Mullen Group grew top line revenue by 0.3% in the second quarter, but net income slipped 9.9% to $32.9 million as the company looks to grow through tuck-in acquisitions and focuses on margin growth.
“We generated solid results this quarter, primarily due to acquisitions and by focusing on margin over market share. What is most impressive, I believe, is that our overall financial results are up over last year despite the slowdown in economic growth and the emergence of competitive markets,” Murray Mullen, chairman and senior executive officer said in a release.
“We are in a different spot today as compared to the last economic cycle, which was driven by low interest rates and massive government deficit spending. Today, high interest rates are accompanied by inflation, costs that are hurting the discretionary spending of many consumers. The Canadian economy is also struggling with declines in capital investment, as the private sector assesses the cost of high interest rates and on lower returns. These are significant headwinds for many of our 40 business units and the primary reason the corporate office has been active in terms of evaluating acquisitions. Quite simply, acquisitions are the only way to grow in this market.”
Second quarter revenue was $495.6 million, with a $26.9 million contribution from acquisitions made over the past year. Operating margin grew to 17.3% from 16.9% on lower operating expenses.
A new contributor to revenue growth was ContainerWorld, the company’s alcohol distribution business. But Mullen said the company has yet to optimize margins in that business.
While the economy may soon improve, Mullen added on a conference call with analysts, “At least that’s our hope. But as you know, hope is not a strategy. So, we’ll stay true to our plan and that means the only way to grow in the short-term is via acquisitions.”
However, any M&A Mullen does will likely focus on smaller tuck-in acquisitions, he added, and the company will be selective in this environment.
“We are more than just disciplined,” said Mullen. “We are picky when it comes to acquisitions. We will not chase growth. On the other hand, we will aggressively pursue opportunities that can help drive margin growth.”
Mullen noted that overall freight markets seem to have stabilized, but added “If you’re in the wrong verticals, it’s stabilized and it’s crappy…The little guys are getting squeezed in this market.”
This benefits larger players, Mullen added, as shippers are likely to migrate towards larger transport providers with greater stability and a greater assurance of their long-term survival.
Mullen has doubled its revenues since Covid struck and now the company is focused on margin improvement.
“In 2020 our operating margin was 21.4%,” Mullen said. “And then we grew like a son of a gun and we acquired companies and we’re still working on improving the margins of these business units. We hit a low point in 2023 at 16.9% but we’re on our way back up at 17.3% this quarter…our focus is, right now, 100% on operating margin, not growth.”
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