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MSC Projects Pricing Increase

Although the pricing environment in distribution is "spotty and broad-based" right now, price increases driven by suppliers are expected this fall and could bode well for companies such as MSC Industrial Supply, according to President and CEO Erik Gershwind.

"The pricing environment remains difficult as competitive intensity remains high," Gershwind said last week on an earnings call with analysts. "Moving forward, there are a few signs of life with a few large manufacturers signaling to us that price increases are likely in the coming months. If this were to become more broad-based, it would bode well for future price increases."

"Meaningful price inflation" combined with an abatement of industrial headwinds have MSC Industrial "poised for strong earnings growth and nice operating margin expansion," Gershwind said.

That would follow a mixed fiscal third quarter, which saw the Melville, NY- and Davidson, NC-based company post a 2.3 percent sales increase and 3 percent dip in profit – the second straight quarter of higher sales after a series of declines during the 2016 slump.

But "even if pricing does not return and even if the recent accelerated mix headwinds do not abate, we are still positioned to grow earnings nicely, and as we move through high single-digit revenue growth, once again expand operating margins," Gershwind said.

Pricing is a hot topic in distribution as more companies strive to compete with Amazon and post prices on their websites. Manufacturer pricing movement would transform this dynamic as pricing transparency would increase.

"As web transparency has grown, customers are actually more aware (and) supplier list price becomes very visible," Gershwind said. "So, it becomes easier to justify a movement of the supplier, movement of your pricing. If the manufacturer moves, more people know about their list pricing."

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