MSC Reports Fiscal 2017 First Quarter Results

MELVILLE, N.Y. and DAVIDSON, N.C., Jan. 11, 2017 /PRNewswire/ --

FISCAL Q1 2017 HIGHLIGHTS

  • Net sales of $686.3 million, a decline of 2.9% year-over-year
  • Gross margin of 45.0% reflecting continued stabilization in a challenging pricing environment
  • Operating margin of 13.2%, an increase year-over-year, despite a decline in net sales
  • Diluted EPS of $0.95, which was 3 cents above the midpoint of guidance

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 first quarter ended December 3, 2016.

 









Financial Highlights1


FY17 Q1


FY16 Q1


Change


Net Sales


$686.3


$706.8


-2.9%


Operating Income


90.6


90.4


0.2%


% of Net Sales


13.2%


12.8%




Net Income


54.1


55.0


-1.7%


Diluted EPS


$0.95

2

$0.89

3

6.7%



1In millions unless noted. 2Based on 56.6 million diluted shares outstanding for FY17 Q1.3 Based on 61.4 million diluted shares outstanding for FY16 Q1.

 

Erik Gershwind, president and chief executive officer, said, "While the demand environment remained difficult in our first quarter and pricing remained soft, we saw a better than expected November. As we moved into December, the start of our fiscal second quarter, we saw growth in sales, as well as improvement across all of our customer types and a higher mix of machinery, machine tool accessories, tool holders, and tooling package orders. These capital-related sales have historically increased when customers are more optimistic about investing in their businesses."

Rustom Jilla, executive vice president and chief financial officer, added, "Our first quarter operating margin of 13.2 percent improved over the prior year period despite lower sales, with stable gross margins and continued expense discipline, which offers a glimpse into our leverage potential. Diluted earnings per share were 3 cents above the mid-point of our guidance, with approximately 2 cents from higher than expected sales and the remainder as a result of tight expense management. Our EPS also increased 6 cents year-over-year due to lower operating expenses and last August's share buyback. Finally, our cash flow conversion remained strong, with 139 percent of our net income translating into cash flow from operations."

Gershwind concluded, "We have operated in the midst of a prolonged industrial recession, one that was particularly acute in our primary end markets of metalworking manufacturing. We are, however, seeing signs of greater optimism. At present, it appears that there is a leveling in manufacturing occurring and, in December, we saw greater spending on categories that are indicative of customer optimism. We are certainly more positive than even a few short months ago. Even so, we would need to see sustained increases in order activity before we declare that the environment has turned."

Outlook

Based on current market conditions, the Company expects net sales for the second quarter of fiscal 2017 to be between $688 million and $701 million. At the midpoint, average daily sales are expected to increase roughly 1.5%, as compared to last year's second quarter. The Company expects diluted earnings per share for the fiscal second quarter 2017 to be between $0.86 and $0.90.

Conference Call Information

MSC will host a conference call today at 8:30 a.m. EST to review the Company's fiscal 2017 first 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 January 18, 2017.

The Company's reporting date for fiscal 2017 second quarter results will be April 13, 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)



December 3,


September 3,


2016


2016


(unaudited)




ASSETS






Current Assets:






Cash and cash equivalents

$

32,122


$

52,890

Accounts receivable, net of allowance for doubtful accounts


391,685



392,463

Inventories


453,965



444,221

Prepaid expenses and other current assets


41,473



45,290

Deferred income taxes




46,627

Total current assets


919,245



981,491

Property, plant and equipment, net


319,696



320,544

Goodwill


623,473



624,081

Identifiable intangibles, net


103,140



105,307

Other assets


33,925



33,528

Total assets

$

1,999,479


$

2,064,951







LIABILITIES AND SHAREHOLDERS' EQUITY






Current Liabilities:






Revolving credit note

$

166,000


$

217,000

Current maturities of long-term debt


72,356



50,050

Accounts payable


112,357



110,601

Accrued liabilities


107,744



100,951

Total current liabilities


458,457



478,602

Long-term debt, net of current maturities


305,416



339,772

Deferred income taxes and tax uncertainties


101,574



148,201

Total liabilities


865,447



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


595,118



584,017

Retained earnings


1,068,617



1,040,148

Accumulated other comprehensive loss


(20,645)



(19,098)

Class A treasury stock, at cost


(509,123)



(506,756)

Total shareholders' equity


1,134,032



1,098,376

Total liabilities and shareholders' equity

$

1,999,479


$

2,064,951

 

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





Thirteen Weeks Ended



December 3,


November 28,



2016


2015


Net sales

$

686,271


$

706,819


Cost of goods sold


377,536



387,847


Gross profit


308,735



318,972


Operating expenses


218,135



228,584


Income from operations


90,600



90,388


Other (expense) income:







Interest expense


(2,934)



(1,556)


Interest income


163



163


Other (expense) income, net


(284)



63


Total other expense


(3,055)



(1,330)


Income before provision for income taxes


87,545



89,058


Provision for income taxes


33,442



34,029


Net income

$

54,103


$

55,029


Per Share Information:







Net income per common share:







Basic

$

0.96


$

0.89


Diluted

$

0.95


$

0.89


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







Basic


56,381



61,296


Diluted


56,572



61,408


Cash dividends declared per common share

$

0.45


$

0.43


 

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





Thirteen Weeks Ended



December 3,


November 28,



2016


2015


Net income, as reported

$

54,103


$

55,029


Foreign currency translation adjustments


(1,547)



(1,115)


Comprehensive income

$

52,556


$

53,914


 

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



Thirteen Weeks Ended


December 3,


November 28,


2016


2015

Cash Flows from Operating Activities:






Net income

$

54,103


$

55,029

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






Depreciation and amortization    


15,447



17,925

Stock-based compensation


3,538



3,621

Loss on disposal of property, plant, and equipment


49



247

Provision for doubtful accounts


1,305



2,997

Deferred income taxes and tax uncertainties




(78)

Excess tax benefits from stock-based compensation


(525)



(154)

Changes in operating assets and liabilities:






Accounts receivable


(1,021)



12,567

Inventories


(10,299)



13,832

Prepaid expenses and other current assets


3,792



(3,226)

Other assets


(465)



583

Accounts payable and accrued liabilities


9,511



18,767

Total adjustments


21,332



67,081

Net cash provided by operating activities


75,435



122,110

Cash Flows from Investing Activities:






    Expenditures for property, plant and equipment


(12,497)



(15,575)

Net cash used in investing activities


(12,497)



(15,575)

Cash Flows from Financing Activities:






Repurchases of common stock


(3,207)



(5,796)

Payments of cash dividends


(25,495)



(26,391)

Payments on capital lease and financing obligations


(388)



(161)

Excess tax benefits from stock-based compensation


525



154

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


909



826

Proceeds from exercise of Class A common stock options


6,931



268

Borrowings under financing obligations


739



453

Borrowings under Credit Facility


15,000



35,000

Private Placement Loan financing costs


(142)



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


(78,500)



(111,250)

Net cash used in financing activities


(83,628)



(106,897)

Effect of foreign exchange rate changes on cash and cash equivalents


(78)



(26)

Net decrease in cash and cash equivalents


(20,768)



(388)

Cash and cash equivalents – beginning of year


52,890



38,267

Cash and cash equivalents – end of year

$

32,122


$

37,879

Supplemental Disclosure of Cash Flow Information:






Cash paid for income taxes

$

1,983


$

4,495

Cash paid for interest

$

1,400


$

1,247

 

SOURCE MSC Industrial Supply Co.

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