MSC Reports Fiscal 2020 Fourth Quarter And Full Year Results

Rhea-AI Summary

MSC Industrial Supply Co. reported Q4 2020 net sales of $747.7 million, down 11.3% year-over-year. Operating income decreased to $72.9 million, reflecting a 19.4% decline compared to the previous year. Diluted EPS fell to $0.94 from $1.20. For the full fiscal year 2020, net sales totaled $3.2 billion, a 5.1% decrease. Adjusted diluted EPS for FY20 was $4.74, down from $5.29. The company highlighted a challenging industrial demand environment amid COVID-19 but noted growth in safety and janitorial product sales.

Positive

• Sales of safety and janitorial products grew year-over-year by roughly 20% per month.
• Implemented swift cost containment measures improved gross margins.
• Healthy balance sheet and liquidity post significant debt repayment.
• Mission Critical program aims for above-market growth of at least 400 basis points over the next three years.

Negative

• Net sales decreased 11.3% YoY in Q4.
• Operating income fell by 19.4% in the fourth quarter.
• Diluted EPS dropped 21.7% compared to the prior year.
• Overall gross margin declined by 40 basis points due to PPE mix headwinds.

MELVILLE, N.Y. and DAVIDSON, N.C., Oct. 27, 2020 /PRNewswire/ --

FISCAL Q4 2020 HIGHLIGHTS

• Net sales of $747.7 million, a decrease of 11.3% YoY (12.7% decrease on an ADS basis)
• Operating income of $72.9 million, or $84.1 million excluding restructuring and related costs of $11.2 million*
• Operating margin of 9.8%, or 11.2% excluding restructuring and other related costs*
• Diluted EPS of $0.94 vs. $1.20 in the prior year quarter
• Adjusted diluted EPS of $1.09 vs. $1.30 in the prior year quarter*

FISCAL 2020 HIGHLIGHTS

• Net sales of $3.2 billion, a decrease of 5.1% YoY
• Operating income of $350.7 million, or $367.8 million excluding restructuring and related costs of $17.0 million*^,**
• Operating margin of 11.0%, or 11.5% excluding restructuring and other related costs*
• Diluted EPS of $4.51 vs. $5.20 in the prior year
• Adjusted diluted EPS of $4.74 vs. $5.29 in the prior year*

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 2020 fourth quarter and full year ended August 29, 2020. The quarter had one more selling day compared to the prior year period.

Financial Highlights1		FY20 Q4		FY19 Q4		Change		FY20		FY19		Change
Net Sales		$747.7		$842.7		-11.3%		$3,192.4		$3,363.8		-5.1%
Operating Income		72.9		90.5		-19.4%		350.7		400.0		-12.3%
% of Net Sales		9.8%		10.7%				11.0%		11.9%
Net Income attributable to MSC Industrial		52.5		66.6		-21.2%		251.1		288.9		-13.1%
Diluted EPS		$0.94	.2	$1.20	.3	-21.7%		$4.51	.2	$5.20	.3	-13.3%

1In millions unless otherwise noted. 2Based on 55.8 million and 55.6 million diluted shares outstanding for FY20 Q4 and FY20, respectively. 3Based on 55.3 and 55.5 million diluted shares outstanding for FY19 Q4 and FY19, respectively.

Erik Gershwind, president and chief executive officer, said, "Our fiscal fourth quarter reflects continued solid execution in a weak industrial demand environment. Most manufacturing end markets remain soft given COVID-19 uncertainty. We did, however, see sequential improvement in sales of non-safety and non-janitorial products. Sales of safety and janitorial products also continued growing year-over-year at roughly 20% percent each month on average and for the quarter. Overall gross margin for the quarter declined 40 basis points, reflecting PPE mix headwinds and underlying gross margin stability due to strong realization from our annual price increase, and continued benefits from our supplier programs."

Kristen Actis-Grande, executive vice president and chief financial officer, added, "Average daily sales were $11.7 million for the quarter as industrial demand remained weak. While our reported operating margin was down 90 basis points versus the prior year, excluding restructuring and other related costs, adjusted operating margin was down only 30 basis points. We implemented swift cost containment measures due to COVID-19 and took structural cost actions in the quarter. After significant debt repayment, our balance sheet and liquidity position remain very healthy."

Gershwind concluded, "We have been repositioning MSC from a spot buy supplier to a mission critical partner on the plant floor of our industrial customers over the last few years. Over the next three years, we will be taking measurable action to reaccelerate market share capture and improve profitability in a program named Mission Critical. The 2023 targets for this program are above market growth of at least 400 basis points and ROIC in the high-teens."

^* An explanation and reconciliation of non-GAAP financial measures to GAAP financial measures is presented in schedules following this press release
^** Individual amounts may not agree to the total due to rounding

Conference Call Information

MSC will host a conference call today at 8:30 a.m. EST to review the Company's fiscal 2020 fourth quarter and full year 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 November 3, 2020.

The Company's reporting date for fiscal first quarter 2021 is scheduled for January 6, 2021. 

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 1.8 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 more than 6,300 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 the impact of COVID-19 on our business operations, results of operations and financial condition, expected future results, expected benefits from our investment and strategic plans and other initiatives, and expected future growth, profitability and ROIC, 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 the following, many of which are and will be amplified by the COVID-19 pandemic: the effects of the COVID-19 pandemic, including any future resurgences, on our business operations, results of operations and financial condition; 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 and other changes in the industrial distribution sector; our ability to realize the expected benefits from our investment and strategic plans, including our transition from a spot-buy supplier to a mission-critical partner; our ability to realize the expected cost savings and benefits from our restructuring activities; retention of key personnel and qualified sales and customer service personnel and metalworking specialists; volatility in commodity and energy prices; the outcome of government or regulatory proceedings or future litigation; credit risk of our customers; risk of customer cancellation or rescheduling of orders; difficulties in calibrating customer demand for our products, in particular personal protective equipment or "PPE" products, which could cause an inability to sell excess products ordered from manufacturers resulting in inventory write-downs or could conversely cause inventory shortages of such products; 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; disruptions or breaches of our information systems, or violations of data privacy laws; risk of loss of key suppliers, key brands or supply chain disruptions; changes to trade policies, including the impact from significant restrictions or tariffs; risks associated with opening or expanding our customer fulfillment centers; litigation risk due to the nature of our business; risks associated with the integration of acquired businesses or other strategic transactions; financial restrictions on outstanding borrowings; our ability to maintain our credit facilities; interest rate uncertainty due to LIBOR reform; failure to comply with applicable environmental, health and safety laws and regulations; and goodwill and intangible assets recorded as a result of our acquisitions could be impaired. 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 Consolidated Balance Sheets (In thousands)
	August 29,			August 31,
	2020			2019
ASSETS
Current Assets:
Cash and cash equivalents	$	125,211		$	32,286
Accounts receivable, net of allowance for doubtful accounts		491,743			541,091
Inventories		543,106			559,136
Prepaid expenses and other current assets		77,710			67,099
Total current assets		1,237,770			1,199,612
Property, plant and equipment, net		301,979			310,854
Goodwill		677,579			677,266
Identifiable intangibles, net		104,873			116,668
Operating lease assets		56,173			—
Other assets		4,056			6,837
Total assets	$	2,382,430		$	2,311,237
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of debt including obligations under finance leases	$	122,248		$	175,453
Current portion of operating lease liabilities		21,815			—
Accounts payable		125,775			160,110
Accrued expenses and other current liabilities		138,895			111,353
Total current liabilities		408,733			446,916
Long-term debt including obligations under finance leases		497,018			266,431
Noncurrent operating lease liabilities		34,379			—
Deferred income taxes and tax uncertainties		121,727			114,011
Total liabilities		1,061,857			827,358
Commitments and Contingencies
Shareholders' Equity:
Preferred Stock		—			—
Class A common stock		47			46
Class B common stock		10			10
Additional paid-in capital		690,739			659,226
Retained earnings		749,515			946,651
Accumulated other comprehensive loss		(21,418)			(22,776)
Class A treasury stock, at cost		(103,948)			(104,607)
Total MSC Industrial shareholders' equity		1,314,945			1,478,550
Noncontrolling interest		5,628			5,329
Total shareholders' equity		1,320,573			1,483,879
Total liabilities and shareholders' equity	$	2,382,430		$	2,311,237

 

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES Consolidated Statements of Income (In thousands, except per share data)
	(Unaudited)
	Quarters Ended						Fiscal Years Ended
	August 29,			August 31,			August 29,			August 31,
	2020			2019			2020			2019
Net sales	$	747,732		$	842,670		$	3,192,399		$	3,363,817
Cost of goods sold		436,620			489,081			1,849,077			1,931,774
Gross profit		311,112			353,589			1,343,322			1,432,043
Operating expenses		238,192			263,075			992,582			1,032,047
Income from operations		72,920			90,514			350,740			399,996
Other income (expense):
Interest expense		(4,556)			(3,730)			(16,673)			(16,890)
Interest income		82			14			333			518
Other (expense) income, net		359			(165)			(150)			(495)
Total other expense		(4,115)			(3,881)			(16,490)			(16,867)
Income before provision for income taxes		68,805			86,633			334,250			383,129
Provision for income taxes		16,169			20,012			82,492			94,332
Net income		52,636			66,621			251,758			288,797
Less: Net income (loss) attributable to noncontrolling interest		140			13			641			(68)
Net income attributable to MSC Industrial	$	52,496		$	66,608		$	251,117		$	288,865
Per Share Information:
Net income per common share:
Basic	$	0.94		$	1.21		$	4.53		$	5.23
Diluted	$	0.94		$	1.20		$	4.51		$	5.20
Weighted average shares used in computing    net income per common share:
Basic		55,585			55,184			55,472			55,245
Diluted		55,763			55,336			55,643			55,508

 

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (In thousands)
	Fiscal Years Ended
	August 29,			August 31,
	2020			2019
Net income, as reported	$	251,758		$	288,797
Other comprehensive income, net of tax:
Foreign currency translation adjustments		1,016			(3,404)
Comprehensive income (1)		252,774			285,393
Comprehensive income attributable to noncontrolling interest:
Less: Net income		(641)			68
Foreign currency translation adjustments		342			262
Comprehensive income attributable to MSC Industrial	$	252,475		$	285,723
(1) There were no material taxes associated with other comprehensive income during fiscal years 2020 and 2019.

 

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands)
	Fiscal Years Ended
	August 29,			August 31,
	2020			2019
Cash Flows from Operating Activities:
Net income	$	251,758		$	288,797
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		69,079			65,377
Operating lease non-cash expense		22,696			—
Stock-based compensation		16,932			16,283
Loss on disposal of property, plant, and equipment		802			416
Provision for doubtful accounts		11,008			10,763
Deferred income taxes		7,719			14,297
Changes in operating assets and liabilities, net of amounts associated with business acquired:
Accounts receivable		36,772			(26,948)
Inventories		16,462			(32,528)
Prepaid expenses and other current assets		(11,540)			(8,316)
Operating lease liabilities		(22,184)			—
Other assets		2,809			(2,064)
Accounts payable and accrued liabilities		(5,574)			2,349
Total adjustments		144,981			39,629
Net cash provided by operating activities		396,739			328,426
Cash Flows from Investing Activities:
Expenditures for property, plant and equipment		(46,991)			(51,773)
Proceeds from sale of available for sale securities		—			27,025
Cash used in business acquisitions, net of cash acquired		(2,286)			(11,625)
Net cash used in investing activities		(49,277)			(36,373)
Cash Flows from Financing Activities:
Repurchases of common stock		(3,444)			(84,611)
Payments of regular cash dividends		(166,537)			(145,709)
Payment of special cash dividends		(277,634)
Proceeds from sale of Class A common stock in connection with associate stock purchase plan		4,140			4,600
Proceeds from exercise of Class A common stock options		13,687			15,640
Borrowings under Credit facilities		1,012,200			382,000
Payments on the revolving credit facilities		(916,000)			(451,000)
Contributions from noncontrolling interest		104			918
Proceeds from other long-term debt		100,000			—
Payments under Shelf Facility and Private Placement		(20,000)			—
Payments on finance leases and financing obligations		(2,189)			(28,370)
Other, net		1,055			903
Net cash used in financing activities		(254,618)			(305,629)
Effect of foreign exchange rate changes on cash and cash equivalents		81			(355)
Net increase (decrease) in cash and cash equivalents		92,925			(13,931)
Cash and cash equivalents – beginning of year		32,286			46,217
Cash and cash equivalents – end of year	$	125,211		$	32,286
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes	$	68,929		$	79,334
Cash paid for interest	$	14,973		$	16,648

 

Non-GAAP Financial Measures

• Results excluding Restructuring and Other Related Costs

To supplement MSC's unaudited and audited selected financial data presented consistent with GAAP, the Company discloses certain non-GAAP financial measures, including Non-GAAP net sales, non-GAAP gross profit, non-GAAP operating expenses, non-GAAP income from operations, non-GAAP provision for income taxes, non-GAAP net income and non-GAAP diluted earnings per share, that exclude restructuring and other related costs.

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 restructuring and other related costs, and the related tax effects, 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 Weeks and Year Ended August 29, 2020
(dollars in thousands, except per share data)
	GAAP Measure						Items Affecting Comparability						Non-GAAP Measure
	Total MSC						Restructuring and Other Related Costs						Excluding Restructuring and Other Related Costs
	Thirteen Weeks Ended			Year Ended			Thirteen Weeks Ended			Year Ended			Thirteen Weeks Ended			Year Ended
	August 29, 2020			August 29, 2020			August 29, 2020			August 29, 2020			August 29, 2020			August 29, 2020
Net Sales	$	747,732		$	3,192,399		$			$			$	747,732		$	3,192,399
ADS Growth %		(12.7)%			(5.1)%			-			-			(12.7)%			(5.1)%
Cost of Goods Sold		436,620			1,849,077			-			-			436,620			1,849,077
Gross Profit		311,112			1,343,322			-			-			311,112			1,343,322
Gross Margin		41.6%			42.1%			-			-			41.6%			42.1%
Operating Expense		238,192			992,582			11,158			17,029	(1)		227,034			975,553
Operating Exp as % of Sales		31.9%			31.1%			1.5%			0.5%			30.4%			30.6%
Income from Operations		72,920			350,740			(11,158)			(17,029)			84,078			367,769
Operating Margin		9.8%			11.0%			(1.5)%			(0.5)%			11.2%			11.5%
Total Other Expense		(4,115)			(16,490)			-			-			(4,115)			(16,490)
Income before provision for income taxes		68,805			334,250			(11,158)			(17,029)			79,963			351,279
Provision for income taxes		16,169			82,492			(2,622)			(4,206)			18,791			86,698
Net income		52,636			251,758			(8,536)			(12,823)			61,172			264,581
Net income (loss) attributable to noncontrolling interest		140			641			-			-			140			641
Net income attributable to MSC Industrial	$	52,496		$	251,117		$	(8,536)		$	(12,823)		$	61,032		$	263,940
Net income per common share:
Diluted	$	0.94		$	4.51		$	(0.15)		$	(0.23)		$	1.09		$	4.74

(1)Restructuring and Other Related Costs were incurred in each fiscal quarter as follows: $2,571 in fiscal Q1, $1,941 in fiscal Q2, $1,359 in fiscal Q3, and $11,158 in fiscal Q4.

 

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
Reconciliation of GAAP and Non-GAAP Information
Thirteen Weeks and Year Ended August 31, 2019
(dollars in thousands, except per share data)
	GAAP Measure						Items Affecting Comparability						Non-GAAP Measure
	Total MSC						Restructuring and Other Related Costs						Excluding Restructuring and Other Related Costs
	Thirteen Weeks Ended			Year Ended			Thirteen Weeks Ended			Year Ended			Thirteen Weeks Ended			Year Ended
	August 31, 2019			August 31, 2019			August 31, 2019			August 31, 2019			August 31, 2019			August 31, 2019
Net Sales	$	842,670		$	3,363,817		$	-		$	-		$	842,670		$	3,363,817
ADS Growth %		2.1%			5.8%									2.1%			5.8%
Cost of Goods Sold		489,081			1,931,774			-			-			489,081			1,931,774
Gross Profit		353,589			1,432,043			-			-			353,589			1,432,043
Gross Margin		42.0%			42.6%			-			-			42.0%			42.6%
Operating Expense		263,075			1,032,047			6,725			6,725			256,350			1,025,322
Operating Exp as % of Sales		31.2%			30.7%			0.8%			0.2%			30.4%			30.5%
Income from Operations		90,514			399,996			(6,725)			(6,725)			97,239			406,721
Operating Margin		10.7%			11.9%			-0.8%			-0.2%			11.5%			12.1%
Total Other Expense		(3,881)			(16,867)			-			-			(3,881)			(16,867)
Income before provision for income taxes		86,633			383,129			(6,725)			(6,725)			93,358			389,854
Provision for income taxes		20,012			94,332			(1,554)			(1,554)			21,566			95,886
Net income		66,621			288,797			(5,171)			(5,171)			71,792			293,968
Net income (loss) attributable to noncontrolling interest		13			(68)			-			-			13			(68)
Net income attributable to MSC Industrial	$	66,608		$	288,865		$	(5,171)		$	(5,171)		$	71,779		$	294,036
Net income per common share:
Diluted	$	1.20		$	5.20		$	(0.09)		$	(0.09)		$	1.30		$	5.29

 

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SOURCE MSC Industrial Supply Co.

FAQ

What were MSC Industrial's Q4 2020 financial results?

MSC Industrial reported $747.7 million in net sales for Q4 2020, an 11.3% decrease year-over-year, with diluted EPS at $0.94.

How did MSC Industrial perform in fiscal year 2020?

For FY 2020, MSC Industrial's net sales totaled $3.2 billion, reflecting a 5.1% decline, with diluted EPS at $4.51.

What is the Mission Critical program by MSC Industrial?

The Mission Critical program aims to reaccelerate market share capture and improve profitability, targeting above-market growth of at least 400 basis points over the next three years.

What challenges did MSC Industrial face in Q4 2020?

The company faced a weak industrial demand environment due to COVID-19, leading to decreased overall sales and operating income.