PR Newswire | Apr 7, 2021 06:31AM EDT

04/07 05:30 CDT

MSC Industrial Reports Fiscal 2021 Second Quarter Results MELVILLE, N.Y. and DAVIDSON, N.C., April 7, 2021

MELVILLE, N.Y. and DAVIDSON, N.C., April 7, 2021 /PRNewswire/ --

FISCAL 2021 Q2 HIGHLIGHTS

* Net sales of $774.0 million, a 1.5% decrease from the prior year quarter * Operating income of $28.0 million, or $80.5 million excluding $30.1 million in inventory write-downs, $21.6 million in restructuring costs, and $0.8 million in other charges1 * Operating margin of 3.6%, or 10.4% excluding the adjustments described above1 * Diluted EPS of $0.32; vs. $1.00 in the prior year quarter * Adjusted diluted EPS of $1.03 vs. $1.02 in the prior year quarter1

MSC INDUSTRIAL DIRECT CO., INC. (NYSE: MSM), "MSC Industrial" or the "Company", a leading North American distributor of metalworking and maintenance, repair and operations (MRO) products and services, today reported financial results for its fiscal 2021 second quarter ended February 27, 2021.

Financial Highlights^2 FY21 Q2 FY20 Q2 Change FY21 YTD FY20 YTD Change

Net Sales $774.0 $786.1 -1.5% $1,545.9 $1,609.7 -4.0%

Income from Operations $28.0 $77.7 -63.9% $81.9 $168.0 -51.2%

Operating Margin 3.6% 9.9% 5.3% 10.4%

Net Income attributable to MSC Industrial $18.1 $55.5 -67.4% $56.5 $120.9 -53.2%

Diluted EPS $0.32^3 $1.00^4 -68.0% $1.01^3 $2.18^4 -53.7%

Adjusted Financial Highlights^1,2 FY21 Q2 FY20 Q2 Change FY21 YTD FY20 YTD Change

Unadjusted Net Sales $774.0 $786.1 -1.5% $1,545.9 $1,609.7 -4.0%

Adjusted Income from Operations $80.5 $79.6 1.1% $165.4 $172.5 -4.1%

Adjusted Operating Margin 10.4% 10.1% 10.7% 10.7%

Adjusted Net Income attributable to MSC $57.6 $57.0 1.1% $119.4 $124.3 -4.0%Industrial

Adjusted Diluted EPS $1.03^3 $1.02^4 1.0% $2.13^3 $2.24^4 -4.9%

^1 Represents a non-GAAP financial measure. An explanation and a reconciliationof each non-GAAP financial measure to the most directly comparable GAAPfinancial measure are presented in schedules accompanying this press release.

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

^3 Based on 56.1 million and 56.0 million diluted shares outstanding for FY21Q2 and FY21 YTD respectively.

^4 Based on 55.6 million and 55.5 million diluted shares outstanding for FY20Q2 and FY20 YTD respectively.

Erik Gershwind, President and Chief Executive Officer, said, "Our fiscal second quarter reflected solid execution in a choppy, but improving environment. Improvement in sales levels of our non-safety and non-janitorial product lines continued through the quarter and turned positive in March. Sales of our safety and janitorial products grew in the mid-teens. Execution of our Mission Critical initiatives was solid, and I am pleased with the progress that we are making with our share capture programs."

Kristen Actis-Grande, Executive Vice President and Chief Financial Officer, added, "Average daily sales were $12.7 million for the quarter and our gross margin was 38.1%, a decline of 400 basis points versus the prior year due primarily to a roughly $30 million PPE write-down recorded during the quarter. Excluding this write-down, our adjusted gross margin was 42.0 percent, roughly flat sequentially and versus the prior year. Operating expenses as a percentage of sales was 31.7%, a 30 basis point improvement from the prior year period. During the quarter, our Mission Critical program delivered $9 million of gross cost out bringing our cumulative savings for fiscal 2021 to $17 million against our goal of $25 million by the end of this year. We also invested roughly $5 million in our fiscal second quarter growth programs. We are ahead of plan on savings, and our investment program is also progressing very well. In fact, the results are such that we anticipate making some additional growth investments to capture more of the opportunities that we are seeing. On balance, this means that our net savings target for Mission Critical remains roughly the same or slightly larger for the full year. Our goal remains $90 million to $100 million of gross cost savings through fiscal 2023 versus fiscal 2019, and we are currently tracking to the high end of that range. Our adjusted operating margin, excluding the write-down of PPE inventory and restructuring and other related costs, was up 30 basis points from the prior year due to our Mission Critical progress."

Gershwind concluded, "The improving environment and continued execution of our growth and cost take-out programs are combining to position us well. We are now emerging as a stronger company and are poised to reaccelerate growth. We have strengthened our value proposition, with more to come, and further strengthened and extended our leadership position in our core business of Metalworking. We are well on-track to achieve our goals of growing 400 basis points above the Industrial Production Index and returning ROIC back to the high teens by the end of fiscal 2023."

Conference Call Information

MSC Industrial will host a conference call today at 8:30 a.m. EDT to review the Company's fiscal 2021 second 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 April 14, 2021.

The Company's reporting date for fiscal 2021 third quarter results is scheduled for July 7, 2021.

About MSC Industrial Direct Co., Inc.MSC Industrial Direct Co., Inc. (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 6,200 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 Industrial, please visit mscdirect.com.

Cautionary 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 future 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 return on invested capital, are forward-looking statements. The words "will,", "may," "believes," "anticipates," "thinks," "expects," "estimates," "plans," "intends," and similar expressions are intended to identify 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 Industrial 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; ability to estimate the cost of healthcare claims incurred under our self-insurance plan; and goodwill and intangible assets recorded as a result of our acquisitions could be impaired. Additional information concerning these and other risks described under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our annual and quarterly reports on Forms 10-K and 10-Q, respectively, and in the other reports and documents that we file with the U.S. Securities and Exchange Commission. We expressly disclaim any obligation to update any of these forward-looking statements, except to the extent required by applicable law.

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands)

February 27, August 29,

2021 2020

ASSETS (unaudited)

Current Assets:

Cash and cash equivalents $ 20,242 $ 125,211

Accounts receivable, net of allowance for credit losses 527,233 491,743

Inventories 532,536 543,106

Prepaid expenses and other current assets 105,342 77,710

Total current assets 1,185,353 1,237,770

Property, plant and equipment, net 293,342 301,979

Goodwill 678,406 677,579

Identifiable intangibles, net 99,756 104,873

Operating lease assets 41,758 56,173

Other assets 3,626 4,056

Total assets $ 2,302,241 $ 2,382,430

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Current portion of debt including obligations under finance leases $ 222,680 $ 122,248

Current portion of operating lease liabilities 19,956 21,815

Accounts payable 170,487 125,775

Accrued expenses and other current liabilities 140,091 138,895

Total current liabilities 553,214 408,733

Long-term debt including obligations under finance leases 461,685 497,018

Noncurrent operating lease liabilities 37,640 34,379

Deferred income taxes and tax uncertainties 121,721 121,727

Other noncurrent liabilities 9,444 -

Total liabilities 1,183,704 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 712,750 690,739

Retained earnings 523,757 749,515

Accumulated other comprehensive loss (18,806) (21,418)

Class A treasury stock, at cost (105,645) (103,948)

Total MSC Industrial shareholders' equity 1,112,113 1,314,945

Noncontrolling interest $ 6,424 $ 5,628

Total shareholders' equity 1,118,537 1,320,573

Total liabilities and shareholders' equity $ 2,302,241 $ 2,382,430

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

Thirteen Weeks Ended Twenty-Six Weeks Ended

February 27, February 29, February 27, February 29,

2021 2020 2021 2020

Net sales $ 773,995 $ 786,094 $ 1,545,899 $ 1,609,695

Cost of goods sold 479,244 455,042 927,830 931,447

Gross profit 294,751 331,052 618,069 678,248

Operating expenses 245,115 251,441 483,820 505,768

Impairment loss - - 26,726 -

Restructuring costs 21,615 1,941 25,594 4,512

Income from operations 28,021 77,670 81,929 167,968

Other income (expense):

Interest expense (3,580) (3,495) (6,936) (6,666)

Interest income 16 68 37 78

Other income (expense), net (58) (70) 593 51

Total other expense (3,622) (3,497) (6,306) (6,537)

Income before provision for income taxes 24,399 74,173 75,623 161,431

Provision for income taxes 6,051 18,617 18,498 40,423

Net income 18,348 55,556 57,125 121,008

Less: Net income attributable to noncontrolling interest 263 56 586 90

Net income attributable to MSC Industrial $ 18,085 $ 55,500 $ 56,539 $ 120,918

Per share data attributable to MSC Industrial:

Net income per common share:

Basic $ 0.32 $ 1.00 $ 1.01 $ 2.18

Diluted $ 0.32 $ 1.00 $ 1.01 $ 2.18

Weighted-average shares used in computing

net income per common share:

Basic 55,838 55,467 55,749 55,371

Diluted 56,133 55,587 56,019 55,545

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

Thirteen Weeks Ended Twenty-Six Weeks Ended

February 27, February 29, February 27, February 29,

2021 2020 2021 2020

Net income, as reported $ 18,348 $ 55,556 $ 57,125 $ 121,008

Other comprehensive income, net of tax:

Foreign currency translation adjustments 626 (788) 2,822 818

Comprehensive income 18,974 54,768 59,947 121,826

Comprehensive income attributable to noncontrolling interest:

Net income (263) (56) (586) (90)

Foreign currency translation adjustments 251 45 (210) (95)

Comprehensive income attributable to MSC Industrial $ 18,962 $ 54,757 $ 59,151 $ 121,641

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Twenty-Six Weeks Ended

February 27, February 29,

2021 2020

Cash Flows from Operating Activities:

Net income $ 57,125 $ 121,008

Adjustments to reconcile net income to net cash provided by operatingactivities:

Depreciation and amortization 34,571 34,313

Non-cash operating lease cost 7,537 11,061

Stock-based compensation 8,994 8,178

Loss on disposal of property, plant and equipment 345 227

Inventory write-down 30,091 -

Operating lease and fixed asset impairment due to restructuring 18,097 -

Provision for credit losses 4,280 4,704

Changes in operating assets and liabilities:

Accounts receivable (39,421) (2,105)

Inventories (18,647) 3,449

Prepaid expenses and other current assets (27,214) (7,953)

Operating lease liabilities (9,074) (10,931)

Other assets 494 1,375

Accounts payable and accrued liabilities 51,756 (7,511)

Total adjustments 61,809 34,807

Net cash provided by operating activities 118,934 155,815

Cash Flows from Investing Activities:

Expenditures for property, plant and equipment (19,954) (25,737)

Cash used in business acquisitions, net of cash acquired - (2,286)

Net cash used in investing activities (19,954) (28,023)

Cash Flows from Financing Activities:

Repurchases of common stock (3,519) (3,208)

Payments of regular cash dividends (83,685) (83,181)

Payments of special cash dividends (195,351) (277,634)

Proceeds from sale of Class A Common Stock in connection with associate stock 2,040 2,202purchase plan

Proceeds from exercise of Class A Common Stock options 10,834 13,390

Borrowings under credit facilities 415,000 389,600

Borrowings under financing obligations 1,269 -

Payments under credit facilities (350,000) (156,000)

Contributions from non-controlling interest - 105

Other, net (1,392) (696)

Net cash used in financing activities (204,804) (115,422)

Effect of foreign exchange rate changes on cash and cash equivalents 855 211

Net increase (decrease) in cash and cash equivalents (104,969) 12,581

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

Cash and cash equivalents - end of period $ 20,242 $ 44,867

Supplemental Disclosure of Cash Flow Information:

Cash paid for income taxes $ 41,265 $ 37,286

Cash paid for interest $ 6,606 $ 5,636

Non-GAAP Financial Measures

* Results Excluding Impairment Loss, Restructuring Costs, Inventory Write-downs, and Other Charges

To supplement MSC Industrial's unaudited selected financial data presented consistent with accounting principles generally accepted in the United States ("GAAP"), the Company discloses certain non-GAAP financial measures, including non-GAAP gross profit, non-GAAP operating expenses, non-GAAP income from operations, non-GAAP operating margin, non-GAAP provision for income taxes, non-GAAP net income and non-GAAP diluted earnings per share, that exclude impairment losses, restructuring costs, inventory write-downs related to certain PPE inventory, and other related costs and tax effects.

These non-GAAP financial measures are not presented in accordance with GAAP or an alternative for GAAP financial measures and may be different from similar non-GAAP financial measures used by other companies. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP financial measures and should only be used to evaluate MSC Industrial's results of operations in conjunction with the corresponding GAAP financial measures.

In calculating non-GAAP financial measures, we exclude impairment losses, restructuring costs, inventory write-downs related to certain PPE inventory, and other related costs and tax effects. Management makes these adjustments to facilitate a review of the Company's operating performance on a comparable basis between periods, for comparison with forecasts and strategic plans, for identifying and analyzing trends in the Company's underlying business and for benchmarking performance externally against competitors. We believe that investors benefit from seeing results from the perspective of management in addition to seeing results presented in accordance with GAAP for the same reasons and purposes for which management uses such non-GAAP financial measures.

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Reconciliation of GAAP and Non-GAAP Financial Information

Thirteen Weeks Ended February 27, 2021

(dollars in thousands, except percentages and per share data)

GAAP Financial Items Affecting Comparability Non-GAAP Measure Financial Measure

Total MSC Inventory Restructuring Legal Costs- Adjusted Total Industrial Write-down Costs impairment of MSC Industrial prepaid for PPE

Net Sales $ 773,995 $ - $ - $ - $ 773,995

Cost of Goods Sold 479,244 30,091 - - 449,153

Gross Profit 294,751 (30,091) - - 324,842

Gross Margin 38.1% -3.9% - - 42.0%

Operating Expenses 245,115 - - 727 244,388

Operating Exp as % of Sales 31.7% - - 0.1% 31.6%

Restructuring Costs 21,615 - 21,615 - -

Income from Operations 28,021 (30,091) (21,615) (727) 80,454

Operating Margin 3.6% -3.9% -2.8% -0.1% 10.4%

Total Other Expense (3,622) - - - (3,622)

Income before provision for income taxes 24,399 (30,091) (21,615) (727) 76,832

Provision for income taxes 6,051 (7,432) (5,339) (180) 19,002

Net income 18,348 (22,659) (16,276) (547) 57,830

Net income attributable to noncontrolling interest 263 - - - 263

Net income attributable to MSC Industrial $ 18,085 $ (22,659) $ (16,276) $ (547) $ 57,567

Net income per common share:

Diluted $ 0.32 $ (0.40) $ (0.29) $ (0.01) $ 1.03

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Reconciliation of GAAP and Non-GAAP Financial Information

Twenty-Six Weeks Ended February 27, 2021

(dollars in thousands, except percentages and per share data)

GAAP Non-GAAP Financial Items Affecting Comparability Financial Measure Measure

Total MSC Inventory Restructuring Impairment Legal Costs - Adjusted Total Industrial Write-down Costs Loss impairment of MSC Industrial prepaid for PPE

Net Sales $ 1,545,899 $ - $ - $ - $ - $ 1,545,899

Cost of Goods Sold 927,830 30,091 - - - 897,739

Gross Profit 618,069 (30,091) - - - 648,160

Gross Margin 40.0% -1.9% - - - 41.9%

Operating Expenses 483,820 - - - 1,020 482,800

Operating Exp as % of Sales 31.3% - - - 0.1% 31.2%

Impairment Loss 26,726 - - 26,726 - -

Restructuring Costs 25,594 - 25,594 - - -

Income from Operations 81,929 (30,091) (25,594) (26,726) (1,020) 165,360

Operating Margin 5.3% -1.9% -1.7% -1.7% -0.1% 10.7%

Total Other Expense (6,306) - - - - (6,306)

Income before provision for income taxes 75,623 (30,091) (25,594) (26,726) (1,020) 159,054

Provision for income taxes 18,498 (7,432) (6,322) (6,601) (252) 39,105

Net income 57,125 (22,659) (19,272) (20,125) (768) 119,949

Net income attributable to noncontrolling interest 586 - - - - 586

Net income attributable to MSC Industrial $ 56,539 $ (22,659) $ (19,272) $ (20,125) $ (768) $ 119,363

Net income per common share:

Diluted $ 1.01 $ (0.40) $ (0.34) $ (0.36) $ (0.01) $ 2.13

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Reconciliation of GAAP and Non-GAAP Financial Information

Thirteen and Twenty-Six Weeks Ended February 29, 2020

(dollars in thousands, except percentages and per share data)

GAAP Financial Measure Items Affecting Comparability ^1 Non-GAAP Financial Measure

Total MSC Industrial Restructuring Costs MSC Industrial excluding Restructuring Costs

Thirteen Twenty-Six Thirteen Twenty-Six Thirteen Twenty-Six Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended

February 29, 2020 February 29, 2020 February 29, 2020

Net Sales $ 786,094 $ 1,609,695 $ - $ - $ 786,094 $ 1,609,695

Cost of Goods Sold 455,042 931,447 - - 455,042 931,447

Gross Profit 331,052 678,248 - - 331,052 678,248

Gross Margin 42.1% 42.1% - - 42.1% 42.1%

Operating Expenses 251,441 505,768 251,441 505,768

Operating Exp as % of Sales 32.0% 31.4% - - 32.0% 31.4%

Restructuring Costs 1,941 4,512 1,941 4,512 - -

Income from Operations 77,670 167,968 (1,941) (4,512) 79,611 172,480

Operating Margin 9.9% 10.4% -0.2% -0.3% 10.1% 10.7%

Total Other Expense (3,497) (6,537) - - (3,497) (6,537)

Income before provision for income taxes 74,173 161,431 (1,941) (4,512) 76,114 165,943

Provision for income taxes 18,617 40,423 (487) (1,128) 19,104 41,551

Net income 55,556 121,008 (1,454) (3,384) 57,010 124,392

Net income attributable to noncontrolling interest 56 90 - - 56 90

Net income attributable to MSC Industrial $ 55,500 $ 120,918 $ (1,454) $ (3,384) $ 56,954 $ 124,302

Net income per common share:

Diluted $ 1.00 $ 2.18 $ (0.03) $ (0.06) $ 1.02 $ 2.24

^1Prior period adjustments include only restructuring costs. Items of noteexcluded from the current period results, including inventory write-downs, animpairment loss and associated legal costs, did not occur in the prior yearperiods.

View original content to download multimedia: http://www.prnewswire.com/news-releases/msc-industrial-reports-fiscal-2021-second-quarter-results-301263670.html

SOURCE MSC Industrial Supply Co.