Better Times Behind And Ahead

In case you missed FER Fortnightly last week, E&S sales surprisingly surged in the second quarter, according to the MAFSI Business Barometer and reports from the seven publicly reporting E&S companies that we follow. We say surprisingly because the first quarter saw some of the slowest E&S sales growth since the market recovered from the Great Foodservice Recession in 2010.

The MAFSI Barometer, which tracks manufacturers’ rep sales, rose 6.1% versus the first quarter of 2012, a record quarterly gain for the Barometer, introduced in 2002. The Barometer rose only 2.4% in the first quarter; it’s smallest gain since going positive 4Q/2010. The seven publicly reporting E&S companies saw combined sales rise 4.1% on a quarterly year-over-year basis, their best performance since the beginning of last year. The seven reported combined sales rose only 1.8% in quarter one. In the MAFSI Barometer data, all the product categories and all the five regions they track had strong quarterly gains. All but one of the seven publicly reporting companies were in positive territory.

What happened? We can only guess that there is still a lot of pent-up demand for renovation and replacement from operators. And after the economy didn’t collapse because of the fiscal cliff nonsense, the federal budget sequester and the increase in payroll taxes, operators jumped back into the market, in spite of soft first-quarter sales, driven in part by inclement weather.

The National Restaurant Association’s tracking of capital expenditure behavior for its Restaurant Performance Index has seen consistent gains in both the indicator following actual purchases the past three months and in one tracking purchasing plans over the next six months. The latter marker dropped off in the July survey, but both markets are running well ahead of any time since the beginning of the recession.

But perhaps the best news in the data are signs that the spec markets—noncommercial segments, lodging, recreation, etc.—are finally beginning to recover. These segments account for about a third of the entire E&S market and they have been very much in the doldrums for years. Part of the reason for the very slow recovery of these markets is that big chunks are publicly funded. State and local tax receipts are finally improving as the housing market and consumer sales recover.

The two publicly reporting companies that are most spec-oriented—ITW/FEG and Rational—had strong second- quarter sales gains. And the MAFSI Barometer survey tracks consultant and overall quotation activity and both are running substantially higher than a year ago. We’re hearing anecdotally that the large and important school market is better this summer than it’s been in years.

There are always plenty of things that can go wrong. Restaurant operators have seen some slowing in sales and traffic this summer and the pols in Washington seem to always find a way to goof things up, but if the spec markets continue to recover and things hold up on the restaurant side, our forecasting partner John Muldowney, now working for a dealer—The Boelter Cos.—and I just might have to revise upward our forecasts for 2013 and ’14.

Cheers,

Robin Ashton

Publisher

rashton@fermag.com “””