PR Newswire | Oct 27, 2020 06:31AM EDT

10/27 05:30 CDT

MSC Reports Fiscal 2020 Fourth Quarter And Full Year Results MELVILLE, N.Y. and DAVIDSON, N.C., Oct. 27, 2020

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 Highlights^1 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 52.5 66.6 -21.2% 251.1 288.9 -13.1%MSC Industrial

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 milliondiluted shares outstanding for FY20 Q4 and FY20, respectively. ^3Based on 55.3and 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 MSCIndustrial 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 SUBSIDIARIESConsolidated 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 SUBSIDIARIESConsolidated 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 SUBSIDIARIESConsolidated 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 incomeduring fiscal years 2020 and 2019.

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIESConsolidated 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 operatingactivities:

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 withbusiness 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 4,140 4,600purchase plan

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 Excluding Restructuring and Other Costs Related Costs

Thirteen Year Thirteen Year Thirteen Year

Weeks Ended Ended Weeks Ended Ended Weeks Ended 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 140 641 - - 140 641to noncontrolling interest

Net income attributable to $ 52,496 $ 251,117 $ (8,536) $ (12,823) $ 61,032 $ 263,940MSC Industrial

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 quarteras 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 Excluding Restructuring and Other Costs Related Costs

Thirteen Year Thirteen Year Thirteen Year

Weeks Ended Ended Weeks Ended Ended Weeks Ended 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 13 (68) - - 13 (68)interest

Net income attributable to $ 66,608 $ 288,865 $ (5,171) $ (5,171) $ 71,779 $ 294,036MSC Industrial

Net income per common share:

Diluted $ 1.20 $ 5.20 $ (0.09) $ (0.09) $ 1.30 $ 5.29

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SOURCE MSC Industrial Supply Co.