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MSC Industrial Supply Co. (NYSE: MSM) reported its fiscal 2024 third-quarter results, showcasing a notable decline in key financial metrics compared to the same period last year. Net sales for the quarter stood at $979.4 million, representing a 7.1% decrease year-over-year.
This decline was attributed to a non-repeating public sector order from the prior year, which created a 300 basis point headwind. Operating income for the quarter was $106.8 million, or $111.5 million when adjusted for restructuring and other costs, resulting in an operating margin of 10.9%, or 11.4% on an adjusted basis. The diluted EPS was reported at $1.27, down from $1.69 in the previous fiscal year, while the adjusted diluted EPS was $1.33, compared to $1.74 in the prior year.
MSC Industrial Supply Co. Misses EPS and Revenue Expectations in Q3
The company’s performance fell short of expectations, which had anticipated an EPS of $1.34 and revenue of $999.64 million. The actual EPS of $1.27 (adj. $1.33) and revenue of $979.4 million were both below these projections. This shortfall was further highlighted by a 24.7% drop in net income attributable to MSC, which was $71.7 million compared to $95.2 million in the same quarter last year. The adjusted net income also saw a decline, standing at $75.2 million, down 22.9% from $97.5 million in the prior year. The company’s gross profit for the quarter was $400.4 million, reflecting a decrease from $428.9 million in the previous year.
The company’s leadership acknowledged the underperformance, attributing it to unexpected gross margin pressure and a slower-than-expected recovery in average daily sales, particularly within its core customer base. CEO Erik Gershwind noted that these factors led to a revised full-year outlook, necessitating swift corrective actions to improve gross margin trends and accelerate progress on web enhancements. CFO Kristen Actis-Grande added that the average daily sales decline of 7.1% was driven by the absence of last year’s public sector orders and softness in manufacturing verticals.
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MSC Industrial Revises Fiscal 2024 Full-Year Outlook
Looking ahead, MSC Industrial has revised its fiscal 2024 full-year financial outlook. The company now expects average daily sales (ADS) growth to decline between 4.7% and 4.3%, a significant adjustment from the previous forecast of 0% to 5% growth. The adjusted operating margin is projected to be between 10.5% and 10.7%, down from the earlier estimate of 12.0% to 12.8%. Depreciation and amortization expenses are expected to be around $80 million, slightly lower than the previous forecast of $85 million. Interest and other expenses are anticipated to be approximately $45 million, within the prior range of $40 million to $50 million. The company maintains its operating cash flow conversion target at over 125%, and the tax rate is projected to remain between 24.0% and 24.5%.
The company’s revised guidance reflects the challenges faced in the third quarter and the ongoing efforts to address these issues. CEO Erik Gershwind expressed confidence in the company’s strategy and talent, emphasizing the company’s commitment to its long-term goals and value creation for stakeholders. The fiscal 2024 fourth-quarter and full-year results are scheduled to be reported on October 24, 2024, providing further insights into the company’s performance and strategic direction.
Disclaimer: The author does not hold or have a position in any securities discussed in the article.
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