Strong Profts continue for MRO suppliers

During the last two and half weeks MSC and Fastenal have reported strong quarterly earnings numbers indicating continued strength in the MRO market. MSC's net sales increased 30.7% with approximately 74% of the growth stemming from the 2006 acquisition of J&L. Comments from MSC CEO David Sandler indicate a sense of optimism in the industry noting that "We are especially pleased with our financial performance, despite the prevalent softness of the industry reflected in seven months of weak ISM index reports. Although market conditions have not changed, the two most recent ISM index reports show more optimism in the market. We are not currently seeing that optimism reflected in our ordering rates from customers, however, history shows that if the trend in the ISM continues, we should see improving business conditions in the upcoming months."

The ISM manufacturing report for the last two months stood at 55% and 56% respectively. Figures greater than 50% indicate market expansion.

MSC's gross profit margin of 53% during the most recent quarter also reflects the company's ability to pass along increased prices to customers.

Fastenal was able to grow sales by 13% and profit by 15% in the most recent quarter according to their quarterly report which was released Thursday.

MRO Supply Fund - A good investment?

This year publicly traded MRO supply companies are up significantly againts the S&P 500 and Dow Industrial averages. Grainger, Fastenal, MSC, and Watsco collectively are up 24.73% YTD compared to 5.94% and 7.20% for the S&P 500 and Dow Industrials respectively. Part of the reason I started this blog is because I think the MRO supply business is a great sector to invest in. I plan to periodically post updates regarding the performance of what I call the MRO Supply Fund (Grainger, Fastenal, MSC, and Watsco). I have also included a small table that tracks the return of these stocks relative to the S&P and Dow at the 1 year, 5 year, and 10 year intervals. Please let me know if you think I should include others companies to the MRO Supply Fund.

	YTD	1 Year	5 Years	10 Years	10,000 Investment after 10 years
GWW	31.46%	29.10%	91.81%	135.74%	23,574
FAST	16.50%	6.25%	116.18%	231.90%	33,190
MSM	33.32%	18.14%	169.21%	149.31%	24,931
WSO	17.67%	-5.12%	207.13%	229.69%	32,969
MRO Fund	24.73%	12.09%	146.08%	186.66%	28,666
S&P 500	5.94%	20.05%	51.79%	21.75%	12,175
Dow Industrials	7.20%	21.30%	66.59%	27.64%	12,764