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3 Encouraging Signs for MSC in 2014

Three things point to continued growth for the remaining fiscal year.
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Cautious optimism was the tone in MSC Industrial Direct’s (NYSE: MSM) second-quarter investor call, which reported sales for the fiscal third quarter ended May 31 of $720.5 million, up 13.1 percent year-over-year.

CEO Erik Gershwind said three things were encouraging in terms of future growth.

“Number one is sequential momentum in the growth rate from quarter-to-quarter… which is coincident with the demand environment firming up. Not robust, but firming up,” he said. “Number two, most important to me, is seeing a consistent gap in our growth rate relative to market, and we are seeing that. Basically any way we look at that, whether that’s relative to macro indicators, research that’s been recently done, our growth rate relative to peers, supplier feedback. And so I’m satisfied on the share gain side. I like the fact that we’re seeing momentum.”

The third piece, he said, is relative to historical performance. Over long periods of time, MSC’s compound annual growth rate is at about 9 percent, and current activity is consistent with that.

The company is complementing those indicators with three strategies for growth: improved customer service, a refined sales model and increased cross-selling. So far, customer response has been positive, especially for national accounts and government accounts.

Historically, Gershwind said, those buyers have helped indicate growth movement. He reported that buying for both national and government accounts are above company average, indicating a possible increase in growth rates for the coming quarter.  And while many companies are seeing a declining demand for vending, MSC saw stability.

“Vending signings remained strong which is a testament to the program’s value and to the growing momentum of supply chain technology in the indirect procurement space,” Gershwind said.

MSC continues to incur costs due to the integration process for the acquisition of Barnes Group’s North American distribution business in 2013, which has been renamed Class C Solutions Group (CCSG). MSC is focused on CCSG’s revenue synergies, and achieved its 2014 financial and operating targets without the benefit of top-line growth. (Read more in The Impact of the MSC Industrial Supply-Barnes Deal.)

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