MSC Reports Fiscal 2020 Third Quarter Results

|Jul 8|magazine32 min read

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

 

FISCAL Q3 2020 HIGHLIGHTS

  • Net sales of $835.0 million, a 3.6% YoY decrease
  • Operating income of $109.9 million, compared to $110.5 million in the prior year
  • Operating margin of 13.2%, 40 basis points above the prior year period
  • Diluted EPS of $1.40, compared to $1.44 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 2020 third quarter ended May 30, 2020.













Financial Highlights1

FY20 Q3


FY19 Q3


Change


FY20 YTD


FY19 YTD


Change

Net Sales

$835.0


$866.5


-3.6%


$2,444.7


$2,521.1


-3.0%

Operating Income

109.9


110.5


-0.6%


277.8


309.5


-10.2%

% of Net Sales

13.2%


12.8%




11.4%


12.3%



Net Income attributable to MSC Industrial

77.7


79.6


-2.4%


198.6


222.3


-10.6%

Diluted EPS

$1.40 2


$1.44 3


-2.8%


$3.57 2


$4.00 3


-10.8%

1In millions except per share data or as otherwise noted. 2Based on 55.6 million diluted shares outstanding for both FY20 Q3 and FY20 YTD, respectively. 3Based on 55.4 million and 55.6 million diluted shares outstanding for FY19 Q3 and FY19 YTD, respectively.

Erik Gershwind, president and chief executive officer, said, "Our company rose to the occasion in the face of the most severe crisis most of us have seen in our lifetimes. Our fiscal third quarter results reflect strong execution in a tough environment. Weakness in industrial demand was pretty much across the board, with sustained and acute softness in metalworking-centric end markets such as automotive, aerospace, and oil and gas. Our own results for the quarter benefitted from the surge in demand for safety and janitorial products, but this was more than offset by the COVID-19 impacts on the rest of the business. The surge in demand for safety and janitorial supplies subsided in fiscal June, while customer re-openings only provided a modest improvement in underlying sales levels. This reflected continuing softness in end-market fundamentals, as well as customers opening very gradually with reduced hours."

Greg Clark, vice president and interim chief financial officer, added, "Our average daily sales were $13.0 million in the third quarter. Our Q3 reported gross margin was 42.4%, and our year-over-year gross margin decline continued to shrink as we achieved strong price realization on our March price increase, had good success with our supplier initiatives, and as purchase cost escalation continued to decline. Our Q3 results also reflected the swift cost containment measures we implemented, which resulted in a 40-basis point expansion in operation margin over the prior year. In addition, our balance sheet remains strong and we have ample room under our debt covenants."

Gershwind continued, "Looking ahead, we remain focused on our three continuing priorities, all centered on expanding operating margins while we continue the repositioning of the company from a spot buy supplier to a mission critical partner on the plant floor. We will resume our sales force refinement efforts and restart our business development hiring. We are building on the recent gross margin momentum driven by improvements in pricing execution and supplier programs and lastly, we have reinitiated the project focused on aligning our operating model to our new strategy."

Outlook

Given the ongoing unprecedented uncertainty and lack of visibility going forward, we will continue not giving quarterly EPS guidance, and will continue providing monthly updates following our month-end close on average daily sales developments, as well as comments on the business trends that we have seen over the course of the month.

Conference Call Information

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

The Company's reporting date for fiscal 2020 fourth quarter and full year results is scheduled for October 27, 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 1.8 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 over 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 the 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 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 the following, many of which are and will be amplified by the COVID-19 pandemic: the effects of the COVID-19 pandemic 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; 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)








May 30,


August 31,


2020


2019

ASSETS

(unaudited)




Current Assets:






Cash and cash equivalents

$

353,393


$

32,286

Accounts receivable, net of allowance for doubtful accounts


544,446



541,091

Inventories


575,093



559,136

Prepaid expenses and other current assets


83,022



67,099

Total current assets


1,555,954



1,199,612

Property, plant and equipment, net


307,150



310,854

Goodwill


676,262



677,266

Identifiable intangibles, net


107,197



116,668

Operating lease assets


58,321



Other assets


4,826



6,837

Total assets

$

2,709,710


$

2,311,237







LIABILITIES AND SHAREHOLDERS' EQUITY






Current Liabilities:






Current portion of debt including obligations under finance leases

$

310,482


$

175,453

Current portion of operating lease liabilities


21,888



Accounts payable


126,938



160,110

Accrued liabilities and other current liabilities


132,703



111,353

Total current liabilities


592,011



446,916

Long-term debt including obligations under finance leases


667,234



266,431

Noncurrent operating lease liabilities


36,163



Deferred income taxes and tax uncertainties


114,010



114,011

Total liabilities


1,409,418



827,358

Commitments and Contingencies






Shareholders' Equity:






Preferred Stock




Class A common stock


47



46

Class B common stock


10



10

Additional paid-in capital


685,982



659,226

Retained earnings


739,035



946,651

Accumulated other comprehensive loss


(25,582)



(22,776)

Class A treasury stock, at cost


(104,589)



(104,607)

Total MSC Industrial shareholders' equity


1,294,903



1,478,550

Noncontrolling interest


5,389



5,329

Total shareholders' equity


1,300,292



1,483,879

Total liabilities and shareholders' equity

$

2,709,710


$

2,311,237




MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)














Thirteen Weeks Ended


Thirty-Nine Weeks Ended


May 30,


June 1,


May 30,


June 1,


2020


2019


2020


2019

Net sales

$

834,972


$

866,546


$

2,444,667


$

2,521,147

Cost of goods sold


481,010



497,891



1,412,457



1,442,693

Gross profit


353,962



368,655



1,032,210



1,078,454

Operating expenses


244,110



258,154



754,390



768,972

Income from operations


109,852



110,501



277,820



309,482

Other income (expense):












Interest expense


(5,451)



(4,565)



(12,117)



(13,160)

Interest income


173



178



251



504

Other (expense) income, net


(560)



(95)



(509)



(330)

Total other expense


(5,838)



(4,482)



(12,375)



(12,986)

Income before provision for income taxes


104,014



106,019



265,445



296,496

Provision for income taxes


25,900



26,505



66,323



74,320

Net income


78,114



79,514



199,122



222,176

Less: Net income (loss) attributable to noncontrolling interest


411



(87)



501



(81)

Net income attributable to MSC Industrial

$

77,703


$

79,601


$

198,621


$

222,257

Per share data attributable to MSC Industrial:












Net income per common share:












Basic

$

1.40


$

1.44


$

3.58


$

4.02

Diluted

$

1.40


$

1.44


$

3.57


$

4.00

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












Basic


55,563



55,158



55,435



55,266

Diluted


55,599



55,387



55,581



55,556




MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)














Thirteen Weeks Ended


Thirty-Nine Weeks Ended


May 30,


June 1,


May 30,


June 1,


2020


2019


2020


2019

Net income, as reported

$

78,114


$

79,514


$

199,122


$

222,176

Other comprehensive income, net of tax:












Foreign currency translation adjustments


(4,065)



(2,576)



(3,247)



(3,242)

Comprehensive income


74,049



76,938



195,875



218,934

Comprehensive income attributable to noncontrolling interest:












Less: Net income


(411)



87



(501)



81

Foreign currency translation adjustments


536



83



441



146

Comprehensive income attributable to MSC Industrial

$

74,174


$

77,108


$

195,815


$

219,161




MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)








Thirty-Nine Weeks Ended


May 30,


June 1,


2020


2019

Cash Flows from Operating Activities:






Net income

$

199,122


$

222,176

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






Depreciation and amortization    


51,354



48,539

Non-cash operating lease cost


16,852



Stock-based compensation


12,463



12,167

Loss on disposal of property, plant, and equipment


278



325

Provision for doubtful accounts


8,008



9,013

Changes in operating assets and liabilities:






Accounts receivable


(13,788)



(30,180)

Inventories


(17,049)



(33,672)

Prepaid expenses and other current assets


(17,082)



(10,841)

Operating lease liabilities


(16,634)



Other assets


2,008



(609)

Accounts payable and accrued liabilities


(10,591)



(29,718)

Total adjustments


15,819



(34,976)

Net cash provided by operating activities


214,941



187,200

Cash Flows from Investing Activities:






    Expenditures for property, plant and equipment


(35,920)



(35,956)

    Proceeds from sale of available for sale securities




27,025

    Cash used in business acquisitions, net of cash acquired


(2,286)



(11,625)

Net cash used in investing activities


(38,206)



(20,556)

Cash Flows from Financing Activities:






Repurchases of common stock


(3,236)



(84,464)

Payments of regular cash dividends


(124,851)



(104,308)

Payments of special cash dividends


(277,634)



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


3,287



3,472

Proceeds from exercise of Class A common stock options


13,530



15,527

Proceeds from long-term debt


100,000



Borrowings under the revolving credit facilities


1,012,200



358,000

Payments under the revolving credit facilities


(578,000)



(336,000)

Payments on finance lease and financing obligations


(1,629)



(28,007)

Other, net


1,162



1,821

Net cash provided by (used in) financing activities


144,829



(173,959)

Effect of foreign exchange rate changes on cash and cash equivalents


(457)



(131)

Net increase (decrease) in cash and cash equivalents


321,107



(7,446)

Cash and cash equivalents – beginning of period


32,286



46,217

Cash and cash equivalents – end of period

$

353,393


$

38,771

Supplemental Disclosure of Cash Flow Information:






Cash paid for income taxes

$

39,672


$

69,413

Cash paid for interest

$

8,501


$

10,791

 

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SOURCE MSC Industrial Supply Co.