MSC Reports Fiscal 2020 Fourth Quarter And Full Year Results

·18 min read

MELVILLE, N.Y. and DAVIDSON, N.C., Oct. 27, 2020 /PRNewswire/ --

FISCAL Q4 2020 HIGHLIGHTS

  • Net sales of $747.7 million, a decrease of 11.3% YoY (12.7% decrease on an ADS basis)

  • Operating income of $72.9 million, or $84.1 million excluding restructuring and related costs of $11.2 million*

  • Operating margin of 9.8%, or 11.2% excluding restructuring and other related costs*

  • Diluted EPS of $0.94 vs. $1.20 in the prior year quarter

  • Adjusted diluted EPS of $1.09 vs. $1.30 in the prior year quarter*

FISCAL 2020 HIGHLIGHTS

  • Net sales of $3.2 billion, a decrease of 5.1% YoY

  • Operating income of $350.7 million, or $367.8 million excluding restructuring and related costs of $17.0 million*,**

  • Operating margin of 11.0%, or 11.5% excluding restructuring and other related costs*

  • Diluted EPS of $4.51 vs. $5.20 in the prior year

  • Adjusted diluted EPS of $4.74 vs. $5.29 in the prior year*

MSC INDUSTRIAL SUPPLY CO. (NYSE: MSM), "MSC" or the "Company", a premier distributor of Metalworking and Maintenance, Repair and Operations ("MRO") products and services to industrial customers throughout North America, today reported financial results for its fiscal 2020 fourth quarter and full year ended August 29, 2020. The quarter had one more selling day compared to the prior year period.














Financial Highlights1


FY20 Q4


FY19 Q4


Change


FY20


FY19


Change

Net Sales


$747.7


$842.7


-11.3%


$3,192.4


$3,363.8


-5.1%

Operating Income


72.9


90.5


-19.4%


350.7


400.0


-12.3%

% of Net Sales


9.8%


10.7%




11.0%


11.9%



Net Income attributable to
MSC Industrial


52.5


66.6


-21.2%


251.1


288.9


-13.1%

Diluted EPS


$0.94

.2

$1.20

.3

-21.7%


$4.51

.2

$5.20

.3

-13.3%


1In millions unless otherwise noted. 2Based on 55.8 million and 55.6 million diluted shares outstanding for FY20 Q4 and FY20, respectively. 3Based on 55.3 and 55.5 million diluted shares outstanding for FY19 Q4 and FY19, respectively.

Erik Gershwind, president and chief executive officer, said, "Our fiscal fourth quarter reflects continued solid execution in a weak industrial demand environment. Most manufacturing end markets remain soft given COVID-19 uncertainty. We did, however, see sequential improvement in sales of non-safety and non-janitorial products. Sales of safety and janitorial products also continued growing year-over-year at roughly 20% percent each month on average and for the quarter. Overall gross margin for the quarter declined 40 basis points, reflecting PPE mix headwinds and underlying gross margin stability due to strong realization from our annual price increase, and continued benefits from our supplier programs."

Kristen Actis-Grande, executive vice president and chief financial officer, added, "Average daily sales were $11.7 million for the quarter as industrial demand remained weak. While our reported operating margin was down 90 basis points versus the prior year, excluding restructuring and other related costs, adjusted operating margin was down only 30 basis points. We implemented swift cost containment measures due to COVID-19 and took structural cost actions in the quarter. After significant debt repayment, our balance sheet and liquidity position remain very healthy."

Gershwind concluded, "We have been repositioning MSC from a spot buy supplier to a mission critical partner on the plant floor of our industrial customers over the last few years. Over the next three years, we will be taking measurable action to reaccelerate market share capture and improve profitability in a program named Mission Critical. The 2023 targets for this program are above market growth of at least 400 basis points and ROIC in the high-teens."

* An explanation and reconciliation of non-GAAP financial measures to GAAP financial measures is presented in schedules following this press release
** Individual amounts may not agree to the total due to rounding

Conference Call Information

MSC will host a conference call today at 8:30 a.m. EST to review the Company's fiscal 2020 fourth quarter and full year results. The call, accompanying slides, and other operational statistics may be accessed at: http://investor.mscdirect.com. The conference call may also be accessed at 1-877-443-5575 (U.S.), 1-855-669-9657 (Canada) or 1-412-902-6618 (international).

An online archive of the broadcast will be available until November 3, 2020.

The Company's reporting date for fiscal first quarter 2021 is scheduled for January 6, 2021.

About MSC Industrial Supply Co. MSC Industrial Supply Co. (NYSE:MSM) is a leading North American distributor of metalworking and maintenance, repair, and operations (MRO) products and services. We help our customers drive greater productivity, profitability and growth with more than 1.8 million products, inventory management and other supply chain solutions, and deep expertise from over 75 years of working with customers across industries.

Our experienced team of more than 6,300 associates is dedicated to working side by side with our customers to help drive results for their businesses - from keeping operations running efficiently today to continuously rethinking, retooling, and optimizing for a more productive tomorrow.

For more information on MSC, please visit mscdirect.com.

Note Regarding Forward-Looking Statements:
Statements in this Press Release may constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, that address activities, events or developments that we expect, believe or anticipate will or may occur in the future, including statements about the impact of COVID-19 on our business operations, results of operations and financial condition, expected future results, expected benefits from our investment and strategic plans and other initiatives, and expected future growth, profitability and ROIC, are forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The inclusion of any statement in this release does not constitute an admission by MSC or any other person that the events or circumstances described in such statement are material. Factors that could cause actual results to differ materially from those in forward-looking statements include the following, many of which are and will be amplified by the COVID-19 pandemic: the effects of the COVID-19 pandemic, including any future resurgences, on our business operations, results of operations and financial condition; general economic conditions in the markets in which we operate; changing customer and product mixes; competition, including the adoption by competitors of aggressive pricing strategies and sales methods; industry consolidation and other changes in the industrial distribution sector; our ability to realize the expected benefits from our investment and strategic plans, including our transition from a spot-buy supplier to a mission-critical partner; our ability to realize the expected cost savings and benefits from our restructuring activities; retention of key personnel and qualified sales and customer service personnel and metalworking specialists; volatility in commodity and energy prices; the outcome of government or regulatory proceedings or future litigation; credit risk of our customers; risk of customer cancellation or rescheduling of orders; difficulties in calibrating customer demand for our products, in particular personal protective equipment or "PPE" products, which could cause an inability to sell excess products ordered from manufacturers resulting in inventory write-downs or could conversely cause inventory shortages of such products; work stoppages or other business interruptions (including those due to extreme weather conditions) at transportation centers, shipping ports, our headquarters or our customer fulfillment centers; disruptions or breaches of our information systems, or violations of data privacy laws; risk of loss of key suppliers, key brands or supply chain disruptions; changes to trade policies, including the impact from significant restrictions or tariffs; risks associated with opening or expanding our customer fulfillment centers; litigation risk due to the nature of our business; risks associated with the integration of acquired businesses or other strategic transactions; financial restrictions on outstanding borrowings; our ability to maintain our credit facilities; interest rate uncertainty due to LIBOR reform; failure to comply with applicable environmental, health and safety laws and regulations; and goodwill and intangible assets recorded as a result of our acquisitions could be impaired. Additional information concerning these and other risks is described under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the reports on Forms 10-K and 10-Q that we file with the U.S. Securities and Exchange Commission. We assume no obligation to update any of these forward-looking statements.

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)







August 29,


August 31,


2020


2019

ASSETS






Current Assets:






Cash and cash equivalents

$

125,211


$

32,286

Accounts receivable, net of allowance for doubtful accounts


491,743



541,091

Inventories


543,106



559,136

Prepaid expenses and other current assets


77,710



67,099

Total current assets


1,237,770



1,199,612

Property, plant and equipment, net


301,979



310,854

Goodwill


677,579



677,266

Identifiable intangibles, net


104,873



116,668

Operating lease assets


56,173



Other assets


4,056



6,837

Total assets

$

2,382,430


$

2,311,237







LIABILITIES AND SHAREHOLDERS' EQUITY






Current Liabilities:






Current portion of debt including obligations under finance leases

$

122,248


$

175,453

Current portion of operating lease liabilities


21,815



Accounts payable


125,775



160,110

Accrued expenses and other current liabilities


138,895



111,353

Total current liabilities


408,733



446,916

Long-term debt including obligations under finance leases


497,018



266,431

Noncurrent operating lease liabilities


34,379



Deferred income taxes and tax uncertainties


121,727



114,011

Total liabilities


1,061,857



827,358

Commitments and Contingencies






Shareholders' Equity:






Preferred Stock




Class A common stock


47



46

Class B common stock


10



10

Additional paid-in capital


690,739



659,226

Retained earnings


749,515



946,651

Accumulated other comprehensive loss


(21,418)



(22,776)

Class A treasury stock, at cost


(103,948)



(104,607)

Total MSC Industrial shareholders' equity


1,314,945



1,478,550

Noncontrolling interest


5,628



5,329

Total shareholders' equity


1,320,573



1,483,879

Total liabilities and shareholders' equity

$

2,382,430


$

2,311,237

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share data)















(Unaudited)








Quarters Ended


Fiscal Years Ended


August 29,


August 31,


August 29,


August 31,


2020


2019


2020


2019

Net sales

$

747,732


$

842,670


$

3,192,399


$

3,363,817

Cost of goods sold


436,620



489,081



1,849,077



1,931,774

Gross profit


311,112



353,589



1,343,322



1,432,043

Operating expenses


238,192



263,075



992,582



1,032,047

Income from operations


72,920



90,514



350,740



399,996

Other income (expense):












Interest expense


(4,556)



(3,730)



(16,673)



(16,890)

Interest income


82



14



333



518

Other (expense) income, net


359



(165)



(150)



(495)

Total other expense


(4,115)



(3,881)



(16,490)



(16,867)

Income before provision for income taxes


68,805



86,633



334,250



383,129

Provision for income taxes


16,169



20,012



82,492



94,332

Net income


52,636



66,621



251,758



288,797

Less: Net income (loss) attributable to noncontrolling interest


140



13



641



(68)

Net income attributable to MSC Industrial

$

52,496


$

66,608


$

251,117


$

288,865

Per Share Information:












Net income per common share:












Basic

$

0.94


$

1.21


$

4.53


$

5.23

Diluted

$

0.94


$

1.20


$

4.51


$

5.20

Weighted average shares used in computing

net income per common share:












Basic


55,585



55,184



55,472



55,245

Diluted


55,763



55,336



55,643



55,508

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In thousands)















Fiscal Years Ended


August 29,


August 31,


2020


2019

Net income, as reported

$

251,758


$

288,797

Other comprehensive income, net of tax:






Foreign currency translation adjustments


1,016



(3,404)

Comprehensive income (1)


252,774



285,393

Comprehensive income attributable to noncontrolling interest:






Less: Net income


(641)



68

Foreign currency translation adjustments


342



262

Comprehensive income attributable to MSC Industrial

$

252,475


$

285,723


(1) There were no material taxes associated with other comprehensive income during fiscal years 2020 and 2019.

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)









Fiscal Years Ended


August 29,


August 31,


2020


2019

Cash Flows from Operating Activities:






Net income

$

251,758


$

288,797

Adjustments to reconcile net income to net cash provided by operating activities:






Depreciation and amortization


69,079



65,377

Operating lease non-cash expense


22,696



Stock-based compensation


16,932



16,283

Loss on disposal of property, plant, and equipment


802



416

Provision for doubtful accounts


11,008



10,763

Deferred income taxes


7,719



14,297

Changes in operating assets and liabilities, net of amounts associated with business acquired:






Accounts receivable


36,772



(26,948)

Inventories


16,462



(32,528)

Prepaid expenses and other current assets


(11,540)



(8,316)

Operating lease liabilities


(22,184)



Other assets


2,809



(2,064)

Accounts payable and accrued liabilities


(5,574)



2,349

Total adjustments


144,981



39,629

Net cash provided by operating activities


396,739



328,426

Cash Flows from Investing Activities:






Expenditures for property, plant and equipment


(46,991)



(51,773)

Proceeds from sale of available for sale securities




27,025

Cash used in business acquisitions, net of cash acquired


(2,286)



(11,625)

Net cash used in investing activities


(49,277)



(36,373)

Cash Flows from Financing Activities:






Repurchases of common stock


(3,444)



(84,611)

Payments of regular cash dividends


(166,537)



(145,709)

Payment of special cash dividends


(277,634)




Proceeds from sale of Class A common stock in connection with associate stock purchase plan


4,140



4,600

Proceeds from exercise of Class A common stock options


13,687



15,640

Borrowings under Credit facilities


1,012,200



382,000

Payments on the revolving credit facilities


(916,000)



(451,000)

Contributions from noncontrolling interest


104



918

Proceeds from other long-term debt


100,000



Payments under Shelf Facility and Private Placement


(20,000)



Payments on finance leases and financing obligations


(2,189)



(28,370)

Other, net


1,055



903

Net cash used in financing activities


(254,618)



(305,629)

Effect of foreign exchange rate changes on cash and cash equivalents


81



(355)

Net increase (decrease) in cash and cash equivalents


92,925



(13,931)

Cash and cash equivalents – beginning of year


32,286



46,217

Cash and cash equivalents – end of year

$

125,211


$

32,286

Supplemental Disclosure of Cash Flow Information:






Cash paid for income taxes

$

68,929


$

79,334

Cash paid for interest

$

14,973


$

16,648

Non-GAAP Financial Measures

  • Results excluding Restructuring and Other Related Costs

To supplement MSC's unaudited and audited selected financial data presented consistent with GAAP, the Company discloses certain non-GAAP financial measures, including Non-GAAP net sales, non-GAAP gross profit, non-GAAP operating expenses, non-GAAP income from operations, non-GAAP provision for income taxes, non-GAAP net income and non-GAAP diluted earnings per share, that exclude restructuring and other related costs.

These non-GAAP measures are not in accordance with or an alternative for GAAP and may be different from non-GAAP measures used by other companies. We believe that these non-GAAP measures have limitations in that they do not reflect MSC's results of operations as determined in accordance with GAAP, and that these measures should only be used to evaluate MSC's results of operations in conjunction with the corresponding GAAP measures. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures. We compensate for the limitations of non-GAAP financial measures by relying upon GAAP results to gain a complete picture of the Company's performance.

In calculating non-GAAP financial measures, we exclude restructuring and other related costs, and the related tax effects, to facilitate a review of the Company's operating performance on a period-to-period basis, for comparison with forecasts and strategic plans, and for benchmarking performance externally against competitors. We believe that investors benefit from seeing results "through the eyes" of management in addition to seeing GAAP results. We believe that these non-GAAP measures, when read in conjunction with the Company's GAAP financials, provide useful information to investors by offering:

  • the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results;

  • the ability to better identify trends in the Company's underlying business and perform related trend analyses;

  • a better understanding of how management plans and measures the Company's underlying business; and

  • an easier way to compare the Company's operating results against analyst financial models and operating results of competitors that supplement their GAAP results with non-GAAP financial measures



















MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Reconciliation of GAAP and Non-GAAP Information

Thirteen Weeks and Year Ended August 29, 2020

(dollars in thousands, except per share data)




















GAAP Measure


Items Affecting Comparability


Non-GAAP Measure


Total MSC


Restructuring and Other Related
Costs


Excluding Restructuring and Other
Related Costs


Thirteen

Weeks Ended


Year

Ended


Thirteen

Weeks Ended


Year

Ended


Thirteen

Weeks Ended


Year

Ended


August 29, 2020


August 29, 2020


August 29, 2020


August 29, 2020


August 29, 2020


August 29, 2020

Net Sales

$

747,732


$

3,192,399


$



$



$

747,732


$

3,192,399

ADS Growth %


(12.7)%



(5.1)%



-



-



(12.7)%



(5.1)%



















Cost of Goods Sold


436,620



1,849,077



-



-



436,620



1,849,077



















Gross Profit


311,112



1,343,322



-



-



311,112



1,343,322

Gross Margin


41.6%



42.1%



-



-



41.6%



42.1%



















Operating Expense


238,192



992,582



11,158



17,029

(1)


227,034



975,553

Operating Exp as % of Sales


31.9%



31.1%



1.5%



0.5%



30.4%



30.6%



















Income from Operations


72,920



350,740



(11,158)



(17,029)



84,078



367,769

Operating Margin


9.8%



11.0%



(1.5)%



(0.5)%



11.2%



11.5%



















Total Other Expense


(4,115)



(16,490)



-



-



(4,115)



(16,490)



















Income before provision for income taxes


68,805



334,250



(11,158)



(17,029)



79,963



351,279



















Provision for income taxes


16,169



82,492



(2,622)



(4,206)



18,791



86,698

Net income


52,636



251,758



(8,536)



(12,823)



61,172



264,581

Net income (loss) attributable
to noncontrolling interest


140



641



-



-



140



641

Net income attributable to
MSC Industrial

$

52,496


$

251,117


$

(8,536)


$

(12,823)


$

61,032


$

263,940



















Net income per common share:


















Diluted

$

0.94


$

4.51


$

(0.15)


$

(0.23)


$

1.09


$

4.74


(1)Restructuring and Other Related Costs were incurred in each fiscal quarter as follows: $2,571 in fiscal Q1, $1,941 in fiscal Q2, $1,359 in fiscal Q3, and $11,158 in fiscal Q4.



















MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Reconciliation of GAAP and Non-GAAP Information

Thirteen Weeks and Year Ended August 31, 2019

(dollars in thousands, except per share data)




















GAAP Measure


Items Affecting Comparability


Non-GAAP Measure


Total MSC


Restructuring and Other Related
Costs


Excluding Restructuring and Other
Related Costs


Thirteen

Weeks Ended


Year

Ended


Thirteen

Weeks Ended


Year

Ended


Thirteen

Weeks Ended


Year

Ended


August 31, 2019


August 31, 2019


August 31, 2019


August 31, 2019


August 31, 2019


August 31, 2019

Net Sales

$

842,670


$

3,363,817


$

-


$

-


$

842,670


$

3,363,817

ADS Growth %


2.1%



5.8%









2.1%



5.8%



















Cost of Goods Sold


489,081



1,931,774



-



-



489,081



1,931,774



















Gross Profit


353,589



1,432,043



-



-



353,589



1,432,043

Gross Margin


42.0%



42.6%



-



-



42.0%



42.6%



















Operating Expense


263,075



1,032,047



6,725



6,725



256,350



1,025,322

Operating Exp as % of Sales


31.2%



30.7%



0.8%



0.2%



30.4%



30.5%



















Income from Operations


90,514



399,996



(6,725)



(6,725)



97,239



406,721

Operating Margin


10.7%



11.9%



-0.8%



-0.2%



11.5%



12.1%



















Total Other Expense


(3,881)



(16,867)



-



-



(3,881)



(16,867)



















Income before provision for income taxes


86,633



383,129



(6,725)



(6,725)



93,358



389,854



















Provision for income taxes


20,012



94,332



(1,554)



(1,554)



21,566



95,886

Net income


66,621



288,797



(5,171)



(5,171)



71,792



293,968

Net income (loss)
attributable to noncontrolling
interest


13



(68)



-



-



13



(68)

Net income attributable to
MSC Industrial

$

66,608


$

288,865


$

(5,171)


$

(5,171)


$

71,779


$

294,036



















Net income per common share:


















Diluted

$

1.20


$

5.20


$

(0.09)


$

(0.09)


$

1.30


$

5.29

Cision
Cision

View original content to download multimedia:http://www.prnewswire.com/news-releases/msc-reports-fiscal-2020-fourth-quarter-and-full-year-results-301160122.html

SOURCE MSC Industrial Supply Co.