Investor Relations MSC Industrial Direct

MSC Reports Fiscal 2018 First Quarter Results
MSC BOARD APPROVES ADDITIONAL 2 MILLION SHARE REPURCHASE AUTHORIZATION

MELVILLE, N.Y. and DAVIDSON, N.C., Jan. 10, 2018 /PRNewswire/ --

FISCAL Q1 2018 HIGHLIGHTS

  • Net sales of $768.6 million, a 12% YoY increase, with approximately 400 basis points of acquisitive growth
  • Operating income of $99.3 million, an increase of approximately 10% YoY
  • Operating margin of 12.9%, including a negative 50 basis point impact from DECO
  • Diluted EPS of $1.05, up approximately 9% YoY versus diluted EPS of $0.96 in the prior year quarter

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 2018 first quarter ended December 2, 2017. The Company also announced that its Board of Directors approved an additional 2 million share repurchase authorization, bringing the total current authorization to approximately 2.8 million shares.








Financial Highlights1


FY18 Q1


FY17 Q1


Change

Net Sales


$768.6


$686.3


12.0%

Operating Income


99.3


90.6


9.6%

% of Net Sales


12.9%


13.2%



Net Income


59.6


54.3


9.8%

Diluted EPS


$1.05

2

$0.96

3

9.4%

1In millions unless noted. 2Based on 56.5 million diluted shares outstanding for FY18 Q1. 3 Based on 56.6 million diluted shares outstanding for FY17 Q1.

Erik Gershwind, president and chief executive officer, said, "The environment remained solid in the first fiscal quarter, and our own business reflected this momentum, with growth rates improving or holding steady across all customer types. We delivered low double-digit sales growth on an ADS basis, and another quarter of sequential gross margin stability and productivity improvements, with operating expenses as a percentage of revenue declining once again."

Rustom Jilla, executive vice president and chief financial officer, added, "Our reported average daily sales rose 12%, operating margin was 12.9%, and EPS rose by 9.4% over the prior year's fiscal first quarter. Excluding our recently acquired DECO business, our quarterly average daily sales rose 7.7% over the same period a year ago, our gross margin was down slightly, our operating expenses to sales improved, and our operating margin expanded by 20 basis points to 13.4%.* We also had a strong quarter in terms of cash generation, with net cash provided by operating activities up 8% to $82 million. Finally, the recently announced 21% quarterly dividend increase and the additional share repurchase authorization are reflective of the significant positive impact of tax reform on our earnings and cash flow, as well as our ongoing commitment to allocating capital to enhance total shareholder returns."

Gershwind concluded, "Looking forward, it is an exciting time for U.S. manufacturing and MSC on multiple fronts. First, after several years of a weak pricing environment, many suppliers have now raised list prices, and we expect to follow suit in the near-term. Second, customer sentiment and industry indices are positive, pointing to continued U.S. manufacturing growth prospects. And third, we see the recent tax reform as a significant tailwind not just for our own EPS, but also for our customers and the broader manufacturing economy in the coming years. We are well positioned to take advantage of this better environment, particularly given the improvements that we have made to our business in recent years."

The Company has increased its buyback authorization by 2 million shares. The timing and actual number of shares repurchased will depend on a variety of factors, including price, market conditions, and applicable legal and regulatory requirements. The share repurchase program does not obligate the Company to repurchase any specific number of shares and may be suspended or terminated at any time without prior notice.

Outlook

Based on current market conditions, the Company expects net sales for the second quarter of fiscal 2018 to be between $761 million and $775 million. At the midpoint, average daily sales are expected to increase roughly 9.1% compared to last year's second quarter. The Company's guidance for diluted earnings per share for the second quarter of fiscal 2018 is $1.93 to $2.03, which includes the following components:

  • An estimated beneficial impact of between $0.27 to $0.29 from the lower effective tax rate (combined federal and state) required to bring our first half into alignment with the expected full year rate; and
  • An estimated net one-time beneficial impact of between $0.66 and $0.70 that reflects the re-valuation of tax-related balance sheet items.
  • An estimated diluted earnings per share for the second quarter of fiscal 2018, excluding the positive impacts of the Tax Cuts and Jobs Act noted above, of between $1.00 and $1.04.

Conference Call Information

MSC will host a conference call today at 8:30 a.m. EST to review the Company's fiscal 2018 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 17, 2018.

The Company's reporting date for fiscal 2018 second quarter results is scheduled for April 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 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, 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, the outcome of government or regulatory proceedings or future litigation, 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, shipping ports, our headquarters or our customer fulfillment centers, 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, retention of key personnel, the loss of key suppliers or supply chain disruptions, risks associated with changes to trade policies pertaining to sourcing products, failure to comply with applicable environmental, health and safety laws and regulations, goodwill and intangible assets recorded as a result of our acquisitions could be impaired, risks associated with the integration of acquired businesses or other strategic transactions, and financial restrictions on outstanding borrowings. 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 2,


September 2,


2017


2017

ASSETS

(Unaudited)




Current Assets:






Cash and cash equivalents

$

20,252


$

16,083

Accounts receivable, net of allowance for doubtful accounts


479,391



471,795

Inventories


469,432



464,959

Prepaid expenses and other current assets


54,441



52,742

Total current assets


1,023,516



1,005,579

Property, plant and equipment, net


311,846



316,305

Goodwill


633,529



633,728

Identifiable intangibles, net


107,731



110,429

Other assets


31,590



32,871

Total assets

$

2,108,212


$

2,098,912







LIABILITIES AND SHAREHOLDERS' EQUITY






Current Liabilities:






Short-term debt

$

291,679


$

331,986

Accounts payable


124,917



121,266

Accrued liabilities


115,527



104,473

Total current liabilities


532,123



557,725

Long-term debt


201,002



200,991

Deferred income taxes and tax uncertainties


115,056



115,056

Total liabilities


848,181



873,772

Commitments and Contingencies






Shareholders' Equity:






Preferred Stock




Class A common stock


54



54

Class B common stock


11



12

Additional paid-in capital


633,944



626,995

Retained earnings


1,201,128



1,168,812

Accumulated other comprehensive loss


(18,106)



(17,263)

Class A treasury stock, at cost


(557,000)



(553,470)

Total shareholders' equity


1,260,031



1,225,140

Total liabilities and shareholders' equity

$

2,108,212


$

2,098,912

 

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)








Quarters Ended


December 2,


December 3,


2017


2016


(13 weeks)


(13 weeks)

Net sales

$

768,561


$

686,271

Cost of goods sold


433,492



377,536

Gross profit


335,069



308,735

Operating expenses


235,791



218,135

Income from operations


99,278



90,600

Other income (expense):






Interest expense


(3,237)



(2,934)

Interest income


163



163

Other income (expense), net


(408)



(284)

Total other expense


(3,482)



(3,055)

Income before provision for income taxes


95,796



87,545

Provision for income taxes


36,211



33,257

Net income

$

59,585


$

54,288

Per Share Information:






Net income per common share:






Basic

$

1.06


$

0.96

Diluted

$

1.05


$

0.96

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






Basic


56,287



56,381

Diluted


56,504



56,608

Cash dividends declared per common share

$

0.48


$

0.45

 

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)








Quarters Ended


December 2,


December 3,


2017


2016


(13 weeks)


(13 weeks)

Net income, as reported

$

59,585


$

54,288

Foreign currency translation adjustments


(843)



(1,547)

Comprehensive income

$

58,742


$

52,741

 

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)








Quarters Ended


December 2,


December 3,


2017


2016


(13 weeks)


(13 weeks)

Cash Flows from Operating Activities:






Net income

$

59,585


$

54,288

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






Depreciation and amortization    


15,749



15,447

Stock-based compensation


3,894



3,538

Loss on disposal of property, plant, and equipment


126



49

Provision for doubtful accounts


1,698



1,305

Changes in operating assets and liabilities:






Accounts receivable


(9,291)



(1,021)

Inventories


(4,259)



(10,299)

Prepaid expenses and other current assets


(1,663)



3,792

Other assets


1,252



(465)

Accounts payable and accrued liabilities


14,888



9,326

Total adjustments


22,394



21,672

Net cash provided by operating activities


81,979



75,960

Cash Flows from Investing Activities:






    Expenditures for property, plant and equipment


(9,028)



(12,497)

    Cash used in business acquisition


(738)



Net cash used in investing activities


(9,766)



(12,497)

Cash Flows from Financing Activities:






Repurchases of common stock


(4,018)



(3,207)

Payments of cash dividends


(27,087)



(25,495)

Payments on capital lease and financing obligations


(115)



(388)

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


959



909

Proceeds from exercise of Class A common stock options


2,405



6,931

Borrowings under financing obligations


721



739

Borrowings under Credit Facility


24,000



15,000

Private Placement Loan financing costs




(142)

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


(65,000)



(78,500)

Net cash used in financing activities


(68,135)



(84,153)

Effect of foreign exchange rate changes on cash and cash equivalents


91



(78)

Net increase (decrease) in cash and cash equivalents


4,169



(20,768)

Cash and cash equivalents – beginning of year


16,083



52,890

Cash and cash equivalents – end of year

$

20,252


$

32,122

Supplemental Disclosure of Cash Flow Information:






Cash paid for income taxes

$

1,757


$

1,983

Cash paid for interest

$

2,068


$

1,400

 

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 Ended December 2, 2017

(dollars in thousands, except per share data)
















GAAP Measure

Items Affecting
Comparability

Non-GAAP Measure

GAAP Measure

Non-GAAP Measure

Net Sales

DECO Tool Supply Co.

Net Sales, excluding DECO

Average Daily Sales Growth

Average Daily Sales Growth,

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


$

768,561


$

29,682


$

738,879


12.0

%


7.7

%

















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


$

335,069


$

6,441


$

328,628


43.6

%


44.5

%

















GAAP Measure

Items Affecting
Comparability

Non-GAAP Measure

GAAP Measure

Non-GAAP Measure

Operating Expenses

DECO Tool Supply Co.

Operating Expenses,
excluding DECO

Operating Expenses as a percentage of Net Sales

Operating Expenses as a percentage of Net Sales, 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


$

235,791


$

5,865


$

229,926


30.7

%


31.1

%

















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


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


$

99,278


$

576


$

98,702


12.9

%


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








$

59,585


$

200


$

59,385























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








 

SOURCE MSC Industrial Supply Co.

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

https://investor.mscdirect.com/2018-01-10-MSC-Reports-Fiscal-2018-First-Quarter-Results