Wed Jul 11, 2018 5:45am EST

MELVILLE, N.Y. and DAVIDSON, N.C., July 11, 2018 /PRNewswire/ -- 

Fiscal Q3 2018 Highlights

  • Net sales of $828.3 million, an 11.3% YoY increase, with approximately 500 basis points of acquisitive growth
  • Operating income of $115.4 million, an increase of approximately 13.4% YoY
  • Operating margin of 13.9% (14.5% excluding acquisitions*, an 80-basis point expansion YoY)
  • Diluted EPS of $1.39, $0.01 above the guidance midpoint which did not include $0.02 of dilution from the AIS acquisition, versus $1.09 in the prior year quarter

MSC INDUSTRIAL SUPPLY CO. (NYSE: MSM), "MSC" or the "Company," a premier distributor of Metalworking and Maintenance, Repair and Operations ("MRO") products and services to industrial customers throughout North America, today reported financial results for its fiscal 2018 third quarter ended June 2, 2018.

 














Financial Highlights1


FY18 Q3


FY17 Q3


Change


FY18 YTD


FY17 YTD


Change

Net Sales


$828.3


$743.9


11.3%


$2,365.9


$2,134.0


10.9%

Operating Income


115.4


101.8


13.4%


312.8


279.0


12.1%

% of Net Sales


13.9%


13.7%




13.2%


13.1%



Net Income


79.1


62.8


25.8%


256.2


170.7


50.1%

Diluted EPS


$1.39

.2

$1.09

.3

27.5%


$4.51

2

$2.98

3

51.3%

1In millions except per share data or as otherwise noted. 2Based on 56.8 million and 56.7 million diluted shares outstanding for FY18 Q3 and FY18 YTD, respectively.  3 Based on 57.3 million and 57.0 million diluted shares outstanding for FY17 Q3 and FY17 YTD, respectively. 

 

Erik Gershwind, president and chief executive officer, said, "The manufacturing environment in the third fiscal quarter was healthy, and the pricing environment sustained, with positive price/cost in the quarter. We continued to deliver gross margin stability, and our ongoing productivity efforts resulted in operating margin expansion. This was despite sales growth that was somewhat below my expectations due to the impact of our sales effectiveness initiatives and the related lower sales headcount."

Rustom Jilla, executive vice president and chief financial officer, added, "Our fiscal third quarter net sales rose 11.3%, and our operating income rose 13.4%, even after absorbing $1.8 million of AIS acquisition costs and inventory purchase accounting charges. Base business net sales growth was 6.1%, while operating income rose 12.3% with higher gross margins and lower operating expenses to sales contributing equally to our operating margin improvement.* Both DECO and AIS outperformed our expectations. Total cash generation remained strong, with year to date net cash from operations 45% greater than the prior year, and, despite purchasing AIS in the third quarter, leverage was sequentially unchanged at 1.0 times."

Gershwind concluded, "While our fourth quarter organic growth guidance falls short of my expectations for performance in this environment, I expect a return to more typical organic growth levels after a couple of quarters as we complete our sales force effectiveness initiatives and expand our sales team. As we do so, we will benefit from the leverage inherent in our business model, and we expect to continue achieving our long-term annual incremental margin target range. We will maintain our focus on growing areas that are technical and high-touch, creating a deeper moat around our business. All of these are critical to our long-term success, and I am confident in our ability to deliver."

Outlook

The Company expects net sales for the fourth quarter of fiscal 2018 to be between $829 million and $844 million. At the midpoint, average daily sales are expected to increase roughly 9.3% compared to last year's fourth quarter. Inclusive of net dilution of 3 cents from AIS, the Company expects diluted earnings per share for the fourth quarter of fiscal 2018 to be between $1.24 and $1.30.

Excluding acquisitions, the Company expects net sales for the fourth quarter of fiscal 2018 to be between $778 million and $793 million, with average daily sales at the midpoint expected to increase roughly 4.0% compared to last year's fourth quarter. The Company expects diluted earnings per share for the fourth quarter of fiscal 2018 to be between $1.26 and $1.32.

Conference Call Information

MSC will host a conference call today at 8:30 a.m. EST to review the Company's fiscal 2018 third quarter results. The call, accompanying slides, and other operational statistics may be accessed at: http://investor.mscdirect.com. The conference call may also be accessed at 1-877-443-5575 (U.S.), 1-855-669-9657 (Canada) or 1-412-902-6618 (international).

An online archive of the broadcast will be available until July 18, 2018.

The Company's reporting date for fiscal 2018 fourth quarter and full year results is scheduled for October 30, 2018.

About MSC Industrial Supply Co. MSC Industrial Supply Co. (NYSE:MSM) is a leading North American distributor of metalworking and maintenance, repair, and operations (MRO) products and services. We help our customers drive greater productivity, profitability and growth with more than 1 million products, inventory management and other supply chain solutions, and deep expertise from over 75 years of working with customers across industries.

Our experienced team of approximately 6,500 associates is dedicated to working side by side with our customers to help drive results for their businesses - from keeping operations running efficiently today to continuously rethinking, retooling, and optimizing for a more productive tomorrow.

For more information on MSC, please visit mscdirect.com.

Note Regarding Forward-Looking Statements:
Statements in this Press Release may constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, that address activities, events or developments that we expect, believe or anticipate will or may occur in the future, including statements about expected future results, expected benefits from our investment and strategic plans, including from our recent acquisitions, and expected future margins, are forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The inclusion of any statement in this release does not constitute an admission by MSC or any other person that the events or circumstances described in such statement are material. Factors that could cause actual results to differ materially from those in forward-looking statements include: general economic conditions in the markets in which we operate, changing customer and product mixes, competition, including the adoption by competitors of aggressive pricing strategies and sales methods, industry consolidation, volatility in commodity and energy prices, the outcome of government or regulatory proceedings or future litigation, credit risk of our customers, risk of cancellation or rescheduling of orders, work stoppages or other business interruptions (including those due to extreme weather conditions) at transportation centers, shipping ports, our headquarters or our customer fulfillment centers, dependence on our information systems and the risk of business disruptions arising from changes to our information systems, disruptions due to computer system or network failures, computer viruses, physical or electronics break-ins and cyber-attacks, retention of key personnel, the loss of key suppliers or supply chain disruptions, risks associated with changes to trade policies, failure to comply with applicable environmental, health and safety laws and regulations, goodwill and intangible assets recorded as a result of our acquisitions could be impaired, risks associated with the integration of acquired businesses or other strategic transactions, and financial restrictions on outstanding borrowings. Additional information concerning these and other risks is described under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the reports on Forms 10-K and 10-Q that we file with the U.S. Securities and Exchange Commission. We assume no obligation to update any of these forward-looking statements. 

 

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands)



 June 2,


September 2,


2018


2017

ASSETS

(unaudited)




Current Assets:






Cash and cash equivalents

$

39,993


$

16,083

Accounts receivable, net of allowance for doubtful accounts


510,832



471,795

Inventories


512,303



464,959

Prepaid expenses and other current assets


53,057



52,742

Total current assets


1,116,185



1,005,579

Property, plant and equipment, net


311,264



316,305

Goodwill


672,785



633,728

Identifiable intangibles, net


125,773



110,429

Other assets


29,725



32,871

Total assets

$

2,255,732


$

2,098,912







LIABILITIES AND SHAREHOLDERS' EQUITY






Current Liabilities:






Short-term debt

$

284,217


$

331,986

Accounts payable


133,679



121,266

Accrued liabilities


110,597



104,473

Total current liabilities


528,493



557,725

Long-term debt


251,304



200,991

Deferred income taxes and tax uncertainties


76,881



115,056

Total liabilities


856,678



873,772

Commitments and Contingencies






Shareholders' Equity:






Preferred Stock


—



—

Class A common stock


55



54

Class B common stock


10



12

Additional paid-in capital


663,399



626,995

Retained earnings


1,331,788



1,168,812

Accumulated other comprehensive loss


(18,968)



(17,263)

Class A treasury stock, at cost


(577,230)



(553,470)

Total shareholders' equity


1,399,054



1,225,140

Total liabilities and shareholders' equity

$

2,255,732


$

2,098,912

 

 

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)



Thirteen Weeks Ended


Thirty-Nine Weeks Ended


 June 2,


June 3,


 June 2,


June 3,


2018


2017


2018


2017

Net sales

$

828,345


$

743,923


$

2,365,893


$

2,133,974

Cost of goods sold


467,344



414,423



1,332,600



1,181,177

Gross profit


361,001



329,500



1,033,293



952,797

Operating expenses


245,619



227,724



720,530



673,776

Income from operations


115,382



101,776



312,763



279,021

Other (expense) income:












Interest expense


(3,532)



(3,361)



(10,319)



(9,245)

Interest income


108



169



484



496

Other (expense) income, net


(141)



(2)



(472)



(340)

Total other expense


(3,565)



(3,194)



(10,307)



(9,089)

Income before provision for income taxes


111,817



98,582



302,456



269,932

Provision for income taxes


32,748



35,746



46,250



99,249

Net income

$

79,069


$

62,836


$

256,206


$

170,683

Per Share Information:












Net income per common share:












Basic

$

1.40


$

1.10


$

4.54


$

3.01

Diluted

$

1.39


$

1.09


$

4.51


$

2.98

Weighted average shares used in computing
   net income per common share:












Basic


56,420



56,779



56,382



56,593

Diluted


56,804



57,264



56,733



57,028

Cash dividends declared per common share

$

0.58


$

0.45


$

1.64


$

1.35

 

 

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)















Thirteen Weeks Ended


Thirty-Nine Weeks Ended


 June 2,


June 3,


 June 2,


June 3,


2018


2017


2018


2017

Net income, as reported

$

79,069


$

62,836


$

256,206


$

170,683

Foreign currency translation adjustments


(889)



87



(1,705)



(2,161)

Comprehensive income

$

78,180


$

62,923


$

254,501


$

168,522


 

 


MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)








Thirty-Nine Weeks Ended


 June 2,


June 3,


2018


2017

Cash Flows from Operating Activities:






Net income

$

256,206


$

170,683

Adjustments to reconcile net income to net cash provided by operating activities:






Depreciation and amortization    


47,133



46,737

Stock-based compensation


11,275



10,375

Loss on disposal of property, plant, and equipment


280



317

Provision for doubtful accounts


4,956



4,713

Deferred income taxes and tax uncertainties


(41,199)



—

Write-off of deferred financing costs on previous credit facility


—



94

Changes in operating assets and liabilities:






Accounts receivable


(34,434)



(50,730)

Inventories


(26,740)



(22,834)

Prepaid expenses and other current assets


1,005



(4,547)

Other assets


3,191



2,259

Accounts payable and accrued liabilities


8,564



2,064

Total adjustments


(25,969)



(11,552)

Net cash provided by operating activities


230,237



159,131

Cash Flows from Investing Activities:






    Expenditures for property, plant and equipment


(30,794)



(37,923)

    Cash used in business acquisition


(85,845)



—

Net cash used in investing activities


(116,639)



(37,923)

Cash Flows from Financing Activities:






Repurchases of common stock


(25,384)



(3,392)

Payments of cash dividends


(92,633)



(76,632)

Proceeds from sale of Class A common stock in connection with associate stock purchase plan


3,398



3,165

Proceeds from exercise of Class A common stock options


23,135



22,600

Borrowings under Credit Facility


172,000



439,000

Borrowings under Shelf Facility Agreement


50,000



—

Payments of notes payable and revolving credit note under the Credit Facility


(220,000)



(529,500)

Other, net


(225)



(1,707)

Net cash used in financing activities


(89,709)



(146,466)

Effect of foreign exchange rate changes on cash and cash equivalents


21



(54)

Net increase (decrease) in cash and cash equivalents


23,910



(25,312)

Cash and cash equivalents – beginning of year


16,083



52,890

Cash and cash equivalents – end of year

$

39,993


$

27,578

Supplemental Disclosure of Cash Flow Information:






Cash paid for income taxes

$

76,753


$

91,711

Cash paid for interest

$

8,231


$

7,350

 

Non-GAAP Financial Measures

  • Results excluding DECO Tool Supply Co (DECO) and All Integrated Solutions (AIS), collectively "Acquisitions"

To supplement MSC's unaudited selected financial data presented consistent with Generally Accepted Accounting Principles ("GAAP"), the Company discloses certain non-GAAP financial measures, including Non-GAAP net sales, non-GAAP gross profit, non-GAAP income from operations, non-GAAP (benefit) provision for income taxes, non-GAAP net income and non-GAAP diluted earnings per share, that exclude the results of our acquisitions of DECO Tool Supply Co. ("DECO") on July 31, 2017 and All Integrated Solutions ("AIS") on April 30, 2018, collectively, "Acquisitions".

These non-GAAP measures are not in accordance with or an alternative for GAAP, and may be different from non-GAAP measures used by other companies.  We believe that these non-GAAP measures have limitations in that they do not reflect MSC's results of operations as determined in accordance with GAAP, and that these measures should only be used to evaluate MSC's results of operations in conjunction with the corresponding GAAP measures.  The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures.  We compensate for the limitations of non-GAAP financial measures by relying upon GAAP results to gain a complete picture of the Company's performance.

In calculating non-GAAP financial measures, we exclude the results of our Acquisitions to facilitate a review of the Company's operating performance on a period-to-period basis, for comparison with forecasts and strategic plans, and for benchmarking performance externally against competitors. We believe that investors benefit from seeing results "through the eyes" of management in addition to seeing GAAP results. We believe that these non-GAAP measures, when read in conjunction with the Company's GAAP financials, provide useful information to investors by offering:

  • the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results;
  • the ability to better identify trends in the Company's underlying business and perform related trend analyses;
  • a better understanding of how management plans and measures the Company's underlying business; and
  • an easier way to compare the Company's operating results against analyst financial models and operating results of competitors that supplement their GAAP results with non-GAAP financial measures

 































MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES


Reconciliation of GAAP and Non-GAAP Information


Thirteen and Thirty-Nine Weeks Ended June 2, 2018


(dollars in thousands, except per share data)
































GAAP Measure


Items Affecting Comparability


Non-GAAP Measure



GAAP Measure


Non-GAAP Measure


Net Sales


Acquisitions


Net Sales, excluding
Acquisitions



Average Daily Sales Growth


Average Daily Sales Growth,
excluding Acquisitions


Thirteen
Weeks Ended


Thirty-Nine

Weeks Ended


Thirteen
Weeks Ended


Thirty-Nine

Weeks Ended


Thirteen
Weeks Ended


Thirty-Nine

Weeks Ended



Thirteen
Weeks Ended


Thirty-Nine

Weeks Ended


Thirteen
Weeks Ended


Thirty-Nine

Weeks Ended

June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018



June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018

$

828,345


$

2,365,893


$

39,394


$

99,031


$

788,951


$

2,266,862



11.4

%


10.9

%


6.1

%


6.2

%































GAAP Measure


Items Affecting Comparability


Non-GAAP Measure



GAAP Measure


Non-GAAP Measure


Gross Profit


Acquisitions


Gross Profit, excluding
Acquisitions



Gross Margin


Gross Margin, excluding Acquisitions


Thirteen
Weeks Ended


Thirty-Nine

Weeks Ended


Thirteen
Weeks Ended


Thirty-Nine

Weeks Ended


Thirteen
Weeks Ended


Thirty-Nine

Weeks Ended



Thirteen
Weeks Ended


Thirty-Nine

Weeks Ended


Thirteen
Weeks Ended


Thirty-Nine

Weeks Ended

June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018



June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018

$

361,001


$

1,033,293


$

8,578


$

21,666


$

352,423


$

1,011,627



43.6

%


43.7

%


44.7

%


44.6

%





























































GAAP Measure


Items Affecting Comparability


Non-GAAP Measure



GAAP Measure


Non-GAAP Measure


Operating Expenses


Acquisitions


Operating Expenses, excluding Acquisitions



Operating Expenses as a percentage
of Net Sales


Operating Expenses as a 
percentage of Net Sales,
excluding Acquisitions


Thirteen
Weeks Ended


Thirty-Nine
Weeks Ended


Thirteen
Weeks Ended


Thirty-Nine
Weeks Ended


Thirteen
Weeks Ended


Thirty-Nine
Weeks Ended



Thirteen
Weeks Ended


Thirty-Nine
Weeks Ended


Thirteen
Weeks Ended


Thirty-Nine
Weeks Ended

June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018



June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018

$

245,619


$

720,530


$

7,511


$

19,671


$

238,108


$

700,859



29.7

%


30.5

%


30.2

%


30.9

%































GAAP Measure


Items Affecting Comparability


Non-GAAP Measure



GAAP Measure


Non-GAAP Measure


Operating Income


Acquisitions


Operating Income, excluding Acquisitions



Operating Margin


Operating Margin, excluding Acquisitions


Thirteen
Weeks Ended


Thirty-Nine
Weeks Ended


Thirteen
Weeks Ended


Thirty-Nine
Weeks Ended


Thirteen
Weeks Ended


Thirty-Nine
Weeks Ended



Thirteen
Weeks Ended


Thirty-Nine
Weeks Ended


Thirteen
Weeks Ended


Thirty-Nine
Weeks Ended

June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018



June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018

$

115,382


$

312,763


$

1,068


$

1,996


$

114,314


$

310,767



13.9

%


13.2

%


14.5

%


13.7

%































GAAP Measure


Items Affecting Comparability


Non-GAAP Measure














Provision
for income taxes


Acquisitions


Provision for income taxes, excluding Acquisitions














Thirteen
Weeks Ended


Thirty-Nine
Weeks Ended


Thirteen
Weeks Ended


Thirty-Nine
Weeks Ended


Thirteen
Weeks Ended


Thirty-Nine
Weeks Ended














June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018














$

32,748


$

46,250


$

107


$

234


$

32,641


$

46,016












































GAAP Measure


Items Affecting Comparability


Non-GAAP Measure














Net Income


Acquisitions


Net Income, excluding
Acquisitions














Thirteen
Weeks Ended


Thirty-Nine
Weeks Ended


Thirteen
Weeks Ended


Thirty-Nine
Weeks Ended


Thirteen
Weeks Ended


Thirty-Nine
Weeks Ended














June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018














$

79,069


$

256,206


$

256


$

561


$

78,813


$

255,645












































GAAP Measure


Items Affecting Comparability


Non-GAAP Measure














Diluted Earnings Per Share


Acquisitions


Diluted Earnings Per Share, excluding Acquisitions














Thirteen
Weeks Ended


Thirty-Nine
Weeks Ended


Thirteen
Weeks Ended


Thirty-Nine
Weeks Ended


Thirteen
Weeks Ended


Thirty-Nine
Weeks Ended














June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018


June 2, 2018














$

1.39


$

4.51


$

-


$

0.01


$

1.39


$

4.50












































 

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SOURCE MSC Industrial Supply Co.