MSC Industrial Direct Co. Inc. (NYSE:MSM) Q3 2019 Earnings Conference Call - Final Transcript
Jul 10, 2019 • 08:30 am ET
this morning, and I'll share with you the actions that we are taking to address them.
First, I'll start with the environment. We've seen a step down in industrial demand since our fiscal April. On the last call with you, we described the softer than expected March with the rebound during the first week of calendar April, which was the last week of our fiscal March. As we said at the time, we weren't sure what to make of it.
As it turns out, the softness from March not only continued, but it has worsened since we last spoke. And we've seen this softness evidenced in discussions with customers and suppliers, along with data points coming from many sources, including manufacturing output numbers, distributor growth surveys and the sentiment indices. In April and May, the last two months of our third quarter, readings for the NBI were 53.6 and 51.6, respectively, and June was at 51.8. The rolling 12-month average for the NBI is now 54.7, while still reflective of growth, there is a continued deceleration.
With regards to the pricing environment, there continues to be an overhang of uncertainty, mostly due to tariffs and trade. In the fiscal third quarter, realization of our mid-year price increase continued to be positive. As we look forward, our plan is to take our late summer increase as we usually do, although it will likely be slightly later than last year to give ourselves more time to understand how the tariff situation is shaking out.
In terms of our performance within this environment, our core customers had growth rates in the low-single digits, while national account growth was mid-single digits. Both were slightly lower than expected, impacted by the softness that I just mentioned. As expected, government sales growth declined mid teens this quarter, weighing down our overall growth rate. You'll remember that our fiscal third quarter was expected to be the peak of the government headwind and while the headwind continues for another couple of quarters, it does begin to abate in this coming quarter.
Let me now step back and share my assessment of our performance along with an overview of our action plan moving forward. Clearly, the biggest difference between our actual results and our previous guidance has been a change in industrial conditions. And because of that softening environment, we've implemented a three-part action plan designed to achieve improvement in the following: one, field sales execution, particularly around new accounts implementation; two, profitability of our supplier programs; and three, expense control and productivity.
Part one, improved field sales execution and new account implementation. We are winning new accounts at a fast clip. However, revenue growth from our new account wins is taking too long to materialize as these new account wins have outpaced our expectations and hence our resource planning. I would have liked to have seen more contribution from these wins heading into our fiscal fourth quarter.
In response, we have focused, one of our top sales leaders