MSC's December Growth a Welcomed Sign of Market Recovery

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Metalworking and MRO products distributor MSC Industrial Supply kicked off the first quarterly earnings reporting period for industrial distributors on Wednesday, and its results hint that market conditions continue to improve, but are still pre-pandemic levels.

For its 2021 first quarter that ended Nov. 28, 2020, MSC reported total sales of $772 million, down 6.3 percent year-over-year overall, with average daily sales down by that same amount. Sequentially, that compares with Q4 2020 sales of $748 million that were down 11.3 percent overall and down 12.7 percent on an average daily basis.

MSC said that Q1 safety and janitorial product sales jumped at about 20 percent year-over-year. Sales for the rest of the business were down year-over-year, but improved sequentially each month.

Msc Erer“Our fiscal first quarter reflected building momentum for our Mission Critical initiative against the backdrop of a challenging but improving environment," said Erik Gershwind, MSC president and CEO. "We saw continued sequential improvement in sales of non-safety and non-janitorial product lines, while sales of safety and janitorial products, anchored by our PPE program, grew roughly 20 percent. That momentum continued into December, which we forecast at 2.4 percent growth over prior year."

MSC had Q1 operating profit of $54 million (7.0 percent of sales), compared with $90 million and 11.0 percent of sales a year earlier. Factoring in restructuring and other related costs, Q1 operating profit of $85 million (11.0 of sales) was down from $93 million (11.3 percent of sales) of a year earlier. Q1 gross margin of $41.9 percent was 30 basis points lower than a year earlier.

MSC's Q1 total profit of $38.5 million was down from $65 million of a year earlier and $52.5 million in Q4, while adjusted total profit of $62 million was more in-line with $67 million of a year earlier.

That 2.4 percent growth in December average daily sales marks MSC's first year-over-year growth month since May 2020's 6.3 percent — which was buoyed by large orders for PPE and jansan products. Before that, MSC's last non-pandemic over-over-year growth month was July 2019's 4.0 percent.

Gershwind added that the company made solid progress against its growth initiatives and saw strong execution on pricing and purchasing that yielded a 30-basis point sequential improvement in gross margin in the quarter despite a headwind from some large PPE sales.

Msc AsdfMSC CFO Kristen Actis-Grande noted that MSC's Q1 reporting margin was significantly impacted by a $26.7 million asset impairment charge resulting from uncertainty over the company's ability to secure deliveries of nitrile gloves that it prepaid for in September, but has not yet received. "We are, of course, pursuing all possible paths to either secure the gloves or a refund of our payments," Actis-Grande said.

On Dec. 3 — three days after MSC's Q1 ended — the company announced that it plans to relocate its Long Island Customer Support Center to a much smaller facility near its headquarters in Melville, NY. The newly-leased facility is about 26,000 square feet, compared to the 170,000-square-foot facility that the company plans to sell.

Other notable statistics from MSC's Q1 (September-November 2020): 

  • Geographically, MSC's year-over-year sales by region fell 4.1 percent in the Midwest (-11.2 in Q4); fell 7.0 percent in the Northeast (-12.7 percent in Q4); fell 10.4 percent in the Southeast (-17.6 percent in Q4); fell 10.5 percent in the West (-11.4 percent in Q4); and surged 27.8 percent in International & Other (+13.7 percent in Q4).
  • By customer type, average daily sales to manufacturing customers fell 13.5 percent year-over-year, while daily sales to non-manufacturing customers grew 10.8 percent. During Q4, those figures fell 19.6 percent and gained 3.4 percent, respectively.
  • On the e-commerce front, 60.7 percent of MSC's Q1 2021 sales came via e-commerce. That compares with 60.0 percent in Q4, 55.2 percent in Q3, 60.9 percent in Q2 and 60.7 percent in Q1 2020. The company notes that lower e-commerce sales during Q3 and Q4 2020 were primarily due to the higher volume of safety and janitorial products not transacting through e-commerce platforms.
  • MSC ended Q1 with a total associate headcount of 6,304 — essentially identical to the end of Q4.
  • MSC's ended Q1 with a net debt of $437, up 15.3 percent year-over-year.
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