Updated: MSC Industrial Talks Benefits Of Schneider Electric Deal

ID contributing editor Jack Keough discusses MSC Industrial CEO Erik Gershwind's comments about what it gained from its recent extensive distribution deal with Schneider Electric.

Note: When this news item was originally published, it incorrectly read MSC Industrial had reached an agreement to be an exclusive distributor for Schneider Electric, whereas it should have read MSC had reached an extensive agreement.

In February, MSC Industrial Supply — No. 14 on Industrial Distribution’s 2015 Big 50 List — said it had reached an agreement to be an extensive distributor for well-known electrical supplier Schneider Electric, giving MSC customers access to Square D and Telemecanique products.

This was a major announcement because it allowed MSC to expand its breadth of products into its existing customer base and for Square D to reach more manufacturing customers. There were some industry observers wondering what this would mean for distributors that serve the electrical market.

Erik Gershwind, president and CEO of MSC, elaborated on the agreement when he talked with analysts after the company released its Q2 earnings statement.

“Square D is really one of, if not the premier, electrical brands and this helps us an awful lot,” Gershwind pointed out.

MSC, he said, will help Square D tap into manufacturing accounts, particularly into smaller companies that Square D might not reach with their existing distribution channels.

But he emphasized MSC won’t be targeting customers within Square D’s more highly technical electrical distribution network.

“The electrical business is not going to be where we’re focused. We’re going to focus more on the spot buy replacement MRO in the manufacturing segment. So I think this will be huge prospects for us in the future,” he said.

“It will take some time to build, but is very exciting. And in terms of pipeline, product expansion is a very important driver,” he said. One of the things we’ve done during this difficult (economic ) time is to try to forge new supply relationships and that’s something that we hope is an ongoing process for us.”

The distribution agreement provides MSC customers in  he United States with access to more than 50,000 electrical products in 80 electrical product categories marketed under the Square D, Schneider Electric and Telemecanique brand names. Square D is Schneider Electric's flagship brand in North America . The MSC-Schneider Electric relationship represents one of the largest Square D product offerings available to industrial customers.

 MSC has been rapidly building the number of its product offerings in the past few years.

“We added approximately 5,000 SKUs net of removals to our web offering during the quarter, which although lower than in recent quarters, maintains our momentum and we are on track to add roughly 150,000 for the fiscal year,” he said.

Meanwhile, Gershwind used the term “stabilization” several times as he talked about the industrial economic outlook.

Gershwind said that demand from customers remains weak but the economy might now be stabilizing at lower levels.

“We just completed a survey of our customers and the prevailing sentiment is that business will at least stay the same and possibly improve in the months ahead,” he said. “ We would certainly like to see a bit more time pass before forming our own conclusions. However, should the uptick in the MBI (Metalworking Business Index) sustain and confirm what we are hearing from our customers, this would bode well for future quarters. We historically see roughly a four-month lag between movements in sentiment indices and our growth rates.”

In Q2, the company posted total sales of $684 million, down 3.2 percent year-over-year and down 3.3 percent from Q1. Total profit of $49.5 million was down 4 percent from last year, and down 11 percent from Q1.

The year-over-year sales and profit declines were essentially identical to those in Q1 of 3.3 percent for sales and 4.2 percent for profit. In Q1, MSC had sales of $706.8 million and profit of $55 million.

For its first six fiscal months, MSC profit of $104.6 million was down 4.2 percent from 2015.

MSC said it expects third quarter sales of between $729 and $741 million, and expects midpoint average daily sales to decline roughly 3 percent compared to a year earlier. Q3 sales in 2015 were $745.5 million.