Distributors continued five consecutive years of sales growth with an 11.5 percent increase in sales last year, according to the HARDI 2006 profit report.
The Heating, Airconditioning & Refrigeration Distributors International's annual report is based on 2005 financial data accumulated from over 100 HVACR distributors across the United States.
The report also says that pretax profit margins also continued their five-year climb from 2001's historic low. Last year's margin of 3 percent was a 58 percent increase from the 1.9 percent profit margin of five years ago.
"There are very few wholesale channels in other industries that can say they've had five consecutive years of improving margins," said Don Frendberg, HARDI executive vice president and current chairman of the National Association of Wholesalers Distributors Association Executives Council. "However, it is also telling that every distributor and every distributor trade association is 100 percent focused on increasing distributor profitability and yet this is the first time in eight years our industry has seen 3 percent margins."
According to HARDI, increasing profit margins in the wholesale business is extremely difficult when sales have to grow 11.5 percent to generate a 0.2 percent increase in pretax profits. HARDI distributors have had to grow without significant increases in employment.
The report says that HVACR distributors experienced their third consecutive year of employment growth, but staffs grew only an average of one person from 2004 to 2005.
Significant technology investments and advances in inventory management methods enabled distributors to increase sales per employee by 8 percent from 2004 to 2005, and up 13 percent since 2001. In 2005, a 6 percent increase in gross margin per employee brought the five-year total to a 19 percent increase since 2001.