Things haven't been very good for a while at Industrial Distribution Group (NASDAQ:IDGR). Its latest quarter was lousy, to say the least -- it managed to earn a mere $0.01 a share, versus $0.16 in the same quarter last year. And now the company says it will begin exploring "strategic options." Translation: It's putting itself up for sale. That might be its only hope for salvation.
Revenue is dropping like a stone -- more than 3% in the latest quarter. Management blamed trouble in the automotive, heavy-truck, and manufactured-housing sectors, but market-share losses from service issues -- troubles that began last year -- also hurt.
The company distributes maintenance, repair, operating, and production (MROP) products, a line that includes cutting tools, hand and power tools, abrasives, material-handling equipment, coolants, lubricants, and safety products. It also offers business-process outsourcing services, in which it emphasizes supply-chain knowledge in product procurement, management, and applications, as well as in-process improvements.
This is a very competitive and fragmented industry and many of Industrial Distribution's competitors consolidated last year in an effort to achieve economies of scale, increase efficiency, and offer a wider array of products. The merger trend will probably continue.
In the $70 billion MROP market, we've seen MSC Industrial Direct (NYSE:MSM), a much larger distributor than Industrial Distribution, acquire a division of Kennametal, while Interline Brands (NYSE:IBI) purchased Amsan. Other larger distributors that might be interested in consolidation include Grainger (NYSE:GWW), Fastenal (NASDAQ:FAST), and WESCO (NYSE:WCC).
Clearly, if it were to go alone, Industrial Distribution would have a hard time surviving. It recently announced a plan designed to save $6 million per year, but that's not nearly enough, yet there are only so many cost savings to be found. Who would want such a troubled company? Perhaps salvation will come in the form of a knight in shining armor. But shareholders need to hope it comes quickly.
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Fool contributor Larry Rothman is happy to receive feedback, and he promises to read it when he's not being wrestled by his three children. Feel free to email him at [email protected]. He doesn't have any positions in the companies mentioned.
