MSC Nets $4B Sales in Fiscal 2023; ADS Flattens - Modern Distribution Management

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MSC Nets $4B Sales in Fiscal 2023; ADS Flattens

While MSC's June-August quarter ended with strong daily sales growth, it flattened to low-single digits in September and October.
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MSC Industrial Supply reported its 2023 fourth quarter and full year financial results on Oct. 25, showing that while metalworking and MRO supplies distributor reached $4 billion in annual sales for the first time, daily sales have significantly flatted in the past several months.

Melville, New York-based MSC charted No. 13 on MDM’s 2023 Top Industrial Distributors List and No. 6 for MRO distributors.

Late Summer/Fall Slowdown

While MSC’s operational statistics noted that 4Q ADS growth outpaced the U.S. Industrial Production Index by approximately 900 basis points, that growth flattened sharply from 8.9% in August to 1.3% in September, and October ADS are projected between 1.0-2.0%.

Fourth Quarter Sales & Profit

For MSC’s 4Q23 which spanned June 4 to Sept. 2, the company posted sales of $1.035 billion that were up 1.3% year-over-year, with average daily sales (ADS) up 9.3%. Sequentially, overall 4Q sales growth was a considerable slowdown from 3Q’s 10% growth.

By geography in 4Q, MSC’s year-over-year ADS growth was as follows:

  • Midwest: 5.4% (13.0% in 3Q)
  • Northeast: 27.7% (28.6% in 3Q)
  • Southeast: 4.6% (5.4% in 3Q)
  • West: 9.4% (6.2% in 3Q)
  • International & Other: 6.4% (6.4% in 3Q)

By end market, MSC’s 4Q ADS to manufacturing customers grew 4.1% year-over-year (5.8% in 3Q), while sales to non-manufacturing customers grew 21.3% (25.3% in 3Q).

By customer type, MSC’s 4Q sales breakdown was: 

  • National accounts: 37%
  • Public sector: 13%
  • Core and Other: 50%

4Q gross margin of 40.5% declined 140 basis points year-over-year and dipped 20 points from 3Q. Operating profit of $118 million and operating margin of 11.4% trailed the $144 million/14.1% of a year earlier and $135 million/12.8% in 3Q.

MSC posted a 4Q net profit of $88 million, down from $104 million a year earlier and $95 million in 3Q.

MDM Podcast: MSC Says Acquisitions Aren’t Just Business, They’re Personal (January 2023)

Full Year Sales & Profit

For its full fiscal year, MSC posted 2023 total sales of $4.01 billion, up 8.6% vs. 2022. Gross margin of 41.0% trailed 2022’s 42.2%, while 2023 operating profit of $484 million (12.1% margin) topped 2022’s $469 million (12.7%). Full year average daily sales growth was 11.2%.

“Fiscal 2023 was a monumental year as we exceeded $4 billion in annual net sales for the first time in company history,” MSC President and CEO Erik Gershwind said in the company’s earnings release. “Additionally, we enhanced our corporate governance into a structure that is more friendly to all shareholders, built upon our M&A strategy and successfully completed our three-year Mission Critical program that strengthened our growth trajectory and operational excellence.”

eCommerce & Headcount Update

In MSC’s 4Q, eCommerce sales (including website, EDI, VMI, vending and more) of $627 million comprised 60.6% of total company sales, outpacing 3Q’s 60.1%, but trailing 2Q’s 62.0% and 1Q’s 61.9%. For the full year, eCommerce comprised 61.1% of MSC’s sales, down slightly from 2022’s 61.7%.

MSC ended its fiscal 2023 with a total headcount of 7,377 — up about 5.5% from the end of 2022. Recent headcount increases include 90 associates from the company’s 2Q acquisitions of Buckeye Industrial Supply and Tru-Edge Grinding, and 189 associates from its 4Q22 acquisitions of Engman-Taylor and Tower Fasteners.

2024 Outlook

Looking ahead, MSC provided its initial 2024 full-year financial outlook, which projects year-over-year ADS growth of 0-5%, with adjusted operating margin of 12.0-12.8%. MSC notes that sales outlook assumes market headwinds related to the ongoing UAW union’s ongoing strike, with those headwinds to alleviate early 2Q24.

“We expanded adjusted operating income during the fiscal year, despite one less selling week and near-term margin headwinds, outgrew the IP Index by 1,000 basis points and produced strong cash generation,” MSC CFO Kristen Actis-Grande noted in the earnings release. “Looking ahead to fiscal 2024, this gives us confidence in our ability to continue outgrowing the market and producing strong cash returns in the face of challenging conditions.”

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