MSC Posts Dec-Feb Results, Makes Machine Tech Acquisition - Modern Distribution Management

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MSC Posts Dec-Feb Results, Makes Machine Tech Acquisition

The company noted that while 2Q sales were disappointing, gross margin improvement stemmed from internal improvements.

Metalworking and MRO supplies distributor MSC Industrial Supply reported fiscal results for its 2024 second quarter on March 28 — which spanned Dec. 3 to March 2 — and announced an acquisition.

2Q Results

For its 2Q period, MSC reported total sales of $935 million, down 2.7% year-over-year — 10 basis points above the U.S. industrial production index — as volume fell 4.5%, partially offset by positive impacts from pricing (0.9%, acquisitions (0.7%) and foreign exchange (0.2%). MSC’s year-over-year sales decrease followed a 0.4% dip in 1Q.

MSC sales growth by customer type during 2Q:

  • National accounts (38% of total business): 1.1% (3.2% in 1Q)
  • Public sector (9% of total business): 0.6% (8.5% in 1Q)
  • Core and other (54% of total business): -5.7% (-3.9% in 1Q)

MSC sales growth by end market in 2Q:

  • Manufacturing: -3.6% (-3.7% in 1Q)
  • Non-manufacturing: -0.8% (7.0% in 1Q)

The company noted that 2Q average daily sales dipped 0.4% year-over-year due to softening demand throughout the quarter.

2Q gross margin of 41.5% improved 20 bps year-over-year, and 30 bps sequentially.

MSC’s 2Q operating profit of $102 million slid 12.4% year-over-year, while operating margin of 10.6% likewise fell 150 bps year-over-year. MSC’s 2Q net profit of $69 million decreased 14.7% year-over-year.

Though sales fell short of our expectations, I am encouraged by our strong start in gross margin performance, which stems from the operating improvements we have implemented over the last few quarters,” MSC CFO Kristen Actis-Grande said in the company’s 2Q financials news release.

Looking ahead, MSC maintained its previously-issued 2024 full-year guidance. The company expects full-year average daily sales growth to be up 0-5% year-over-year, with adjusted operating margin of 12.0-12.8%.

“As we exit the first half of our fiscal year, our performance has been mixed,” added Erik Gershwind, MSC President and CEO. “I am pleased with our solutions business that continues capturing market share. I am also pleased with how we are managing the business in a soft environment, as evidenced by strong gross margin performance and cash flow generation. However, our core customer growth rate has not yet improved in the face of a sluggish macro environment. We remain confident in our plan and pleased with the execution of our Mission Critical initiatives. As a result, we expect to see improvement during the back half of our fiscal year.”

eCommerce, Headcount, Vending & In-Plant Programs

MSC’s 2Q eCommerce sales of $591 million comprised 63.2% of total sales.

MSC ended 2Q with a total headcount of 7,404 — essentially identical to the end of 1Q. Its field sales headcount ended 2Q at 2,540, narrowly up from 2,619 at the end of 1Q.

MSC ended 2Q with 25,854 installed vending units — up 11.0% year-over-year, while its 312 In-Plant Programs jumped 39.3% year-over-year.

MSC Industrial Supply was No. 13 on MDM’s 2023 List of Top Industrial Distributors, and No. 6 for MRO distributors. The company netted $4.01 billion in fiscal 2023 full-year sales.

SMRT Acquisition

MSC shared that it completed an acquisition of intellectual property assets from Schmitz Manufacturing Research & Technology LLC (SMRT) — a Knoxville, TN-based firm that specializes machining dynamics and mechanical vibrations. 

SMRT is led by CEO Christine Schmitz and Chief Technology Officer Dr. Tony Schmitz, who MSC noted is a world-renowned mechanical engineering researcher.

SMRT consults with industry and government partners as a source for mechanical, aerospace and manufacturing engineering.

Terms of the transaction were not disclosed.

“This is an exciting day for MSC. SMRT is bridging the gap between cutting edge research and the manufacturing industry,” Gershwind said. “We look forward to further advancing innovation across our best-in-class metalworking products and solutions by combining our technical expertise.”

“Technology and innovation are essential to MSC and to our stakeholders,” added Jamie Goetller, MSC’s Senior Director of Metalworking Business Development. “With SMRT’s IP assets, we will strive to create and deploy technology for the U.S. machining industry that will drive down our customers’ manufacturing costs, create capacity through speed improvements, and generate greater levels of productivity on the shop floor.”

It marks MSC’s second completed acquisition of 2024, and represents the company’s latest investment in the machining technology space. On Jan. 2, MSC announced a strategic partnership with cutting tool product data provider MachiningCloud. On Jan. 22, MSC announced the acquisition of KAR Industrial, a metalworking distributor based in Mississauga, Ontario.

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