MSC Reports Fiscal 2018 Third Quarter Results
MELVILLE, N.Y. and DAVIDSON, N.C., July 11, 2018 /PRNewswire/ --
Fiscal Q3 2018 Highlights
-- Net sales of $828.3 million, an 11.3% YoY increase, with approximately
500 basis points of acquisitive growth
-- Operating income of $115.4 million, an increase of approximately 13.4%
YoY
-- Operating margin of 13.9% (14.5% excluding acquisitions*, an 80-basis
point expansion YoY)
-- Diluted EPS of $1.39, $0.01 above the guidance midpoint which did not
include $0.02 of dilution from the AIS acquisition, versus $1.09 in the
prior year quarter
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 2018 third quarter ended June 2, 2018.
Financial Highlights(1) FY18 Q3 FY17 Q3 Change FY18 YTD FY17 YTD Change
---------------------- ------- ------- ------ -------- -------- ------
Net Sales $828.3 $743.9 11.3% $2,365.9 $2,134.0 10.9%
Operating Income 115.4 101.8 13.4% 312.8 279.0 12.1%
% of Net Sales 13.9% 13.7% 13.2% 13.1%
Net Income 79.1 62.8 25.8% 256.2 170.7 50.1%
Diluted EPS $1.39 .(2) $1.09 .(3) 27.5% $4.51 (2) $2.98 (3) 51.3%
----------- ----- --- ----- --- ---- ----- --- ----- --- ----
(1)In millions except per share data or as otherwise noted. (2)Based on 56.8 million and 56.7 million diluted shares outstanding for FY18 Q3 and FY18 YTD, respectively. 3 Based on 57.3 million and 57.0 million diluted shares outstanding for FY17 Q3 and FY17 YTD,
respectively.
Erik Gershwind, president and chief executive officer, said, "The manufacturing environment in the third fiscal quarter was healthy, and the pricing environment sustained, with positive price/cost in the quarter. We continued to deliver gross margin stability, and our ongoing productivity efforts resulted in operating margin expansion. This was despite sales growth that was somewhat below my expectations due to the impact of our sales effectiveness initiatives and the related lower sales headcount."
Rustom Jilla, executive vice president and chief financial officer, added, "Our fiscal third quarter net sales rose 11.3%, and our operating income rose 13.4%, even after absorbing $1.8 million of AIS acquisition costs and inventory purchase accounting charges. Base business net sales growth was 6.1%, while operating income rose 12.3% with higher gross margins and lower operating expenses to sales contributing equally to our operating margin improvement.* Both DECO and AIS outperformed our expectations. Total cash generation remained strong, with year to date net cash from operations 45% greater than the prior year, and, despite purchasing AIS in the third quarter, leverage was sequentially unchanged at 1.0 times."
Gershwind concluded, "While our fourth quarter organic growth guidance falls short of my expectations for performance in this environment, I expect a return to more typical organic growth levels after a couple of quarters as we complete our sales force effectiveness initiatives and expand our sales team. As we do so, we will benefit from the leverage inherent in our business model, and we expect to continue achieving our long-term annual incremental margin target range. We will maintain our focus on growing areas that are technical and high-touch, creating a deeper moat around our business. All of these are critical to our long-term success, and I am confident in our ability to deliver."
Outlook
The Company expects net sales for the fourth quarter of fiscal 2018 to be between $829 million and $844 million. At the midpoint, average daily sales are expected to increase roughly 9.3% compared to last year's fourth quarter. Inclusive of net dilution of 3 cents from AIS, the Company expects diluted earnings per share for the fourth quarter of fiscal 2018 to be between $1.24 and $1.30.
Excluding acquisitions, the Company expects net sales for the fourth quarter of fiscal 2018 to be between $778 million and $793 million, with average daily sales at the midpoint expected to increase roughly 4.0% compared to last year's fourth quarter. The Company expects diluted earnings per share for the fourth quarter of fiscal 2018 to be between $1.26 and $1.32.
Conference Call Information
MSC will host a conference call today at 8:30 a.m. EST to review the Company's fiscal 2018 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 18, 2018.
The Company's reporting date for fiscal 2018 fourth quarter and full year results is scheduled for October 30, 2018.
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 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 6,500 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 expected future results, expected benefits from our investment and strategic plans, including from our recent acquisitions, 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, volatility in commodity and energy prices, the outcome of government or regulatory proceedings or future litigation, credit risk of our customers, risk of 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, dependence on our information systems and the risk of business disruptions arising from changes to our information systems, disruptions due to computer system or network failures, computer viruses, physical or electronics break-ins and cyber-attacks, retention of key personnel, the loss of key suppliers or supply chain disruptions, risks associated with changes to trade policies, 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 integration of acquired businesses or other strategic transactions, and financial restrictions on outstanding borrowings. 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)
June 2, September 2,
2018 2017
---- ----
ASSETS (unaudited)
------
Current Assets:
Cash and cash equivalents $39,993 $16,083
Accounts receivable, net of allowance for
doubtful accounts 510,832 471,795
Inventories 512,303 464,959
Prepaid expenses and other current assets 53,057 52,742
Total current assets 1,116,185 1,005,579
--------- ---------
Property, plant and equipment, net 311,264 316,305
Goodwill 672,785 633,728
Identifiable intangibles, net 125,773 110,429
Other assets 29,725 32,871
------ ------
Total assets $2,255,732 $2,098,912
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Short-term debt $284,217 $331,986
Accounts payable 133,679 121,266
Accrued liabilities 110,597 104,473
------- -------
Total current liabilities 528,493 557,725
------- -------
Long-term debt 251,304 200,991
Deferred income taxes and tax uncertainties 76,881 115,056
------ -------
Total liabilities 856,678 873,772
------- -------
Commitments and Contingencies
Shareholders' Equity:
Preferred Stock - -
Class A common stock 55 54
Class B common stock 10 12
Additional paid-in capital 663,399 626,995
Retained earnings 1,331,788 1,168,812
Accumulated other comprehensive loss (18,968) (17,263)
Class A treasury stock, at cost (577,230) (553,470)
-------- --------
Total shareholders' equity 1,399,054 1,225,140
--------- ---------
Total liabilities and shareholders'
equity $2,255,732 $2,098,912
========== ==========
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
-------------------- -----------------------
June 2, June 3, June 2, June 3,
2018 2017 2018 2017
---- ---- ---- ----
Net sales $828,345 $743,923 $2,365,893 $2,133,974
Cost of goods sold 467,344 414,423 1,332,600 1,181,177
------- ------- --------- ---------
Gross profit 361,001 329,500 1,033,293 952,797
Operating expenses 245,619 227,724 720,530 673,776
------- ------- ------- -------
Income from operations 115,382 101,776 312,763 279,021
------- ------- ------- -------
Other (expense) income:
Interest expense (3,532) (3,361) (10,319) (9,245)
Interest income 108 169 484 496
Other (expense) income, net (141) (2) (472) (340)
---- --- ---- ----
Total other expense (3,565) (3,194) (10,307) (9,089)
------ ------ ------- ------
Income before provision for income taxes 111,817 98,582 302,456 269,932
Provision for income taxes 32,748 35,746 46,250 99,249
------ ------ ------ ------
Net income $79,069 $62,836 $256,206 $170,683
======= ======= ======== ========
Per Share Information:
Net income per common share:
Basic $1.40 $1.10 $4.54 $3.01
===== ===== ===== =====
Diluted $1.39 $1.09 $4.51 $2.98
===== ===== ===== =====
Weighted average shares used in computing
net income per common share:
Basic 56,420 56,779 56,382 56,593
====== ====== ====== ======
Diluted 56,804 57,264 56,733 57,028
====== ====== ====== ======
Cash dividends declared per common share $0.58 $0.45 $1.64 $1.35
===== ===== ===== =====
MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
---------------------------------------------------------
(In thousands)
(Unaudited)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------- -----------------------
June 2, June 3, June 2, June 3,
2018 2017 2018 2017
---- ---- ---- ----
Net income, as reported $79,069 $62,836 $256,206 $170,683
Foreign currency translation adjustments (889) 87 (1,705) (2,161)
---- --- ------ ------
Comprehensive income $78,180 $62,923 $254,501 $168,522
======= ======= ======== ========
MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
-----------------------------------------------
(In thousands)
(Unaudited)
Thirty-Nine Weeks Ended
-----------------------
June 2, June 3,
2018 2017
---- ----
Cash Flows from Operating Activities:
Net income $256,206 $170,683
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 47,133 46,737
Stock-based compensation 11,275 10,375
Loss on disposal of property, plant, and equipment 280 317
Provision for doubtful accounts 4,956 4,713
Deferred income taxes and tax uncertainties (41,199) -
Write-off of deferred financing costs on previous credit facility - 94
Changes in operating assets and liabilities:
Accounts receivable (34,434) (50,730)
Inventories (26,740) (22,834)
Prepaid expenses and other current assets 1,005 (4,547)
Other assets 3,191 2,259
Accounts payable and accrued liabilities 8,564 2,064
----- -----
Total adjustments (25,969) (11,552)
------- -------
Net cash provided by operating activities 230,237 159,131
------- -------
Cash Flows from Investing Activities:
Expenditures for property, plant and equipment (30,794) (37,923)
Cash used in business acquisition (85,845) -
------- ---
Net cash used in investing activities (116,639) (37,923)
-------- -------
Cash Flows from Financing Activities:
Repurchases of common stock (25,384) (3,392)
Payments of cash dividends (92,633) (76,632)
Proceeds from sale of Class A common stock in connection with associate stock purchase plan 3,398 3,165
Proceeds from exercise of Class A common stock options 23,135 22,600
Borrowings under Credit Facility 172,000 439,000
Borrowings under Shelf Facility Agreement 50,000 -
Payments of notes payable and revolving credit note under the Credit Facility (220,000) (529,500)
Other, net (225) (1,707)
---- ------
Net cash used in financing activities (89,709) (146,466)
------- --------
Effect of foreign exchange rate changes on cash and cash equivalents 21 (54)
--- ---
Net increase (decrease) in cash and cash equivalents 23,910 (25,312)
Cash and cash equivalents - beginning of year 16,083 52,890
------ ------
Cash and cash equivalents - end of year $39,993 $27,578
======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes $76,753 $91,711
======= =======
Cash paid for interest $8,231 $7,350
====== ======
Non-GAAP Financial Measures
-- Results excluding DECO Tool Supply Co (DECO) and All Integrated
Solutions (AIS), collectively "Acquisitions"
To supplement MSC's unaudited selected financial data presented consistent with Generally Accepted Accounting Principles ("GAAP"), the Company discloses certain non-GAAP financial measures, including Non-GAAP net sales, non-GAAP gross profit, 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 the results of our acquisitions of DECO Tool Supply Co. ("DECO") on July 31, 2017 and All Integrated Solutions ("AIS") on April 30, 2018, collectively, "Acquisitions".
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 the results of our Acquisitions 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 and Thirty-Nine Weeks Ended June 2, 2018
(dollars in thousands, except per share data)
GAAP Measure Items Affecting Comparability Non-GAAP Measure GAAP Measure Non-GAAP Measure
------------ ----------------------------- ---------------- ------------ ----------------
Net Sales Acquisitions Net Sales, excluding Average Daily Sales Growth Average Daily Sales Growth,
Acquisitions excluding Acquisitions
Thirteen Thirty-Nine Thirteen Thirty-Nine Thirteen Thirty-Nine Thirteen Thirty-Nine Thirteen Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended
Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended
June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$828,345 $2,365,893 $39,394 $99,031 $788,951 $2,266,862 11.4% 10.9% 6.1% 6.2%
GAAP Measure Items Affecting Comparability Non-GAAP Measure GAAP Measure Non-GAAP Measure
------------ ----------------------------- ---------------- ------------ ----------------
Gross Profit Acquisitions Gross Profit, excluding Gross Margin Gross Margin, excluding
Acquisitions
Acquisitions
Thirteen Thirty-Nine Thirteen Thirty-Nine Thirteen Thirty-Nine Thirteen Thirty-Nine Thirteen Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended
Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended
June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$361,001 $1,033,293 $8,578 $21,666 $352,423 $1,011,627 43.6% 43.7% 44.7% 44.6%
GAAP Measure Items Affecting Comparability Non-GAAP Measure GAAP Measure Non-GAAP Measure
------------ ----------------------------- ---------------- ------------ ----------------
Operating Expenses Acquisitions Operating Expenses, excluding Operating Expenses as a
Acquisitions percentage Operating Expenses as a
of Net Sales percentage of Net Sales,
excluding Acquisitions
Thirteen Thirty-Nine Thirteen Thirty-Nine Thirteen Thirty-Nine Thirteen Thirty-Nine Thirteen Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended
June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$245,619 $720,530 $7,511 $19,671 $238,108 $700,859 29.7% 30.5% 30.2% 30.9%
GAAP Measure Items Affecting Comparability Non-GAAP Measure GAAP Measure Non-GAAP Measure
------------ ----------------------------- ---------------- ------------ ----------------
Operating Income Acquisitions Operating Income, excluding Operating Margin Operating Margin, excluding
Acquisitions Acquisitions
Thirteen Thirty-Nine Thirteen Thirty-Nine Thirteen Thirty-Nine Thirteen Thirty-Nine Thirteen Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended
June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$115,382 $312,763 $1,068 $1,996 $114,314 $310,767 13.9% 13.2% 14.5% 13.7%
GAAP Measure Items Affecting Comparability Non-GAAP Measure
------------ ----------------------------- ----------------
Provision Acquisitions Provision for income taxes,
excluding Acquisitions
for income taxes
Thirteen Thirty-Nine Thirteen Thirty-Nine Thirteen Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended
June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018
------------ ------------ ------------ ------------ ------------ ------------
$32,748 $46,250 $107 $234 $32,641 $46,016
GAAP Measure Items Affecting Comparability Non-GAAP Measure
------------ ----------------------------- ----------------
Net Income Acquisitions Net Income, excluding
Acquisitions
Thirteen Thirty-Nine Thirteen Thirty-Nine Thirteen Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended
June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018
------------ ------------ ------------ ------------ ------------ ------------
$79,069 $256,206 $256 $561 $78,813 $255,645
GAAP Measure Items Affecting Comparability Non-GAAP Measure
------------ ----------------------------- ----------------
Diluted Earnings Per Share Acquisitions Diluted Earnings Per Share,
excluding Acquisitions
Thirteen Thirty-Nine Thirteen Thirty-Nine Thirteen Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended
June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018 June 2, 2018
------------ ------------ ------------ ------------ ------------ ------------
$1.39 $4.51 $ - $0.01 $1.39 $4.50
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SOURCE MSC Industrial Supply Co.
