MSC Industrial Direct Co. Inc. (NYSE:MSM) Q2 2019 Earnings Conference Call Transcript

Apr 10, 2019 • 08:30 am ET


MSC Industrial Direct Co. Inc. (NYSE:MSM) Q2 2019 Earnings Conference Call Transcript


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Rustom Jilla

below 20%. Assuming the mid-point of our fiscal Q3 guidance for the total Company and nine months year-to-date incremental margins will be only marginally positive. The primary driver of this is revenue growth.

Sales have been softer than anticipated over the past couple of months and our guidance assumes that this will continue in our fiscal Q3. At the same time, our higher growth investments, namely, sales and service, move operating expenses as a percentage of sales also slightly above what we had anticipated at this point in the year. As we look ahead, we remain confident that our investments will continue to yield payback and that we will achieve leverage on the step-up in investment spending.

Now, turning to our estimated tax rate for the third quarter, it is 25.1%, in line with the first half of the year. Our guidance also assumes a weighted average diluted share count of roughly 55.4 million shares. So, our fiscal third quarter EPS guidance range is $1.46 to $1.52 per share, with a mid-point of $1.49. This includes AIS and MSC Mexico, which together, are expected to have a roughly breakeven impact on EPS.

I'll now turn it back to Erik.

Erik Gershwind

Thank you, Rustom. Before closing, I'll provide some perspective on our performance and our path forward. Over the past few years, we've re-positioned MSC from a spot buy supplier to a mission critical partner on manufacturing plant floors. This journey has included several important initiatives: migrating our product portfolio to technical and high touch product lines; expanding our inventory management footprint through vending and VMI; creating a new value proposition, anchored in producing cost savings and productivity improvements for our customers; and re-engineering our sales force to support the new value proposition.

As we entered this fiscal year, our plan called for improving revenue growth relative to the market, particularly in our core customers, moderating gross margin pressures through price realization, and achieving operating expense leverage on our growth, despite a step-up in sales investments. Halfway through the fiscal year, the biggest difference in financial results compared to our expectations comes from revenue growth. While starting out in the right direction, top line growth has not maintained momentum, at least, not over the last two months.

Whether the moderation that we've seen continues or it proves to be just a blip is still unclear. In either case, we like what we're seeing from our growth investments. We, therefore, remain focused on our growth plan and we are confident that it will deliver the anticipated benefits as we move forward.

We'll now open up the line for questions.