PR Newswire | Jan 6, 2021 06:30AM EST

01/06 05:30 CST

MSC Reports Fiscal 2021 First Quarter Results MELVILLE, N.Y. and DAVIDSON, N.C., Jan. 6, 2021

MELVILLE, N.Y. and DAVIDSON, N.C., Jan. 6, 2021 /PRNewswire/ --

FISCAL Q1 2021 HIGHLIGHTS

* Net sales of $771.9 million, a 6.3% YoY decrease * Operating income of $53.9 million, or $84.6 million excluding a $26.7 million impairment charge and $4 million in restructuring and other related costs1 * Operating margin of 7.0%, or 11.0% excluding the impairment charge and restructuring and other related costs1 * Diluted EPS of $0.69 vs. $1.18 in the prior year * Adjusted diluted EPS of $1.10 vs. $1.21 in the prior year1 * Declared special cash dividend of $3.50 per share on November 17, 2020

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 2021 first quarter ended November 28, 2020.

Financial Highlights^2 FY21 Q1 FY20 Q1 Change

Net Sales $771.9 $823.6 -6.3%

Operating Income 53.9 90.3 -40.3%

% of Net Sales 7.0% 11.0%

Net Income attributable to MSC Industrial 38.5 65.4 -41.2%

Diluted EPS $0.69^3 $1.18^4 -41.5%

Adjusted Financial Highlights^1,2 FY21 Q1 FY20 Q1 Change

Net Sales $771.9 $823.6 -6.3%

Adjusted Operating Income 84.6 92.9 -8.9%

Adjusted % of Net Sales 11.0% 11.3%

Adjusted Net Income attributable to MSC Industrial 61.7 67.3 -8.4%

Adjusted Diluted EPS $1.10^3 $1.21^4 -9.1%

^1An explanation and reconciliation of non-GAAP financial measures to GAAPfinancial measures is presented in schedules following this press release.

^2In millions except per share data or as otherwise noted.

^3Based on 55.8 million diluted shares outstanding for FY21 Q1.

^4Based on 55.4 million diluted shares outstanding for FY20 Q1.

Erik Gershwind, president and chief executive officer, said, "Our fiscal first quarter reflected building momentum for our Mission Critical initiative against the backdrop of a challenging but improving environment. 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%. That momentum continued into December, which we forecast at 2.4% growth over prior year. Inside of the company, we made solid progress against our growth initiatives. We also saw strong execution on the pricing and purchasing fronts, yielding a 30 basis point sequential improvement in gross margin in the quarter despite a headwind from some large PPE sales."

Kristen Actis-Grande, executive vice president and chief financial officer, added, "Average daily sales were $12.5 million for the quarter and our gross margin was 41.9%. Operating expenses as a percentage of sales after adjusting for $4.0 million of restructuring and other related costs was flat with the prior year period, despite lower sales levels. This was the result of our Mission Critical program, which delivered $8 million of gross cost out in the quarter. While one quarter does not make a year, I am encouraged by the solid start. Our goal remains $90 million to $100 million of gross cost take out through fiscal 2023 versus fiscal 2019. Our reported operating margin was significantly impacted by a $26.7 million asset impairment charge resulting from growing uncertainty over our ability to secure deliveries of nitrile gloves for which we prepaid in September and have not yet received. We are, of course, pursuing all possible paths to either secure the gloves or a refund of our prepayments. From the outset of the pandemic, we have been successful in procuring critical PPE supplies to support our customers. We remain pleased with our PPE program, which has consisted of hundreds of global supply transactions leading to substantial revenues and the ability to support our customers during the pandemic."

Gershwind concluded, "Our company's sights are set on two goals to be achieved by the end of fiscal 2023: growing at least 400 basis points above the Industrial Production Index and returning ROIC back into the high teens. We have five growth initiatives powering our market share aspirations, and we are executing significant structural cost reductions that we expect will improve operating expenses as a percent of sales by at least 200 basis points. As we move towards the middle of our fiscal 2021, we are encouraged by the momentum that is building inside of the company, and this is evidenced both by improving operating numbers and the increasing pace with which we are operating the business. We are also encouraged by an environment that, while challenging, is showing some positive indicators, with good news on the vaccine and the recently passed stimulus package hopefully improving the economic outlook over the coming quarters."

Conference Call Information

MSC will host a conference call today at 8:30 a.m. EST to review the Company's fiscal 2021 first quarter 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 January 13, 2021.

The Company's reporting date for fiscal 2021 second quarter results is scheduled for April 7, 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 approximately 1.9 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 Press 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 and structural cost reductions; 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

Condensed Consolidated Balance Sheets

(In thousands)

November 28, August 29,

2020 2020

ASSETS (unaudited)

Current Assets:

Cash and cash equivalents $ 53,104 $ 125,211

Accounts receivable, net of allowance for credit 493,693 491,743losses

Inventories 521,299 543,106

Prepaid expenses and other current assets 80,222 77,710

Total current assets 1,148,318 1,237,770

Property, plant and equipment, net 297,780 301,979

Goodwill 677,891 677,579

Identifiable intangibles, net 102,552 104,873

Operating lease assets 56,379 56,173

Other assets 3,733 4,056

Total assets $ 2,286,653 $ 2,382,430

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Current portion of debt including obligations under $ 23,225 $ 122,248finance leases

Current portion of operating lease liabilities 20,459 21,815

Accounts payable 143,520 125,775

Dividends payable 197,712 -

Accrued expenses and other current liabilities 129,073 138,895

Total current liabilities 513,989 408,733

Long-term debt including obligations under finance 466,905 497,018leases

Noncurrent operating lease liabilities 36,180 34,379

Deferred income taxes and tax uncertainties 121,716 121,727

Other noncurrent liabilities 16,976 -

Total liabilities 1,155,766 1,061,857

Commitments and Contingencies

Shareholders' Equity:

Preferred Stock - -

Class A common stock 48 47

Class B common stock 9 10

Additional paid-in capital 702,341 690,739

Retained earnings 547,957 749,515

Accumulated other comprehensive loss (19,683) (21,418)

Class A treasury stock, at cost (106,197) (103,948)

Total MSC Industrial shareholders' equity 1,124,475 1,314,945

Noncontrolling interest $ 6,412 $ 5,628

Total shareholders' equity 1,130,887 1,320,573

Total liabilities and shareholders' equity $ 2,286,653 $ 2,382,430

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

Thirteen Weeks Ended

November 28, November 30,

2020 2019

Net sales $ 771,904 $ 823,601

Cost of goods sold 448,586 476,405

Gross profit 323,318 347,196

Operating expenses 242,684 256,898

Impairment Loss 26,726 -

Income from operations 53,908 90,298

Other income (expense):

Interest expense (3,356) (3,171)

Interest income 21 10

Other income, net 651 121

Total other expense (2,684) (3,040)

Income before provision for income taxes 51,224 87,258

Provision for income taxes 12,447 21,806

Net income 38,777 65,452

Less: Net income attributable to noncontrolling 323 34interest

Net income attributable to MSC Industrial $ 38,454 $ 65,418

Per share data attributable to MSC Industrial:

Net income per common share:

Basic $ 0.69 $ 1.18

Diluted $ 0.69 $ 1.18

Weighted average shares used in computing netincome per common share:

Basic 55,659 55,275

Diluted 55,850 55,444

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

Thirteen Weeks Ended

November 28, November 30,

2020 2019

Net income, as reported $ 38,777 $ 65,452

Other comprehensive income, net of tax:

Foreign currency translation adjustments 2,196 1,606

Comprehensive income 40,973 67,058

Comprehensive income attributable to noncontrolling interest:

Less: Net income (323) (34)

Foreign currency translation adjustments (461) (140)

Comprehensive income attributable to MSC Industrial $ 40,189 $ 66,884

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Thirteen Weeks Ended

November 28, November 30,

2020 2019

Cash Flows from Operating Activities:

Net income $ 38,777 $ 65,452

Adjustments to reconcile net income to net cashprovided by operating activities:

Depreciation and amortization 17,105 17,025

Non-cash operating lease cost 4,342 5,544

Stock-based compensation 4,238 4,161

Loss on disposal of property, plant, and equipment 296 140

Provision for credit losses 2,503 2,526

Changes in operating assets and liabilities:

Accounts receivable (3,655) 2,565

Inventories 22,950 20,627

Prepaid expenses and other current assets (2,168) (182)

Operating lease liabilities (4,103) (5,425)

Other assets 324 669

Accounts payable and accrued liabilities 22,621 (27,990)

Total adjustments 64,453 19,660

Net cash provided by operating activities 103,230 85,112

Cash Flows from Investing Activities:

Expenditures for property, plant and equipment (7,893) (12,689)

Net cash used in investing activities (7,893) (12,689)

Cash Flows from Financing Activities:

Repurchases of common stock (3,159) (3,009)

Payments of cash dividends (41,815) (41,536)

Proceeds from sale of Class A common stock in 963 1,031connection with associate stock purchase plan

Proceeds from exercise of Class A common stock 5,600 4,533options

Borrowings under credit facilities - 69,000

Payments under credit facilities (130,000) (107,000)

Payments on finance lease and financing obligations (516) (180)

Other, net 1,269 -

Net cash used in financing activities (167,658) (77,161)

Effect of foreign exchange rate changes on cash and 214 230cash equivalents

Net decrease in cash and cash equivalents (72,107) (4,508)

Cash and cash equivalents - beginning of year 125,211 32,286

Cash and cash equivalents - end of year $ 53,104 $ 27,778

Supplemental Disclosure of Cash Flow Information:

Cash paid for income taxes $ 1,605 $ 1,790

Cash paid for interest $ 1,908 $ 895

Supplemental Disclosure of non-cash FinancingActivities

Cash dividends declared, but not yet paid $ 195,351 $ -

Non-GAAP Financial Measures

* Results Excluding Impairment Loss and Restructuring and Other Related Costs

To supplement MSC's unaudited selected financial data presented consistent with GAAP, the Company discloses certain non-GAAP financial measures, including 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 the impairment loss and 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 the impairment loss and 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 Ended November 28, 2020

(dollars in thousands, except per share data)

GAAP Measure Items Affecting Comparability Non-GAAP Measure

Restructuring and Other MSC Excluding Impairment Total MSC Related Costs Impairment Loss Loss and Restructuring and Other Related Costs

Thirteen Thirteen Thirteen Thirteen Weeks Ended Weeks Ended Weeks Ended Weeks Ended

November 28, 2020 November 28, 2020 November 28, 2020 November 28, 2020

Net Sales $ 771,904 $ - $ - $ 771,904

ADS Growth % -6.3% - - -6.3%

Cost of Goods 448,586 - - 448,586Sold

Gross Profit 323,318 - - 323,318

Gross Margin 41.9% - - 41.9%

Operating 242,684 3,979 - 238,705Expense

Operating Exp 31.4% 0.5% 30.9%as % of Sales

Impairment 26,726 - 26,726 -Loss

Income from 53,908 (3,979) (26,726) 84,613Operations

Operating 7.0% -0.5% -3.5% 11.0%Margin

Total Other (2,684) - - (2,684)Expense

Income beforeprovision for 51,224 (3,979) (26,726) 81,929income taxes

Provision for 12,447 (967) (6,494) 19,908income taxes

Net 38,777 (3,012) (20,232) 62,021income

Netincomeattributable 323 - - 323tononcontrollinginterest

Netincomeattributable $ 38,454 $ (3,012) $ (20,232) $ 61,698to MSCIndustrial

Net income percommon share:

Diluted $ 0.69 $ (0.05) $ (0.36) $ 1.10

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Reconciliation of GAAP and Non-GAAP Information

Thirteen Weeks Ended November 30, 2019

(dollars in thousands, except per share data)

GAAP Measure Items Affecting Comparability Non-GAAP Measure

Total MSC Restructuring and Other MSC Excluding Restructuring and Related Costs Other Related Costs

Thirteen Thirteen Thirteen Weeks Ended Weeks Ended Weeks Ended

November 30, 2019 November 30, 2019 November 30, 2019

Net Sales $ 823,601 $ - $ 823,601

ADS Growth % -1.0% - -1.0%

Cost of Goods Sold 476,405 - 476,405

Gross Profit 347,196 - 347,196

Gross Margin 42.2% - 42.2%

Operating Expense 256,898 2,571 254,327

Operating Exp as % of Sales 31.2% 0.3% 30.9%

Income from Operations 90,298 (2,571) 92,869

Operating Margin 11.0% -0.3% 11.3%

Total Other Expense (3,040) - (3,040)

Income before provision for income taxes 87,258 (2,571) 89,829

Provision for income taxes 21,806 (643) 22,449

Net income 65,452 (1,928) 67,380

Net income attributable to noncontrolling 34 - 34interest

Net income attributable to MSC Industrial $ 65,418 $ (1,928) $ 67,346

Net income per common share:

Diluted $ 1.18 $ (0.03) $ 1.21

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SOURCE MSC Industrial Supply Co.