MSC Reports Fiscal 2015 Fourth Quarter and Full Year Results

News provided by

MSC Industrial Supply Co.

Oct 27, 2015, 07:00 ET

MELVILLE, N.Y. and DAVIDSON, N.C., Oct. 27, 2015 /PRNewswire/ --

FISCAL Q4 2015 HIGHLIGHTS

  • Net sales of $727.4 million, flat year-over-year, on continued share gains in difficult market conditions
  • Gross margin of 45.0% reflecting continued stabilization
  • Adjusted operating expenses as a percent of sales just 10 basis points higher year-over-year after cost down measures and increased growth spending
  • GAAP and adjusted diluted EPS of $0.96

FISCAL 2015 HIGHLIGHTS

  • Net sales of $2.9 billion increased 4.4% over the prior year
  • GAAP diluted EPS of $3.74 and adjusted diluted EPS of $3.79

MSC INDUSTRIAL SUPPLY CO. (NYSE: MSM), "MSC" or the "Company," a premier distributor of Metalworking and Maintenance, Repair and Operations ("MRO") supplies to industrial customers throughout North America, today reported financial results for its fiscal 2015 fourth quarter and full year ended August 29, 2015.

Financial Highlights1

FY15 Q4

FY14 Q4

Change

FY15

FY14

Change

Net Sales

$727.4

$726.6

0.1%

$2,910.4

$2,787.1

4.4%

GAAP Operating Income

95.4

99.8

(4.4%)

379.5

383.2

(1.0%)

% of Net Sales

13.1%

13.7%


13.0%

13.7%

Adjusted Operating Income2

95.7

100.9

(5.2%)

384.0

400.5

(4.1%)

% of Net Sales

13.2%

13.9%


13.2%

14.4%

GAAP Net Income

59.0

62.8

(6.0%)

231.3

236.1

(2.0%)

Adjusted Net Income3

59.2

63.5

(6.8%)

234.1

246.9

(5.2%)

GAAP Diluted EPS

$0.964

$1.015

(5.0%)

$3.744

$3.765

(0.5%)

Adjusted Diluted EPS

$0.964

$1.025

(5.9%)

$3.794

$3.935

(3.6%)


1In millions unless noted. 2Excludes non-recurring costs. 3Excludes the after tax effects of non-recurring costs. 4Based on 61.4 million and 61.5 million diluted shares outstanding for FY15 Q4 and FY15, respectively. 5Based on 62.0 million and 62.3 million diluted shares outstanding for FY14 Q4 and FY14, respectively.

Erik Gershwind, President and Chief Executive Officer, stated, "Our flat fourth quarter sales reflected strong execution in the face of a difficult and deteriorating environment. The prolonged impact of the drop in oil prices, the strong US dollar and foreign exchange headwinds are all negatively impacting broader manufacturing activity. We continued our share gains despite these market conditions."

Rustom Jilla, Executive Vice President and Chief Financial Officer, added, "Fourth quarter adjusted EPS was above the midpoint of our guidance reflecting continued gross margin stabilization and expense management. Countermeasures such as discount optimization, various freight initiatives, and supplier cost reductions offset most of the headwinds from customer mix and soft pricing. We will continue to implement productivity initiatives and reduce expenses even after investing for growth."

Mr. Gershwind concluded, "As we move into 2016, we remain focused on outgrowing the market and managing those levers within our control. We have historically made our greatest strides during economic slowdowns and delivered disproportionate revenue growth and earnings leverage in subsequent periods. Looking forward, our infrastructure investments have positioned us well to leverage future growth."

Outlook

Based on current market conditions, the Company expects net sales for the first quarter of fiscal 2016 to be between $702 million and $714 million. At the midpoint, average daily sales are expected to decline roughly 3.0%. The Company expects diluted earnings per share for the fiscal first quarter 2016 to be between $0.85 and $0.89.

An explanation and reconciliation of the non-GAAP financial measures contained in this press release to the most directly comparable GAAP financial measures are included in the attached tables.

Conference Call Information

MSC will host a conference call today at 8:30 a.m. ET to review the Company's fiscal 2015 fourth quarter and full year results. The call, accompanying slides, and other operational statistics may be accessed at: http://investor.mscdirect.com. A webcast replay of the conference call will be available until November 27, 2015.

The conference call may also be accessed at 1-888-317-6003 (U.S.), 1-855-669-9657 (Canada) or 1-412-317-6061 (international). A replay will be available one hour after the call's conclusion and until November 3, 2015 at 1-877-344-7529 (U.S.) or 1-412-317-0088 (international) with passcode 10072209.

The Company's reporting date for fiscal first quarter 2016 results will be January 6, 2016.

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 million products, inventory management and other supply chain solutions, and deep expertise from 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 www.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, 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: problems with successfully integrating acquired operations, unanticipated delays or costs associated with  expanding our customer fulfillment centers, current economic, political and social conditions, changing customer and product mixes, financial restrictions on outstanding borrowings, industry consolidation, the loss of key suppliers or supply chain disruptions, competition, general economic conditions in the markets in which we operate, volatility in commodity and energy prices, credit risk of our customers, risk of cancellation or rescheduling of orders, work stoppages or other business interruptions (including those due to extreme weather conditions) at transportation centers or shipping ports, the risk of war, terrorism and similar hostilities, dependence on our information systems and the risk of business disruptions arising from changes to our information systems, disruptions due to computer system or network failures, computer viruses, physical or electronics break-ins and cyber-attacks, dependence on key personnel, goodwill and intangible assets recorded as a result of our acquisitions could be impaired, disclosing our use of "conflict minerals" in certain of the products we distribute could raise reputational and other risks, and the outcome of potential government or regulatory proceedings or future litigation relating to pending or future claims, inquiries or audits. 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.

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)



August 29,

August 30,

2015

2014




ASSETS




Current Assets:






Cash and cash equivalents

$

38,267

$

47,154

Accounts receivable, net of allowance for doubtful accounts

403,468

382,784

Inventories

506,631

449,814

Prepaid expenses and other current assets


39,067

40,410

Deferred income taxes

44,643

41,253

Total current assets

1,032,076

961,415

Property, plant and equipment, net

291,156

294,348

Goodwill

623,626

629,335

Identifiable intangibles, net

119,805

138,314

Other assets

34,543

37,335

Total assets

$

2,101,206

$

2,060,747




LIABILITIES AND SHAREHOLDERS' EQUITY




Current Liabilities:




Revolving credit note

$

188,000

$

70,000

Current maturities of long-term debt

25,515

26,829

Accounts payable

114,328

116,283

Accrued liabilities

94,494

96,052

Total current liabilities

422,337

309,164

Long-term debt, net of current maturities

214,789

240,235

Deferred income taxes and tax uncertainties

131,210

112,785

Total liabilities

768,336

662,184

Commitments and Contingencies




Shareholders' Equity:




Preferred Stock

-

-

Class A common stock

56

56

Class B common stock

13

13

Additional paid-in capital

604,905

573,730

Retained earnings

1,232,381

1,286,068

Accumulated other comprehensive loss

(17,252)

(5,054)

Class A treasury stock, at cost

(487,233)

(456,250)

Total shareholders' equity

1,332,870

1,398,563

Total liabilities and shareholders' equity

$

2,101,206

$

2,060,747

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)







Quarters Ended

Fiscal Years Ended

August 29,

August 30,

August 29,

August 30,

2015

2014

2015

2014

(13 weeks)

(13 weeks)

(52 weeks)

(52 weeks)

Net sales

$

727,405

$

726,623

$

2,910,379

$

2,787,122

Cost of goods sold

400,270

395,437

1,593,804

1,500,866

Gross profit

327,135

331,186

1,316,575

1,286,256

Operating expenses

231,695

231,360

937,046

903,072

Income from operations

95,440

99,826

379,529

383,184

Other (expense) income:










Interest expense

(1,554)

(1,233)

(6,340)

(3,874)

Interest income

165

400

771

414

Other (expense) income, net

(449)

178

(819)

(199)

Total other expense


(1,838)

(655)

(6,388)

(3,659)

Income before provision for income taxes

93,602

99,171

373,141

379,525

Provision for income taxes

34,580

36,358

141,833

143,458

Net income

$

59,022

$

62,813

$

231,308

$

236,067

Per Share Information:










Net income per common share:










Basic

$

0.96

$

1.01

$

3.75

$

3.78

Diluted

$

0.96

$

1.01

$

3.74

$

3.76

Weighted average shares used in computing net income per
common share:










Basic

61,283

61,694

61,292

62,026

Diluted

61,413

62,016

61,487

62,339

Cash dividends declared per common share

$

0.40

$

0.33

$

4.60

$

1.32

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

Fiscal Years Ended

August 29,

August 30,

August 31,

2015

2014

2013

(52 weeks)

(52 weeks)

(52 weeks)

Net income, as reported

$

231,308

$

236,067

$

237,995

Foreign currency translation adjustments

(12,198)

(627)

(1,984)

Comprehensive income

$

219,110

$

235,440

$

236,011

MSC INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)





Fiscal Years Ended

August 29,

August 30,

2015

2014

(52 weeks)

(52 weeks)

Cash Flows from Operating Activities:




Net income

$

231,308

$

236,067

Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation and amortization    


69,729

64,946

Stock-based compensation

14,195

16,688

Loss on disposal of property, plant, and equipment

1,453

2,361

Provision for doubtful accounts

6,665

4,629

Deferred income taxes and tax uncertainties

15,035

11,829

Excess tax benefits from stock-based compensation

(3,956)

(5,480)

Changes in operating assets and liabilities:




Accounts receivable

(29,347)

(41,460)

Inventories

(59,008)

(30,342)

Prepaid expenses and other current assets


1,268

(6,319)

Other assets

(1,354)

1,857

Accounts payable and accrued liabilities

3,803

17,630

Total adjustments

18,483

36,339

Net cash provided by operating activities

249,791

272,406




Cash Flows from Investing Activities:




    Expenditures for property, plant and equipment

(51,405)

(70,617)

    Investment in available for sale securities

-

(25,023)

    Cash used in business acquisition, net of cash received


-

1,434

Net cash used in investing activities

(51,405)

(94,206)




Cash Flows from Financing Activities:




Purchases of treasury stock

(33,414)

(191,359)

Payments of regular cash dividends

(98,828)

(82,607)

Payments of special cash dividend

(185,403)

-

Payments on capital lease and financing obligations

(2,290)

(1,851)

Excess tax benefits from stock-based compensation

3,956

5,480

Proceeds from sale of Class A common stock in connection with associate stock purchase plan

4,285

3,998

Proceeds from exercise of Class A common stock options

11,119

20,447

Borrowings under financing obligations


530

1,353

Borrowings under Credit Facility


336,000

135,000

Payments of notes payable and revolving credit note under the Credit Facility

(243,000)

(77,500)

Net cash used in financing activities

(207,045)

(187,039)




Effect of foreign exchange rate changes on cash and cash equivalents

(228)

117

Net decrease in cash and cash equivalents

(8,887)

(8,722)

Cash and cash equivalents – beginning of period

47,154

55,876

Cash and cash equivalents – end of period

$

38,267

$

47,154




Supplemental Disclosure of Cash Flow Information:




Cash paid for income taxes

$

122,988

$

128,558

Cash paid for interest

$

5,843

$

3,087

Non-GAAP Financial Measures


To supplement MSC's unaudited selected financial data presented on a basis consistent with Generally Accepted Accounting Principles ("GAAP"), the Company discloses certain non-GAAP financial measures, including adjusted operating income, adjusted net income, and adjusted net income per diluted share. The adjusted supplemental measures exclude non-recurring costs associated with the Class C Solutions Group ("CCSG") acquisition, the co-location of our corporate headquarters in Davidson, North Carolina, and executive transition and separation costs, and related tax effects. 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 all of the amounts associated with 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 Company performance.


In calculating non-GAAP financial measures, we exclude these non-recurring costs to facilitate a review of the comparability of the Company's operating performance on a period-to-period basis because such costs are not, in our view, related to the Company's ongoing operational performance. We use non-GAAP measures to evaluate the operating performance of our business, for comparison with forecasts and strategic plans, and for benchmarking performance externally against competitors. In addition, we use certain non-GAAP financial measures as performance metrics for management incentive programs. Since we find these measures to be useful, 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; and


- A better understanding of how management plans and measures the Company's underlying business.


The following tables reconcile GAAP operating income, GAAP net income and GAAP net income per diluted share ("EPS") to non-GAAP
adjusted operating income, adjusted net income, and adjusted net income per diluted share.

Thirteen Weeks Ended

August 29, 2015

(in thousands)

Margin

GAAP Operating income

$

95,440

13.1%

Non-recurring costs

236


Adjusted Operating income

$

95,676

13.2%

Thirteen Weeks Ended

August 30, 2014

(in thousands)

Margin

GAAP Operating income

$

99,826

13.7%

Non-recurring costs

1,108


Adjusted Operating income

$

100,934

13.9%

Thirteen Weeks
Ended

Thirteen Weeks
Ended

August 29, 2015

August 30, 2014

(in thousands)

Net sales

$

727,405

$

726,623

Cost of goods sold

400,270

395,437

Gross profit

327,135

331,186

Operating Expenses

231,695

231,360

Income from Operations

95,440

99,826

Non-recurring costs

236

1,108

Adjusted Operating income

$

95,676

$

100,934

Thirteen Weeks Ended

August 29, 2015

(in thousands, except per share amounts)

$(after tax)

Diluted EPS

GAAP net income

$

59,022

$

0.96

Non-recurring costs*

149

-

Adjusted net income

$

59,171

$

0.96


* On a pre-tax basis includes approximately $236 of non-recurring executive transition costs related to the planned retirement of the Company's Chief Financial Officer for the thirteen weeks ended August 29, 2015. The non-recurring costs were calculated using an effective tax rate of 36.9%.

Thirteen Weeks Ended

August 30, 2014

(in thousands, except per share amounts)

$(after tax)

Diluted EPS 

GAAP net income

$

62,813

$

1.01

Non-recurring costs*

702

0.01

Adjusted net income

$

63,515

$

1.02





* On a pre-tax basis includes approximately $29 of non-recurring relocation costs associated with the Co-Location of the Company's headquarters in Davidson, North Carolina and approximately $1,079 of non-recurring integration costs associated with the CCSG acquisition for the thirteen weeks ended August 30, 2014. The non-recurring costs were calculated using an effective tax rate of 36.7%.

Fiscal Year Ended

August 29, 2015

(in thousands)

Margin

GAAP Operating income

$

379,529

13.0%

Non-recurring costs

4,507


Adjusted Operating income

$

384,036

13.2%

Fiscal Year Ended

August 30, 2014

(in thousands)

Margin

GAAP Operating income

$

383,184

13.7%

Non-recurring costs

17,349


Adjusted Operating income

$

400,533

14.4%

Fiscal Years Ended

August 29, 2015

August 30, 2014

(in thousands)

Net sales

$

2,910,379

$

2,787,122

Cost of goods sold

1,593,804

1,500,866

Gross profit

1,316,575

1,286,256

Operating Expenses

937,046

903,072

Income from Operations

379,529

383,184

Non-recurring costs

4,507

17,349

Adjusted Operating income

$

384,036

$

400,533

Fiscal Year Ended

August 29, 2015

(in thousands, except per share amounts)

$(after tax)

Diluted EPS

GAAP net income

$

231,308

$

3.74

Non-recurring costs*

2,794

0.05

Adjusted net income

$

234,102

$

3.79





* On a pre-tax basis includes approximately $1,081 of non-recurring integration costs associated with the CCSG acquisition, approximately $2,706 for non-recurring executive separation costs related to the departure of the Executive Vice President of Sales, and approximately $720 of non-recurring executive transition costs related to the planned retirement of the Company's Chief Financial Officer for the fiscal year ended August 29, 2015. The non-recurring costs were calculated using an effective tax rate of 38.0%.

Fiscal Year Ended

August 30, 2014

(in thousands, except per share amounts)

$(after tax)

Diluted EPS 

GAAP net income

$

236,067

$

3.76

Non-recurring costs*

10,791

0.17

Adjusted net income

$

246,858

$

3.93


* On a pre-tax basis includes approximately $2,614 of non-recurring relocation costs associated with the Co-Location of the Company's headquarters in Davidson, North Carolina, approximately $11,763 of non-recurring integration costs associated with the CCSG acquisition and approximately $2,972 for executive compensation for the fiscal year ended August 30, 2014. The nonrecurring costs were calculated using an effective tax rate of 37.8%.

SOURCE MSC Industrial Supply Co.