Fewer grow bottom line compared to previous year

Sales of technology equipment to small and midsize businesses gave a fourth-quarter boost to many of the publicly traded business-to-business and computer catalogers tracked by Boston-based investment firm Ulin and Holland. But overall, the final quarter of 1999 wasn’t as good for the catalogers as the last quarter of ’98 had been.

For the fourth quarter just ended, 10 of the 18 catalogers tracked, or 55%, saw improved net income or a decrease in net loss. Of the 20 catalogers tracked last year, 14 (or 70%) showed improvement in net earnings. On the sales side, 15 of the 18 mailers (83%) enjoyed revenue hikes during the fourth quarter of ’99, compared to 18 out of 20 catalogers (90%) last year.

Bad news first

Among the noncomputer b-to-b catalogers, only metalcutting tools supplier JLK Distribution Direct – which continues to be hurt by weak market conditions and a competitive price environment – suffered a decline in fourth-quarter sales. But many of the other b-to-bers were unable to translate their sales growth into improved profits.

For instance, a 15% growth in sales at Rochester, NY-based Transmation was not enough to stave off a $3.0 million loss for the manufacturer/marketer of calibration and testing equipment. The company attributes the red ink to write-downs because of lower-than-expected sales, and severance payments to former CEO Eric McInroy, who resigned in December.

Revenue at Dallas-based Sport Supply Group, which sells sporting goods and equipment to school districts and colleges, increased 28%, to $19.0 million. But profits were another story. The company fell further into negative territoryby posting a loss of $1.1 million, nearly double the $560,000 it had lost a year prior. The cataloger blamed the growing loss in part on increased spending on its Website and the cost of expanding its field sales team in time for the baseball buying season.

On the computer cataloger front, Renton, WA-based Multiple Zones International also blamed its net loss, of $2.7 million, in part to the cost of bolstering its Websites and adding outbound sales staff. But the cataloger also suffered a 15% drop in revenue, from $146.4 million to $124.4 million.

Now, the good news

On the whole, the strong economy, which has encouraged many small and midsize companies to upgrade their systems, has helped spur an increase in sales among catalogers targeting that market.

“There’s been strong demand from medium and small businesses,” says Tracey Turner, vice president of corporate communications at PC Connection. Sales at the Marlow, NH-based computer cataloger rose 44%, to $317.8 million, which in turn drove PC Connection’s earnings up 52%, to $7.6 million. “The hardware [such as routers and servers] that these companies require carries much higher margins than desktops,” she says. “It’s driving the industry.”

Fellow computers marketer Insight Enterprises also benefited from the trend. The Phoenix-based company’s 75% income growth (to$10.9 million) outpaced its 41% revenue growth (to $417.9 million).

Targeting small and midsize companies proved profitable for noncomputer catalogers as well. San Jose, CA-based Hello Direct, which sells desktop telephony equipment, posted a 29% increase in sales, to $22.1 million, and a 36% increase in earnings, to $1.1 million. While vice president of marketing Dennis Waldera credits much of the company’s growth to “our strategy of selling proprietary products, which carry higher margins,” he adds that “sales to small and midsize businesses have a higher lifetime value [than sales to individuals within companies] because these clients purchase more frequently and place larger orders.”

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