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MSC Reports Fiscal 2017 Third Quarter Results

MELVILLE, N.Y. and DAVIDSON, N.C., July 12, 2017 /PRNewswire/ --

FISCAL Q3 2017 HIGHLIGHTS

  • Net sales of $743.9 million, an increase of 2.3% year-over-year (3.8% increase on an ADS basis)
  • Gross margin of 44.3%, a 70 basis point decline year-over-year
  • Operating income of $101.8 million, a decrease of 3.8% year-over-year
  • Operating margin of 13.7%, an 80 basis point decrease year-over-year
  • Diluted EPS of $1.09, versus the prior year of $1.05

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 third quarter ended June 3, 2017.

 

                         

Financial Highlights1

 

FY17 Q3

 

FY16 Q3

 

Change

 

FY17 YTD

 

FY16 YTD

 

Change

Net Sales

 

$743.9

 

$727.5

 

2.3%

 

$2,134.0

 

$2,118.4

 

0.7%

Operating Income

 

101.8

 

105.8

 

(3.8%)

 

279.0

 

276.7

 

0.8%

% of Net Sales

 

13.7%

 

14.5%

     

13.1%

 

13.1%

   

Net Income

 

62.8

 

64.8

 

(3.1%)

 

170.7

 

169.4

 

0.8%

Diluted EPS

 

$1.09

.2

$1.05

.3

3.8%

 

2.98

2

2.75

3

8.4%

1In millions unless noted. 2Based on 57.3 million and 57.0 million diluted shares outstanding for FY17 Q3 and FY17 YTD, respectively. 3 Based on 61.4 million diluted shares outstanding for both FY16 Q3 and FY16 YTD.

 

Erik Gershwind, president and chief executive officer, said, "The environment improved through the quarter as the manufacturing economy continued to firm with improving sales growth across all of our customer types, with particular strength in National Accounts. This momentum sustained into June, the first month of our fiscal fourth quarter. Customer feedback was consistent with a trend of steady and moderate improvement."

Rustom Jilla, executive vice president and chief financial officer, added, "Our fiscal third quarter average daily sales increased by 3.8 percent, slightly above the midpoint of our guidance. Most of this growth came from customer types and products with lower gross margins and, hence, our gross profit was slightly below our expectations. However, offsetting this was our continued focus on expense control, resulting in operating margins 20 basis points ahead of the midpoint of our guidance and earnings per share at the high end."

Gershwind concluded, "As the manufacturing economy recovers and sales growth rates improve, the expense leverage latent in the business is beginning to demonstrate itself. Looking forward, if this momentum continues, our leverage only grows. Importantly, should price inflation return or core customer growth improve, our earnings growth should accelerate and operating margins expand. However, even if pricing does not return and mix headwinds persist, we are still well-positioned to grow earnings."

Outlook

Based on current market conditions, the Company expects net sales for the fourth quarter of fiscal 2017 to be between $732 million and $746 million. At the midpoint, average daily sales are expected to increase roughly 7 percent compared to last year's fourth quarter. The Company expects diluted earnings per share for the fourth quarter of fiscal 2017 to be between $0.97 and $1.01.

Conference Call Information

MSC will host a conference call today at 8:30 a.m. EDT to review the Company's fiscal 2017 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 19, 2017.

The Company's reporting date for fiscal 2017 fourth quarter and full year results is scheduled for October 31, 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, including the adoption by competitors of aggressive pricing strategies and sales methods, 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 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)

           
 

June 3,

 

September 3,

 

2017

 

2016

 

(unaudited)

     

ASSETS

         

Current Assets:

         

     Cash and cash equivalents

$

27,578

 

$

52,890

     Accounts receivable, net of allowance for doubtful accounts

 

436,729

   

392,463

     Inventories

 

466,478

   

444,221

     Prepaid expenses and other current assets

 

49,692

   

45,290

     Deferred income taxes

 

   

46,627

               Total current assets

 

980,477

   

981,491

Property, plant and equipment, net

 

317,297

   

320,544

Goodwill

 

623,061

   

624,081

Identifiable intangibles, net

 

99,005

   

105,307

Other assets

 

31,203

   

33,528

Total assets

$

2,051,043

 

$

2,064,951

           

LIABILITIES AND SHAREHOLDERS' EQUITY

         

Current Liabilities:

         

     Short-term debt

$

314,171

 

$

267,050

     Accounts payable

 

112,160

   

110,601

     Accrued liabilities

 

99,173

   

100,951

               Total current liabilities

 

525,504

   

478,602

Long-term debt

 

200,976

   

339,772

Deferred income taxes and tax uncertainties

 

101,574

   

148,201

               Total liabilities

 

828,054

   

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

 

618,718

   

584,017

     Retained earnings

 

1,133,785

   

1,040,148

     Accumulated other comprehensive loss

 

(21,259)

   

(19,098)

     Class A treasury stock, at cost

 

(508,320)

   

(506,756)

               Total shareholders' equity

 

1,222,989

   

1,098,376

Total liabilities and shareholders' equity

$

2,051,043

 

$

2,064,951

 

 

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 3,

 

May 28,

 

June 3,

 

May 28,

 

2017

 

2016

 

2017

 

2016

Net sales

$

743,923

 

$

727,495

 

$

2,133,974

 

$

2,118,431

Cost of goods sold

 

414,423

   

400,467

   

1,181,177

   

1,163,640

Gross profit

 

329,500

   

327,028

   

952,797

   

954,791

Operating expenses

 

227,724

   

221,244

   

673,776

   

678,077

Income from operations

 

101,776

   

105,784

   

279,021

   

276,714

Other (expense) income:

                     

Interest expense

 

(3,361)

   

(1,204)

   

(9,245)

   

(4,055)

Interest income

 

169

   

164

   

496

   

491

Other (expense) income, net

 

(2)

   

110

   

(340)

   

912

Total other expense

 

(3,194)

   

(930)

   

(9,089)

   

(2,652)

Income before provision for income taxes

 

98,582

   

104,854

   

269,932

   

274,062

Provision for income taxes

 

35,746

   

40,038

   

99,249

   

104,692

Net income

$

62,836

 

$

64,816

 

$

170,683

 

$

169,370

Per Share Information:

                     

Net income per common share:

                     

Basic

$

1.10

 

$

1.06

 

$

3.01

 

$

2.76

Diluted

$

1.09

 

$

1.05

 

$

2.98

 

$

2.75

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

                     

Basic

 

56,779

   

61,133

   

56,593

   

61,206

Diluted

 

57,264

   

61,369

   

57,028

   

61,364

Cash dividends declared per common share

$

0.45

 

$

0.43

 

$

1.35

 

$

1.29

 

 

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

                       
 

Thirteen Weeks Ended

 

Thirty-Nine Weeks Ended

 

June 3,

 

May 28,

 

June 3,

 

May 28,

 

2017

 

2016

 

2017

 

2016

Net income, as reported

$

62,836

 

$

64,816

 

$

170,683

 

$

169,370

Foreign currency translation adjustments

 

87

   

2,556

   

(2,161)

   

(838)

Comprehensive income

$

62,923

 

$

67,372

 

$

168,522

 

$

168,532

 

 

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

           
 

Thirty-Nine Weeks Ended

 

June 3,

 

May 28,

 

2017

 

2016

Cash Flows from Operating Activities:

         

Net income

$

170,683

 

$

169,370

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

         

Depreciation and amortization    

 

46,737

   

53,343

Stock-based compensation

 

10,375

   

10,302

Loss on disposal of property, plant, and equipment

 

317

   

539

Provision for doubtful accounts

 

4,713

   

5,496

Deferred income taxes and tax uncertainties

 

   

(78)

Excess tax benefits from stock-based compensation

 

   

(630)

Write-off of deferred financing costs on previous credit facility

 

94

   

Changes in operating assets and liabilities:

         

Accounts receivable

 

(50,730)

   

1,990

Inventories

 

(22,834)

   

44,032

Prepaid expenses and other current assets

 

(4,547)

   

(348)

Other assets

 

2,259

   

2,892

Accounts payable and accrued liabilities

 

2,064

   

(1,086)

Total adjustments

 

(11,552)

   

116,452

Net cash provided by operating activities

 

159,131

   

285,822

Cash Flows from Investing Activities:

         

    Expenditures for property, plant and equipment

 

(37,923)

   

(34,714)

Net cash used in investing activities

 

(37,923)

   

(34,714)

Cash Flows from Financing Activities:

         

Repurchases of common stock

 

(3,392)

   

(19,372)

Payments of cash dividends

 

(76,632)

   

(79,351)

Payments on capital lease and financing obligations

 

(904)

   

(600)

Excess tax benefits from stock-based compensation

 

   

630

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

 

3,165

   

2,896

Proceeds from exercise of Class A common stock options

 

22,600

   

5,081

Borrowings under financing obligations

 

739

   

453

Borrowings under Credit Facility

 

439,000

   

88,000

Credit Facility financing costs

 

(1,542)

   

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

 

(529,500)

   

(254,750)

Net cash used in financing activities

 

(146,466)

   

(257,013)

Effect of foreign exchange rate changes on cash and cash equivalents

 

(54)

   

(34)

Net decrease in cash and cash equivalents

 

(25,312)

   

(5,939)

Cash and cash equivalents – beginning of year

 

52,890

   

38,267

Cash and cash equivalents – end of year

$

27,578

 

$

32,328

Supplemental Disclosure of Cash Flow Information:

         

Cash paid for income taxes

$

91,711

 

$

101,178

Cash paid for interest

$

7,350

 

$

3,878

 

 

 

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