BY BEN STEVERMAN
INVESTOR'S BUSINESS DAILY
Posted 3/20/2007
Sometimes it pays to be big. That's especially true if the products you handle are small.
Anixter International (AXE) distributes products through warehouses in 46 countries. Among those 350,000 products are wires, cables and screws, washers, springs and other little fasteners.
Anixter doesn't manufacture anything. The firm's expertise is getting products from 5,000 suppliers to 95,000 customers around the world.
This is no simple task. Customers must get the right products at exactly the right time. To reduce inventory costs, customers want deliveries only when needed. Some factories get deliveries three times a day.
Products must be packaged in particular ways for each customer's convenience. Wire must be cut to the right length.
Anixter "spends a lot of time with customers really finding out how we can take costs out of their supply chain," said president and chief executive Robert W. Grubbs Jr.
Wires and cables, in particular, are difficult to manage. "It's a hard-to-handle commodity," Grubbs said. "If not managed correctly, there ends up being a lot of waste."
Backing up the firm's distribution network is very sophisticated information technology.
"The systems behind all of this give them an advantage," said Jeffrey Beach, an analyst at Stifel Nicolaus. Stifel Nicolaus expects to do business with Anixter.
The firm benefits from a few big trends. David Manthey of Robert W. Baird & Co. lists consolidation, outsourcing and globalization as key trends.
Most customers are big companies. Large global customers tend to want a large, global and efficient distributor.
"The big will get bigger," Manthey said. Large players are gaining market share from "small mom-and-pops."
In its size, Anixter has few peers. Competition is fierce in particular countries and product lines. But no firm has Anixter's global reach in its three main businesses.
Outsourcing
The outsourcing trend leads firms to ask Anixter to take over some of their work. "The goal here is to always add additional services," Grubbs said. Anixter provides advice and helps prepare products for the assembly line. It has deployed its own employees to customers' factories, to make sure they're well-supplied.
Its three businesses are enterprise cabling; industrial wire and cable; and fasteners.
Enterprise cabling is the firm's traditional specialty. It includes the wires and equipment needed to hook up computers and other digital devices. Anixter provides the miles of cable needed to wire big buildings for the Internet. It also offers security system equipment.
Most of its growth should come from this area, Manthey says. A widespread move to upgrade technology has helped. Firms everywhere are speeding up their Internet connections. Anixter says it's the largest provider of Internet protocol, or IP, cabling in the world.
"We're seeing this move to IP everywhere," Grubbs said.
One area is security. For the first time, video cameras and access systems are "going digital." The systems are running over buildings' Internet cables. Customers come to Anixter for the products needed to hook the systems up.
Nonresidential construction remains strong in the U.S., which further helps this area.
Anixter benefits from strong trends in other product lines, too.
Industrial wiring and cabling customers are utilities and factories. Both sectors have seen growth.
In its fastener business, Anixter has added "big international customers," Beach said. Big manufacturers appreciate that Anixter has the size to handle its need for screws, pins, nuts and other tiny parts.
In all three businesses, Anixter serves growing markets. Even better, "they're taking market share," Beach said.
Earnings reflect that. Earnings per share were $1.69 in 2004 and $2.39 in 2005. Earnings jumped to $4.23 in 2006. Thomson Financial says analysts expect earnings per share of $4.90 in 2007 and $5.53 in 2008.
The price of copper has helped the firm's profits. Copper is a main ingredient in many of its products.
Copper spent years under $1 per pound until 2003. In the last three years, prices spiked.
That raised the value of copper products in Anixter warehouses, boosting profits. It can charge more for copper products, boosting sales totals.
Copper peaked above $4 per pound last year, then retreated. It rebounded this year. A fast decline in copper prices could hurt Anixter profits, analysts say.
Already strong in the U.S. and Canada, Anixter is looking for growth in the rest of the world.
Expansion
In 2006, 73% of Anixter's sales were in North America. The firm has 137 locations — offices and warehouses — in the U.S. It has another 130 facilities in Asia, Australia, Latin America and Europe.
Growing internationally doesn't mean moving into new countries. Anixter is "in virtually every country we need to be in," Grubbs said.
Rather, the firm wants to beef up its presence in those countries. It wants to offer more of its product lines to more customers. Recent acquisitions in Europe could help. Beach expects it to buy more small firms in Europe. The firm is adding sales people in Europe and Latin America, Grubbs said.
Growth is always a challenge. When your customers are global, service must be as good in one country as all the others. You have to keep quality high and consistent worldwide, Grubbs said.
"The advantage we have is being global," he said. The firm can afford the best technology, "better than anyone else's out there." Its global platform is managed from a central location. "Scale helps in this business," he said.
| Take it for a test drive - An article by SP&T News 2007-07-16 |  | Anixter has unveiled its new Infrastructure Solutions Lab, designed to give customers the means to test drive new security systems before rolling them out in their own enterprise environments. |
| The Cabling Industry as an Example 2007-05-30 |  | Standardization ultimately will lead to commoditization among data center equipment. Cabling has not become a commodity market and differentiation in product sets created a situation where we cannot say a channel is a channel is a channel. |
| Anixter's Size And Reach Help It Get New Customers 2007-03-20 |  | Customers must get the right products at exactly the right time. To reduce inventory costs, customers want deliveries only when needed. Products must be packaged in particular ways for each customer's convenience. |
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