MSC Industrial Direct (US:MSM)2020-07-08 17:51Financial Data and Key Metrics Changes - Overall sales decreased by 3.6% year-over-year, with gross margin down just 10 basis points [19][35] - Average daily sales were $13 million, reflecting a decline of 3.6% on an ADS basis compared to the same quarter last year [35] - Operating margin improved by 40 basis points to 13.2% compared to the prior year [33][38] - Earnings per share were $1.40, down $0.04 from the same quarter last year [38] Business Line Data and Key Metrics Changes - Non-safety and non-janitorial product lines experienced significant declines due to prolonged customer shutdowns [20][22] - Safety and janitorial orders surged in March and April but saw a decrease in May, leading to a backlog reduction from over $100 million to about $100 million by the end of the fiscal third quarter [21][22] - Government sales increased significantly, representing 15% of total sales in the fiscal third quarter, a record high [23] Market Data and Key Metrics Changes - Customer re-openings provided only modest improvement in underlying non-safety, non-janitorial sales, with June estimated total sales growth at -11.1% [24] - Manufacturing end-markets remain soft, particularly in automotive, aerospace, and oil and gas sectors [28] - Sentiment indices indicate significant contraction in metalworking end-markets, with readings showing only slight improvements [27] Company Strategy and Development Direction - The company aims to reposition itself from a spot buy supplier to a mission-critical partner, enhancing customer relationships and retention [14][45] - Focus on resuming Salesforce refinement efforts and business development hiring to capture market share [43][45] - Plans to align the operating model with the new strategy, expecting to generate a couple of hundred basis points of improvement in the operating expense to sales ratio over the next three years [45][81] Management Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about performance despite challenging market conditions, noting opportunities for market share capture as smaller competitors struggle [12][54] - The company remains focused on cost containment measures while also investing in growth initiatives [37][64] - Management highlighted the importance of maintaining inventory levels to meet potential future demand for PPE and janitorial supplies [60] Other Important Information - The company managed to maintain a strong balance sheet, with net cash provided by operating activities at $59 million [40] - Total debt at the end of the third quarter was $978 million, with ample room under debt covenants [41] - Cash levels increased by approximately $100 million since the end of the third quarter [42] Q&A Session Summary Question: How is the company performing relative to end markets? - Management feels positive about performance despite a total sales decline of 11%, noting opportunities for market share capture as local distributors struggle [54] Question: What is the outlook for safety and non-safety growth in June? - Safety orders have decreased slightly from elevated levels, with customers working through previously stocked inventory [59] Question: How does the company view core ADS growth rates excluding safety sales? - Core business saw a gradual ramp-up with sequential growth of approximately 5% in both May and June compared to April [67][70] Question: What is the expected impact of the operating model alignment project? - The project aims to improve efficiency and is expected to yield benefits over the next three years, with initiatives rolling out in waves [78][81] Question: How does the company plan to grow sales without significant human capital additions? - The company is focusing on digital marketing and enhancing the efficiency of its sales force to drive growth [91][95]