MSC Industrial Supply's acquisition of Barnes Group Inc.'s North American distribution business (BDNA) is nearing completion, according to MSC's President and CEO Erik Gershwind. And optimism about the deal remains high – even if other parts of MSC's outlook are still dampened by uncertainty and sluggishness in the economy.
MSC (NYSE: MSM) reported a year-over-year sales increase of 1.2 percent in the second quarter, a much lower rate of growth than is normally attributed to the distributor. "We're guiding to similar levels in Q3," Gershwind said, speaking on the distributor's second-quarter earnings call.
Much of that drag, according to Gershwind, can be attributed to slowness in the company's core metalworking business – which posted gains of about 1 percent in the quarter – and continued uncertainty with government business, which fell about 1 percent in the quarter. The two segments are the largest components of MSC's manufacturing and nonmanufacturing sales, respectively.
E-commerce sales, however, continued to grow, surpassing 43 percent of overall company sales during the quarter; a year ago, e-commerce sales accounted for about 40 percent of total sales. MSC expects that growth to continue, helped by the launch of a new Web platform this month.
And customer inventory levels appear to be "pretty consistent," Gershwind said. "They're definitely not overstocked the way they were pre-2008, before the recession," he said. "But (they're) not totally stripped bare. They're somewhere in the middle."
The acquisition of BDNA continues to be a driver of optimism for MSC – and a key element of keeping the company on track to reach $4 billion in annual sales by the end of 2016 even in light of the sluggishness and uncertainty.
"The acquisition is proceeding according to plan, and the more we get to know about the business and their team, the more convinced we are about the fantastic growth platform that BDNA provides," Gershwind said. The transaction is expected to close within the next few weeks.
Between the BDNA acquisition and other growth initiatives, including the completion of the headquarters co-location in Davidson, NC, and the new fulfillment center in Columbus, OH, Gershwind offered this “vision” of MSC in two years:
"I see a field sales team that is nearly double our current footprint, thanks in large part to the acquisition of BDNA. I see a support team that is stronger than ever, thanks to the Davidson facility and our ability to attract top talent. I see a geographic footprint that now includes virtually every ZIP code in the U.S. and also includes Canada. I see a full suite of value-added capabilities, including a new mscdirect.com, an improved and streamlined vending offering, thanks to our vending improvement initiatives, and a top-notch VMI solution, thanks again to BDNA.
"I see leadership in metalworking and now consumable-class C products. I see leadership in manufacturing end markets and a growing presence in new segments like mining and transportation. I see an even more scalable infrastructure, including Davidson and Columbus, which, along with the new inventory forecasting system, will make for even more efficient inventory management. And finally, I see the organic and the BDNA-related growth initiatives that put us well on our way towards achieving our goal of $4 billion by the end of 2016."
