In delivering its strong second quarter earnings report, MSC Industrial Direct President and CEO Erik Gershwind told financial analysts that manufacturing, particularly the metalworking sector, has “improved considerably” from what had been occurring during the past 18 months.
Gershwind said that manufacturing has moved past the contracting stage and is now seeing moderate growth.
“Customers are reporting slightly more confidence and are seeing steadier order flows and backlogs. To be clear, with some exceptions, we would not characterize the current climate as high growth, as most customers remain appropriately cautious with their spending and their capital investments,” he said, according to a transcript of the call as provided by www.seekingalpha.com.
Overall second quarter sales for MSC were $661.5 million, an increase of 16.2% over the same quarter last year, helped by sales of nearly $70 million by its newly-acquired Barnes Distribution North America (BDNA). The strong sales report came despite weather related disruptions that impacted business in January and February before sales returned to the levels of last November and the first half of December.
Gershwind also said he was pleased was the improved federal government spending climate.
The increase in government spending and the expansion of metalworking are helping MSC to forecast a positive outlook for the second half of its fiscal year. The company expects third quarter net sales to be between $720 million and $732 million.
Gershwind outlined a number of other reasons for the optimism. In the past quarter. MSC’s E-commerce business, for example, reached 46.8% of sales for the second quarter, as compared to 43.1% a year ago, and 46% last quarter.
“This reflects our customer's increasing interest in conducting business online as part of an integrated solution that includes vending, VMI, and other forms of automated sales. As a result, ecommerce remains an important part of our growth investment program,” Gershwind said.
The company’s vending program added roughly 4 points to MSC’s revenue growth in the second quarter. Vending signings, Gershwind said, remains strong. “We view this as a function of the program's value, along with our customer's ongoing need to find ways to streamline their supply chain,” he added.
MSC added a substantial amount of SKUs in the last quarter.
“After adding more than 40,000 SKUs in the first fiscal quarter, we added another 35,000 SKUs to our web offering in the second quarter and now have approximately 760,000 available on MSCdirect.com,” he said. “We remain on track to add roughly 150,000 SKUs for the year. As the newly added SKUs mature, the growth contributions from this program will grow over time.”
Gershwind outlined a series of successful steps that MSC has initiated in the past few quarters. The company has finished moving its corporate headquarters to Davidson, NC, and its fifth fulfillment center in Columbus, OH is on schedule to ship orders this fall. In addition, the company closed two distribution centers in the quarter, making a total of three closings during the first half of its fiscal year.
As part of its strategy to drive growth, MSC added 32 sales associates in the quarter on top of an additional eight sales associates in the first quarter - and the company is more than halfway toward achieving its hiring goal for the year.
MSC said its BDNA group experienced a drop off in sales for the second quarter; BDNA was positive in the first quarter. Gershwind said the weather, currency fluctuations, and market weakness in Canada were reasons why BDNA revenues were slightly below the prior quarter.
Gershwind pointed out, however, that cross selling has become increasingly important and MSC has been encouraged by the number of new accounts recently opened.
“I anticipate that our cross selling efforts will increase in the coming quarters. For example, we've begun introducing MSC's Big Book offering to the BDNA sales force in pilot mode. We expect to ramp that up over the next few months as we learn from the pilots,” Gershwind said.
He reiterated what company officials said in a previous earnings statement: the distribution sector is in the beginnings of increased consolidation that is now accelerating. And that, he said, is good news for MSC.
He noted that local distributors are under as much or more pressure than they've ever been.