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MSC Industrial Reports Fiscal 2021 Second Quarter Results

MELVILLE, N.Y. and DAVIDSON, N.C., April 7, 2021 /PRNewswire/ --

FISCAL 2021 Q2 HIGHLIGHTS

  • Net sales of $774.0 million, a 1.5% decrease from the prior year quarter
  • Operating income of $28.0 million, or $80.5 million excluding $30.1 million in inventory write-downs, $21.6 million in restructuring costs, and $0.8 million in other charges1
  • Operating margin of 3.6%, or 10.4% excluding the adjustments described above1
  • Diluted EPS of $0.32; vs. $1.00 in the prior year quarter
  • Adjusted diluted EPS of $1.03 vs. $1.02 in the prior year quarter1

MSC INDUSTRIAL DIRECT CO., INC. (NYSE: MSM), "MSC Industrial" or the "Company", a leading North American distributor of metalworking and maintenance, repair and operations (MRO) products and services, today reported financial results for its fiscal 2021 second quarter ended February 27, 2021.














Financial Highlights2


FY21 Q2


FY20 Q2


Change


FY21 YTD


FY20 YTD


Change

Net Sales


$774.0


$786.1


-1.5%


$1,545.9


$1,609.7


-4.0%

Income from Operations


$28.0


$77.7


-63.9%


$81.9


$168.0


-51.2%

Operating Margin


3.6%


9.9%




5.3%


10.4%



Net Income attributable to MSC Industrial


$18.1


$55.5


-67.4%


$56.5


$120.9


-53.2%

Diluted EPS


$0.323


$1.004


-68.0%


$1.013


$2.184


-53.7%














Adjusted Financial Highlights1,2


FY21 Q2


FY20 Q2


Change


FY21 YTD


FY20 YTD


Change

Unadjusted Net Sales


$774.0


$786.1


-1.5%


$1,545.9


$1,609.7


-4.0%

Adjusted Income from Operations


$80.5


$79.6


1.1%


$165.4


$172.5


-4.1%

Adjusted Operating Margin


10.4%


10.1%




10.7%


10.7%



Adjusted Net Income attributable to MSC Industrial


$57.6


$57.0


1.1%


$119.4


$124.3


-4.0%

Adjusted Diluted EPS


$1.033


$1.024


1.0%


$2.133


$2.244


-4.9%


1 Represents a non-GAAP financial measure. An explanation and a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure are presented in schedules accompanying this press release.

2 In millions except percentages and per share data or as otherwise noted.

3 Based on 56.1 million and 56.0 million diluted shares outstanding for FY21 Q2 and FY21 YTD respectively.

4 Based on 55.6 million and 55.5 million diluted shares outstanding for FY20 Q2 and FY20 YTD respectively.

Erik Gershwind, President and Chief Executive Officer, said, "Our fiscal second quarter reflected solid execution in a choppy, but improving environment. Improvement in sales levels of our non-safety and non-janitorial product lines continued through the quarter and turned positive in March. Sales of our safety and janitorial products grew in the mid-teens. Execution of our Mission Critical initiatives was solid, and I am pleased with the progress that we are making with our share capture programs."

Kristen Actis-Grande, Executive Vice President and Chief Financial Officer, added, "Average daily sales were $12.7 million for the quarter and our gross margin was 38.1%, a decline of 400 basis points versus the prior year due primarily to a roughly $30 million PPE write-down recorded during the quarter. Excluding this write-down, our adjusted gross margin was 42.0 percent, roughly flat sequentially and versus the prior year. Operating expenses as a percentage of sales was 31.7%, a 30 basis point improvement from the prior year period. During the quarter, our Mission Critical program delivered $9 million of gross cost out bringing our cumulative savings for fiscal 2021 to $17 million against our goal of $25 million by the end of this year. We also invested roughly $5 million in our fiscal second quarter growth programs. We are ahead of plan on savings, and our investment program is also progressing very well. In fact, the results are such that we anticipate making some additional growth investments to capture more of the opportunities that we are seeing. On balance, this means that our net savings target for Mission Critical remains roughly the same or slightly larger for the full year. Our goal remains $90 million to $100 million of gross cost savings through fiscal 2023 versus fiscal 2019, and we are currently tracking to the high end of that range. Our adjusted operating margin, excluding the write-down of PPE inventory and restructuring and other related costs, was up 30 basis points from the prior year due to our Mission Critical progress."

Gershwind concluded, "The improving environment and continued execution of our growth and cost take-out programs are combining to position us well. We are now emerging as a stronger company and are poised to reaccelerate growth. We have strengthened our value proposition, with more to come, and further strengthened and extended our leadership position in our core business of Metalworking. We are well on-track to achieve our goals of growing 400 basis points above the Industrial Production Index and returning ROIC back to the high teens by the end of fiscal 2023."

Conference Call Information 

MSC Industrial will host a conference call today at 8:30 a.m. EDT to review the Company's fiscal 2021 second 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 April 14, 2021.

The Company's reporting date for fiscal 2021 third quarter results is scheduled for July 7, 2021.

About MSC Industrial Direct Co., Inc. MSC Industrial Direct Co., Inc. (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 approximately 1.9 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 6,200 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 Industrial, please visit mscdirect.com

Cautionary 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 the future impact of COVID-19 on our business operations, results of operations and financial condition, expected future results, expected benefits from our investment and strategic plans and other initiatives, and expected future growth, profitability and return on invested capital, are forward-looking statements. The words "will,", "may," "believes," "anticipates," "thinks," "expects," "estimates," "plans," "intends," and similar expressions are intended to identify 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 press release does not constitute an admission by MSC Industrial 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 the following, many of which are and will be amplified by the COVID-19 pandemic: the effects of the COVID-19 pandemic, including any future resurgences, on our business operations, results of operations and financial condition; 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; our ability to realize the expected benefits from our investment and strategic plans, including our transition from a spot-buy supplier to a mission-critical partner; our ability to realize the expected cost savings and benefits from our restructuring activities and structural cost reductions; retention of key personnel and qualified sales and customer service personnel and metalworking specialists; 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; difficulties in calibrating customer demand for our products, in particular personal protective equipment or "PPE" products, which could cause an inability to sell excess products ordered from manufacturers resulting in inventory write-downs or could conversely cause inventory shortages of such products; 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; disruptions or breaches of our information systems, or violations of data privacy laws; risk of loss of key suppliers, key brands or supply chain disruptions; 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; our ability to maintain our credit facilities; interest rate uncertainty due to LIBOR reform; failure to comply with applicable environmental, health and safety laws and regulations; ability to estimate the cost of healthcare claims incurred under our self-insurance plan; and goodwill and intangible assets recorded as a result of our acquisitions could be impaired. Additional information concerning these and other risks described under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our annual and quarterly reports on Forms 10-K and 10-Q, respectively, and in the other reports and documents that we file with the U.S. Securities and Exchange Commission. We expressly disclaim any obligation to update any of these forward-looking statements, except to the extent required by applicable law.

 

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands)








February 27,


August 29,


2021


2020

ASSETS

(unaudited)




Current Assets:






Cash and cash equivalents

$

20,242


$

125,211

Accounts receivable, net of allowance for credit losses


527,233



491,743

Inventories


532,536



543,106

Prepaid expenses and other current assets


105,342



77,710

Total current assets


1,185,353



1,237,770

Property, plant and equipment, net


293,342



301,979

Goodwill


678,406



677,579

Identifiable intangibles, net


99,756



104,873

Operating lease assets


41,758



56,173

Other assets


3,626



4,056

Total assets

$

2,302,241


$

2,382,430







LIABILITIES AND SHAREHOLDERS' EQUITY






Current Liabilities:






Current portion of debt including obligations under finance leases

$

222,680


$

122,248

Current portion of operating lease liabilities


19,956



21,815

Accounts payable


170,487



125,775

Accrued expenses and other current liabilities


140,091



138,895

Total current liabilities


553,214



408,733

Long-term debt including obligations under finance leases


461,685



497,018

Noncurrent operating lease liabilities


37,640



34,379

Deferred income taxes and tax uncertainties


121,721



121,727

Other noncurrent liabilities


9,444



Total liabilities


1,183,704



1,061,857

Commitments and Contingencies






Shareholders' Equity:






Preferred Stock




Class A Common Stock


48



47

Class B Common Stock


9



10

Additional paid-in capital


712,750



690,739

Retained earnings


523,757



749,515

Accumulated other comprehensive loss


(18,806)



(21,418)

Class A treasury stock, at cost


(105,645)



(103,948)

Total MSC Industrial shareholders' equity


1,112,113



1,314,945

Noncontrolling interest

$

6,424


$

5,628

Total shareholders' equity


1,118,537



1,320,573

Total liabilities and shareholders' equity

$

2,302,241


$

2,382,430

 

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)














Thirteen Weeks Ended


Twenty-Six Weeks Ended


February 27,


February 29,


February 27,


February 29,


2021


2020


2021


2020

Net sales

$

773,995


$

786,094


$

1,545,899


$

1,609,695

Cost of goods sold


479,244



455,042



927,830



931,447

Gross profit


294,751



331,052



618,069



678,248

Operating expenses


245,115



251,441



483,820



505,768

Impairment loss


-



-



26,726



-

Restructuring costs


21,615



1,941



25,594



4,512

Income from operations


28,021



77,670



81,929



167,968

Other income (expense):












Interest expense


(3,580)



(3,495)



(6,936)



(6,666)

Interest income


16



68



37



78

Other income (expense), net


(58)



(70)



593



51

Total other expense


(3,622)



(3,497)



(6,306)



(6,537)

Income before provision for income taxes


24,399



74,173



75,623



161,431

Provision for income taxes


6,051



18,617



18,498



40,423

Net income


18,348



55,556



57,125



121,008

Less: Net income attributable to noncontrolling interest


263



56



586



90

Net income attributable to MSC Industrial

$

18,085


$

55,500


$

56,539


$

120,918

Per share data attributable to MSC Industrial:












Net income per common share:












Basic

$

0.32


$

1.00


$

1.01


$

2.18

Diluted

$

0.32


$

1.00


$

1.01


$

2.18

Weighted-average shares used in computing

   net income per common share:












Basic


55,838



55,467



55,749



55,371

Diluted


56,133



55,587



56,019



55,545

 

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)














Thirteen Weeks Ended


Twenty-Six Weeks Ended


February 27,


February 29,


February 27,


February 29,


2021


2020


2021


2020

Net income, as reported

$

18,348


$

55,556


$

57,125


$

121,008

Other comprehensive income, net of tax:












Foreign currency translation adjustments


626



(788)



2,822



818

Comprehensive income


18,974



54,768



59,947



121,826

Comprehensive income attributable to noncontrolling interest:












Net income


(263)



(56)



(586)



(90)

Foreign currency translation adjustments


251



45



(210)



(95)

Comprehensive income attributable to MSC Industrial

$

18,962


$

54,757


$

59,151


$

121,641


 

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)








Twenty-Six Weeks Ended


February 27,


February 29,


2021


2020

Cash Flows from Operating Activities:






Net income

$

57,125


$

121,008

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






Depreciation and amortization    


34,571



34,313

Non-cash operating lease cost


7,537



11,061

Stock-based compensation


8,994



8,178

Loss on disposal of property, plant and equipment


345



227

Inventory write-down


30,091



Operating lease and fixed asset impairment due to restructuring


18,097



Provision for credit losses


4,280



4,704

Changes in operating assets and liabilities:






Accounts receivable


(39,421)



(2,105)

Inventories


(18,647)



3,449

Prepaid expenses and other current assets


(27,214)



(7,953)

Operating lease liabilities


(9,074)



(10,931)

Other assets


494



1,375

Accounts payable and accrued liabilities


51,756



(7,511)

Total adjustments


61,809



34,807

Net cash provided by operating activities


118,934



155,815

Cash Flows from Investing Activities:






    Expenditures for property, plant and equipment


(19,954)



(25,737)

    Cash used in business acquisitions, net of cash acquired




(2,286)

Net cash used in investing activities


(19,954)



(28,023)

Cash Flows from Financing Activities:






Repurchases of common stock


(3,519)



(3,208)

Payments of regular cash dividends


(83,685)



(83,181)

Payments of special cash dividends


(195,351)



(277,634)

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


2,040



2,202

Proceeds from exercise of Class A Common Stock options


10,834



13,390

Borrowings under credit facilities


415,000



389,600

Borrowings under financing obligations


1,269



Payments under credit facilities


(350,000)



(156,000)

Contributions from non-controlling interest




105

Other, net


(1,392)



(696)

Net cash used in financing activities


(204,804)



(115,422)

Effect of foreign exchange rate changes on cash and cash equivalents


855



211

Net increase (decrease) in cash and cash equivalents


(104,969)



12,581

Cash and cash equivalents – beginning of period


125,211



32,286

Cash and cash equivalents – end of period

$

20,242


$

44,867

Supplemental Disclosure of Cash Flow Information:






      Cash paid for income taxes

$

41,265


$

37,286

      Cash paid for interest

$

6,606


$

5,636

 

Non-GAAP Financial Measures

  • Results Excluding Impairment Loss, Restructuring Costs, Inventory Write-downs, and Other Charges

To supplement MSC Industrial's unaudited selected financial data presented consistent with accounting principles generally accepted in the United States ("GAAP"), the Company discloses certain non-GAAP financial measures, including non-GAAP gross profit, non-GAAP operating expenses, non-GAAP income from operations, non-GAAP operating margin, non-GAAP provision for income taxes, non-GAAP net income and non-GAAP diluted earnings per share, that exclude impairment losses, restructuring costs, inventory write-downs related to certain PPE inventory, and other related costs and tax effects.

These non-GAAP financial measures are not presented in accordance with GAAP or an alternative for GAAP financial measures and may be different from similar non-GAAP financial measures used by other companies. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP financial measures and should only be used to evaluate MSC Industrial's results of operations in conjunction with the corresponding GAAP financial measures.

In calculating non-GAAP financial measures, we exclude impairment losses, restructuring costs, inventory write-downs related to certain PPE inventory, and other related costs and tax effects.  Management makes these adjustments to facilitate a review of the Company's operating performance on a comparable basis between periods, for comparison with forecasts and strategic plans, for identifying and analyzing trends in the Company's underlying business and for benchmarking performance externally against competitors. We believe that investors benefit from seeing results from the perspective of management in addition to seeing results presented in accordance with GAAP for the same reasons and purposes for which management uses such non-GAAP financial measures.

 
















MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Reconciliation of GAAP and Non-GAAP Financial Information

Thirteen Weeks Ended February 27, 2021

(dollars in thousands, except percentages and per share data)

















GAAP Financial
Measure



Items Affecting Comparability


Non-GAAP
Financial Measure


Total MSC
Industrial


Inventory
Write-down


Restructuring
Costs


Legal Costs-
impairment of
prepaid for PPE


Adjusted Total
MSC Industrial

Net Sales

$

773,995


$

-


$

-


$

-


$

773,995
















Cost of Goods Sold


479,244



30,091



-



-



449,153
















Gross Profit


294,751



(30,091)



-



-



324,842

Gross Margin


38.1%



-3.9%



-



-



42.0%
















Operating Expenses


245,115



-



-



727



244,388

Operating Exp as % of Sales


31.7%



-



-



0.1%



31.6%
















Restructuring Costs


21,615



-



21,615



-



-
















Income from Operations


28,021



(30,091)



(21,615)



(727)



80,454

Operating Margin


3.6%



-3.9%



-2.8%



-0.1%



10.4%
















Total Other Expense


(3,622)



-



-



-



(3,622)
















Income before provision for income taxes


24,399



(30,091)



(21,615)



(727)



76,832
















Provision for income taxes


6,051



(7,432)



(5,339)



(180)



19,002

     Net income


18,348



(22,659)



(16,276)



(547)



57,830

     Net income attributable to noncontrolling interest


263



-



-



-



263

     Net income attributable to MSC Industrial

$

18,085


$

(22,659)


$

(16,276)


$

(547)


$

57,567
















Net income per common share:















     Diluted

$

0.32


$

(0.40)


$

(0.29)


$

(0.01)


$

1.03

 



















MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Reconciliation of GAAP and Non-GAAP Financial Information

Twenty-Six Weeks Ended February 27, 2021

(dollars in thousands, except percentages and per share data)




















GAAP
Financial
Measure


Items Affecting Comparability


Non-GAAP
Financial
Measure


Total MSC
Industrial


Inventory
Write-down


Restructuring
Costs


Impairment
Loss


 Legal Costs -
impairment of
prepaid for PPE


Adjusted Total
MSC Industrial

Net Sales

$

1,545,899


$

-


$

-


$

-


$

-


$

1,545,899



















Cost of Goods Sold


927,830



30,091



-



-



-



897,739



















Gross Profit


618,069



(30,091)



-



-



-



648,160

Gross Margin


40.0%



-1.9%



-



-



-



41.9%



















Operating Expenses


483,820



-



-



-



1,020



482,800

Operating Exp as % of Sales


31.3%



-



-



-



0.1%



31.2%



















Impairment Loss


26,726



-



-



26,726



-



-



















Restructuring Costs


25,594



-



25,594



-



-



-



















Income from Operations


81,929



(30,091)



(25,594)



(26,726)



(1,020)



165,360

Operating Margin


5.3%



-1.9%



-1.7%



-1.7%



-0.1%



10.7%



















Total Other Expense


(6,306)



-



-



-



-



(6,306)



















Income before provision for income taxes


75,623



(30,091)



(25,594)



(26,726)



(1,020)



159,054



















Provision for income taxes


18,498



(7,432)



(6,322)



(6,601)



(252)



39,105

     Net income


57,125



(22,659)



(19,272)



(20,125)



(768)



119,949

     Net income attributable to noncontrolling interest


586



-



-



-



-



586

     Net income attributable to MSC Industrial

$

56,539


$

(22,659)


$

(19,272)


$

(20,125)


$

(768)


$

119,363



















Net income per common share:


















     Diluted

$

1.01


$

(0.40)


$

(0.34)


$

(0.36)


$

(0.01)


$

2.13

 

 



















MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Reconciliation of GAAP and Non-GAAP Financial Information

Thirteen and Twenty-Six Weeks Ended February 29, 2020

(dollars in thousands, except percentages and per share data)




















GAAP Financial Measure


Items Affecting Comparability 1


Non-GAAP Financial Measure


Total MSC Industrial


Restructuring Costs


MSC Industrial excluding
Restructuring Costs


Thirteen
Weeks Ended


Twenty-Six
Weeks Ended


Thirteen
Weeks Ended


Twenty-Six
Weeks Ended

Thirteen
Weeks Ended


Twenty-Six
Weeks Ended


February 29, 2020

February 29, 2020

February 29, 2020

Net Sales

$

786,094


$

1,609,695


$

-


$

-


$

786,094


$

1,609,695



















Cost of Goods Sold


455,042



931,447



-



-



455,042



931,447



















Gross Profit


331,052



678,248



-



-



331,052



678,248

Gross Margin


42.1%



42.1%



-



-



42.1%



42.1%



















Operating Expenses


251,441



505,768









251,441



505,768

Operating Exp as % of Sales


32.0%



31.4%



-



-



32.0%



31.4%



















Restructuring Costs


1,941



4,512



1,941



4,512



-



-



















Income from Operations


77,670



167,968



(1,941)



(4,512)



79,611



172,480

Operating Margin


9.9%



10.4%



-0.2%



-0.3%



10.1%



10.7%



















Total Other Expense


(3,497)



(6,537)



-



-



(3,497)



(6,537)



















Income before provision for income taxes


74,173



161,431



(1,941)



(4,512)



76,114



165,943



















Provision for income taxes


18,617



40,423



(487)



(1,128)



19,104



41,551

     Net income


55,556



121,008



(1,454)



(3,384)



57,010



124,392

     Net income attributable to noncontrolling interest


56



90



-



-



56



90

     Net income attributable to MSC Industrial

$

55,500


$

120,918


$

(1,454)


$

(3,384)


$

56,954


$

124,302



















Net income per common share:


















     Diluted

$

1.00


$

2.18


$

(0.03)


$

(0.06)


$

1.02


$

2.24


1Prior period adjustments include only restructuring costs. Items of note excluded from the current period results, including inventory write-downs, an impairment loss and associated legal costs, did not occur in the prior year periods.

 

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