For many business-to-business merchants, Christmas comes in the third quarter, since the fiscal year for a number of their customers, including the federal government, ends in September: For organizations that take a “use it or lose it” approach to budgets, the end of the fiscal year is when they make certain to spend any funds they may have left over.
Considering that all but one of the b-to-b and computer products marketers tracked by Multichannel Merchant reported revenue gains, the third quarter seemed a happy holiday indeed.
Granted, bottom-line growth was more difficult to come: Only 64% of the merchants tracked posted income increases. Still, that’s more than the 50% of companies that reported income growth last year.
Operating income in the computer products sector remain under pressure, says Stuart Rose, managing director for Wellesley Hills, MA-based Tully & Holland, which tracks the publicly traded companies for Multichannel Merchant. But considering the computer merchants suffer from minuscule margins and hefty competition, “the fact that most of the marketers tracked reported healthy profits is remarkable,” he adds.
Sales up, income down for Henry Schein
Quarter ended: Sept. 24 The facts: Dental, medical, and veterinary supplier Henry Schein grew year-over-year sales for the quarter 13%, to nearly $1.13 billion from $993.1 million the previous year. But its bottom line suffered from a $11.9 million impairment charge from the divestiture of its hospital supply business in September, which the Melville, NY-based company said did not focus on its core office-based practitioner audience. As a result, its net income declined 16%, to $26.4 million from $31.5 million. Breaking revenue down by segment: Overall dental sales increased 16%, while dental merchandise sales rose 12%, and dental equipment and service revenue increased 27%. Medical sales from continuing operations increased 8%. International sales climbed 17%. The skinny: In its SEC filing, Schein sized up the fragmented medical and dental industries. In the domestic dental market, Schein estimated that more than 300 smaller distributors accounted for approximately 30% of the market. In the domestic medical market, Schein said that more than 500 smaller distributors accounted for 50% of the market. Was Schein suggesting that these companies are ripe for acquisition?
CDW keeps on growing
Quarter ended: Sept. 30 The facts: Vernon Hills, IL-based CDW Corp. posted a 12% rise in third-quarter income and an 11% jump in third-quarter sales. For the three months ended Sept. 30, the computer reseller netted $73.1 million on $1.67 billion in sales. Corporate-sector sales for the quarter totaled nearly $1.12 billion, up from $1.02 billion the previous third quarter. Public-sector sales totaled $553.6 million, a 12% increase from $493.5 million. Direct Web sales also increased 12%, to $455 million, and accounted for 27% of total sales. The average order increased to $1,078 from $1,040 last year. The skinny: In July, CDW consolidated approximately 10,000 active healthcare accounts — representing about $350 million in annualized revenue — from the corporate and public sectors into a new customer channel within the public sector.
Zones gets a top- and bottom-line boost
Quarter ended: Sept. 30 The facts: Like its competitor CDW, Auburn, WA-based Zones posted double-digit increases on both sides of the ledger. Consolidated net sales increased 18%, to $152.8 million, compared with $129.8 million a year earlier. Net income rose 21%, to $1.7 million from $1.4 million. Zones, which sells computer products from manufacturers such as Apple, Cisco, Epson, IBM, and Microsoft, focused on reducing IT procurement costs for customers. “By reducing and leveraging our operating expense base,” according to a statement, “we continued to grow our business.” The skinny: Most of Zones’s revenue increase came from sales of large computer systems within its enterprise business; one customer, in fact, spent $25.6 million on an IT project. Zones admitted that it cannot rely on this being a regular occurrence.
| 3Q REVENUE | 3Q INCOME (LOSS) | |||||
|---|---|---|---|---|---|---|
| Company | 12 months prior | Current quarter | Increase (decrease) | 12 months prior | Current quarter | Increase (decrease) |
| (000) | (000) | |||||
| Black Box Corp. | $126,595 | $185,050 | 46% | $10,623 | $12,797 | 20% |
| CDW Corp. | 1,511,054 | 1,670,204 | 11% | 65,178 | 73,124 | 12% |
| Deluxe Corp. | 472,000 | 413,000 | (13%) | 58,000 | 37,000 | (36%) |
| Henry Schein | 993,100 | 1,125,363 | 13% | 31,504 | 26,427 | (16%) |
| MSC Industrial | 246,687 | 276,757 | 12% | 22,264 | 28,176 | 27% |
| PC Connection | 351,265 | 371,124 | 6% | 2,817 | 1,924 | (32%) |
| PC Mall | 239,824 | 244,039 | 2% | 210 | 229 | 9% |
| Programmer’s Paradise | 26,788 | 35,471 | 32% | 626 | 603 | (4%) |
| Tessco Technologies | 115,690 | 137,633 | 19% | 1,604 | 1,704 | 6% |
| Transcat | 12,488 | 14,119 | 13% | (93) | 349 | NM |
| Zones | 129,829 | 152,758 | 18% | 1,402 | 1,691 | 21% |
| Notes: NM = not meaningful Source: Tully & Holland |
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