EUR 850.00 For Business Accounts Only

Morningstar | Anixter's Efforts to Improve Gross Margin Should Support Stronger Profitability Going Forward

In 2014 and 2015, Anixter completed three transactions that have bolstered the company’s market presence, growth potential, and operating flexibility. After acquiring Tri-Ed in 2014, selling its capital-intensive OEM Supply – Fasteners business in 2015, and purchasing HD Supply’s utility distribution business in 2015, Anixter is now the global leader in network and security distribution, a top player in global electrical and electronic solutions, and the leading utility power solutions distributor in North America. Anixter’s focus on value-added technical and supply-chain services across a global platform differentiates the company from competitors that rely on product pricing and availability to drive business. In many cases, Anixter is not the low-cost leader, but the firm’s valued-added services can provide its customers with the lowest cost of ownership.We see key growth drivers for each of Anixter’s segments over the next five years. With the addition of Tri-Ed, Anixter’s network and security solutions, or NSS, segment is set to gain share with midsize system integrators and in residential end markets. This segment should also benefit from cross-selling security products to utility customers as they invest in security solutions to comply with regulatory standards. Growth in wireless and cloud-related products should also augment NSS growth. Anixter’s electrical and electronic solutions, or EES, business has suffered from industrial end-market weakness, and has been generating depressed EBITDA margins. As industrial end markets recover, we expect this segment to return to growth and normalized profitability. After the acquisition of HD Supply’s power solutions business, the utility power solutions, or UPS, segment was created, which has industry-leading scale and should benefit from market share gains and improving utility capital spending.Anixter’s capital allocation strategy has favored returning cash to shareholders through special dividends and share repurchases. Once Anixter achieves its targeted leverage ratio of 2.5-3 times EBITDA, which we think will happen by 2019, we expect the company to resume returning cash to shareholders.