PR Newswire | Dec 22, 2021 06:31AM EST

12/22 05:30 CST

MSC INDUSTRIAL SUPPLY CO. REPORTS FISCAL 2022 FIRST QUARTER RESULTS MELVILLE, N.Y. and DAVIDSON, N.C., Dec. 22, 2021

MELVILLE, N.Y. and DAVIDSON, N.C., Dec. 22, 2021 /PRNewswire/ --

FISCAL 2022 Q1 HIGHLIGHTS

* Net sales of $848.5 million, an increase of 9.9% YoY * Average daily sales growth of nearly 500 basis points above Industrial Production Index * Operating income of $90.7 million, or $96.0 million excluding restructuring and other charges1 * Operating margin of 10.7%, or 11.3% excluding restructuring and other charges1 * Diluted EPS of $1.18 vs. $0.69 in the prior fiscal year quarter * Adjusted diluted EPS of $1.25 vs. $1.11 in the prior fiscal year quarter, a 12.6% increase1

MSC INDUSTRIAL SUPPLY CO. (NYSE: MSM), "MSC" 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 2022 first quarter ended November 27, 2021.

Financial Highlights^2 FY22 Q1 FY21 Q1 Change

Net Sales $848.5 $771.9 9.9%

Income from Operations $90.7 $53.9 68.3%

Operating Margin 10.7% 7.0%

Net Income attributable to MSC $66.1 $38.5 71.8%

Diluted EPS $1.18 ^3 $0.69 ^3 71.0%

Adjusted Financial Highlights^1,2 FY22 Q1 FY21 Q1 Change

Net Sales $848.5 $771.9 9.9%

Income from Operations $96.0 $84.9 13.1%

Operating Margin 11.3% 11.0%

Net Income attributable to MSC $70.0 $61.9 13.1%

Diluted EPS $1.25 ^3 $1.11 ^3 12.6%

^1 Reflects severance and related charges for a headcount reduction to betteralign with our strategy. Represents a non-GAAP financial measure andreconciliations to the most directly comparable GAAP financial measure ispresented in the schedules accompanying this press release.

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

^3 Based on 55.9 million weighted-average diluted shares outstanding for FY22Q1 and 55.8 million weighted-average diluted shares outstanding for FY21 Q1.

Erik Gershwind, President and Chief Executive Officer, said, "Our fiscal first quarter was a strong start to the year. Average daily sales grew 9.9% as we sustained our market share capture rate by outgrowing the Industrial Production Index by nearly 500 basis points. We translated that top line growth into double digit earnings growth and strong operating expense leverage. Gross margins, on the other hand, came in below our expectations. We implemented countermeasures quickly and saw improvement towards the end of the quarter and into December. We expect gross margins to bounce back in our fiscal second quarter and we expect to achieve our goal of keeping gross margins roughly flat for the full year."

Kristen Actis-Grande, Executive Vice President and Chief Financial Officer, added, "We produced double-digit earnings growth in the first quarter due to strong top line performance and excellent cost controls. Adjusted operating expenses as a percentage of sales dropped 70 basis points year over year fueled by productivity improvements. Our Mission Critical initiatives achieved savings of $10 million and we reinvested $7 million in the quarter. Momentum is building in our business and, as of now, we are trending towards the higher end of our annual operating margin framework. We also see low double-digit ADS growth as a possibility for fiscal 2022. If this happens, operating margins would lift beyond the ranges in our annual operating margin framework."

Gershwind concluded, "I am encouraged by the recent progress I see in the Company. Looking beyond this fiscal year, we are on track to achieve our goals of growing sales by at least 400 basis points above the Industrial Production Index and returning ROIC to the high-teens by the end of fiscal 2023."

Conference Call InformationMSC will host a conference call today at 8:30 a.m. EST to review the Company's fiscal 2022 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 5, 2022.

The Company's reporting date for fiscal 2022 second quarter results is scheduled for March 30, 2022.

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 approximately 2.0 million products, inventory management and other supply chain solutions, and deep expertise from over 80 years of working with customers across industries. Our experienced team of more than 6,500 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 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 impact of the COVID-19 pandemic on our sales, operations and supply chain; general economic conditions in the markets in which we operate, including conditions resulting from the COVID-19 pandemic; 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 being a spot-buy supplier to a mission-critical partner to our customers; our ability to realize the expected cost savings and benefits from our restructuring activities and structural cost reductions; the retention of key personnel; volatility in commodity and energy prices; the credit risk of our customers, including changes in credit risk as a result of the COVID-19 pandemic; the 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, labor shortages or other business interruptions (including those due to extreme weather conditions or as a result of the COVID-19 pandemic) at transportation centers, shipping ports, our headquarters or our customer fulfillment centers; disruptions or breaches of our information technology systems, or violations of data privacy laws; the retention of qualified sales and customer service personnel and metalworking specialists; the risk of loss of key suppliers or contractors or key brands or supply chain disruptions, including due to import restrictions resulting from the COVID-19 pandemic; changes to governmental trade policies, including the impact from significant import restrictions or tariffs; risks related to opening or expanding our customer fulfillment centers; our ability to estimate the cost of healthcare claims incurred under our self-insurance plan; 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; the interest rate uncertainty due to the London InterBank Offered Rate ("LIBOR") reform; the failure to comply with applicable environmental, health and safety laws and regulations, including government action in response to the COVID-19 pandemic, and other laws applicable to our business; the outcome of government or regulatory proceedings or future litigation; goodwill and intangible assets recorded resulting from our acquisitions could be impaired; our common stock price may be volatile due to factors outside of our control; and our principal shareholders exercise significant control over us, which may result in our taking actions or failing to take actions which our other shareholders do not prefer. 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 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 DIRECT CO., INC.

Condensed Consolidated Balance Sheets

(In thousands)

November 27, August 28,

2021 2021

ASSETS (Unaudited)

Current Assets:

Cash and cash equivalents $ 62,875 $ 40,536

Accounts receivable, net of allowance for credit 578,654 560,373losses

Inventories 622,624 624,169

Prepaid expenses and other current assets 84,255 89,167

Total current assets 1,348,408 1,314,245

Property, plant and equipment, net 298,975 298,416

Goodwill 691,867 692,704

Identifiable intangibles, net 98,419 101,854

Operating lease assets 52,824 49,011

Other assets 5,851 5,885

Total assets $ 2,496,344 $ 2,462,115

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Current portion of debt including obligations under $ 204,484 $ 202,433finance leases

Current portion of operating lease liabilities 13,703 13,927

Accounts payable 177,823 186,330

Accrued expenses and other current liabilities 190,265 159,238

Total current liabilities 586,275 561,928

Long-term debt including obligations under finance 558,318 583,616leases

Noncurrent operating lease liabilities 40,447 36,429

Deferred income taxes and tax uncertainties 108,827 108,827

Other noncurrent liabilities 9,443 9,443

Total liabilities 1,303,310 1,300,243

Commitments and Contingencies

Shareholders' Equity:

Preferred Stock - -

Class A Common Stock 48 48

Class B Common Stock 9 9

Additional paid-in capital 756,314 740,867

Retained earnings 556,586 532,315

Accumulated other comprehensive loss (22,065) (17,984)

Class A treasury stock, at cost (108,138) (104,384)

Total MSC shareholders' equity 1,182,754 1,150,871

Noncontrolling interest 10,280 11,001

Total shareholders' equity 1,193,034 1,161,872

Total liabilities and shareholders' equity $ 2,496,344 $ 2,462,115

MSC INDUSTRIAL DIRECT CO., INC.

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

Thirteen Weeks Ended

November November 27, 28,

2021 2020

Net sales $ 848,547 $ 771,904

Cost of goods sold 495,951 448,586

Gross profit 352,596 323,318

Operating expenses 256,581 238,705

Impairment loss, net - 26,726

Restructuring costs 5,283 3,979

Income from operations 90,732 53,908

Other income (expense):

Interest expense (3,728) (3,356)

Interest income 19 21

Other income (expense), net (413) 651

Total other expense (4,122) (2,684)

Income before provision for income taxes 86,610 51,224

Provision for income taxes 20,353 12,447

Net income 66,257 38,777

Less: Net income attributable to noncontrolling interest 190 323

Net income attributable to MSC $ 66,067 $ 38,454

Per share data attributable to MSC:

Net income per common share:

Basic $ 1.19 $ 0.69

Diluted $ 1.18 $ 0.69

Weighted average shares used in computing net income percommon share:

Basic 55,530 55,659

Diluted 55,856 55,850

MSC INDUSTRIAL DIRECT CO., INC.

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

Thirteen Weeks Ended

November November 27, 28,

2021 2020

Net income, as reported $ 66,257 $ 38,777

Other comprehensive income, net of tax:

Foreign currency translation adjustments (4,992) 2,196

Comprehensive income 61,265 40,973

Comprehensive income attributable to noncontrollinginterest:

Net income (190) (323)

Foreign currency translation adjustments 911 (461)

Comprehensive income attributable to MSC $ 61,986 $ 40,189

MSC INDUSTRIAL DIRECT CO., INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Thirteen Weeks Ended

November 27, November 28,

2021 2020

Cash Flows from Operating Activities:

Net income $ 66,257 $ 38,777

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

Depreciation and amortization 17,407 17,105

Non-cash operating lease cost 4,223 4,342

Stock-based compensation 5,689 4,238

Loss on disposal of property, plant and equipment 104 296

Provision for credit losses 1,837 2,503

Changes in operating assets and liabilities:

Accounts receivable (21,805) (3,655)

Inventories (755) 22,950

Prepaid expenses and other current assets 4,172 (2,168)

Operating lease liabilities (4,246) (4,103)

Other assets (27) 324

Accounts payable and accrued liabilities (15,052) 22,621

Total adjustments (8,453) 64,453

Net cash provided by operating activities 57,804 103,230

Cash Flows from Investing Activities:

Expenditures for property, plant and equipment (15,262) (7,893)

Net cash used in investing activities (15,262) (7,893)

Cash Flows from Financing Activities:

Repurchases of common stock (4,559) (3,159)

Payments of regular cash dividends - (41,815)

Proceeds from sale of Class A Common Stock in connection with associate stock 1,029 963purchase plan

Proceeds from exercise of Class A Common Stock options 7,097 5,600

Borrowings under credit facilities 26,000 -

Payments under credit facilities (50,000) (130,000)

Payments on finance lease and financing obligations (418) (516)

Other, net 1,057 1,269

Net cash used in financing activities (19,794) (167,658)

Effect of foreign exchange rate changes on cash and cash equivalents (409) 214

Net increase (decrease) in cash and cash equivalents 22,339 (72,107)

Cash and cash equivalents - beginning of period 40,536 125,211

Cash and cash equivalents - end of period $ 62,875 $ 53,104

Supplemental Disclosure of Cash Flow Information:

Cash paid for income taxes $ 1,606 $ 1,605

Cash paid for interest $ 2,272 $ 1,908

Supplemental Disclosure of Non-Cash Financing Activities:

Cash dividends declared, but not yet paid $ 41,740 $ 195,351

Non-GAAP Financial Measures

* Results Excluding Impairment Loss (prior year), Restructuring Costs, Legal Costs, and Other Related Costs and Tax Effects

To supplement MSC'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 loss (prior year), restructuring costs, legal costs for impairment of prepaid PPE during fiscal year 2021, 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's results of operations in conjunction with the corresponding GAAP financial measures.

In calculating non-GAAP financial measures, we exclude impairment loss (prior year), restructuring costs, legal costs for impairment of prepaid PPE during fiscal year 2021, 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 DIRECT CO., INC.

Reconciliation of GAAP and Non-GAAP Financial Information

Thirteen Weeks Ended November 27, 2021

(In thousands, except percentages and per share data)

GAAP Financial Measure Items Affecting Non-GAAP Financial Comparability Measure

Total MSC Restructuring Costs Adjusted Total MSC

Net Sales $ 848,547 $ - $ 848,547

Cost of Goods Sold 495,951 - 495,951

Gross Profit 352,596 - 352,596

Gross Margin 41.6% - 41.6%

Operating Expenses 256,581 - 256,581

Operating Exp as % of Sales 30.2% 30.2%

Restructuring Costs 5,283 5,283 -

Income from Operations 90,732 (5,283) 96,015

Operating Margin 10.7% -0.6% 11.3%

Total Other Expense (4,122) - (4,122)

Income before provision for income taxes 86,610 (5,283) 91,893

Provision for income taxes 20,353 (1,334) 21,687

Net income 66,257 (3,949) 70,206

Net income attributable to noncontrolling interest 190 - 190

Net income attributable to MSC $ 66,067 $ (3,949) $ 70,016

Net income per common share:

Diluted $ 1.18 $ (0.07) $ 1.25

*Individual amounts may not agree to the total due to rounding.

MSC INDUSTRIAL DIRECT CO., INC.

Reconciliation of GAAP and Non-GAAP Financial Information

Thirteen Weeks Ended November 28, 2020

(In thousands, except percentages and per share data)

GAAP Financial Items Affecting Comparability Non-GAAP Financial Measure Measure

Total MSC Restructuring Impairment Legal Adjusted Total MSC Costs Loss Costs^(1)

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

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

Gross Profit 323,318 - - - 323,318

Gross Margin 41.9% - - - 41.9%

Operating Expenses 238,705 - - 293 238,412

Operating Exp as % of Sales 30.9% 0.0% 30.9%

Impairment Loss 26,726 - 26,726 - -

Restructuring Costs 3,979 3,979 - - -

Income from Operations 53,908 (3,979) (26,726) (293) 84,906

Operating Margin 7.0% -0.5% -3.5% 0.0% 11.0%

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

Income before provision for income taxes 51,224 (3,979) (26,726) (293) 82,222

Provision for income taxes 12,447 (967) (6,494) (72) 19,980

Net income 38,777 (3,012) (20,232) (221) 62,242

Net income attributable to noncontrolling interest 323 - - - 323

Net income attributable to MSC $ 38,454 $ (3,012) $ (20,232) $ (221) $ 61,919

Net income per common share:

Diluted $ 0.69 $ (0.05) $ (0.36) $ (0.00) $ 1.11

^(1) Legal costs incurred relate to the impairment of prepaid PPE during fiscalyear 2021.

*Individual amounts may not agree to the total due to rounding.

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SOURCE MSC Industrial Supply Co.