MRO and metalworking supplies distributor MSC Industrial Supply reported its 2023 second quarter fiscal results on April 4 for the three months ended March 3, which showed continued strong sales and profit gains, albeit slower than in previous quarters.
Melville, New York-based MSC was No. 14 on MDM’s 2022 Top Industrial Distributors list, No. 6 for MRO distributors, No. 5 for Fastener and charted on our unranked safety distributors list.
MSC posted 2Q sales of $962 million, up 11.5% year-over-year — a deceleration from 1Q’s 12.9% gain.
MSC’s 2Q operating profit of $114 million jumped 17.6% year-over-year and trailed 1Q’s $116 million and 27.9%, respectively. 2Q operating margin of 11.9% was up 60 basis points year-over-year but down 20 bps from 1Q. The company’s 2Q net profit of $79 million grew 13.2% year-over-year, and likewise trailed 1Q’s $81 million and 23.1% increase.
MSC posted a 2Q gross margin of 41.3%, down from 42.5% a year earlier and 41.5% in 1Q. The company said organic year-over-year gross margin was down 70 bps on unfavorable customer mix and higher product and freight costs, while acquisitions diluted gross margins by roughly 50 bps on a year-over-year basis.
“We delivered average daily sales growth approximately 11 percentage points higher than the (Industrial Production) Index and double-digit average daily sales growth for the fourth consecutive quarter,” MSC President and CEO Erik Gershwind said in the company’s 2Q earnings release. “Looking ahead, we expect our outperformance against the IP Index to continue as we execute across our five growth drivers and take share by leveraging technical expertise to create operational benefits across our customer base.”
In its updated full-year fiscal 2023 outlook (ending Sept. 2, 2023), MSC said it expects:
- Average daily sales growth of 5.0% to 9.0% year-over-year
- Adjusted operating margin of 12.7% to 13.3%
- Gross Margins to contract 40-70 bps
During its fiscal 2Q on Jan. 11, MSC announced the acquisitions of Buckeye Industrial Supply Co. and Tru-Edge Grinding. Buckeye is an independent metalworking distributor based in Columbus, while Tru-Edge is a custom tool manufacturer based in St. Henry near the Indiana border.
The company noted that its recently-acquired companies are expected to dilute MSC’s gross margins by 40 to 50 bps and operating margins by approximately 30 bps.
“Our performance this quarter was bolstered by the changes we are making to leverage company-specific growth,” company CFO Kristen Actis-Grande added. “Productivity was strong once again, which led to operating margin expansion as benefits from our Mission Critical initiatives continue to mitigate ongoing headwinds. Looking to the future, we have reoriented our category management focus to improve product and supplier assortment and streamline our cost position.”
Actis-Grande added that MSC expects to begin seeing early benefits of that refocused category management in late fiscal 2023, with most of the benefits materializing in fiscal 2024.
MSC said its 2Q eCommerce net sales grew in the low teens year-over-year and comprised 62% of total company net sales.