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Inventory Tug-of-War: Destockers vs. Restockers


Endless back-and-forth sign of an atypical recovery.

Inventory Reduction and Restocking

During the first quarter of 2009, US economic production resembled something along the lines of deer in headlights. The silence of consumption was deafening,and companies continued to work off their existing inventories in order to become leaner and meaner to compensate for further weak economic conditions.

When plotted, almost every economic graph looked akin to the trajectory of a cliff diver you see on a Caribbean commercial who's doing a swan dive into the pristine ocean below. It should come as no surprise that certain inventories do have to be replenished at some point (albeit likely at much lower levels than previously held).

What we essentially have going on right now is a tug-of-war between those who destocked too much and those who still have significant inventory to work through. Many companies have recently confirmed the inventory tug-of-war thesis during the first quarter. I've posted examples of such below:


Maxim Integrated Products (MXIM) April 30 earnings release: "Inventory restocking by some of our larger customers also contributed to sales exceeding expectations."
Customer restocking.

Brush Engineered Materials (BW) April 30 earnings re: "Part of the expected second quarter sales increase from the consumer electronics-oriented markets is driven by the reduction of inventory levels in the supply chain during the first quarter." Expected restocking due to prior destocking. BW is one of the largest manufacturer's of specialty alloy materials that are used in virtually every industrial industry.

Celanese Group (CE) April 28 earning release: "However, as we moved out of the first quarter, we believe that the majority of inventory destocking through our customer supply chains is behind us."
Customers have started restocking.

Potash (POT) April 23 conference call: "Destocking efforts that kept customers out of the fertilizer market over the past 8 months are nearly complete. Company sees signs markets are preparing to return."
Customer restocking to come.

Peabody Energy (BTU) April 15 earnings release: "There are early signs of stabilization, steel destocking has slowed." Coal companies supply metallurgical coal to steel companies.

March 26 conference comments: Samsung executive says the market will begin seeing spot shortages of memory chips as inventory is inadequate already.
Forecasted restocking (and was correct).


Eaton (ETN) May 19 conference call: "ETN executives saying that second-quarter revenues could come in $100 million below previous forecast because customers continue to reduce inventories."
Customer destocking

Emerson Electric (EMR) May 19 8k filing: "Unfortunately, we have seen a sequential deterioration in our underlying orders from the month of March to April and believe orders are still reflecting a volatile economic environment where customers continue to reduce inventory, backlogs and business spending levels."
Customer destocking

Cliffs Natural Resources (CLF) April 30 conference call: "The company usually builds inventory in the first quarter, but less cash was laid out this year."

Cadbury Schweppes (CBY) April 30 earnings release: "Reported a sharp slowdown in sales in the first quarter, driven by a combination of customers destocking inventory and weakening demand in North America and Europe."
Customer destocking (from a boring business, no less).

Dow Chemical (DOW) April 30 earning release: "Volume declined 19% compared with the same quarter of 2008, while price was down 20%, reflecting the effects of the ongoing recessionary business climate and continued inventory destocking in most value chains." Customer destocking.
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