MSC Reports Fiscal 2017 Second Quarter Results

MELVILLE, N.Y. and DAVIDSON, N.C., April 6, 2017 /PRNewswire/ --

FISCAL Q2 2017 HIGHLIGHTS

Net sales of $703.8 million, an increase of 2.9% year-over-year
Gross margin of 44.7%, a 40 basis point decline year-over-year
Operating income of $86.6 million, an increase of 7.6% year-over-year
Operating margin of 12.3%, a 50 basis point increase year-over-year
Diluted EPS of $0.93, or 5 cents above the midpoint of guidance, including a 3 cent income tax benefit*

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 2017 second quarter ended March 4, 2017.


Financial Highlights¹	FY17 Q2		FY16 Q2		Change
Net Sales	$703.8		$684.1		2.9%
Operating Income	86.6		80.5		7.6%
% of Net Sales	12.3%		11.8%
Net Income	53.6		49.5		8.1%
Diluted EPS	$0.93	²	$0.80	³	16.3%
¹In millions unless noted. ²Based on 57.2 million diluted shares outstanding for FY17 Q2. ³Based on 61.3 million diluted shares outstanding for FY16 Q2.

Erik Gershwind, president and chief executive officer, said, "The environment continued to improve during our fiscal second quarter and the momentum sustained into March, the start of our fiscal third quarter. Most of our customers continue to express an improving outlook, particularly those in our core metalworking market. Our fiscal second quarter results reflected these developments."

Rustom Jilla, executive vice president and chief financial officer, added, "Our second quarter growth of 2.9 percent was very welcomed after five quarters of declines in average daily sales. We turned this sales growth into an eight percent increase in operating income, with operating expenses as a percentage of sales declining by about 100 basis points, and operating margin improving roughly 50 basis points, evidence of the leverage potential in our business. Diluted earnings per share was up 16 percent over the prior year, with last August's share buyback and the share-based compensation tax change complementing our business performance."

Gershwind concluded, "We have used the last several years to capitalize on the opportunities presented by the prolonged downturn, and to focus on strengthening our business. Looking to the future, as the environment turns and momentum is building, I see a strong growth and leverage story playing out, particularly if inflation tailwinds continue to build as expected."

Outlook

Based on current market conditions, the Company expects net sales for the third quarter of fiscal 2017 to be between $734 million and $748 million. At the midpoint, average daily sales are expected to increase roughly 3.5 percent compared to last year's third quarter. The Company expects diluted earnings per share for the third quarter of fiscal 2017 to be between $1.05 and $1.09.

Conference Call Information

MSC will host a conference call today at 8:30 a.m. EDT to review the Company's fiscal 2017 second 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 April 13, 2017.

The Company's reporting date for fiscal 2017 third quarter results is scheduled for July 12, 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, worldwide economic, social, political, and regulatory conditions, including conditions that may result from legislative, regulatory and policy changes, 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.

*The Company recorded a reduction to income tax expense of $1.8 million, or $0.03 per share, associated with the adoption of FASB Accounting Standards Update No. 2016-09 ("ASU 2016-09") in the second quarter of fiscal 2017. Under ASU 2016-09, excess tax benefits or deficiencies generated upon the settlement or exercise of stock awards are no longer recognized as additional paid-in capital, but are instead recognized as a reduction or increase to income tax expense.

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)


	March 4,		September 3,
	2017		2016
	(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	35,602	$	52,890
Accounts receivable, net of allowance for doubtful accounts		429,862		392,463
Inventories		464,592		444,221
Prepaid expenses and other current assets		45,771		45,290
Deferred income taxes		—		46,627
Total current assets		975,827		981,491
Property, plant and equipment, net		318,981		320,544
Goodwill		623,296		624,081
Identifiable intangibles, net		101,103		105,307
Other assets		32,310		33,528
Total assets	$	2,051,517	$	2,064,951

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Revolving credit note	$	184,000	$	217,000
Current maturities of long-term debt		94,072		50,050
Accounts payable		124,304		110,601
Accrued liabilities		95,586		100,951
Total current liabilities		497,962		478,602
Long-term debt, net of current maturities		271,060		339,772
Deferred income taxes and tax uncertainties		101,574		148,201
Total liabilities		870,596		966,575
Commitments and Contingencies
Shareholders' Equity:
Preferred Stock		—		—
Class A common stock		53		53
Class B common stock		12		12
Additional paid-in capital		614,253		584,017
Retained earnings		1,096,710		1,040,148
Accumulated other comprehensive loss		(21,346)		(19,098)
Class A treasury stock, at cost		(508,761)		(506,756)
Total shareholders' equity		1,180,921		1,098,376
Total liabilities and shareholders' equity	$	2,051,517	$	2,064,951

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	March 4,		February 27,		March 4,		February 27,
	2017		2016		2017		2016
Net sales	$	703,780	$	684,117	$	1,390,051	$	1,390,936
Cost of goods sold		389,218		375,326		766,754		763,173
Gross profit		314,562		308,791		623,297		627,763
Operating expenses		227,917		228,249		446,052		456,833
Income from operations		86,645		80,542		177,245		170,930
Other (expense) income:
Interest expense		(2,950)		(1,295)		(5,884)		(2,851)
Interest income		164		164		327		327
Other (expense) income, net		(54)		739		(338)		802
Total other expense		(2,840)		(392)		(5,895)		(1,722)
Income before provision for income taxes		83,805		80,150		171,350		169,208
Provision for income taxes		30,246		30,625		63,503		64,654
Net income	$	53,559	$	49,525	$	107,847	$	104,554
Per Share Information:
Net income per common share:
Basic	$	0.94	$	0.81	$	1.90	$	1.70
Diluted	$	0.93	$	0.80	$	1.89	$	1.70
Weighted average shares used in computing net income per common share:
Basic		56,620		61,187		56,500		61,242
Diluted		57,213		61,313		56,910		61,361
Cash dividends declared per common share	$	0.45	$	0.43	$	0.90	$	0.86

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	March 4,		February 27,		March 4,		February 27,
	2017		2016		2017		2016
Net income, as reported	$	53,559	$	49,525	$	107,847	$	104,554
Foreign currency translation adjustments		(701)		(2,279)		(2,248)		(3,394)
Comprehensive income	$	52,858	$	47,246	$	105,599	$	101,160

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)


	Twenty-Six Weeks Ended
	March 4,		February 27,
	2017		2016
Cash Flows from Operating Activities:
Net income	$	107,847	$	104,554
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		30,815		35,381
Stock-based compensation		6,925		6,999
Loss on disposal of property, plant, and equipment		333		390
Provision for doubtful accounts		3,415		5,241
Deferred income taxes and tax uncertainties		—		(78)
Excess tax benefits from stock-based compensation		—		(267)
Changes in operating assets and liabilities:
Accounts receivable		(41,680)		7,581
Inventories		(21,289)		41,153
Prepaid expenses and other current assets		(343)		(10,362)
Other assets		1,056		653
Accounts payable and accrued liabilities		9,577		(8,265)
Total adjustments		(11,191)		78,426
Net cash provided by operating activities		96,656		182,980
Cash Flows from Investing Activities:
Expenditures for property, plant and equipment		(25,508)		(26,781)
Net cash used in investing activities		(25,508)		(26,781)
Cash Flows from Financing Activities:
Repurchases of common stock		(3,377)		(19,212)
Payments of cash dividends		(51,010)		(52,948)
Payments on capital lease and financing obligations		(633)		(367)
Excess tax benefits from stock-based compensation		—		267
Proceeds from sale of Class A common stock in connection with associate stock purchase plan		2,196		1,982
Proceeds from exercise of Class A common stock options		21,933		890
Borrowings under financing obligations		739		453
Borrowings under Credit Facility		78,000		66,000
Credit Facility financing costs		(142)		—
Payments of notes payable and revolving credit note under the Credit Facility		(136,000)		(167,500)
Net cash used in financing activities		(88,294)		(170,435)
Effect of foreign exchange rate changes on cash and cash equivalents		(142)		(71)
Net decrease in cash and cash equivalents		(17,288)		(14,307)
Cash and cash equivalents – beginning of year		52,890		38,267
Cash and cash equivalents – end of year	$	35,602	$	23,960
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes	$	58,737	$	70,511
Cash paid for interest	$	5,524	$	2,747

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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