MSC INDUSTRIAL DIRECT CO INC - FORM 8-K - EX-99.1

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8-K - 8-K - MSC INDUSTRIAL DIRECT CO INC	msm-20190109x8k.htm

Exhibit 99.1


	NEWS

MSC REPORTS FISCAL 2019 FIRST QUARTER RESULTS

FISCAL Q1 2019 HIGHLIGHTS

Net sales of $831.6 million, an 8.2% YoY increase, with 230 basis points of acquisitive growth

Operating income of $103.0 million, an increase of approximately 4% YoY

Operating margin of 12.4% (12.6% excluding acquisition*)

Diluted EPS of $1.33, $0.02 above the guidance midpoint, and versus $1.05 in the prior year quarter

MELVILLE, NY and DAVIDSON, NC, JANUARY 9, 2019 - MSC INDUSTRIAL SUPPLY CO. (NYSE: MSM), "MSC" or the "Company," a premier distributor of Metalworking and Maintenance, Repair and Operations ("MRO") products and services to industrial customers throughout North America, today reported financial results for its fiscal 2019 first quarter ended December 1, 2018.


Financial Highlights1	FY19 Q1		FY18 Q1		Change
Net Sales	$831.6		$768.6		8.2%
Operating Income	103.0		99.3		3.7%
% of Net Sales	12.4%		12.9%
Net Income	74.2		59.6		24.6%
Diluted EPS	$1.33	.2	$1.05	.3	26.7%

1In millions except per share data or as otherwise noted. 2Based on 55.8 million diluted shares outstanding for FY19 Q1. 3 Based on 56.5 million diluted shares outstanding for FY18 Q1.

Erik Gershwind, president and chief executive officer, said, "The industrial economy remained strong in the fiscal first quarter, although there is currently more uncertainty than a few months ago due to potential economic and trade overhangs and the government shut-down. Our net sales in the first quarter were slightly above the mid-point of our guidance, with Core customers and National Accounts achieving high single-digit growth, tempered by the expected weakness in Government. AIS continues to progress according to plan, delivering solid top line growth."

Rustom Jilla, executive vice president and chief financial officer, added, "Our fiscal first quarter total ADS increased 8.2% year-over-year, with AIS contributing 230 basis points of acquisitive growth. Our gross margin was in-line with our expectations. Price contribution remained positive, while product cost increases and mix were headwinds. Our productivity initiatives continued in the quarter. Despite our continued investment in sales and service, and marketing to support future growth, our operating expense to net sales ratio was flat year-over-year at 30.7%. Our operating margin was down roughly 50 basis points from the prior year, reflecting primarily the impact of AIS and the year-over-year decline in gross margin. Finally, we paid dividends of $35 million and repurchased approximately 800 thousand shares for about $64 million in the first quarter."

Gershwind concluded, "Looking forward, given the significant supplier price increase activity that we have seen, we anticipate implementing a meaningful price increase later in our fiscal second quarter. Given the timing of the increase, we expect the impact to be fully reflected in our fiscal third and fourth quarters. This price increase, coupled with increasing traction from our sales transformation efforts, drives our expectation of significantly higher operating margins in the second half of the fiscal year."

* An explanation and reconciliation of non-GAAP financial measures to GAAP financial measures is presented in the financial schedules of this press release.

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MSC INDUSTRIAL SUPPLY CO. REPORTS FISCAL 2019 FIRST QUARTER RESULTS

Outlook

The Company expects net sales for the second quarter of fiscal 2019 to be between $817 million and $833 million. At the midpoint, average daily sales are expected to increase roughly 9.0% compared to last year’s second quarter. The Company expects diluted earnings per share for the second quarter of fiscal 2019 to be between $1.22 and $1.28.

Excluding the AIS acquisition*, the Company expects net sales for the second quarter of fiscal 2019 to be between $798 million and $814 million, with average daily sales at the midpoint expected to increase roughly 6.5% compared to last year’s second quarter. The Company expects the AIS acquisition to have a roughly breakeven impact on diluted earnings per share for the second quarter of fiscal 2019.

Conference Call Information

MSC will host a conference call today at 8:30 a.m. EST to review the Company’s fiscal 2019 first quarter results. The call, accompanying slides, and other operational statistics may be accessed at: http://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 January 16, 2019.

The Company’s reporting date for fiscal 2019 second quarter results is scheduled for April 10, 2019.

Contact Information


Investors:	Media:
John G. Chironna	Paul Mason
Vice President, Investor Relations and Treasurer	Director, Corporate Communications
(704) 987-5231	(704) 987-5313

About MSC Industrial Supply Co. MSC Industrial Supply Co. (NYSE:MSM) is a leading North American distributor of metalworking and maintenance, repair, and operations (MRO) products and services. We help our customers drive greater productivity, profitability and growth with more than 1.6 million products, inventory management and other supply chain solutions, and deep expertise from over 75 years of working with customers across industries.

Our experienced team of over 6,500 associates is dedicated to working side by side with our customers to help drive results for their businesses - from keeping operations running efficiently today to continuously rethinking, retooling, and optimizing for a more productive tomorrow.

For more information on MSC, please visit mscdirect.com.

# # #

Note Regarding Forward-Looking Statements:

Statements in this Press Release may constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, that address activities, events or developments that we expect, believe or anticipate will or may occur in the future, including statements about expected future results, expected benefits from our investment and strategic plans, including from our recent acquisitions, and expected future margins, are forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The inclusion of any statement in this release does not constitute an admission by MSC or any other person that the events or circumstances described in such statement are material. Factors that could cause actual results to differ materially from those in forward-looking statements include: general economic conditions in the markets in which we operate; changing customer and product mixes; competition, including the adoption by competitors of aggressive pricing strategies and sales methods; industry consolidation and other changes in the industrial distribution sector; volatility in commodity and energy prices; the outcome of government or regulatory proceedings or future litigation; credit risk of our customers; risk of customer cancellation or rescheduling of orders; work stoppages or other business interruptions (including those due to extreme weather conditions) at transportation centers, shipping ports, our headquarters or our customer fulfillment centers; dependence on our information systems and the risks of business disruptions arising from changes to our information systems and disruptions due to catastrophic events, power outages, natural disasters, computer system or network failures, computer viruses, physical or electronic break-ins and cyber-attacks; recent U.S. tax legislation and increased volatility in the effective tax rate; retention of key personnel; retention of qualified sales and customer service personnel and metalworking specialists; risk of loss of key suppliers, key brands or supply chain disruptions; risks associated with changes to trade policies, including the impact from significant restrictions or tariffs; risks associated with opening or expanding our customer fulfillment centers; litigation risk due to the nature of our business; risks associated with the integration of acquired businesses or other strategic transactions; financial restrictions on outstanding borrowings; failure to comply with applicable environmental, health and safety laws and regulations; goodwill and intangible assets recorded as a result of our acquisitions could be impaired; risks associated with the volatility of our common stock; and our principal shareholders exercise significant control over us. Additional information concerning these and other risks is described under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the reports on Forms 10-K and 10-Q that we file with the U.S. Securities and Exchange Commission. We assume no obligation to update any of these forward-looking statements.

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MSC INDUSTRIAL SUPPLY CO. REPORTS FISCAL 2019 FIRST QUARTER RESULTS

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands)


	December 1,		September 1,
	2018		2018
ASSETS		(unaudited)
Current Assets:
Cash and cash equivalents	$	11,615	$	46,217
Accounts receivable, net of allowance for doubtful accounts		531,406		523,892
Inventories		527,984		518,496
Prepaid expenses and other current assets		60,928		58,902
Total current assets		1,131,933		1,147,507
Property, plant and equipment, net		307,586		311,685
Goodwill		674,464		674,998
Identifiable intangibles, net		119,762		122,724
Other assets		31,053		31,813
Total assets	$	2,264,798	$	2,288,727

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-term debt	$	210,979	$	224,097
Accounts payable		154,896		145,133
Accrued liabilities		111,241		121,293
Total current liabilities		477,116		490,523
Long-term debt		311,656		311,236
Deferred income taxes and tax uncertainties		99,714		99,714
Total liabilities		888,486		901,473
Commitments and Contingencies
Shareholders’ Equity:
Preferred Stock		—		—
Class A common stock		54		55
Class B common stock		10		10
Additional paid-in capital		660,185		657,749
Retained earnings		1,316,489		1,325,822
Accumulated other comprehensive loss		(20,975)		(19,634)
Class A treasury stock, at cost		(579,451)		(576,748)
Total shareholders’ equity		1,376,312		1,387,254
Total liabilities and shareholders’ equity	$	2,264,798	$	2,288,727

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MSC INDUSTRIAL SUPPLY CO. REPORTS FISCAL 2019 FIRST QUARTER RESULTS

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)


	Thirteen Weeks Ended
	December 1,		December 2,
	2018		2017
Net sales	$	831,597	$	768,561
Cost of goods sold		473,612		433,492
Gross profit		357,985		335,069
Operating expenses		254,985		235,791
Income from operations		103,000		99,278
Other (expense) income:
Interest expense		(4,056)		(3,237)
Interest income		162		163
Other (expense) income, net		2		(408)
Total other expense		(3,892)		(3,482)
Income before provision for income taxes		99,108		95,796
Provision for income taxes		24,876		36,211
Net income	$	74,232	$	59,585
Per Share Information:
Net income per common share:
Basic	$	1.34	$	1.06
Diluted	$	1.33	$	1.05
Weighted average shares used in computing net income per common share:
Basic		55,502		56,287
Diluted		55,831		56,504
Cash dividends declared per common share	$	0.63	$	0.48

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)



	Thirteen Weeks Ended
	December 1,		December 2,
	2018		2017
Net income, as reported	$	74,232	$	59,585
Other comprehensive income, net of tax:
Foreign currency translation adjustments		(1,341)		(843)
Comprehensive income	$	72,891	$	58,742

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MSC INDUSTRIAL SUPPLY CO. REPORTS FISCAL 2019 FIRST QUARTER RESULTS

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Thirteen Weeks Ended
	December 1,		December 2,
	2018		2017
Cash Flows from Operating Activities:
Net income	$	74,232	$	59,585
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		15,846		15,749
Stock-based compensation		4,174		3,894
Loss on disposal of property, plant, and equipment		141		126
Provision for doubtful accounts		2,814		1,698
Changes in operating assets and liabilities:
Accounts receivable		(10,630)		(9,291)
Inventories		(9,803)		(4,259)
Prepaid expenses and other current assets		(2,044)		(1,663)
Other assets		753		1,252
Accounts payable and accrued liabilities		1,383		14,888
Total adjustments		2,634		22,394
Net cash provided by operating activities		76,866		81,979
Cash Flows from Investing Activities:
Expenditures for property, plant and equipment		(10,053)		(9,028)
Cash used in business acquisition		—		(738)
Net cash used in investing activities		(10,053)		(9,766)
Cash Flows from Financing Activities:
Repurchases of common stock		(63,527)		(4,018)
Payments of cash dividends		(34,858)		(27,087)
Proceeds from sale of Class A common stock in connection with associate stock purchase plan		954		959
Proceeds from exercise of Class A common stock options		9,329		2,405
Borrowings under the revolving credit facilities		245,000		24,000
Payments under the revolving credit facilities		(259,000)		(65,000)
Other, net		753		606
Net cash used in financing activities		(101,349)		(68,135)
Effect of foreign exchange rate changes on cash and cash equivalents		(66)		91
Net increase (decrease) in cash and cash equivalents		(34,602)		4,169
Cash and cash equivalents – beginning of year		46,217		16,083
Cash and cash equivalents – end of year	$	11,615	$	20,252
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes	$	1,761	$	1,757
Cash paid for interest	$	1,685	$	2,068

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MSC INDUSTRIAL SUPPLY CO. REPORTS FISCAL 2019 FIRST QUARTER RESULTS

Non-GAAP Financial Measures

Results excluding All Integrated Solutions (AIS) Acquisition

To supplement MSC’s unaudited selected financial data presented consistent with Generally Accepted Accounting Principles (“GAAP”), the Company discloses certain non-GAAP financial measures, including Non-GAAP net sales, non-GAAP gross profit, non-GAAP income from operations, non-GAAP (benefit) provision for income taxes, non-GAAP net income and non-GAAP diluted earnings per share, that exclude the results of our acquisition of All Integrated Solutions (“AIS”) on April 30, 2018 (the “Acquisition”).

These non-GAAP measures are not in accordance with or an alternative for GAAP, and may be different from non-GAAP measures used by other companies. We believe that these non-GAAP measures have limitations in that they do not reflect MSC’s results of operations as determined in accordance with GAAP, and that these measures should only be used to evaluate MSC’s results of operations in conjunction with the corresponding GAAP measures. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures. We compensate for the limitations of non-GAAP financial measures by relying upon GAAP results to gain a complete picture of the Company’s performance.

In calculating non-GAAP financial measures, we exclude the results of the Acquisition to facilitate a review of the Company’s operating performance on a period-to-period basis, for comparison with forecasts and strategic plans, and for benchmarking performance externally against competitors. We believe that investors benefit from seeing results “through the eyes” of management in addition to seeing GAAP results. We believe that these non-GAAP measures, when read in conjunction with the Company’s GAAP financials, provide useful information to investors by offering:

•the ability to make more meaningful period-to-period comparisons of the Company’s on-going operating results;

•the ability to better identify trends in the Company’s underlying business and perform related trend analyses;

•a better understanding of how management plans and measures the Company’s underlying business; and

•an easier way to compare the Company’s operating results against analyst financial models and operating results of competitors that supplement their GAAP results with non-GAAP financial measures

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Reconciliation of GAAP and Non-GAAP Information

Thirteen Weeks Ended December 1, 2018

(dollars in thousands, except per share data)

GAAP Measure

Items Affecting Comparability

Non-GAAP Measure

GAAP Measure

Non-GAAP Measure

Net Sales

Acquisition

Net Sales, excluding Acquisition

Average Daily Sales Growth

Average Daily Sales Growth, excluding Acquisition

Thirteen
Weeks Ended

December 1, 2018

831,597

17,658

813,939

8.2

5.9

GAAP Measure

Items Affecting Comparability

Non-GAAP Measure

GAAP Measure

Non-GAAP Measure

Gross Profit

Acquisition

Gross Profit, excluding Acquisition

Gross Margin

Gross Margin, excluding Acquisition

Thirteen
Weeks Ended

December 1, 2018

357,985

5,448

352,537

43.0

43.3

GAAP Measure

Items Affecting Comparability

Non-GAAP Measure

GAAP Measure

Non-GAAP Measure

Operating Expenses

Acquisition

Operating Expenses, excluding Acquisition

Operating Expenses as a percentage of Net Sales

Operating Expenses as a percentage of Net Sales, excluding Acquisition

Thirteen
Weeks Ended

December 1, 2018

254,985

4,857

250,128

30.7

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MSC INDUSTRIAL SUPPLY CO. REPORTS FISCAL 2019 FIRST QUARTER RESULTS

GAAP Measure

Items Affecting Comparability

Non-GAAP Measure

GAAP Measure

Non-GAAP Measure

Operating Income

Acquisition

Operating Income, excluding Acquisition

Operating Margin

Operating Margin, excluding Acquisition

Thirteen
Weeks Ended

December 1, 2018

103,000

592

102,408

12.4

12.6

GAAP Measure

Items Affecting Comparability

Non-GAAP Measure

Provision
for income taxes

Acquisition

Provision for income taxes, excluding Acquisition

Thirteen
Weeks Ended

December 1, 2018

24,876

(69)

24,945

GAAP Measure

Items Affecting Comparability

Non-GAAP Measure

Net Income

Acquisition

Net Income, excluding Acquisition

Thirteen
Weeks Ended

December 1, 2018

74,232

(206)

74,438

GAAP Measure

Items Affecting Comparability

Non-GAAP Measure

Diluted Earnings Per Share

Acquisition

Diluted Earnings Per Share, excluding Acquisition

Thirteen
Weeks Ended

December 1, 2018

1.33

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MSC INDUSTRIAL SUPPLY CO. REPORTS FISCAL 2019 FIRST QUARTER RESULTS

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Reconciliation of GAAP and Non-GAAP Information

Guidance for Thirteen Weeks Ended March 2, 2019*

(dollars in millions, except per share data)

GAAP Measure

Items Affecting Comparability

Non-GAAP Measure

GAAP Measure

Non-GAAP Measure

Net Sales

Acquisition

Net Sales,

excluding Acquisition

Average Daily Sales Growth

Average Daily Sales Growth, excluding Acquisition

Thirteen Weeks Ended

March 2, 2019

824.8

18.5

806.3

9.0

6.5

GAAP Measure

Items Affecting Comparability

Non-GAAP Measure

GAAP Measure

Non-GAAP Measure

Gross Profit

Acquisition

Gross Profit,

excluding Acquisition

Gross Margin

Gross Margin,

excluding Acquisition

Thirteen Weeks Ended

March 2, 2019

352.7

5.9

346.8

42.8

43.0

GAAP Measure

Items Affecting Comparability

Non-GAAP Measure

GAAP Measure

Non-GAAP Measure

Operating Expenses

Acquisition

Operating Expenses,

excluding Acquisition

Operating Expenses as a percentage of Net Sales

Operating Expenses as a percentage of Net Sales, excluding Acquisition

Thirteen Weeks Ended

March 2, 2019

256.1

5.1

251.0

31.1

GAAP Measure

Items Affecting Comparability

Non-GAAP Measure

GAAP Measure

Non-GAAP Measure

Operating Income

Acquisition

Operating Income,

excluding Acquisition

Operating Margin

Operating Margin,

excluding Acquisition

Thirteen Weeks Ended

March 2, 2019

96.5

0.8

95.7

11.7

11.9

GAAP Measure

Items Affecting Comparability

Non-GAAP Measure

Net Income

Acquisition

Net Income,

excluding Acquisition

Thirteen Weeks Ended

March 2, 2019

69.4

(0.1)

69.5

GAAP Measure

Items Affecting Comparability

Non-GAAP Measure

Diluted Earnings Per Share

Acquisition

Diluted Earnings Per Share, excluding Acquisition

Thirteen Weeks Ended

March 2, 2019

1.25

* The data in the above tables represent the midpoint of management's guidance; see note regarding forward-looking statements

MSC INDUSTRIAL DIRECT CO INC - FORM 8-K - EX-99.1 - January 9, 2019

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