MSC Reports Fiscal 2020 First Quarter Results

|Jan 8|magazine42 min read

MELVILLE, N.Y. and DAVIDSON, N.C., Jan. 8, 2020 /PRNewswire/ --

FISCAL Q1 2020 HIGHLIGHTS

  • Net sales of $823.6 million, a 1.0% YoY decrease
  • Operating income of $90.3 million, or $92.9 million excluding severance and separation costs of $2.6 million*
  • Operating margin of 11.0%, or 11.3% excluding severance and separation, both 30 basis points above the midpoint of the guidance ranges*
  • Diluted EPS of $1.18, or $1.21 excluding severance and separation, both at the high-end of the guidance ranges*

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 2020 first quarter ended November 30, 2019. 

Financial Highlights1


FY20 Q1


FY19 Q1


Change

Net Sales


$823.6


$831.6


-1.0%

Operating Income


90.3


103.0


-12.3%

% of Net Sales


11.0%


12.4%



Net Income attributable to MSC Industrial


65.4


74.2


-11.9%

Diluted EPS


$1.182


$1.333


-11.3%


1In millions except per share data or as otherwise noted. 2Based on 55.4 million diluted shares outstanding for FY20 Q1. 3Based on 55.8 million diluted shares outstanding for FY19 Q1.

Erik Gershwind, president and chief executive officer, said, "Our fiscal first quarter results, including sales that exceeded the midpoint of our guidance and gross margin at the high end of our expectations, reflect solid execution in a weak demand environment. Softness in industrial demand was broad-based and we continued to see customers and suppliers eliminate shifts and, in some pockets, announce layoffs and restructurings."

Rustom Jilla, executive vice president and chief financial officer, added, "Our operating expense discipline continued in our first fiscal quarter, with our restructuring actions delivering the anticipated savings. Combining this with our sales and gross margin performance resulted in our operating margin on an adjusted basis coming in 30 basis points above our guidance midpoint. We also delivered solid free cash flow* of $72 million in the quarter. Finally, consistent with our balanced capital allocation philosophy, and as announced last month, the Board of Directors declared a special dividend of $5.00 per share in addition to our regular quarterly dividend of $0.75 per share."

Gershwind added, "With respect to our fiscal second quarter, we attribute much of December's weakness to holiday timing, shutdown schedules, and end of year purchasing decisions by our customers. As it is too early to conclude if underlying trends have worsened, our forecast assumes that January and February follow the typical lift in average daily sales from November. In terms of pricing, we anticipate taking a mid-year price increase towards the end of the quarter as we have seen some continued supplier list price movement."

Gershwind concluded, "Against this backdrop, our journey to reposition MSC from a spot buy-only supplier to a mission critical partner to manufacturers continues. We are completing the sales effectiveness refinements to position our business to capture market share, including ramping up growth investments in areas that are delivering early returns. We are implementing the new supplier programs, which will continue to close the gross margin gap when combined with an improving purchase cost trend and mid-year price action. Finally, we are streamlining our cost structure and transforming our operating model to be leaner. These actions represent the beginning, not the end, of our journey to fulfill our mission to be the best industrial distributor in the world."

Outlook
The Company expects net sales for the second quarter of fiscal 2020 to be between $781 million and $798 million. At the midpoint, average daily sales are expected to decrease roughly 2.5% compared to last year's second quarter. The Company expects diluted earnings per share for the second quarter of fiscal 2020 to be between $0.97 and $1.03.

Conference Call Information

MSC will host a conference call today at 8:30 a.m. EST to review the Company's fiscal 2020 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 15, 2020.

The Company's reporting date for fiscal 2020 second quarter results is scheduled for April 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 1.7 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 approximately 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; retention of key personnel; 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; disruptions or breaches of our information systems, or violations of data privacy laws; retention of qualified sales and customer service personnel and metalworking specialists; 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; interest rate uncertainty due to LIBOR reform; 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.

 

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









November 30,


August 31,


2019


2019

ASSETS


(unaudited)




Current Assets:






Cash and cash equivalents

$

27,778


$

32,286

Accounts receivable, net of allowance for doubtful accounts


536,878



541,091

Inventories


539,433



559,136

Prepaid expenses and other current assets


66,731



67,099

Total current assets


1,170,820



1,199,612

Property, plant and equipment, net


312,317



310,854

Goodwill


677,325



677,266

Identifiable intangibles, net


113,740



116,668

Operating lease assets


59,385



Other assets


6,178



6,837

Total assets

$

2,339,765


$

2,311,237







LIABILITIES AND SHAREHOLDERS' EQUITY






Current Liabilities:






Current portion of long-term debt including obligations under finance leases

$

138,877


$

175,453

Current portion of operating lease liabilities


21,039



Accounts payable


142,733



160,110

Accrued liabilities and other current liabilities


101,179



111,353

Total current liabilities


403,828



446,916

Long-term debt including obligations under finance leases


267,583



266,431

Noncurrent operating lease liabilities


37,977



Deferred income taxes and tax uncertainties


114,011



114,011

Total liabilities


823,399



827,358

Commitments and Contingencies






Shareholders' Equity:






Preferred Stock




Class A common stock


46



46

Class B common stock


10



10

Additional paid-in capital


668,668



659,226

Retained earnings


970,139



946,651

Accumulated other comprehensive loss


(21,310)



(22,776)

Class A treasury stock, at cost


(106,690)



(104,607)

Total MSC Industrial shareholders' equity


1,510,863



1,478,550

Noncontrolling interest

$

5,503


$

5,329

Total shareholders' equity


1,516,366



1,483,879

Total liabilities and shareholders' equity

$

2,339,765


$

2,311,237

 

 

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










Thirteen Weeks Ended



November 30,


December 1,



2019


2018


Net sales

$

823,601


$

831,597


Cost of goods sold


476,405



473,612


Gross profit


347,196



357,985


Operating expenses


256,898



254,985


Income from operations


90,298



103,000


Other income (expense):







Interest expense


(3,171)



(4,056)


Interest income


10



162


Other income, net


121



2


Total other expense


(3,040)



(3,892)


Income before provision for income taxes


87,258



99,108


Provision for income taxes


21,806



24,876


Net income


65,452



74,232


Less: Net income attributable to noncontrolling interest


34




Net income attributable to MSC Industrial

$

65,418


$

74,232


Per share data attributable to MSC Industrial:







Net income per common share:







Basic

$

1.18


$

1.34


Diluted

$

1.18


$

1.33


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







Basic


55,275



55,502


Diluted


55,444



55,831


 

 

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










Thirteen Weeks Ended



November 30,


December 1,



2019


2018


Net income, as reported

$

65,452


$

74,232


Other comprehensive income, net of tax:







Foreign currency translation adjustments


1,606



(1,341)


Comprehensive income


67,058



72,891


Comprehensive income attributable to noncontrolling interest:







Net income


(34)




Foreign currency translation adjustments


(140)




Comprehensive income attributable to MSC Industrial

$

66,884


$

72,891



 

 

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








Thirteen Weeks Ended


November 30,


December 1,


2019


2018

Cash Flows from Operating Activities:






Net income

$

65,452


$

74,232

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






Depreciation and amortization    


17,025



15,846

Non-cash operating lease cost


5,544



Stock-based compensation


4,161



4,174

Loss on disposal of property, plant, and equipment


140



141

Provision for doubtful accounts


2,526



2,814

Changes in operating assets and liabilities:






Accounts receivable


2,565



(10,630)

Inventories


20,627



(9,803)

Prepaid expenses and other current assets


(182)



(2,044)

Operating lease liabilities


(5,425)



Other assets


669



753

Accounts payable and accrued liabilities


(27,990)



1,383

Total adjustments


19,660



2,634

Net cash provided by operating activities


85,112



76,866

Cash Flows from Investing Activities:






    Expenditures for property, plant and equipment


(12,689)



(10,053)

Net cash used in investing activities


(12,689)



(10,053)

Cash Flows from Financing Activities:






Repurchases of common stock


(3,009)



(63,527)

Payments of cash dividends


(41,536)



(34,858)

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


1,031



954

Proceeds from exercise of Class A common stock options


4,533



9,329

Borrowings under the revolving credit facilities


69,000



245,000

Payments under the revolving credit facilities


(107,000)



(259,000)

Other, net


(180)



753

Net cash used in financing activities


(77,161)



(101,349)

Effect of foreign exchange rate changes on cash and cash equivalents


230



(66)

Net decrease in cash and cash equivalents


(4,508)



(34,602)

Cash and cash equivalents – beginning of year


32,286



46,217

Cash and cash equivalents – end of year

$

27,778


$

11,615

Supplemental Disclosure of Cash Flow Information:






Cash paid for income taxes

$

1,790


$

1,761

Cash paid for interest

$

895


$

1,685

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 finance 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 ended November 30, 2019 and December 1, 2018, respectively is shown below.

  • Results excluding Severance and Separation Costs

To supplement MSC's unaudited selected financial data presented consistent with GAAP, the Company discloses certain non-GAAP financial measures, including 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 severance and separation costs.

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 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

Thirteen Weeks Ended November 30, 2019 and December 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

November 30, 2019


December 1, 2018


November 30, 2019


December 1, 2018


November 30, 2019


December 1, 2018

$

85,112


$

76,866


$

(12,689)



(10,053)


$

72,423


$

66,813


















 

 










MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Reconciliation of GAAP and Non-GAAP Information

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

$

823,601


$

-


$

823,601

ADS Growth %


-1.0%



-



-1.0%










Cost of Goods Sold


476,405



-



476,405










Gross Profit


347,196



-



347,196

Gross Margin


42.2%



-



42.2%










Operating Expense


256,898



2,571



254,327

Operating Exp as % of Sales


31.2%



0.3%



30.9%










Income from Operations


90,298



(2,571)



92,869

Operating Margin


11.0%



-0.3%



11.3%










Total Other Expense


(3,040)



-



(3,040)










Income before provision for income taxes


87,258



(2,571)



89,829










Provision for income taxes


21,806




(643)



22,449

     Net income


65,452



(1,928)



67,380

     Net income attributable to noncontrolling interest


34



-



34

     Net income attributable to MSC Industrial

$

65,418


$

(1,928)


$

67,346










Net income per common share:









     Diluted

$

1.18


$

(0.03)


$

1.21

 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/msc-reports-fiscal-2020-first-quarter-results-300983317.html

SOURCE MSC Industrial Supply Co.