MSC Industrial Direct Co. Inc. (NYSE:MSM) Q3 2019 Earnings Conference Call Transcript

Jul 10, 2019 • 08:30 am ET

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MSC Industrial Direct Co. Inc. (NYSE:MSM) Q3 2019 Earnings Conference Call Transcript

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Presentation
Executive
Rustom Jilla

$90 million of additional sales. This is, of course, unacceptable and we are taking actions to improve our performance.

Turning to our estimated tax rates for the fourth quarter, it is 24.1%, slightly lower than our year-to-date tax rate of 25.1%. This is due to the typical release of state tax reserves that occurs in our fiscal Q4.

Finally, our Q4 EPS guidance range is $1.21 to $1.27, with a midpoint of $1.24. This includes AIS and MSC Mexico, which together should be EPS neutral in Q4. Our guidance also assumes a weighted average diluted share count of roughly 55.3 million shares.

I'll now turn it back to Eric.

Executive
Erik Gershwind

Thank you, Rustom. As I shared earlier, we're taking actions aimed at improving sales and gross margin and lowering expenses. You've heard some of the details today. But in summary, we are focused internally on improving execution. And this also means that any M&A activity that we may consider over the near term will have higher hurdle rates, particularly as valuations remain historically high.

You also saw that we are adjusting our capital allocation philosophy to return more capital to our shareholders via the quarterly dividend. As Rustom said, we have a strong balance sheet and generate high levels of free cash flow. This dividend leaves us with a comfortable payout ratio and this would be true even if things soften further.

Reflecting on the fiscal year thus far, we're disappointed with our performance and more importantly, we are taking action to address this. With that said, I don't want the progress that we're making in some critical areas lost on all of this. We are winning new accounts and doing so at a very strong pace. Our vending implementations are growing more rapidly than they have in a long time.

We are deepening our commitment to our valued supplier partners at a time when our shared goals are more important than ever. And our team of associates is working to deliver on our action plan. I thank each of them for taking it on with urgency and commitment, as we continue our journey from a spot buy distributor to a mission critical partner on the plant floor.

We'll now open up the lines for questions.