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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Q & A
Operator
Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) The first question today comes from Robert Barry with Buckingham Research. Mr. Barry, please go ahead.

Analyst
Robert Barry

Hey, guys. Good morning.

Executive
Erik Gershwind

Rob, good morning.

Analyst
Robert Barry

Actually, before my question, I just wanted a housekeeping item clarification on the ADS results, estimate for how much do you think Easter impacted April and how much does having one less selling day benefit June ADS?

Executive
Rustom Jilla

So, the April impact washed out, I mean, so we didn't -- in the quarter as we looked at it. The ADS impact of the one less selling day in June, if you do it purely mathematically, right, would not be quite the way to do it, Robert, because effectively the last -- if I just disclose what the number was on Friday. I mean we had like just a little bit over a $1 million in sales. So when you -- if we didn't have that $1 million and didn't have that day, it would have really a negligible impact on the overall number.

Analyst
Robert Barry

I see. So, it's pretty minimal.

Executive
Rustom Jilla

Erik, do you want add anything.

Executive
Erik Gershwind

No. You got it.

Analyst
Robert Barry

Sorry.

Executive
Erik Gershwind

You can keep going. If there is another question.

Analyst
Robert Barry

Okay. I'll follow up afterwards. So on the price/cost impact to gross margin, what was that impact in 3Q in the quarter?

Executive
Rustom Jilla

So, the price mix impact -- we haven't disclosed the price/cost impact specifically like that, but the price mix impact that we had was roughly around 60 basis points.

Analyst
Robert Barry

Right. (Multiple Speakers) the price/cost positive turned negative, so, I was curious how much of --

Executive
Erik Gershwind

Yeah, Rob. So a little bit on gross margin. So essentially what happened was, as Rustom described, we came in on the bottom end of our gross margin range. So effectively, 20 basis points off the midpoint and what he highlighted is, there are two drivers behind that in the base business: one being purchase cost slightly higher than expected, the escalation; and then, two being customer mix. He also put some context on price/cost in terms of, essentially, what happens in our business, when we take price, we get it right away. When we take a cost increase, it bleeds into our P&L slowly. And what we were describing in the prepared remarks was how this fiscal year price/cost has turned negative as we're bearing the full brunt of the cost increases taken over this year and last year.

Analyst
Robert Barry

Got it. And I guess just lastly, curious about what the outlook is there for that price/cost equation getting back to at least neutral? I mean, is there a line of sight to that happening? Because it seems actually like maybe the inflation, at least, from tariffs might continue to rise, especially, if you're seeing more coming through from third-party vendors.

Executive
Erik Gershwind

Yeah Rob, really good question is, where does it go from here as it relates to gross margin and price/cost. Here's what I would say, on the pricing side -- so,