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MSC Reports Fiscal 2016 Fourth Quarter And Full Year Results

Nov 1, 2016

MELVILLE, N.Y. and DAVIDSON, N.C., Nov. 1, 2016 /PRNewswire/ --

FISCAL Q4 2016 HIGHLIGHTS

  • Net sales of $745.1 million, increased 2.4% year-over-year (3.6% decline on an Average Daily Sales basis)
  • Gross margin of 44.8% reflecting continued stabilization in an ongoing difficult environment
  • Operating margin of 13.3% resulting from cost containment and ongoing monitoring of discretionary spend
  • GAAP diluted EPS of $1.02

FISCAL 2016 HIGHLIGHTS

  • Net sales of $2.9 billion decreased 1.6% over the prior year (3.5% decline on an ADS basis)
  • GAAP diluted EPS of $3.77

MSC INDUSTRIAL SUPPLY CO. (NYSE: MSM), "MSC" or the "Company," a premier distributor of Metalworking and Maintenance, Repair and Operations ("MRO") supplies to industrial customers throughout North America, today reported financial results for its fiscal 2016 fourth quarter and full year ended September 3, 2016. Both periods included an additional week of operational results as compared to the prior periods.

 














Financial Highlights1


FY16 Q4


FY15 Q4


Change


FY16


FY15


Change

Net Sales


$745.1


$727.4


2.4%


$2,863.5


$2,910.4


(1.6%)

GAAP Operating Income


99.2


95.4


4.0%


376.0


379.5


(0.9%)

% of Net Sales


13.3%


13.1%




13.1%


13.0%



Adjusted Operating Income


99.2


95.7

2

3.7%


376.0


384.0

2

(2.1%)

% of Net Sales


13.3%


13.2%




13.1%


13.2%



GAAP Net Income


61.8


59.0


4.8%


231.2


231.3


0.0%

Adjusted Net Income


61.8


59.2

3

4.5%


231.2


234.1

3

(1.2%)

GAAP Diluted EPS


$1.02

4

$0.96

5

6.3%


$3.77

4

$3.74

5

0.8%

Adjusted Diluted EPS


$1.02

4

$0.96

5

6.3%


$3.77

4

$3.79

5

(0.5%)


1In millions unless noted. 2Excludes non-recurring costs.3Excludes the after tax effects of non-recurring costs.4Based on 60.3 million and 61.1 million diluted shares outstanding for FY16 Q4 and FY16, respectively. 5Based on 61.4 million and 61.5 million diluted shares outstanding for FY15 Q4 and FY15, respectively.

 

Erik Gershwind, president and chief executive officer, said, "Conditions remained very difficult throughout the fourth quarter, much as they have for the past few quarters. Low oil prices and the strong US dollar continued to depress demand, particularly in metalworking and heavy manufacturing. Despite these headwinds, our execution remains strong, including continued share gains, sustained gross margin stabilization and strong expense controls."

Rustom Jilla, executive vice president and chief financial officer, added, "Our diluted EPS for the quarter was $1.02, 4 cents above the mid-point of our guidance range. We continued executing on our gross margin and cost reduction initiatives, but the fourth fiscal quarter's higher EPS was mostly attributable to sales being above guidance. For the full year, we succeeded in delivering an operating margin roughly in line with prior year levels despite lower sales. Finally, our cash flow generation was particularly strong in fiscal 2016, and we returned $500 million to our shareholders through dividends and share buybacks."

Gershwind concluded, "As we look to fiscal 2017, MSC is well positioned regardless of what happens in the industrial economy. Should conditions improve or even just stabilize, the Company is poised for a tremendous growth and leverage story. On the other hand, if difficult conditions persist, we will continue to capitalize on the opportunities a challenging environment creates for MSC, making the future growth and leverage story even more compelling."

Outlook

Based on current market conditions, the Company expects net sales for the first quarter of fiscal 2017 to be between $676 million and $688 million. At the midpoint, average daily sales are expected to decline roughly 3.5%, as compared to last year's first quarter. The Company expects diluted earnings per share for the fiscal first quarter 2017 to be between $0.90 and $0.94.

An explanation and reconciliation of the non-GAAP financial measures contained in this press release to the most directly comparable GAAP financial measures are included in the attached tables.

Conference Call Information

MSC will host a conference call today at 8:30 a.m. EST to review the Company's fiscal 2016 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 8, 2016.

The Company's reporting date for fiscal first quarter 2017 results will be January 11, 2017.

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 more than 6,000 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, 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, current economic, political and social conditions, changing customer and product mixes, competition, industry consolidation, volatility in commodity and energy prices, 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 or shipping ports, financial restrictions on outstanding borrowings, 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, the inability to successfully manage the upgrade of our core financial systems, the loss of key suppliers or supply chain disruptions, problems with successfully integrating acquired operations, opening or expanding our customer fulfillment centers exposes us to risks of delays, the risk of war, terrorism and similar hostilities, dependence on key personnel, goodwill and intangible assets recorded as a result of our acquisitions could be impaired, and the outcome of potential government or regulatory proceedings or future litigation relating to pending or future claims, inquiries or audits. 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)



September 3,


August 29,


2016


2015






ASSETS






Current Assets:






Cash and cash equivalents

$

52,890


$

38,267

Accounts receivable, net of allowance for doubtful accounts


392,463



403,468

Inventories


444,221



506,631

Prepaid expenses and other current assets


45,290



39,067

Deferred income taxes


46,627



44,643

Total current assets


981,491



1,032,076

Property, plant and equipment, net


320,544



291,156

Goodwill


624,081



623,626

Identifiable intangibles, net


105,307



119,805

Other assets


33,528



33,523

Total assets

$

2,064,951


$

2,100,186







LIABILITIES AND SHAREHOLDERS' EQUITY






Current Liabilities:






Revolving credit note

$

217,000


$

188,000

Current maturities of long-term debt


50,050



25,165

Accounts payable


110,601



114,328

Accrued liabilities


100,951



94,494

Total current liabilities


478,602



421,987

Long-term debt, net of current maturities


339,772



214,119

Deferred income taxes and tax uncertainties


148,201



131,210

Total liabilities


966,575



767,316

Commitments and Contingencies






Shareholders' Equity:






Preferred Stock




Class A common stock


53



56

Class B common stock


12



13

Additional paid-in capital


584,017



604,905

Retained earnings


1,040,148



1,232,381

Accumulated other comprehensive loss


(19,098)



(17,252)

Class A treasury stock, at cost


(506,756)



(487,233)

Total shareholders' equity


1,098,376



1,332,870

Total liabilities and shareholders' equity

$

2,064,951


$

2,100,186

 

 

 

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(In thousands, except per share data)



(Unaudited)








Quarters Ended


Fiscal Years Ended


September 3,


August 29,


September 3,


August 29,


2016


2015


2016


2015


(14 weeks)


(13 weeks)


(53 weeks)


(52 weeks)

Net sales

$

745,074


$

727,405


$

2,863,505


$

2,910,379

Cost of goods sold


411,007



400,270



1,574,647



1,593,804

Gross profit


334,067



327,135



1,288,858



1,316,575

Operating expenses


234,821



231,695



912,898



937,046

Income from operations


99,246



95,440



375,960



379,529

Other income (expense):












Interest expense


(1,752)



(1,554)



(5,807)



(6,340)

Interest income


163



165



654



771

Other income (expense), net


12



(449)



924



(819)

Total other expense


(1,577)



(1,838)



(4,229)



(6,388)

Income before provision for income taxes


97,669



93,602



371,731



373,141

Provision for income taxes


35,823



34,580



140,515



141,833

Net income

$

61,846


$

59,022


$

231,216


$

231,308

Per Share Information:












Net income per common share:












Basic

$

1.03


$

0.96


$

3.78


$

3.75

Diluted

$

1.02


$

0.96


$

3.77


$

3.74

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












Basic


60,079



61,283



60,908



61,292

Diluted


60,278



61,413



61,076



61,487

Cash dividends declared per common share

$

0.43


$

0.40


$

1.72


$

4.60

 

 

 

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In thousands)



Fiscal Years Ended


September 3,


August 29,


August 30,


2016


2015


2014


(53 weeks)


(52 weeks)


(52 weeks)

Net income, as reported

$

231,216


$

231,308


$

236,067

Foreign currency translation adjustments


(1,846)



(12,198)



(627)

Comprehensive income

$

229,370


$

219,110


$

235,440

 

 

 

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)



Fiscal Years Ended


September 3,


August 29,


2016


2015


(53 weeks)


(52 weeks)

Cash Flows from Operating Activities:






Net income

$

231,216


$

231,308

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






Depreciation and amortization    


71,930



69,729

Stock-based compensation


13,985



14,195

Loss on disposal of property, plant, and equipment


752



1,453

Provision for doubtful accounts


6,997



6,665

Deferred income taxes and tax uncertainties


15,007



15,035

Excess tax benefits from stock-based compensation


(1,536)



(3,956)

Changes in operating assets and liabilities:






Accounts receivable


2,595



(29,347)

Inventories


61,047



(59,008)

Prepaid expenses and other current assets


(6,303)



1,268

Other assets


142



(1,354)

Accounts payable and accrued liabilities


5,271



3,803

Total adjustments


169,887



18,483

Net cash provided by operating activities


401,103



249,791

Cash Flows from Investing Activities:






    Expenditures for property, plant and equipment


(87,930)



(51,405)

Net cash used in investing activities


(87,930)



(51,405)

Cash Flows from Financing Activities:






Repurchases of common stock


(383,798)



(33,414)

Payments of regular cash dividends


(105,778)



(98,828)

Payments of special cash dividend




(185,403)

Payments on capital lease and financing obligations


(1,090)



(2,290)

Excess tax benefits from stock-based compensation


1,536



3,956

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


4,084



4,285

Proceeds from exercise of Class A common stock options


7,410



11,119

Borrowings under financing obligations


453



530

Borrowings under Credit Facility


305,000



336,000

Proceeds from Private Placement Loan


175,000



Private Placement Loan financing costs


(185)



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


(301,000)



(243,000)

Net cash used in financing activities


(298,368)



(207,045)

Effect of foreign exchange rate changes on cash and cash equivalents


(182)



(228)

Net increase (decrease) in cash and cash equivalents


14,623



(8,887)

Cash and cash equivalents – beginning of year


38,267



47,154

Cash and cash equivalents – end of year

$

52,890


$

38,267

Supplemental Disclosure of Cash Flow Information:






Cash paid for income taxes

$

127,965


$

122,988

Cash paid for interest

$

4,986


$

5,843

 

Non-GAAP Financial Measures

To supplement MSC's unaudited selected financial data presented on a basis consistent with Generally Accepted Accounting Principles ("GAAP"), the Company discloses certain non-GAAP financial measures, including adjusted operating income, adjusted net income, and adjusted net income per diluted share. The adjusted supplemental measures for the thirteen weeks and fiscal year ended August 29, 2015 exclude non-recurring costs associated with the Class C Solutions Group ("CCSG") acquisition and executive transition and separation costs, and related tax effects. There were no adjustments for non-recurring costs for the fourteen weeks and fiscal year ended September 3, 2016. 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 all of the amounts associated with 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 Company performance.

In calculating non-GAAP financial measures, we exclude these non-recurring costs to facilitate a review of the comparability of the Company's operating performance on a period-to-period basis because such costs are not, in our view, related to the Company's ongoing operational performance. We use non-GAAP measures to evaluate the operating performance of our business, for comparison with forecasts and strategic plans, and for benchmarking performance externally against competitors. In addition, we use certain non-GAAP financial measures as performance metrics for management incentive programs. Since we find these measures to be useful, 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; and
  • A better understanding of how management plans and measures the Company's underlying business.

The following tables reconcile GAAP operating income, GAAP net income and GAAP net income per diluted share ("EPS") to non-GAAP adjusted operating income, adjusted net income, and adjusted net income per diluted share:

 








Thirteen Weeks Ended


August 29, 2015


(in thousands)


Margin

GAAP Operating income

$

95,440


13.1

%

Non-recurring costs


236




Adjusted Operating income

$

95,676


13.2

%

 







Thirteen Weeks Ended



August 29, 2015



(in thousands)

Net sales


$

727,405

Cost of goods sold



400,270

Gross profit



327,135

Operating Expenses



231,695

Income from Operations



95,440

Non-recurring costs



236

Adjusted Operating income


$

95,676

 

 










Thirteen Weeks Ended



August 29, 2015

(in thousands, except per share amounts)


$(after tax)


Diluted EPS

GAAP net income


$

59,022


$

0.96

Non-recurring costs*



149



-

Adjusted net income


$

59,171


$

0.96








* On a pre-tax basis includes approximately $236 of non-recurring executive transition costs related to the planned retirement of the Company's Chief Financial Officer for the thirteen weeks ended August 29, 2015. The non-recurring costs were calculated using an effective tax rate of 36.9%.                                                                                                                                                                                                                           

 








Fiscal Year Ended


August 29, 2015


(in thousands)


Margin

GAAP Operating income

$

379,529


13.0

%

Non-recurring costs


4,507




Adjusted Operating income

$

384,036


13.2

%

 

 







Fiscal Year Ended



August 29, 2015



(in thousands)

Net sales


$

2,910,379

Cost of goods sold



1,593,804

Gross profit



1,316,575

Operating Expenses



937,046

Income from Operations



379,529

Non-recurring costs



4,507

Adjusted Operating income


$

384,036

 

 










Fiscal Year Ended



August 29, 2015

(in thousands, except per share amounts)


$(after tax)


Diluted EPS

GAAP net income


$

231,308


$

3.74

Non-recurring costs*



2,794



0.05

Adjusted net income


$

234,102


$

3.79








* On a pre-tax basis includes approximately $1,081 of non-recurring integration costs associated with the CCSG acquisition, approximately $2,706 for non-recurring executive separation costs related to the departure of the Executive Vice President of Sales, and approximately $720 of non-recurring executive transition costs related to the planned retirement of the Company's Chief Financial Officer for the fiscal year ended August 29, 2015. The non-recurring costs were calculated using an effective tax rate of 38.0%.














 

 

SOURCE MSC Industrial Supply Co.

For further information: Investors: John G. Chironna, Vice President, Investor Relations and Treasurer, (704) 987-5231, OR, Media: Paul Mason, Director, Corporate Communications, (704) 987-5313

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