MSC Reports Fiscal 2020 Third Quarter Results
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.