Distribution Solutions Group Navigates Trade Shifts with Resilient Q1 Growth

Distribution Solutions Group (DSG) kicked off 2025 with robust financial results, demonstrating its ability to navigate complex trade dynamics and macroeconomic headwinds. The company’s Q1 performance, highlighted during its recent earnings call, underscores strategic advantages in supply chain agility, margin discipline, and disciplined capital allocation.

A Foundation of Resilience: Trade Policy and Supply Chain Flexibility
DSG’s geographic and vendor diversification have positioned it to capitalize on U.S. trade policy shifts aimed at reducing reliance on foreign manufacturing hubs. The firm noted that just 6% of its product spend originates from markets likely affected by new trade restrictions, primarily China. This low exposure to tariff-driven disruptions, combined with a global vendor network and on-the-ground expertise, allowed DSG to implement proactive pricing adjustments in Q1, safeguarding margins against rising input costs.

The company’s supply chain resilience is further bolstered by its focus on Made-in-USA products, exemplified by Test Equity Group’s tariff-avoidant test chambers. This strategy has already driven sequential margin improvements in its industrial equipment division.

Financial Highlights: Growth and Margin Expansion
DSG’s Q1 revenue surged to $478 million, a 14.9% year-over-year increase, fueled by acquisitions and organic momentum. Organic average daily sales rose 4.3% (4.7% in constant currency), signaling underlying demand strength. Margin performance was equally impressive: adjusted IBEA (likely EBITDA) reached $43 million, a 18.6% YoY jump, with margins expanding 30 basis points to 9%.

The company’s capital allocation strategy also stands out. DSG repurchased $11.2 million of its stock in Q1, retaining $15 million under its current authorization. With total liquidity at $305 million, the firm maintains flexibility for M&A and shareholder returns while keeping leverage at a conservative 3.6x, within its 3–4x target range.

Segment Deep Dive: Strengths and Opportunities
- Lawson Products: The industrial distribution leader delivered an adjusted net margin of 11.9%, up from 11.4% a year earlier. Expanding its salesforce to 910 reps (up from 830 in mid-2024), with 60% targeting untapped markets, positions Lawson to drive cross-selling and customer retention. Its new e-commerce platform and CRM tools are early wins in enhancing operational visibility.
- Canadian Division: Challenges persisted, with margins contracting to 5.2% due to tariffs, currency headwinds, and weak demand. However, plans to consolidate 4 Western Canadian facilities aim to boost gross margins, while management aims to replicate Bolt Supply’s post-acquisition margin growth (9% to 13–14%) across the division.
- Jet Pro Services: The aerospace and defense supplier achieved a net margin of 12.6%, up from 11% in Q1 2024, reflecting strong demand in renewables and technology sectors. The appointment of a new Chief Commercial Officer signals intent to accelerate sales pipelines.
- Test Equity Group: While margins remain below the 10% target at 6.8%, sequential improvements in VMI programs and bookings growth in electronics supplies suggest progress. Management remains confident in synergies from integration and recovery in its end markets.

Risks and Near-Term Challenges
Despite its strong start, DSG faces near-term hurdles. Currency volatility, particularly in Canada, and softness in automotive and industrial power sectors could pressure margins. Management acknowledged these risks but emphasized long-term benefits of trade policy shifts and diversified end markets.

Conclusion: A Strategic Play for Long-Term Value
Distribution Solutions Group’s Q1 results highlight a company well-positioned to thrive in an era of reshaped global trade. With 14.9% revenue growth, margin expansion across core segments, and a disciplined capital strategy ($15M remaining for buybacks), DSG is executing against its vision of leveraging supply chain agility and market diversification.

While near-term risks such as Canadian division headwinds and sector-specific softness demand caution, the firm’s focus on salesforce expansion (targeting 1,000 reps by late 2025), operational synergies, and integration of acquired businesses provides a clear path to sustained growth. With $305 million in liquidity and leverage within target ranges, DSG appears primed to capitalize on opportunities in sectors like aerospace, renewables, and domestic manufacturing.

Investors seeking exposure to a trade policy beneficiary with a track record of margin discipline and strategic M&A should take note: DSG’s Q1 performance signals not just resilience, but the makings of a long-term outperformer.