MSC Reports Fiscal 2020 Third Quarter Results

Rhea-AI Summary

MSC Industrial Supply Co. reported fiscal Q3 2020 results, showing net sales of $835.0 million, a 3.6% decline from the previous year. Operating income slightly decreased to $109.9 million. Despite a strong operating margin of 13.2%, diluted EPS fell to $1.40, down 2.8% year-over-year. The CEO noted overall weakness in industrial demand, especially in metalworking markets like automotive and aerospace, partially offset by heightened demand for safety products. Looking ahead, the company will not provide quarterly EPS guidance due to uncertainty.

Positive

• Operating margin improved to 13.2%, a 40 basis point increase year-over-year.
• Achieved strong price realization on March price increase and successful supplier initiatives.

Negative

• Net sales decreased by 3.6% compared to the same quarter last year.
• Diluted EPS declined by 2.8% year-over-year.
• Operating income fell by 0.6%, and year-to-date income decreased by 10.2%.

MELVILLE, N.Y. and DAVIDSON, N.C., July 8, 2020 /PRNewswire/ --

 

FISCAL Q3 2020 HIGHLIGHTS

• Net sales of $835.0 million, a 3.6% YoY decrease
• Operating income of $109.9 million, compared to $110.5 million in the prior year
• Operating margin of 13.2%, 40 basis points above the prior year period
• Diluted EPS of $1.40, compared to $1.44 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 third quarter ended May 30, 2020.

Financial Highlights1	FY20 Q3		FY19 Q3		Change		FY20 YTD		FY19 YTD		Change
Net Sales	$835.0		$866.5		-3.6%		$2,444.7		$2,521.1		-3.0%
Operating Income	109.9		110.5		-0.6%		277.8		309.5		-10.2%
% of Net Sales	13.2%		12.8%				11.4%		12.3%
Net Income attributable to MSC Industrial	77.7		79.6		-2.4%		198.6		222.3		-10.6%
Diluted EPS	$1.40 2		$1.44 3		-2.8%		$3.57 2		$4.00 3		-10.8%

1In millions except per share data or as otherwise noted. 2Based on 55.6 million diluted shares outstanding for both FY20 Q3 and FY20 YTD, respectively. 3Based on 55.4 million and 55.6 million diluted shares outstanding for FY19 Q3 and FY19 YTD, respectively.

Erik Gershwind, president and chief executive officer, said, "Our company rose to the occasion in the face of the most severe crisis most of us have seen in our lifetimes. Our fiscal third quarter results reflect strong execution in a tough environment. Weakness in industrial demand was pretty much across the board, with sustained and acute softness in metalworking-centric end markets such as automotive, aerospace, and oil and gas. Our own results for the quarter benefitted from the surge in demand for safety and janitorial products, but this was more than offset by the COVID-19 impacts on the rest of the business. The surge in demand for safety and janitorial supplies subsided in fiscal June, while customer re-openings only provided a modest improvement in underlying sales levels. This reflected continuing softness in end-market fundamentals, as well as customers opening very gradually with reduced hours."

Greg Clark, vice president and interim chief financial officer, added, "Our average daily sales were $13.0 million in the third quarter. Our Q3 reported gross margin was 42.4%, and our year-over-year gross margin decline continued to shrink as we achieved strong price realization on our March price increase, had good success with our supplier initiatives, and as purchase cost escalation continued to decline. Our Q3 results also reflected the swift cost containment measures we implemented, which resulted in a 40-basis point expansion in operation margin over the prior year. In addition, our balance sheet remains strong and we have ample room under our debt covenants."

Gershwind continued, "Looking ahead, we remain focused on our three continuing priorities, all centered on expanding operating margins while we continue the repositioning of the company from a spot buy supplier to a mission critical partner on the plant floor. We will resume our sales force refinement efforts and restart our business development hiring. We are building on the recent gross margin momentum driven by improvements in pricing execution and supplier programs and lastly, we have reinitiated the project focused on aligning our operating model to our new strategy."

Outlook

Given the ongoing unprecedented uncertainty and lack of visibility going forward, we will continue not giving quarterly EPS guidance, and will continue providing monthly updates following our month-end close on average daily sales developments, as well as comments on the business trends that we have seen over the course of the month.

Conference Call Information

MSC will host a conference call today at 8:30 a.m. EST to review the Company's fiscal 2020 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 15, 2020.

The Company's reporting date for fiscal 2020 fourth quarter and full year results is scheduled for October 27, 2020.

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 over 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 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 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 the following, many of which are and will be amplified by the COVID-19 pandemic: the effects of the COVID-19 pandemic 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; retention of key personnel; 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; 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; retention of qualified sales and customer service personnel and metalworking specialists; 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; interest rate uncertainty due to LIBOR reform; 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 volatility of our common stock; and our principal shareholders exercise significant control over us. 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)
	May 30,		August 31,
	2020		2019
ASSETS	(unaudited)
Current Assets:
Cash and cash equivalents	$	353,393		$	32,286
Accounts receivable, net of allowance for doubtful accounts		544,446			541,091
Inventories		575,093			559,136
Prepaid expenses and other current assets		83,022			67,099
Total current assets		1,555,954			1,199,612
Property, plant and equipment, net		307,150			310,854
Goodwill		676,262			677,266
Identifiable intangibles, net		107,197			116,668
Operating lease assets		58,321			—
Other assets		4,826			6,837
Total assets	$	2,709,710		$	2,311,237
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of debt including obligations under finance leases	$	310,482		$	175,453
Current portion of operating lease liabilities		21,888			—
Accounts payable		126,938			160,110
Accrued liabilities and other current liabilities		132,703			111,353
Total current liabilities		592,011			446,916
Long-term debt including obligations under finance leases		667,234			266,431
Noncurrent operating lease liabilities		36,163			—
Deferred income taxes and tax uncertainties		114,010			114,011
Total liabilities		1,409,418			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		685,982			659,226
Retained earnings		739,035			946,651
Accumulated other comprehensive loss		(25,582)			(22,776)
Class A treasury stock, at cost		(104,589)			(104,607)
Total MSC Industrial shareholders' equity		1,294,903			1,478,550
Noncontrolling interest		5,389			5,329
Total shareholders' equity		1,300,292			1,483,879
Total liabilities and shareholders' equity	$	2,709,710		$	2,311,237

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
	May 30,		June 1,		May 30,		June 1,
	2020		2019		2020		2019
Net sales	$	834,972		$	866,546		$	2,444,667		$	2,521,147
Cost of goods sold		481,010			497,891			1,412,457			1,442,693
Gross profit		353,962			368,655			1,032,210			1,078,454
Operating expenses		244,110			258,154			754,390			768,972
Income from operations		109,852			110,501			277,820			309,482
Other income (expense):
Interest expense		(5,451)			(4,565)			(12,117)			(13,160)
Interest income		173			178			251			504
Other (expense) income, net		(560)			(95)			(509)			(330)
Total other expense		(5,838)			(4,482)			(12,375)			(12,986)
Income before provision for income taxes		104,014			106,019			265,445			296,496
Provision for income taxes		25,900			26,505			66,323			74,320
Net income		78,114			79,514			199,122			222,176
Less: Net income (loss) attributable to noncontrolling interest		411			(87)			501			(81)
Net income attributable to MSC Industrial	$	77,703		$	79,601		$	198,621		$	222,257
Per share data attributable to MSC Industrial:
Net income per common share:
Basic	$	1.40		$	1.44		$	3.58		$	4.02
Diluted	$	1.40		$	1.44		$	3.57		$	4.00
Weighted average shares used in computing    net income per common share:
Basic		55,563			55,158			55,435			55,266
Diluted		55,599			55,387			55,581			55,556

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
	Thirteen Weeks Ended		Thirty-Nine Weeks Ended
	May 30,		June 1,		May 30,		June 1,
	2020		2019		2020

FAQ

What are MSC's Q3 2020 financial results?

MSC reported net sales of $835.0 million, a 3.6% decrease from Q3 2019.

What impact did COVID-19 have on MSC's business?

COVID-19 caused significant weakness in industrial demand, especially in metalworking sectors.

What is MSC's outlook following Q3 2020?

The company will not provide quarterly EPS guidance due to ongoing uncertainty, opting for monthly updates instead.

How did MSC's operating margin change in Q3 2020?

MSC's operating margin increased to 13.2%, reflecting effective cost containment measures.