MSC Reports Fiscal 2020 Second Quarter Results

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

FISCAL Q2 2020 HIGHLIGHTS

• Net sales of $786.1 million, a 4.5% YoY decrease
• Operating income of $77.7 million, compared to $96.0 million in the prior year
• Operating margin of 9.9%, 20 basis points above the midpoint of the guidance range
• Diluted EPS of $1.00; at the midpoint of the guidance range

MSC INDUSTRIAL SUPPLY CO. 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 second quarter ended February 29, 2020.

Erik Gershwind, president and chief executive officer, said, "We continue to progress on our journey to reposition MSC as a mission critical partner on the plant floor. In the near-term, however, our focus is on navigating the Company through the COVID-19 crisis, and we have launched a company-wide business continuity effort to do so. Our number one priority is the health and safety of our associates and their families, our customers, and our other partners. We have instituted enhanced safety procedures, including use of additional protective equipment, frequent cleanings of our facilities, and stay at home policies for associates who can work from home. Given we are providing essential services to many organizations on the front lines, we do not plan to shut down our customer fulfillment centers. We will, of course, follow the guidance of health officials, and we are in close contact with them across our operating footprint."

Greg Clark, vice president and interim chief financial officer, added, "Our overall fiscal second quarter results reflected solid execution in a relatively soft environment, and all metrics were within our guidance range. At the beginning of March, the first month of our fiscal third quarter, we took a mid-year price increase and realization has been quite good. As March progressed and we began to see the impact of COVID-19, our focus quickly shifted to ensuring business continuity. We reduced spending across the company and took actions to further improve our liquidity position, including drawing down $300 million from our revolving credit facility. We are monitoring our inventory levels closely, but we also intend to use inventory as a competitive differentiator. Should the environment weaken further, we can and will adjust inventory levels quickly. We continue to have ample liquidity to run the business and fund our dividend. Revenues would have to decline year-over-year in the range of 40 percent to 50 percent for operating cash flow to turn negative. At these levels, we would have taken additional significant cost down actions and could sustain multiple quarters given our liquidity position."

Gershwind continued, "The first month of our fiscal third quarter, March, reflected several important trends as the impact of COVID-19 accelerated. First, there was a large discrepancy between the first three weeks and the last two. Our revenues were up nicely over prior year over the first three weeks, but then sales dropped off significantly over the last two weeks as customer shutdowns spread rapidly across the nation. Second, as the month progressed, large orders and sales of safety and janitorial products surged, particularly to government customers, while sales of other product lines dropped significantly. Third, an unusually large gap between our orders, or bookings, and invoicing developed. While bookings for March were up high single digits over the prior year and even up over prior year during the last two weeks of the month, sales were down mid-single digits. The gap was a function of the surge in safety and janitorial orders, scarcity of product, longer lead times and a larger-than-normal backlog in our own warehouses. We anticipate the majority of these bookings will invoice during the months of April, May, and June, which would provide a growth tailwind to buffer additional softness that may be yet to come."

"I am proud of how our associates have stepped up during this time of unprecedented uncertainty," said Mr. Gershwind. "Our warehouse associates are getting mission critical product to our customers. The sales and service team remains on the front lines with customers. And the category management team is successfully sourcing scarce safety and janitorial products badly needed by our customers. These are just a few examples of our associates rising to meet the challenge. While the impact of COVID-19 will likely get worse before it gets better, the environment will ultimately improve. MSC has been through difficult periods before, and we will lean on our time-tested playbook, anchoring ourselves in our mission statement and values. We will continue supporting customers and suppliers, while advancing our strategy to become mission critical on the plant floor. Lastly, our balance sheet, culture, and resolve mean MSC will not only survive, but will ultimately emerge from this as a stronger company."

Outlook

Gershwind concluded, "Given the unprecedented uncertainly that we are all facing right now, the lack of visibility we have going forward, and how fast things are changing, we do not think quarterly guidance would provide much value. We do, however, understand the need for transparency right now. Therefore, until we get through this period of heightened uncertainty, we will be providing monthly updates on average daily sales developments following our month-end close, 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 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 15, 2020. The Company's reporting date for fiscal 2020 third quarter results is scheduled for July 8, 2020.

About MSC Industrial Supply Co. MSC Industrial Supply Co. 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 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.

SOURCE MSC Industrial Supply Co.