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.