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MSC Reports Fiscal 2019 Fourth Quarter And Full Year Results

MELVILLE, N.Y. and DAVIDSON, N.C., Oct. 24, 2019 /PRNewswire/ --

FISCAL Q4 2019 HIGHLIGHTS

  • Net sales of $842.7 million, an increase of 0.6% YoY (2.1% increase on an ADS basis)
  • Operating income of $90.5 million, or $97.2 million excluding severance and separation costs of $6.7 million*
  • Operating margin of 10.7%, or 11.5% excluding severance and separation costs*
  • Diluted EPS of $1.20 vs. $1.29 in the prior year quarter
  • Adjusted diluted EPS of $1.30 excluding severance and separation costs exceeded guidance midpoint by $0.06*

FISCAL 2019 HIGHLIGHTS

  • Net sales of $3.4 billion, an increase of 5.0% YoY (5.8% increase on an ADS basis)
  • Operating income of $400.0 million, or $406.7 million excluding severance and separation costs of $6.7 million*
  • Operating margin of 11.9%, or 12.1% excluding severance and separation costs*
  • Diluted EPS of $5.20, or $5.29 excluding severance and separation costs*, vs. $5.80 in the prior year

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 2019 fourth quarter and full year ended August 31, 2019. The quarter and full year had one and two less selling days, respectively, of operations compared to prior periods.














Financial Highlights1


FY19 Q4


FY18 Q4


Change


FY19


FY18


Change

Net Sales


$842.7


$838.0


0.6%


$3,363.8


$3,203.9


5.0%

Operating Income


90.5


107.8


-16.0%


400.0


420.6


-4.9%

% of Net Sales


10.7%


12.9%




11.9%


13.1%



Net Income attributable to MSC
Industrial


66.6


73.0


-8.8%


288.9


329.2


-12.3%

Diluted EPS


$1.20

2

$1.29

3

-7.0%


5.20

2

5.80

3,4

-10.3%

1In millions unless noted. 2Based on 55.3 million and 55.5 million diluted shares outstanding for FY19 Q4 and FY19, respectively. 3 Based on 56.6 and 56.7 million diluted shares outstanding for FY18 Q4 and FY18, respectively. 4 FY18 includes a tax benefit of $0.71 per diluted share, from the revaluation of the company's tax related balance sheet items.

 

Erik Gershwind, president and chief executive officer, said, "Our fiscal fourth quarter reflected solid execution in a weakening demand and pricing environment. Against this backdrop, we made encouraging progress against the initiatives announced last quarter, eliminating the bottlenecks in new business conversion, deepening our supplier partnerships to drive future profitability and market share gains, and beginning to reshape and resize the organization."

Rustom Jilla, executive vice president and chief financial officer, added, "In comparison to our guidance range, fiscal fourth quarter sales came in roughly at the mid-point, gross margin at the high end, and operating expenses excluding severance and separation costs at the low end. As a result, our operating margin and EPS on an adjusted basis were above our guidance ranges. During the quarter, we took actions to reduce operating expenses and will see the benefits in fiscal 2020. For the full fiscal year, we delivered $277 million in free cash flow*, increased our dividends per share by 19%, bought back over 1 million shares, and reduced our leverage ratio slightly to 0.9 times."

Gershwind concluded, "Times of industrial weakness provide us the opportunity to strengthen our supplier partnerships, deepen our relationships with our customers, and capture market share. Also, these are periods where we historically deliver strong free cash flow. I expect that we will do the same if conditions remain weak or deteriorate further. Furthermore, I am confident that our focus on streamlining our cost structure and transforming our operating model will deliver a leaner, more agile and more effective organization."

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

Outlook

The Company expects total net sales for the first quarter of fiscal 2020 to be between $811 million and $827 million. At the midpoint, average daily sales are expected to decrease roughly 1.5% compared to last year's first quarter. The Company expects diluted earnings per share for the first quarter of fiscal 2020 to be between $1.12 and $1.18. Excluding severance and separation expenses, diluted earnings per share for the first quarter of fiscal 2020 are expected to be between $1.15 and $1.21*.

Conference Call Information

MSC will host a conference call today at 8:30 a.m. EST to review the Company's fiscal 2019 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 October 31, 2019.

The Company's reporting date for fiscal first quarter 2020 is scheduled for January 8, 2020. 

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 6,700 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 other initiatives, 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 and other changes in the industrial distribution sector; volatility in commodity and energy prices; the outcome of government or regulatory proceedings or future litigation; credit risk of our customers; risk of customer 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 risks of business disruptions arising from changes to our information systems and disruptions due to catastrophic events, power outages, natural disasters, computer system or network failures, computer viruses, physical or electronic break-ins and cyber-attacks; retention of key personnel; retention of qualified sales and customer service personnel and metalworking specialists; risk of loss of key suppliers, key brands or supply chain disruptions; risks associated with changes to trade policies, including the impact from significant restrictions or tariffs; risks associated with opening or expanding our customer fulfillment centers; litigation risk due to the nature of our business; risks associated with the integration of acquired businesses or other strategic transactions; financial restrictions on outstanding borrowings; 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 volatility of our common stock; and our principal shareholders exercise significant control over us. 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.

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

 

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)



August 31,


September 1,


2019


2018

ASSETS






Current Assets:






Cash and cash equivalents

$

32,286


$

46,217

Accounts receivable, net of allowance for doubtful accounts


541,091



523,892

Inventories


559,136



518,496

Prepaid expenses and other current assets


67,099



58,902

Total current assets


1,199,612



1,147,507

Property, plant and equipment, net


310,854



311,685

Goodwill


677,266



674,998

Identifiable intangibles, net


116,668



122,724

Other assets


6,837



31,813

Total assets

$

2,311,237


$

2,288,727







LIABILITIES AND SHAREHOLDERS' EQUITY






Current Liabilities:






Short-term debt

$

175,453


$

224,097

Accounts payable


160,110



145,133

Accrued liabilities


111,353



121,293

Total current liabilities


446,916



490,523

Long-term debt


266,431



311,236

Deferred income taxes and tax uncertainties


114,011



99,714

Total liabilities


827,358



901,473

Commitments and Contingencies






Shareholders' Equity:






Preferred Stock




Class A common stock


46



55

Class B common stock


10



10

Additional paid-in capital


659,226



657,749

Retained earnings


946,651



1,325,822

Accumulated other comprehensive loss


(22,776)



(19,634)

Class A treasury stock, at cost


(104,607)



(576,748)

Total MSC Industrial shareholders' equity


1,478,550



1,387,254

Noncontrolling interest


5,329



-

Total shareholders' equity


1,483,879



1,387,254

Total liabilities and shareholders' equity

$

2,311,237


$

2,288,727

 

 

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















(Unaudited)








Quarters Ended


Fiscal Years Ended


August 31,


September 1,


August 31,


September 1,


2019


2018


2019


2018

Net sales

$

842,670


$

837,985


$

3,363,817


$

3,203,878

Cost of goods sold


489,081



478,317



1,931,774



1,810,917

Gross profit


353,589



359,668



1,432,043



1,392,961

Operating expenses


263,075



251,878



1,032,047



972,408

Income from operations


90,514



107,790



399,996



420,553

Other (expense) income:












Interest expense


(3,730)



(4,144)



(16,890)



(14,463)

Interest income


14



163



518



647

Other income (expense), net


(165)



(76)



(495)



(548)

Total other expense


(3,881)



(4,057)



(16,867)



(14,364)

Income before provision for income taxes


86,633



103,733



383,129



406,189

Provision for income taxes


20,012



30,716



94,332



76,966

Net income


66,621



73,017



288,797



329,223

Less: Net income (loss) attributable to noncontrolling interest


13





(68)



Net income attributable to MSC Industrial

$

66,608


$

73,017


$

288,865


$

329,223

Per Share Information:












Net income per common share:












Basic

$

1.21


$

1.30


$

5.23


$

5.84

Diluted

$

1.20


$

1.29


$

5.20


$

5.80

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












Basic


55,184



56,275



55,245



56,355

Diluted


55,336



56,594



55,508



56,707

 

 

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








Fiscal Years Ended


August 31,


September 1,


2019


2018

Net income, as reported

$

288,797


$

329,223

   Other comprehensive income, net of tax:






Foreign currency translation adjustments


(3,404)



(2,371)

Comprehensive income (1)


285,393



326,852

Comprehensive loss attributable to noncontrolling interest:






  Net loss


68



  Foreign currency translation adjustments


262



Comprehensive income attributable to MSC Industrial

$

285,723


$

326,852


(1) There were no material taxes associated with other comprehensive income during fiscal years 2019 and 2018.

 

 

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








Fiscal Years Ended


August 31,


September 1,


2019


2018

Cash Flows from Operating Activities:






Net income

$

288,797


$

329,223

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






Depreciation and amortization    


65,377



63,154

Stock-based compensation


16,283



14,934

Loss on disposal of property, plant, and equipment


416



479

Provision for doubtful accounts


10,763



6,938

Deferred income taxes and tax uncertainties


14,297



(19,577)

Changes in operating assets and liabilities, net of amounts associated with business acquired:






Accounts receivable


(26,948)



(49,827)

Inventories


(32,528)



(33,235)

Prepaid expenses and other current assets


(8,316)



(4,865)

Other assets


(2,064)



1,094

Accounts payable and accrued liabilities


2,349



31,340

Total adjustments


39,629



10,435

Net cash provided by operating activities


328,426



339,658

Cash Flows from Investing Activities:






    Expenditures for property, plant and equipment


(51,773)



(44,919)

    Proceeds from sale of available for sale securities


27,025



    Cash used in business acquisitions, net of cash acquired


(11,625)



(87,000)

Net cash used in investing activities


(36,373)



(131,919)

Cash Flows from Financing Activities:






Repurchases of common stock


(84,611)



(82,369)

Payments of cash dividends


(145,709)



(125,430)

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


4,600



4,461

Proceeds from exercise of Class A common stock options


15,640



24,243

Borrowings under the revolving credit facilities


382,000



242,000

Payments under the revolving credit facilities


(451,000)



(350,000)

Contributions from noncontrolling interest


918



Proceeds from long-term debt




110,000

Payments on capital lease and financing obligations


(28,370)



(1,066)

Other, net


903



575

Net cash used in financing activities


(305,629)



(177,586)

Effect of foreign exchange rate changes on cash and cash equivalents


(355)



(19)

Net increase (decrease) in cash and cash equivalents


(13,931)



30,134

Cash and cash equivalents – beginning of year


46,217



16,083

Cash and cash equivalents – end of year

$

32,286


$

46,217

Supplemental Disclosure of Cash Flow Information:






Cash paid for income taxes

$

79,334


$

100,504

Cash paid for interest

$

16,648


$

13,448

 

Non-GAAP Financial Measures

  • Free Cash Flow ("FCF")

Our measure of "FCF" meets the definition of a non-GAAP financial measure. FCF is used in addition to and in conjunction with results presented in accordance with Generally Accepted Accounting Principles ("GAAP") and FCF should not be relied upon to the exclusion of GAAP financial measures. Management strongly encourages investors to review our financial statements and publicly-filed reports in their entirety and to not rely on any single financial measure. FCF, which we reconcile to "Net cash provided by operating activities," is cash flow from operations reduced by "Expenditures for property, plant and equipment". We believe that FCF, although similar to cash flow from operations, is a useful additional measure since capital expenditures are a necessary component of ongoing operations. Management also views FCF, as a measure of the Company's ability to reduce debt, add to cash balances, pay dividends, and repurchase stock. FCF has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures. For example, FCF does not incorporate payments made on capital lease obligations or required debt service payments. In addition, different companies define FCF differently. Therefore, we believe it is important to view FCF as a complement to our entire consolidated statements of cash flows. A reconciliation of cash provided by operating activities to FCF for the thirteen-week periods and fiscal years ended August 31, 2019 and September 1, 2018, respectively is shown below.

  • Results excluding Severance and Separation Costs and Acquisitions

To supplement MSC's unaudited selected financial data presented consistent with GAAP, the Company discloses certain non-GAAP financial measures, including Non-GAAP net sales, non-GAAP gross profit, non-GAAP operating expenses, non-GAAP income from operations, non-GAAP (benefit) provision for income taxes, non-GAAP net income and non-GAAP diluted earnings per share, that exclude (i) severance and separation costs and (ii) the results of our acquisition of All Integrated Solutions and the operations of two newly-formed entities, MSC IndustrialSupply, S. de R.L. de C.V. and MSC Import Export LLC (which completed the acquisition of certain assets in February 2019), including the non-recurring acquisition and integrations costs (collectively, referred to as "Acquisitions").

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 severance and separation costs and the results of the Acquisitions, and the related tax effects, to facilitate a review of the Company's operating performance on a period-to-period basis, 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

Quarters and Years Ended August 31, 2019 and September 1, 2018

(dollars in thousands)


















GAAP Measure


Items Affecting Comparability


Non-GAAP Measure

Net cash provided by operating activities


Expenditures for property, plant and equipment


Free cash flow

Thirteen Weeks Ended


Thirteen Weeks Ended


Thirteen Weeks Ended

August 31, 2019


September 1, 2018


August 31, 2019


September 1, 2018


August 31, 2019


September 1, 2018

$

141,226


$

109,421


$

(15,817)


$

(14,125)


$

125,409


$

95,296



































GAAP Measure


Items Affecting Comparability


Non-GAAP Measure

Net cash provided by operating activities


Expenditures for property, plant and equipment


Free cash flow

Fiscal Year Ended


Fiscal Year Ended


Fiscal Year Ended

August 31, 2019


September 1, 2018


August 31, 2019


September 1, 2018


August 31, 2019


September 1, 2018

$

328,426


$

339,658


$

(51,773)


$

(44,919)


$

276,653


$

294,739

 

 




















MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES



Reconciliation of GAAP and Non-GAAP Information



Thirteen Weeks and Year Ended August 31, 2019



(dollars in thousands, except per share data)























GAAP Measure


Items Affecting Comparability


Non-GAAP Measure










Total MSC


Acquisitions


MSC excluding Acquisitions



Thirteen
Weeks Ended


Year
Ended


Thirteen
Weeks Ended


Year
Ended


Thirteen
Weeks Ended


Year
Ended



August 31, 2019


August 31, 2019


August 31, 2019


August 31, 2019


August 31, 2019


August 31, 2019


Net Sales

$

842,670


$

3,363,817


$

27,168


$

93,010


$

815,502


$

3,270,807


ADS Growth %


2.1%



5.8%









1.0%



3.7%





















Cost of Goods Sold


489,081



1,931,774



19,374



66,841



469,707



1,864,933





















Gross Profit


353,589



1,432,043



7,794



26,169



345,795



1,405,874


Gross Margin


42.0%



42.6%



28.7%



28.1%



42.4%



43.0%





















Operating Expense


263,075



1,032,047



6,991



24,512



256,084



1,007,535


Operating Exp as % of Sales


31.2%



30.7%



25.7%



26.4%



31.4%



30.8%





















Income from Operations


90,514



399,996



803



1,657



89,711



398,339


Operating Margin


10.7%



11.9%



3.0%



1.8%



11.0%



12.2%





















Total Other Expense


(3,881)



(16,867)



(1,140)



(3,761)



(2,741)



(13,106)





















Income before provision for income taxes


86,633



383,129



(337)



(2,104)



86,970



385,233





















Provision for income taxes


20,012



94,332



(73)



(539)



20,085



94,871


     Net income


66,621



288,797



(264)



(1,565)



66,885



290,362


     Net income (loss) attributable to
noncontrolling interest


13



(68)



13



(68)



-



-


     Net income attributable to MSC
Industrial


66,608



288,865



(277)



(1,497)



66,885



290,362





















Net income per common share:



















     Diluted

$

1.20


$

5.20


$

(0.01)


$

(0.03)


$

1.21


$

5.23























 

 



















MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Reconciliation of GAAP and Non-GAAP Information

Thirteen Weeks and Year Ended August 31, 2019

(dollars in thousands, except per share data)




















GAAP Measure


Items Affecting Comparability


Non-GAAP Measure








Total MSC


Severance and Separation Costs


MSC excluding Severance and
Separation Costs


Thirteen
Weeks Ended


Year
Ended


Thirteen
Weeks Ended


Year
Ended


Thirteen
Weeks Ended


Year
Ended


August 31, 2019


August 31, 2019


August 31, 2019


August 31, 2019


August 31, 2019


August 31, 2019

Net Sales

$

842,670


$

3,363,817


$

-


$

-


$

842,670


$

3,363,817

ADS Growth %


2.1%



5.8%



-



-



2.1%



5.8%



















Cost of Goods Sold


489,081



1,931,774



-



-



489,081



1,931,774



















Gross Profit


353,589



1,432,043



-



-



353,589



1,432,043

Gross Margin


42.0%



42.6%



-



-



42.0%



42.6%



















Operating Expense


263,075



1,032,047



6,725



6,725



256,350



1,025,322

Operating Exp as % of Sales


31.2%



30.7%



0.8%



0.2%



30.4%



30.5%



















Income from Operations


90,514



399,996



(6,725)



(6,725)



97,239



406,721

Operating Margin


10.7%



11.9%



-0.8%



-0.2%



11.5%



12.1%



















Total Other Expense


(3,881)



(16,867)



-



-



(3,881)



(16,867)



















Income before provision for income
taxes


86,633



383,129



(6,725)



(6,725)



93,358



389,854



















Provision for income taxes


20,012



94,332



1,554



1,554



21,566



95,886

     Net income


66,621



288,797



(5,171)



(5,171)



71,792



293,968

     Net income (loss) attributable to
noncontrolling interest


13



(68)



-



-



13



(68)

     Net income attributable to MSC
Industrial

$

66,608


$

288,865


$

(5,171)


$

(5,171)


$

71,779


$

294,036



















Net income per common share:


















     Diluted

$

1.20


$

5.20


$

(0.09)


$

(0.09)


$

1.30


$

5.29

 

 











MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES


Reconciliation of GAAP and Non-GAAP Information


Guidance for Thirteen Weeks Ended November 30, 2019*


(dollars in thousands, except per share data)













GAAP Measure


Items Affecting Comparability


Non-GAAP Measure










Total MSC


Severance and Separation
Costs


MSC excluding Severance and
Separation Costs



Thirteen
Weeks Ended


Thirteen
Weeks Ended


Thirteen
Weeks Ended



November 30, 2019


November 30, 2019


November 30, 2019


Net Sales

$

819.1


$

-


$

819.1


ADS Growth %


-1.5%



-



-1.5%












Cost of Goods Sold


475.3



-



475.3












Gross Profit


343.8



-



343.8


Gross Margin


42.0%



-



42.0%












Operating Expense


256.0



2.3



253.7


Operating Exp as % of Sales


31.3%



0.3%



31.0%












Income from Operations


87.8



(2.3)



90.1


Operating Margin


10.7%



-0.3%



11.0%












Total Other Expense


(3.0)



-



(3.0)












Income before provision for income taxes


84.8



(2.3)



87.1












Provision for income taxes


21.3



(0.6)



21.9


     Net income


63.5



(1.7)



65.2


     Net income (loss) attributable to noncontrolling interest


-



-



-


     Net income attributable to MSC Industrial

$

63.5


$

(1.7)


$

65.2












Net income per common share:










     Diluted

$

1.15


$

(0.03)


$

1.18



* 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