlying cost of goods and really probably 170% to 180%. If you really think about the tariffs that were already in place from from 2019, Okay that would be incremental price, taking but I get it they'd be they'd be big numbers now again do you take the <unk>.
Speaker Change: On every individual item or do you look at it across the portfolio.
Speaker Change: And again, there's always different mix of components in our product set so we need to look at it it's a broader portfolio versus each individual items. So there will be some margin erosion on individual items, but we just have to continue to say do we still source that item out of our current factory do we offer domestic alternative to offer can we can we find a factory and again lower.
Speaker Change: Impacted market. So again this is one that because of the real time nature of this and.
Speaker Change: Maybe some of the uncertainty of where it ultimately lands we are all hands on deck working through that and trying to manage it the best we can but again the pricing actions that the math is it would be a significant increase on any individual skus, but again, how does that blend across the portfolio is what we're really focused on as well.
Speaker Change: And our customers.
Speaker Change: These initial.
Speaker Change: Hum.
Speaker Change: Conversations you've had with customers are they pretty productive and receptive.
Speaker Change: Even maybe in the face of a weakening macro or is it different than it was in the window with the inflation of 2021 or even to the trade war and in 18.
Speaker Change: Yeah.
Speaker Change: Take that one as well so I think when we look at so far I mean, our customers.
Speaker Change: We've talked about in the past we were a a web pricing model just starting in a discount list off discount for our most strategic customers the ones that were really.
Speaker Change: <unk> managed with our account reps really focused upon.
Speaker Change: We've gotten very we've gotten at times proactive outreach from our customers, saying what is.
Speaker Change: We just want to know why there's going to be and we understand it we understand that if we need the good that theyre going to be a cost increase or they have been receptive to that but they they want some clarity I think that's the answer is and sometimes I want to tell them, we want clarity as well, but generally it sounds like they are receptive and understand that we are all part of the global supply chain and there will be disruption.
Speaker Change: Our goal is to make sure we do have the right product at the right time, so trying to make sure. We're in stock in and have the product for their customers and again, we go back to 2021, and obviously the significant inflation of Ocean freight cost we were able to generally pass that through maintain margin through that time period same thing going back to 2019 in that first round of tariffs.
Speaker Change: Position, we saw some some improvement actually we were able to take take price on the way up on that area and maintain our margin throughout that cycle. So we've had success in the past at some of these environments with these numbers currently being discussed those are a different magnitude. So it's going to take a different different set of playbooks and really again as he said mentioned all hands.
Speaker Change: On deck looking at everything from supply chain and sourcing partners to pricing. So it's it's got to be to start with is negotiating with suppliers, but also understanding what does ultimately get passed through to the customer. So it's a moving target, but we are we're working through it.
Speaker Change: And Matt the only thing I would add is as part of me learning the business and coming up to speed I couldn't speak to the historical part of your question, but I've met with some of our specific strategic accounts and what at what I've observed is there business as usual for now recognizing that they you know anticipate some cost.
Speaker Change: Or some of their prices to go up but are they I, we haven't seen them pull back we havent seen them you know pull forward. So right now, we're just continuing to support and enable them to run their businesses and in many cases a lot of these strategic accounts are still growing account.
Speaker Change: For us so there's lots of room for getting greater share of wallet and penetrating those accounts.
Speaker Change: That's great and then my last this is my last question would.
Speaker Change: No. We I know, we talked about this a lot and you can't ever give as much but.
Speaker Change: I Dunno does with your balance sheet, where it is is that became a really interesting time for for a deal for an acquisition right now or is it sort of all hands on deck figuring out the supply chain first before that would happen.
Speaker Change: Yeah, I would say that you know our M&A is definitely part of you know one of our levers for growth as well. So we are looking at things actively and I think if it's the right opportunity and it's strategically fits our you know what.
Speaker Change: Where we're heading I think.
Speaker Change: It's all potentially in play.
Speaker Change: And we are in a very incredible cost or our balance sheet position, so that optionality exists for us.
Speaker Change: Hey, Thank you I appreciate it and again, it's great to meet your needs that we're excited to get snow yeah.
Speaker Change: Likewise, thanks, Matt I appreciate the question.
Speaker Change: This concludes our question and answer session as well as our conference call for today. Thank you for attending today's presentation. You may now disconnect.
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