MSC – MSC Industrial Supply Co. Reports Fiscal 2023 Fourth Quarter and Full Year Results

FISCAL 2023 Q4 HIGHLIGHTS 

• Net sales of $1,035.4 million increased 1.3% YoY (9.3% on an average daily sales basis, approximately 9 percentage points above the Industrial Production (IP) index) 
• Operating income of $118.1 million, or $130.4 million adjusted to exclude share reclassification and restructuring and other costs1 
• Operating margin of 11.4%, or 12.6% excluding the adjustments described above1 
• Diluted EPS of $1.56 vs. $1.86 in the prior year and adjusted EPS of $1.64 vs. $1.79 in the prior year quarter1 
• Agreement to eliminate dual class share structure overwhelmingly approved by shareholders this month

 

FISCAL 2023 HIGHLIGHTS 

• Net sales of $4,009.3 million increased 8.6% YoY (11.2% on an average daily sales basis, approximately 10 percentage points above the IP index) 
• Operating income of $483.7 million, or $504.5 million adjusted to exclude share reclassification, acquisition related, restructuring and other costs1 
• Operating margin of 12.1%, or 12.6% excluding the adjustments described above1 
• Year-over-year improvement in both Diluted EPS of $6.11 and adjusted diluted EPS of $6.291 
• Generated strong operating cash flows of $699.6 million or 204% of net income 
• Successfully completed Mission Critical Program by achieving all publicly stated targets

 

 

MELVILLE, NY and DAVIDSON, NC, OCTOBER 25, 2023 – MSC INDUSTRIAL SUPPLY CO. (NYSE: MSM), “MSC,” “MSC Industrial” or the “Company,” a leading North American distributor of a broad range of metalworking and maintenance, repair and operations (MRO) products and services, today reported financial results for its fiscal 2023 fourth quarter and full year ended September 2, 2023.

1 Represents a non-GAAP financial measure. An explanation and a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure are presented in the schedules accompanying this press release. 2 In millions except percentages and per share data or as otherwise noted. 3 Based on 56.3 million and 56.2 million diluted shares outstanding for FY23 Q4 and FY23, respectively. 4 Based on 56.1 million and 56.0 million diluted shares outstanding for FY22 Q4 and FY22, respectively.

 

Erik Gershwind, President and Chief Executive Officer, said, “Fiscal 2023 was a monumental year as we exceeded $4 billion in annual net sales for the first time in company history. 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. We achieved several notable accomplishments with the completion of the first chapter of Mission Critical. We grew over 500 basis points above the Industrial Production Index, brought adjusted operating expenses to sales down by over 200 basis points, and brought ROIC into the high teens.”

 

Kristen Actis-Grande, Executive Vice President and Chief Financial Officer, added, “I am proud of our team’s accomplishments in fiscal 2023. 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. 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. Our strong cash generation will enable us to offset dilution from the reclassification agreement through share repurchases and still pursue other capital allocation priorities.”

 

Gershwind concluded, “Looking ahead, we are excited about the next chapter in our Mission Critical journey. We are focused on continuing to outgrow the IP Index by four hundred basis points or more and producing incremental margins of at least 20% through a cycle. Doing so allows us to pursue our longer-term aspiration of mid-teens operating margins and ROIC north of 20%.”

 

Balance Sheet, Liquidity and Capital Allocation 

1. Strong balance sheet metrics and ample cash and liquidity 
2. Strong cash flow generation expected to continue in fiscal 2024 
3. Near-term priorities include share buybacks to offset dilution from the share reclassification agreement 
4. Recently increased the quarterly ordinary dividend per share by 5%

• Sales outlook assumes 160 basis point headwind from non-repeating Public Sector sales 
• Assumes market headwinds related to the UAW strike alleviate in early second quarter of fiscal 2024 
• Same number of selling days YoY

 

(1) Guidance provided is a non-GAAP figure presented on an adjusted basis. For further details see the Non-GAAP financial measures information presented in the schedules of this release. (2) The Company defines Operating Cash Flow Conversion as Net cash provided by operating activities as a percentage of Net income. The Company’s management uses Operating Cash Flow Conversion to evaluate the Company’s operating performance, in particular how efficiently the Company turns its sales and profits into cash, and to assess the efficiency of the Company’s use of working capital. The Company believes Operating Cash Flow Conversion is useful to investors for the foregoing reasons and as a measure of the rate at which the Company converts its net income reported in accordance with GAAP to cash inflows, which helps investors assess whether the Company is generating sufficient cash flow to provide an adequate return.

 

Conference Call Information 

MSC will host a conference call today at 8:30 a.m. EDT to review the Company’s fiscal 2023 fourth quarter and full year results. The call, accompanying slides, and other operational statistics may be accessed at: https://investor.mscdirect.com. The conference call may also be accessed at 1-877-443-5575 (U.S.), 1-855-669-9657 (Canada) or 1-412-902-6618 (international).

An online archive of the broadcast will be available until November 8, 2023. The Company’s reporting date for the fiscal 2024 first quarter is scheduled for January 9, 2024.

 

 

MSC INDUSTRIAL DIRECT CO., INC. Consolidated Balance Sheets (In thousands)

 

MSC INDUSTRIAL DIRECT CO., INC. Consolidated Statements of Income (In thousands, except per share data)

 

MSC INDUSTRIAL DIRECT CO., INC. Consolidated Statements of Comprehensive Income (In thousands)

 

MSC INDUSTRIAL DIRECT CO., INC. Consolidated Statements of Cash Flows (In thousands)

 

 

Non-GAAP Financial Measures 

To supplement MSC’s unaudited selected financial data presented consistent with accounting principles generally accepted in the United States (“GAAP”), the Company discloses certain non-GAAP financial measures, including nonGAAP gross profit, non-GAAP operating expenses, non-GAAP income from operations, non-GAAP operating margin, non-GAAP provision for income taxes, non-GAAP net income and non-GAAP diluted earnings per share, that exclude gain on sale of property (prior year), acquisition-related costs, share reclassification costs, employee retention credit (“ERC”) tax benefit and restructuring and other costs and tax effects

These non-GAAP financial measures are not presented in accordance with GAAP or an alternative for GAAP financial measures and may be different from similar non-GAAP financial measures used by other companies. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP financial measures and should only be used to evaluate MSC’s results of operations in conjunction with the corresponding GAAP financial measures.

This press release also includes certain forward-looking information that is not presented in accordance with GAAP. The Company believes that a quantitative reconciliation of such forward-looking information to the most directly comparable financial measure calculated and presented in accordance with GAAP cannot be made available without unreasonable efforts because a reconciliation of these non-GAAP financial measures would require the Company to predict the timing and likelihood of potential future events such as restructurings, M&A activity and other infrequent or unusual gains and losses. Neither the timing or likelihood of these events, nor their probable significance, can be quantified with a reasonable degree of accuracy. Accordingly, a reconciliation of such forward-looking information to the most directly comparable GAAP financial measure is not provided. 

• Results Excluding Gain on Sale of Property (prior year), Acquisition-Related Costs, Share Reclassification Costs, ERC Tax Benefit and Restructuring and Other Costs

In calculating non-GAAP financial measures, we exclude gain on sale of property (prior year), acquisition-related costs, share reclassification costs, ERC tax benefit and restructuring and other costs, and tax effects. Management makes these adjustments to facilitate a review of the Company’s operating performance on a comparable basis between periods, for comparison with forecasts and strategic plans, for identifying and analyzing trends in the Company’s underlying business and for benchmarking performance externally against competitors. We believe that investors benefit from seeing results from the perspective of management in addition to seeing results presented in accordance with GAAP for the same reasons and purposes for which management uses such non-GAAP financial measures. 

• Return on Invested Capital (“ROIC”)

ROIC is calculated using a non-GAAP financial measure. We calculate ROIC by dividing non-GAAP net operating profit after tax (“NOPAT”) by average invested capital, a GAAP measure. NOPAT is defined as tax effected income from operations. Average invested capital is defined as net debt plus shareholder’s equity using a trailing 13-month average. We believe that ROIC is useful to investors as a measure of performance and of the effectiveness of the use of capital in our operations. We use ROIC as one measure to monitor and evaluate operating performance. This method of determining non-GAAP ROIC may differ from other companies’ methods and therefore may not be comparable to those used by other companies. ROIC should be considered in addition to, rather than as a substitute for, other information provided in accordance with GAAP. The financial measure calculated under GAAP which is most directly comparable to ROIC is considered to be the ratio of Net income to Average invested capital. See below for the calculation of ROIC and the reconciliation to the comparable GAAP measure.

 

 

MSC INDUSTRIAL DIRECT CO., INC. Reconciliation of GAAP and Non-GAAP Financial Information Thirteen Weeks Ended September 2, 2023 (In thousands, except percentages and per share data)

 

MSC INDUSTRIAL DIRECT CO., INC. Reconciliation of GAAP and Non-GAAP Financial Information Fiscal Year Ended September 2, 2023 (In thousands, except percentages and per share data)

 

MSC INDUSTRIAL DIRECT CO., INC. Reconciliation of GAAP and Non-GAAP Financial Information Fourteen Weeks Ended September 3, 2022 (In thousands, except percentages and per share data)

 

MSC INDUSTRIAL DIRECT CO., INC. Reconciliation of GAAP and Non-GAAP Financial Information Fiscal Year Ended September 3, 2022 (In thousands, except percentages and per share data)

 

MSC INDUSTRIAL DIRECT CO., INC. Reconciliation of GAAP and Non-GAAP Financial Information Fiscal Years Ended September 2, 2023 and September 3, 2022 (In thousands, except percentages)