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For the fiscal 2003 second quarter, net sales were $209.6 million, an increase of 7.6% over net sales of $194.8 million in the second quarter of fiscal 2002. Fiscal 2003 second quarter net income increased 50.4% to $12.8 million, or $0.19 per diluted share, versus net income of $8.5 million, or $0.12 per diluted share in the year ago period.
Net sales for the first six months of fiscal 2003 rose 9.6% to $420.3 million, compared to net sales of $383.6 million in the first six months of last year. Net income for the six-month period was $25.2 million, or $0.37 per diluted share, an increase of 53.8% over net income of $16.4 million, or $0.23 per diluted share a year ago.
"Our results for the fiscal second quarter reflect continued excellent operational execution that demonstrates the leverage inherent in our business," said Mitchell Jacobson, chairman & CEO. "Despite the timing of the holidays and the impact of tough weather conditions in certain of our markets, we were able to deliver sales growth and strong profitability improvements that surpassed our internal plan. Through a combination of modest price increases, favorable product mix, purchasing power and higher than expected vendor rebates, we achieved a 160 basis point increase in gross margins, which rose to 45.3%. The result was a conversion of 42% of incremental revenues into operating income, well ahead of our stated leverage goal of 25%."
During the quarter, MSC also maintained its commitment to financial strength. The Company generated free cash flow of $7.3 million, while cash reserves at the end of the period increased to $73.9 million.
Mr. Jacobson concluded, "While we did not see clear signs of economic recovery during the period, MSC was able to leverage our financial strength, broad product offerings and commitment to customer service to gain market share and generate revenue and profitability growth. Although we are confident in our ability to continue the strong execution of our operating strategy and gain market share, the continued uncertain outlook for the industrial sector and the apparent effect of the war in Iraq on some of our customers' purchasing decisions have combined to impact our ability to project revenue levels, and therefore provide financial guidance for the third quarter of fiscal 2003. After adjusting for the timing of the 2002 Easter holiday, which occurred in March last year, fiscal 2003 third quarter revenues to date reflect a growth rate of approximately 4.0% versus this time a year ago. However, we have seen a slowing of momentum throughout the second fiscal quarter as well as March, and a drop-off in orders when the Iraq conflict began. We expect gross margins for the third quarter to decrease slightly from second quarter levels to approximately 45%, and expect approximately $76 million in fiscal 2003 third quarter operating expenses as we maintain the levels of service our customers have come to expect from us."
The management of MSC will host a conference call today at 11:00 a.m. Eastern Time to review the second quarter of fiscal 2003 results and to comment on current operations. The call may be accessed via the Internet at: http://www.mscdirect.com.