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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