MSC Optimistic After Posting First Daily Sales Growth In 18 Months

MSC's 2017 first quarter included a continued overall sales decline year-over-year, but strong December has the company optimistic going forward and projecting sales growth in Q2.

MSC — No. 13 on Industrial Distribution's 2016 Big 50 List — reported its 2017 first quarter and fiscal results on Wednesday, highlighted by a continued decline in year-over-year sales while the company shared optimism moving forward.

The company posted Q1 total sales of $686.3 million, down 2.9 percent from a year earlier, with daily sales down 2.6 percent. By month in Q1, daily sales declined 4.5 percent in September, 1.7 percent in October and 2 percent in November.

The company also shared its preliminary December daily sales — its first month of Q2 — which showed year-over-year growth of 4.1 percent. That mean's December was the company's first month of year-over-year daily sales growth since June 2015. Here is how daily sales have fared by month in that span:

  • June '15: $219.5 million (+2.1 percent from a year earlier)
  • July '15: $221.2 million (-0.6 percent)
  • August '15: $228.0 million (-1.6 percent)
  • September '15: $279.3 million (-1.2 percent)
  • 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: $265.2 million (-4.6 percent)
  • July '16: $200.3 million (-4.8 percent)
  • August '16: $279.6 million (-1.8 percent)
  • September '16: $266.9 million (-4.5 percent)
  • October '16: $221.1 million (-1.7 percent)
  • November '16: $198.3 million (-2.0 percent)
  • December '16 (preliminary): $237.4 million (+4.1 percent)

Q1 profit of $54.1 million was down 1.7 percent year-over-year, while operating income of $90.6 million was essentially flat (up 0.2 percent).

"While the demand environment remained difficult in our first quarter and pricing remained soft, we saw a better than expected November," said Erik Gershwind, MSC president and CEO. "As we moved into December, the start of our fiscal second quarter, we saw growth in sales, as well as improvement across all of our customer types and a higher mix of machinery, machine tool accessories, tool holders, and tooling package orders. These capital-related sales have historically increased when customers are more optimistic about investing in their businesses."

The company's e-commerce sales made continued modest growth in Q1 and now comprises 59.6 percent of total sales, up from 59.1 percent in Q4 2016 and 57.0 percent in Q1 2016. E-commerce represented 58.2 percent of MSC's total 2016 sales.

By customer type, 68 percent of MSC's Q1 sales were to manufacturing and 32 percent were to non-manufacturing. Average daily sales to manufacturing customers were down 4.2 percent, following declines of 6.1 percent in Q4 2016, 6.8 percent in Q3, 5.6 percent in Q2 and 4.9 percent in Q1 2016. Meanwhile, daily sales to non-manufacturing customers increased 0.6 percent in Q1, following gains of 3.3 percent in Q4 2016, 2.6 percent in Q3, 2.6 percent in Q2 and 1.3 percent in Q1 2016.

By geography, MSC's Q1 sales declined in all five regions for a third straight quarter:

  • Midwest: -3.8 percent (-6.0 percent in Q4)
  • Northeast: -0.4 percent (-1.1 percent in Q4)
  • Southeast: -4.1 percent (-3.6 percent in Q4)
  • West: -0.9 percent (-0.4 percent in Q4)
  • International & Other: -6.9 percent (-11.1 percent in Q4)

MSC's total headcount of 6,451 at the end of Q1 was essentially unchanged from Q4 2016, but down 2.0 percent from Q1 2016. MSC ended Q1 with a total field sales headcount of 2,352, down 18 from Q4 2016 and Q1 2016.

Despite the continued sales decline in Q1, MSC said it expects year-over-year daily sales to be up by about 1.5 percent at the midpoint of Q2. It expects Q2 total sales of between $688-701 million, whereas Q2 2016 sales were $684.1 million.

"We have operated in the midst of a prolonged industrial recession, one that was particularly acute in our primary end markets of metalworking manufacturing," Gershwind said. "We are, however, seeing signs of greater optimism. At present, it appears that there is a leveling in manufacturing occurring and, in December, we saw greater spending on categories that are indicative of customer optimism. We are certainly more positive than even a few short months ago. Even so, we would need to see sustained increases in order activity before we declare that the environment has turned."

MSC celebrated its 75th anniversary throughout 2016, and in September it unveiled a new logo and overall rebranding. The company shortened its name from MSC Industrial Supply to just MSC, with a new tagline of "Built to Make You Better," which it said more accurately reflects its efforts. Read MSC's rebranding story in ID's blog here.

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