This issue's Regulatory Report

Industry Report

MAFSI Barometer Signals Regional Sales Disparities A surprising crash in equipment sales in the Northeast and weakness in the Midwest during the third quarter of 2005 showed up in the latest Business Barometer fielded by Manufacturers' Agents Association for the Foodservice Industry. Overall sales for the United States and Canada rose a decent 2.5%. Supplies and furnishings sales rose a robust 3.8% each, overall equipment sales were up 2.3%, and tabletop recorded a 2.2% gain. Percentages chart sales of like lines versus the same quarter the previous year. Equipment sales fell 1.2% in the Northeast during the quarter, while they were up a meager 0.6% in the Midwest. In contrast, equipment sales in the West rose 5% and were up 3.2% in the South. Supplies and furnishings sales were strong in all five regions, which include Canada. The overall 2.5% rise in sales compares with a rise of 1.9% in the third quarter of '04 and a 2.9% rise in the second quarter this year, the strongest gain recorded since MAFSI began the Barometer in mid-'02. Sales growth has been above 2% for four of the past five quarters.

NRA Index Hits 27-Month Low, But Expectations Tick Up
The National Restaurant Association's Restaurant Performance Index slipped a scant 0.2 point, to 100.2, in September, its lowest level in 27 months, as restaurant operators continued to register the negative effects of high gasoline prices. But for the first time in three months, the Expectations Index moved higher, rising half a point to 100.9. And the two Index components tracking past and future capital expenditures were bright spots in the monthly report.

An index level of 100 marks no change; above signals growth, and below signals contraction.

The Current Situation Index, which charts four factors, dropped nearly a point and fell to 99.5.

Within the Current Situation Index, the same-store sales component dropped 1.5 points, labor was off 0.9, and customer traffic fell 0.8 point. The component tracking capital expenditures during the past three months was off only 0.1 point and remained above 100.

In the Expectations Index, plans to make a capital expenditure during the next six month rose a robust 1.5 points. The outlook for same-store sales and general business conditions also rose.

"Restaurant operators were more confident regarding sales growth in the coming months," said NRA Senior V.P. Hudson Riehle, who heads Research and Information Services for the association. He also noted the strong outlook for future sales of equipment and supplies.

Riehle added that operators were very concerned about the impact of high gasoline prices on business and high energy costs on margins.

Early Public Company Results Show Some Slowing Growth
While a few public companies in the equipment and supplies industry continued to record double-digit revenue growth in the third quarter, others began to show that the overall market may be cooling, according to John Muldowney at Clarity Marketing, which regularly tracks top public E&S companies.

Still, it's been a good year for nearly all of the seven companies that had reported by press time, with combined sales up 8.0% for the first nine months.

Blended revenue growth of four equipment companies was 10.25% over third-quarter 2004, and 10.8% for the first nine months. Revenue growth, of course, does not discount for price increases.

Three supplies and tabletop companies showed a 3.4% blended gain for the quarter and 3.8% growth for the nine months. Sales of all seven companies rose 7.6% in the third quarter.

Muldowney noted that nearly all seven companies cautioned that this fall's hurricanes will have a negative impact on the fourth quarter, though they expect rebuilding of the Gulf Coast will have a positive effect in the coming year.

Blue Chip Economists Hold Steady Forecasts
While the U.S. economy remains stressed by hurricanes and high energy prices, economists polled by Blue Chip Economic Indicators continue to forecast decent growth for 2006.

In the latest consensus forecasts, collected in early November, more than 50 leading economists held steady on their forecasts for '05 and '06 real growth of gross domestic product. The current consensus has real GDP rising 3.5% in the current year and 3.3% next year.

The economists said they do expect a slower fourth-quarter '05 GDP growth, 3.0%, as high energy prices cut into consumer spending. And they expect growth to rebound in first quarter of '06 to 3.5%, then slow through the course of the year.

Nonconsumer indicators such as the Institute of Supply Management indices of manufacturing and services and construction spending remain positive. Inventory levels fell for the second month in row, surprising many of the economists. Taking into account the impact of higher energy costs, the forecasts for the Consumer Prices Index rose for both '05 and '06, up to 3.4% in '05 and 3.1% in '06.