Higher capital expenditures from customers and expanded relationships with suppliers helped to boost MSC Industrial Supply Co.'s 2017 outlook, according to President and CEO Erik Gershwind, even though sales fell 2.9 percent in the fiscal first quarter.
"While conditions remained difficult throughout the quarter, we did see a better than expected November, as well as a return to growth in December – the start of our second quarter," Gershwind said on an investor call last week. Much of that growth is being attributed to a "spike" in capital-related purchases, such as equipment or "a start-up kit of cutting tools when a customer purchases a machine."
While those sales won't continue indefinitely – Gershwind said he expects a flatter January and February – the company projects that consumables related to those purchasers will start to appear later in the fiscal year.
"We're sitting here very early in the month of January, and a lot of what we saw was end-of-the-year buying because customers are more optimistic," he said.
"For the past two years, we've operated in the midst of a prolonged industrial recession, one that is particularly acute in our primary end market of metal working manufacturing," he said. "We executed well during this time, outperforming that markets we serve. But we also used this time to retool and refocus the company, making MSC a better performing business."
One area of focus to achieve that has been working with suppliers on how to improve their go-to-market strategies. "We are seeing a trend among some of our suppliers, with many already doing all or virtually all of their sales through distribution," Gershwind said. "There's more of a trend toward putting more sales through distribution. And I think the reason that's the case is because distribution is winning as a channel in the marketplace."
Customers want to do business with companies that make it easy to do business, and well-performing distributors can do just that. While it's still too early to see any real impact on the company's results, MSC is focusing on how to help this trend remain positive with key suppliers.