Just-released ASI data shows that promotional products distributors increased sales on average by 5.3% in the third quarter of 2018, matching the largest quarterly rise in about four years. As encouragingly, the Counselor Confidence Index, which gauges the financial health and optimism of distributors, reached an all-time high during the third quarter.

Awesome news: Just-released ASI data shows #promotionalproducts distributors increased sales 5.3% in the third quarter!!

— Chris Ruvo (@ChrisR_ASI) October 17, 2018

“Q3 is always one of our best quarters, and we were up 32% this year,” said Joseph Sommer, owner of New York-based distributor Whitestone Branding (asi/359741). Sommer said a big deal creating appreciation gifts for Harley Davidson dealerships and signing on a new client helped drive the rise. “Margins were healthy all around as well,” he said in a comment to Counselor that echoed the sentiments of many distributors.

Joseph Sommer, Owner, Whitestone Branding

Indeed, nearly half (48%) of all distributors reported a year-over-year increase in Q3 sales. That bested Q2’s tally of 46% and was a full 13 percentage points better than the third quarter of 2017. The six-quarter moving average of distributors reporting a sales increase has risen now to 39%.

The industry’s largest distributors were most likely to report a third quarter sales increase. Nearly two-thirds (63%) of firms with more than $1 million in annual revenue said their Q3 sales accelerated. Meanwhile, 47% of distributors generating $250,001 to $1 million achieved a year-over-year sales rise, while 44% of distributors bringing in less than $250,000 did the same.

On the whole, about one-in-seven distributors reported a sales decrease. Mid-sized distributors were most likely to experience a drop, with 16% saying sales declined, compared to 13% for the industry’s smallest distributors and 14% for those with sales above $1 million.

The 5.3% average distributor sales increase for Q3 2018 was identical to the percentage rise reported in this year’s second quarter. Notably, the performance bested the moving average of quarterly increases, 3.7%, by almost two percentage points. The last time a year-over-year quarterly sales jump leapt above 5% was in the fourth quarter of 2014, when the average revenue gain was 5.9%.

Distributors believe the strong Q2 and Q3 are emblematic of what’s shaping up to be a banner year for many industry companies. "2018 has been terrific," said Matt Gresge, CEO/president of Top 40 distributor AIA Corporation (asi/109480). "We're seeing sales growth of 5%+. The growth is coming from larger accounts that are ordering more frequently with larger average order sizes."

Given the industry-wide sales momentum, it’s fitting that the Counselor Confidence Index posted a reading of 117 – up one point from Q2, six points from last year’s Q3, and the highest-ever tally for the barometer of industry sentiment. The index’s rolling average is 114, while the lowest ever reading – 79 – occurred during the dark days of the 2009 recession.

Amid such optimism, 61% of distributors report they expect annual sales to increase in 2018 compared to 2017. Some 16% said sales would hold steady year-over-year. “The fourth quarter always makes or breaks the year for distributors, but right now, optimism and expectations in the promotional products industry are running extremely high,” said Nate Kucsma, ASI’s executive director of research and corporate marketing.

For some distributors certainly, the forecast for Q4 is sunny. “Based on what we have been quoting and the feedback from our dealers, we think the fourth quarter will be good and likely -- fingers crossed -- will increase our full year growth to 7.5% to 8%,” said Gregg Emmer, VP/chief marketing officer at Top 40 distributor Kaeser & Blair (asi/238600).

Gregg Emmer, VP/Chief Marketing Officer, Kaeser & Blair

Nonetheless, nearly a quarter of distributors (23%) were expecting an annual sales decline in 2018. What’s more, a growing number of firms are concerned about what 2019 will hold as tariffs start to influence likely price increases on at least some products imported from China – the nation that is the North American promo industry’s production workshop. Indeed, at this week’s ASI Power Summit, several suppliers admitted they won’t be publishing prices in 2019 catalogs because of likely tariff impacts. Distributors, including Talbot Marketing’s (asi/341500) Steve Levschuk, are expecting product costs to be significantly higher in the next year, driving up what end-buyers will have to pay.

“Price increases next year are going to be huge, huge – notwithstanding the tariffs,” Levschuk said, citing as an example a recent bag order that came with a shocking $425 tariff. “We as a company cannot absorb tariffs, so guess who it’ll be passed on to?”