MSC Industrial Direct Co. Inc. (NYSE:MSM) Q2 2019 Earnings Conference Call Transcript
Apr 10, 2019 • 08:30 am ET
Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Evelyn Chow of Goldman Sachs. Please go ahead.
Hi. Good morning, Erik, Rustom, and John.
Hi, Evelyn. How are you?
Doing well. Thanks. I just want to start on your fiscal 3Q growth guidance and the deceleration you embed. Helpful to hear a few of the things you posited, inventory de-stock in the national accounts, maybe some potential share shifts, your government contract headwinds peaking next quarter Seems like April is a step in the right direction, but from what I gather, a lot of the headwinds you say it don't really seem like things that resolve in the short term. So maybe Erik or Rustom, could you elaborate a bit on what you're seeing here? And also what factors could actually get better as you go through the fiscal year?
Yes. Sure, Evelyn. So, I would say, with respect to the deceleration in the growth rate and we're referring to, of course, the base business, really, two things to talk about. One is that, look, we did see softer conditions in February that continued into March. And what we've done with our guidance is, assume that basically those conditions hold. In terms of color on that, I would say, it was no one thing, a combination of a whole bunch of things. I mean some weather, particularly in February -- I would say, weather, de-stocking, which what I'd say on de-stocking, hard to quantify, but a lot more anecdotal evidence than we've heard about in the past. We saw some pockets of softness in automotive and oil and gas, and a little bit of ripple effect from the government shutdown that occurred on some of our core customers who did government work. So that was the macro. I would say, hard to say for sure, but a good chance that, if there is a case to be made, that some of that lingers on and there is a case to be made that says some of that is temporary and doesn't. Reasonably encourage to see the start of the calendar quarter, second quarter or first week in April bounce back, so I think that we'll see.
The second thing that I want to hit on is essentially what we're seeing, what you're hearing from me is despite the tick down in growth, a lot of confidence in what I'm seeing from our growth initiatives. And essentially, what's happening is, there is a lag between what we're seeing on the ground in terms of progress on initiatives and how that progress is translating into numbers. So during the prepared remarks, I commented on two of those, one being vending and the other being business development, or as I referred to as hunting, in other words, new account generation. So just to put some color on the new account generation, we're seeing -- I talked about the growth and the size of the team, but that