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MSC Reports Fiscal 2017 Fourth Quarter And Full Year Results

MELVILLE, N.Y. and DAVIDSON, N.C., Oct. 31, 2017 /PRNewswire/ -- 

FISCAL Q4 2017 HIGHLIGHTS

  • Completed acquisition of DECO Tool Supply Co. on July 31, 2017
  • Net sales of $753.8 million, an increase of 1.2% year-over-year
  • Average daily sales (ADS) increased 9.2% year-over-year, with 150 basis points of growth from DECO
  • Operating margin of 13.3%, flat with the prior year and negatively impacted by 20 basis points from DECO
  • Diluted EPS of $1.07, versus the prior year of $1.02

FISCAL 2017 HIGHLIGHTS

  • Net sales of $2.9 billion, an increase of 0.8% year-over-year (3.2% increase on an ADS basis)
  • Operating margin of 13.1%, flat with prior year
  • Diluted EPS of $4.05, versus the prior year of $3.77

 

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 fourth quarter and full year ended September 2, 2017. Both periods included one less week of operational results as compared to the prior periods.














Financial Highlights1


FY17 Q4


FY16 Q4


Change


FY17


FY16


Change

Net Sales


$753.8


$745.1


1.2%


$2,887.7


$2,863.5


0.8%

Operating Income


100.0


99.2


0.8%


379.0


376.0


0.8%

% of Net Sales


13.3%


13.3%




13.1%


13.1%



Net Income


60.7


61.8


(1.8%)


231.4


231.2


0.1%

Diluted EPS


$1.07

2

$1.02

3

4.9%


4.05

2

3.77

3

7.4%



1In millions unless noted. 2Based on 56.8 million and 57.0 million diluted shares outstanding for FY17 Q4 and FY17, respectively. 3 Based on 60.3 and 61.1 million diluted shares outstanding for FY16 Q4 and FY16, respectively.

Erik Gershwind, president and chief executive officer, said, "Conditions steadily improved in the quarter as manufacturing continued to firm. MSC achieved sales growth across all customer types with particular strength in National Accounts and CCSG. This momentum continued into the first two months of fiscal 2018."

Rustom Jilla, executive vice president and chief financial officer, added, "Our reported average daily sales rose 9.2%, gross margin was 44.2%, operating margin was 13.3%, and EPS rose by 5 cents. Organic top and bottom line results in our fourth quarter were well above prior year and guidance. We also completed the acquisition of DECO Tool Supply Co., our first acquisition in four years. Excluding DECO, our quarterly average daily sales rose 7.7 percent, our gross margin was 44.6%, we continued to leverage our expenses, and we grew our operating margin to 13.5%*. We also had a strong quarter in terms of cash flow generation, which enabled us to maintain leverage at 1.1 times, even after acquiring DECO and buying back shares."

Gershwind concluded, "For the past several years, we have executed our strategic plan in the face of difficult market conditions. As the environment turned in 2017, we began to see the fruits of this work and enjoyed our first year of significant earnings growth since 2012. Looking forward, we expect to continue growing earnings and expanding operating margins, particularly if the early signs of price inflation materialize in 2018."

* An explanation and reconciliation of non-GAAP financial measures to GAAP financial measures is presented in schedules following this press release

Outlook
Based on current market conditions, the Company expects net sales for the first quarter of fiscal 2018 to be between $762 million and $776 million. At the midpoint, average daily sales are expected to increase roughly 12% compared to last year's first quarter. Excluding DECO, the Company expects net sales for the first quarter of fiscal 2018 to be between $734 million and $748 million, with average daily sales at the midpoint expected to increase roughly 8% compared to last year's first quarter. The Company expects diluted earnings per share for the first quarter of fiscal 2018, including and excluding DECO, to be between $1.03 and $1.07, at the midpoint up roughly 9% compared to last year's first quarter.

Conference Call Information

MSC will host a conference call today at 8:30 a.m. EST to review the Company's fiscal 2017 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 7, 2017.

The Company's reporting date for fiscal first quarter 2018 is scheduled for January 10, 2018.

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 1.5 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 6,500 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

Consolidated Balance Sheets

(In thousands)








September 2,


September 3,


2017


2016

ASSETS






Current Assets:






Cash and cash equivalents

$

16,083


$

52,890

Accounts receivable, net of allowance for doubtful accounts


471,795



392,463

Inventories


464,959



444,221

Prepaid expenses and other current assets


52,742



45,290

Deferred income taxes




46,627

Total current assets


1,005,579



981,491

Property, plant and equipment, net


316,305



320,544

Goodwill


633,728



624,081

Identifiable intangibles, net


110,429



105,307

Other assets


32,871



33,528

Total assets

$

2,098,912


$

2,064,951







LIABILITIES AND SHAREHOLDERS' EQUITY






Current Liabilities:






Short-term debt

$

331,986


$

267,050

Accounts payable


121,266



110,601

Accrued liabilities


104,473



100,951

Total current liabilities


557,725



478,602

Long-term debt


200,991



339,772

Deferred income taxes and tax uncertainties


115,056



148,201

Total liabilities


873,772



966,575

Commitments and Contingencies






Shareholders' Equity:






Preferred Stock




Class A common stock


54



53

Class B common stock


12



12

Additional paid-in capital


626,995



584,017

Retained earnings


1,168,812



1,040,148

Accumulated other comprehensive loss


(17,263)



(19,098)

Class A treasury stock, at cost


(553,470)



(506,756)

Total shareholders' equity


1,225,140



1,098,376

Total liabilities and shareholders' equity

$

2,098,912


$

2,064,951

 

 

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Consolidated Statements of Income

(In thousands, except per share data)














(Unaudited)








Quarters Ended


Fiscal Years Ended


September 2,


September 3,


September 2,


September 3,


2017


2016


2017


2016


(13 weeks)


(14 weeks)


(52 weeks)


(53 weeks)

Net sales

$

753,770


$

745,074


$

2,887,744


$

2,863,505

Cost of goods sold


420,320



411,007



1,601,497



1,574,647

Gross profit


333,450



334,067



1,286,247



1,288,858

Operating expenses


233,471



234,821



907,247



912,898

Income from operations


99,979



99,246



379,000



375,960

Other income (expense):












Interest expense


(3,125)



(1,752)



(12,370)



(5,807)

Interest income


162



163



658



654

Other income (expense), net


1,044



12



704



924

Total other expense


(1,919)



(1,577)



(11,008)



(4,229)

Income before provision for income taxes


98,060



97,669



367,992



371,731

Provision for income taxes


37,312



35,823



136,561



140,515

Net income

$

60,748


$

61,846


$

231,431


$

231,216

Per Share Information:












Net income per common share:












Basic

$

1.07


$

1.03


$

4.08


$

3.78

Diluted

$

1.07


$

1.02


$

4.05


$

3.77

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












Basic


56,585



60,079



56,591



60,908

Diluted


56,801



60,278



56,971



61,076

Cash dividends declared per common share

$

0.45


$

0.43


$

1.80


$

1.72

 

 

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands)








Fiscal Years Ended


September 2,


September 3,


2017


2016


(52 weeks)


(53 weeks)

Net income, as reported

$

231,431


$

231,216

Foreign currency translation adjustments


1,835



(1,846)

Comprehensive income

$

233,266


$

229,370

 

 

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)








Fiscal Years Ended


September 2,


September 3,


2017


2016


(52 weeks)


(53 weeks)

Cash Flows from Operating Activities:






Net income

$

231,431


$

231,216

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






Depreciation and amortization    


62,980



71,930

Stock-based compensation


13,925



13,985

Loss on disposal of property, plant, and equipment


678



752

Provision for doubtful accounts


7,048



6,997

Deferred income taxes and tax uncertainties


13,482



15,007

Excess tax benefits from stock-based compensation




(1,536)

Write-off of deferred financing costs on previous credit facility


94



Changes in operating assets and liabilities, net of amounts associated






with business acquired:






Accounts receivable


(72,230)



2,595

Inventories


(15,871)



61,047

Prepaid expenses and other current assets


(7,428)



(6,303)

Other assets


548



142

Accounts payable and accrued liabilities


12,184



5,271

Total adjustments


15,410



169,887

Net cash provided by operating activities


246,841



401,103

Cash Flows from Investing Activities:






    Expenditures for property, plant and equipment


(46,548)



(87,930)

    Cash used in business acquisition


(42,345)



Net cash used in investing activities


(88,893)



(87,930)

Cash Flows from Financing Activities:






Repurchases of common stock


(49,182)



(383,798)

Payments of cash dividends


(102,216)



(105,778)

Payments on capital lease and financing obligations


(1,175)



(1,090)

Excess tax benefits from stock-based compensation




1,536

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


4,243



4,084

Proceeds from exercise of Class A common stock options


26,887



7,410

Borrowings under financing obligations


739



453

Borrowings under Credit Facility


546,000



305,000

Proceeds from Private Placement Loan




175,000

Private Placement Loan financing costs




(185)

Credit Facility financing costs


(1,542)



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


(618,500)



(301,000)

Net cash used in financing activities


(194,746)



(298,368)

Effect of foreign exchange rate changes on cash and cash equivalents


(9)



(182)

Net increase (decrease) in cash and cash equivalents


(36,807)



14,623

Cash and cash equivalents – beginning of year


52,890



38,267

Cash and cash equivalents – end of year

$

16,083


$

52,890

Supplemental Disclosure of Cash Flow Information:






Cash paid for income taxes

$

121,691


$

127,965

Cash paid for interest

$

11,695


$

4,986

 

Non-GAAP Financial Measures
MSC Reported excluding DECO Tool Supply Co
To supplement MSC's unaudited selected financial data presented consistent with Generally Accepted Accounting Principles ("GAAP"), the Company discloses certain non-GAAP financial measures that exclude the results of our acquisition of DECO Tool Supply Co. ("DECO") on July 31, 2017, including non-GAAP net sales, non-GAAP gross profit, non-GAAP income from operations, non-GAAP net income and non-GAAP diluted earnings per share.  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 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 the Company's performance.

In calculating non-GAAP financial measures, we exclude the results of DECO to facilitate a review of the comparability of the Company's operating performance on a period-to-period basis. We use non-GAAP measures to evaluate the operating performance of our business (excluding DECO), for comparison with forecasts and strategic plans, and for benchmarking performance externally against competitors. 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;
  • a better understanding of how management plans and measures the Company's underlying business; and
  • an easier way to compare the Company's operating results against analyst financial models and operating results of competitors that supplement their GAAP results with non-GAAP financial measures

 

 































MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES


Reconciliation of GAAP and Non-GAAP Information


Thirteen Weeks and Year Ended September 2, 2017


(dollars in thousands, except per share data)































GAAP Measure


Items Affecting
Comparability


Non-GAAP Measure













Net Sales


DECO Tool Supply Co.


Net Sales, excluding DECO













Thirteen
Weeks Ended


Year
Ended


Thirteen
Weeks Ended


Year
Ended


Thirteen
Weeks Ended


Year
Ended













September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017













$

753,770


$

2,887,744


$

10,369


$

10,369


$

743,401


$

2,877,375










































GAAP Measure


Items Affecting
Comparability


Non-GAAP Measure


GAAP Measure


Non-GAAP Measure


Gross Profit


DECO Tool Supply Co.


Gross Profit,
excluding DECO


Gross Margin


Gross Margin,
excluding DECO


Thirteen
Weeks Ended


Year
Ended


Thirteen
Weeks Ended


Year
Ended


Thirteen
Weeks Ended


Year
Ended


Thirteen
Weeks Ended


Year
Ended


Thirteen
Weeks Ended


Year
Ended

September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017

$

333,450


$

1,286,247


$

1,900


$

1,900


$

331,550


$

1,284,347


44.2

%


44.5

%


44.6

%


44.6

%






























GAAP Measure


Items Affecting
Comparability


Non-GAAP Measure













Operating Expenses


DECO Tool Supply Co.


Operating Expenses,
excluding DECO













Thirteen
Weeks Ended


Year
Ended


Thirteen
Weeks Ended


Year
Ended


Thirteen
Weeks Ended


Year
Ended













September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017













$

233,471


$

907,247


$

2,059


$

2,059


$

231,412


$

905,188










































GAAP Measure


Items Affecting
Comparability


Non-GAAP Measure


GAAP Measure


Non-GAAP Measure


Operating Income (Loss)


DECO Tool Supply Co.


Operating Income (Loss),
excluding DECO


Operating Margin


Operating Margin,
excluding DECO


Thirteen
Weeks Ended


Year
Ended


Thirteen
Weeks Ended


Year
Ended


Thirteen
Weeks Ended


Year
Ended


Thirteen
Weeks Ended


Year
Ended


Thirteen
Weeks Ended


Year
Ended

September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017

$

99,979


$

379,000


$

(159)


$

(159)


$

100,138


$

379,159


13.3

%


13.1

%


13.5

%


13.2

%






























GAAP Measure


Items Affecting
Comparability


Non-GAAP Measure













Net Income (Loss)


DECO Tool Supply Co.


Net Income (Loss),
excluding DECO













Thirteen
Weeks Ended


Year
Ended


Thirteen
Weeks Ended


Year
Ended


Thirteen
Weeks Ended


Year
Ended













September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017













$

60,748


$

231,431


$

(157)


$

(157)


$

60,905


$

231,588










































GAAP Measure


Items Affecting
Comparability


Non-GAAP Measure













Diluted Earnings Per Share


DECO Tool Supply Co.


Diluted Earnings Per Share,
excluding DECO













Thirteen
Weeks Ended


Year
Ended


Thirteen
Weeks Ended


Year
Ended


Thirteen
Weeks Ended


Year
Ended













September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017


September 2,
2017













$

1.07


$

4.05


$

-


$

-


$

1.07


$

4.05













 

 















MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES


Reconciliation of GAAP and Non-GAAP Information


Guidance for Thirteen Weeks Ended December 2, 2017*


(dollars in millions, except per share data)
















GAAP Measure


Items Affecting
Comparability


Non-GAAP Measure







Net Sales


DECO Tool Supply Co


Net Sales,
excluding DECO







Thirteen Weeks Ended


Thirteen Weeks Ended


Thirteen Weeks Ended







December 2, 2017


December 2, 2017


December 2, 2017







$

769.0


$

27.8


$

741.2





















GAAP Measure


Items Affecting
Comparability


Non-GAAP Measure


GAAP Measure



Non-GAAP Measure


Gross Profit


DECO Tool Supply Co


Gross Profit,
excluding DECO


Gross Margin



Gross Margin,
excluding DECO


Thirteen Weeks Ended


Thirteen Weeks Ended


Thirteen Weeks Ended


Thirteen Weeks Ended



Thirteen Weeks Ended


December 2, 2017


December 2, 2017


December 2, 2017


December 2, 2017



December 2, 2017


$

335.1


$

6.0


$

329.1


43.6

%


44.4

%















GAAP Measure


Items Affecting
Comparability


Non-GAAP Measure







Operating Expenses


DECO Tool Supply Co


Operating Expenses,
excluding DECO







Thirteen Weeks Ended


Thirteen Weeks Ended


Thirteen Weeks Ended







December 2, 2017


December 2, 2017


December 2, 2017







$

235.3


$

5.8


$

229.5





















GAAP Measure


Items Affecting
Comparability


Non-GAAP Measure


GAAP Measure



Non-GAAP Measure


Operating Income


DECO Tool Supply Co


Operating Income,
excluding DECO


Operating Margin



Operating Margin,
excluding DECO


Thirteen Weeks Ended


Thirteen Weeks Ended


Thirteen Weeks Ended


Thirteen Weeks Ended



Thirteen Weeks Ended


December 2, 2017


December 2, 2017


December 2, 2017


December 2, 2017



December 2, 2017


$

99.7


$

0.1


$

99.6


13.0

%


13.4

%















GAAP Measure


Items Affecting
Comparability


Non-GAAP Measure







Net Income (Loss)


DECO Tool Supply Co


Net Income (Loss),
excluding DECO







Thirteen Weeks Ended


Thirteen Weeks Ended


Thirteen Weeks Ended







December 2, 2017


December 2, 2017


December 2, 2017







$

59.7


$

(0.1)


$

59.8





















GAAP Measure


Items Affecting
Comparability


Non-GAAP Measure







Diluted Earnings Per Share


DECO Tool Supply Co


Diluted Earnings Per Share,
excluding DECO







Thirteen Weeks Ended


Thirteen Weeks Ended


Thirteen Weeks Ended







December 2, 2017


December 2, 2017


December 2, 2017







$

1.05


$

-


$

1.05





















*  The data in the above tables represent the midpoint of management's guidance; see note regarding forward-looking statements

 

 

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