MSC drops on earnings news
By Jeffrey Germanotta -- Industrial Distribution, 7/1/1999
MSC Industrial Supply got hammered on Wall Street last month, as a soft manufacturing economy, disappointing sales execution, significant ongoing infrastructure investment and limitations on MSC's ability to further cut back discretionary spending to manage earnings growth led to an earnings warning. The company announced on June 18 that fiscal 1999 third-quarter earnings per share would be approximately 18 cents, compared to the street consensus of 25 cents. MSC's stock declined 32.1 percent on the news, to $11.13.After having produced an enviable 36 percent CAGR in adjusted earning per share between F1991-F1998, MSC's earnings per share growth is now projected to decelerate to 3.4 percent in F1999, or 72 cents per share, and 3.7 percent in F2000, or 75 cents per share. Consequently, multiples have contracted, with the stock recently trading near 14.8 times the revised fiscal 2000 EPS estimate.
We view these challenges as temporary, and continue to believe this historically well-managed company and solid business model will in time overcome these challenges. Investments undertaken in distribution centers, new products, branches, sales personnel, and electronic commerce position MSC for the effects of positive operating as the industrial economy rebounds.
MSC's product offering includes cutting tools, abrasives, measuring instruments, machine tool accessories, safety equipment, fasteners, welding supplies and electrical supplies designed to primarily satisfy its customers' MRO requirements. MSC markets over 373,000 stock-keeping units through its 4,000-plus page master catalog, specialty and promotional catalogs, newspaper flyers and branch network.
Jeffrey Germanotta is senior vice president of equity research at R.W. Baird & Co. He can be reached at (414) 765-3572, or e-mailed at jgermanotta@rwbaird.com
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