MSC Industrial Q3 Sales Dip Again, But Profit Improves On Cost Cuts

MSC posted its first year-over-year profit increase since Q2 2015, while its percentage of sales from e-commerce continued to grow.

MSC Industrial — No. 14 on Industrial Distribution's 2015 Big 50 List — reported its 2016 third quarter fiscal results on Wednesday, highlighted by continued declining year-over-year sales and an improved profit.

The company posted Q3 sales of $727.5 million, down 2.4 percent from a year earlier and up 6.4 percent from Q2. Profit in Q3, meanwhile, rose 2.3 percent year-over-year to $64.8 million. It was MSC's first yearly profit increase since Q2 2015 and a considerable recovery from bottoming out at a 6.8 percent decrease in Q4 2015.

While the sales decline continued, the amount of the decline improved by 0.8 percent from Q2. Sales have declined each quarter since a flat Q4 2015.

"The challenging economic environment grew even more difficult through our third quarter and, as a result, sales were at the lower end of our guidance," said MSC CEO Erik Gershwind, noting the company's Q3 sales guidance of $729-741 million. "We did, however, continue to gain share, which, when coupled with strong execution on gross margin countermeasures and cost reduction initiatives, helped to offset economic headwinds."

MSC cut its Q3 operating expenses by 5.5 percent from last year, They were 3.5 percent lower than its Q3 guidance.

"Despite the challenging environment, I remain confident in our future," Gershwind continued. "Should things deteriorate further, this creates opportunities for MSC such as new customer relationships, the hiring of experienced industry salespeople and stronger supplier relationships. All of these would serve to increase our share gain potential. At the same time, with the work we have done on managing costs, along with our completed infrastructure investments, we are poised for earnings leverage when growth returns."

The company said e-commerce comprised 58.6 percent of total sales in Q3, up from 57.8 percent in Q2 and 57.0 percent in Q1.

MSC's Q3 sales by customer type were identical to Q2, with 68 percent to manufacturing and 32 percent to non-manufacturing. Yearly sales growth by customer type was negative 6.8 percent to manufacturing customers, while non-manufacturing customer sales grew 2.6 percent.

Here are MSC's sales for its first 10 months of Fiscal 2016, along with how average daily sales differed from a year earlier. Daily sales have decreased year-over-year each month since June 2015. The company's fiscal 2016 began in September 2015. 

  • September '15: $279.3 million (-1.2 percent from a year earlier)
  • October '15: $225.0 million (-3.4 percent)
  • November '15: $202.5 million (-5.9 percent)
  • December '15: $227.9 million (-1.6 percent)
  • January '16: $224.3 million (-5.5 percent)
  • February '16: $231.9 million (-2.3 percent)
  • March '16: $280.7 million (-4.9 percent)
  • April '16: $225.6 million (-2.3 percent)
  • May '16: $221.2 million (-4.2 percent)
  • June '16: 265.3 million (-4.6 percent)*

*MSC's June sales are the company's preliminary estimate.

By geography, MSC sales declined in all five regions:

  • Midwest -6.3 percent (-4.7 percent in Q2)
  • Northeast -0.8 percent (+1.5 percent in Q2)
  • Southeast -2.6 percent (-2.8 in Q2)
  • West -4.3 percent (-3.6 in Q2)
  • International & Other -13.0 percent (-15.6 in Q2)

MSC's total headcount was essentially flat compared to Q2, but down 2.7 percent from a year earlier. Its number of field sales and service personnel has remained essentially flat compared to Q2 and a year ago.

MSC said it expects Q4 sales to be between $730 and $742 million, with daily sales expected to be down approximately 5 percent year-over-year at the midpoint.

MSC's Q3 report began the latest round of quarterly earnings reports of ID's Big 50 List companies.

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