Company Reports

MSC Industrial Direct’s fiscal third-quarter results (ended June 1) were in line with our expectations. Recall, on June 13, the company released preliminary third-quarter results and drastically cut fiscal 2024 financial guidance. Management’s prior guidance of 0%-5% average daily sales growth and 12.0%-12.8% adjusted operating margin was reduced to negative 4.3%-negative 4.7% revenue growth with a 10.5%-10.7% adjusted operating margin. See our June 14 analyst note for our commentary on third-quarter results and the change to 2024 guidance.

Since its initial public offering in late 1995, MSC Industrial has increased its top line at an impressive 11% compound annual rate. Over the past 25 years, MSC has become one of the largest industrial distributors in United States and is especially well known in the metalworking industry, where we estimate it enjoys approximately 10% market share. MSC has historically been a conservatively capitalized company, but it is not afraid to flex its balance sheet when the right opportunity presents itself. The company spent $900 million to acquire J&L Industrial Supply in 2006 and Barnes' North America distribution business in 2013, which bolstered its metalworking and inventory-management products and services.

Since its initial public offering in late 1995, MSC Industrial Direct has increased its top line at an impressive 11% compound annual rate. Over the past 25 years, MSC has become one of the largest industrial distributors in United States and is especially well known in the metalworking industry, where we estimate it enjoys approximately 10% market share. MSC has historically been a conservatively capitalized company, but it is not afraid to flex its balance sheet when the right opportunity presents itself. The company spent $900 million to acquire J&L Industrial Supply in 2006 and Barnes' North America distribution business in 2013, which bolstered its metalworking and inventory-management products and services. In our view, these acquisitions were prudent uses of capital that improved MSC’s competitive standing.

MSC reported preliminary fiscal third-quarter earnings, which showed lower sales and profitability than we had expected. As a result, we reduced our fair value estimate by 4.5% to $104 per share (from $109 previously). The market sent the company’s shares down by approximately 10% in intraday trading.

Since its initial public offering in late 1995, MSC Industrial Direct has increased its top line at an impressive 11% compound annual rate. Over the past 25 years, MSC has become one of the largest industrial distributors in United States and is especially well known in the metalworking industry, where we estimate it enjoys approximately 10% market share. MSC has historically been a conservatively capitalized company, but it is not afraid to flex its balance sheet when the right opportunity presents itself. The company spent $900 million to acquire J&L Industrial Supply in 2006 and Barnes' North America distribution business in 2013, which bolstered its metalworking and inventory-management products and services. In our view, these acquisitions were prudent uses of capital that improved MSC’s competitive standing.

MSC Industrial reported fiscal second-quarter earnings largely in line with our expectations. The demand environment remains challenged, given flat industrial production growth. For MSC, most of its key end markets continue to experience weakness. Management commented that four of its top five end markets make up approximately 50% of revenue.

Since its initial public offering in late 1995, MSC Industrial Direct has increased its top line at an impressive 11% compound annual rate. Over the past 25 years, MSC has become one of the largest industrial distributors in United States and is especially well known in the metalworking industry, where we estimate it enjoys approximately 10% market share. MSC has historically been a conservatively capitalized company, but it is not afraid to flex its balance sheet when the right opportunity presents itself. The company spent $900 million to acquire J&L Industrial Supply in 2006 and Barnes' North America distribution business in 2013, which bolstered its metalworking and inventory-management products and services. In our view, these acquisitions were prudent uses of capital that improved MSC’s competitive standing.

MSC Industrial’s stock reacted negatively to fiscal first-quarter earnings, falling roughly 3.5% in intraday trading. We think investors continue to be worried about near-term demand, given manufacturing spending remains constrained. However, we walked away from the quarter content with MSC’s performance amid a weaker industrial spending environment. Management highlighted that first-quarter gross margins came in ahead of expectations due to effective product category management. Essentially, the company did a good job of improving its product portfolio and focusing on the right mix of products to push to customers.

Since its initial public offering in late 1995, MSC Industrial Direct has increased its top line at an impressive 11% compound annual rate. Over the past 25 years, MSC has become one of the largest industrial distributors in United States and is especially well known in the metalworking industry, where we estimate it enjoys approximately 10% market share. MSC has historically been a conservatively capitalized company, but it is not afraid to flex its balance sheet when the right opportunity presents itself. The company spent $900 million to acquire J&L Industrial Supply in 2006 and Barnes' North America distribution business in 2013, which bolstered its metalworking and inventory-management products and services. In our view, these acquisitions were prudent uses of capital that improved MSC’s competitive standing.

Since its initial public offering in late 1995, MSC Industrial Direct has increased its top line at an impressive 11% compound annual rate. Over the past 25 years, MSC has become one of the largest industrial distributors in United States and is especially well known in the metalworking industry, where we estimate it enjoys approximately 10% market share. MSC has historically been a conservatively capitalized company, but it is not afraid to flex its balance sheet when the right opportunity presents itself. The company spent $900 million to acquire J&L Industrial Supply in 2006 and Barnes' North America distribution business in 2013, which bolstered its metalworking and inventory-management products and services. In our view, these acquisitions were prudent uses of capital that improved MSC’s competitive standing.

We elected to raise our fair value estimate by 6% to $106 (from $100 previously), following fiscal fourth-quarter results. We attribute most of the fair value increase to rolling our cash flow model forward by one year, in addition to slight upward adjustments to our long-term forecast and changes in the time value of money since our last update. That said, management’s fiscal-year 2024 guidance led us to modestly temper our near-term outlook. MSC forecasts average daily sales growth to come in between 0%-5%, while operating margins land between 12.0%-12.8%.

Since its initial public offering in late 1995, MSC Industrial Direct has increased its top line at an impressive 11% compound annual rate. Over the past 25 years, MSC has become one of the largest industrial distributors in United States and is especially well known in the metalworking industry, where we estimate it enjoys approximately 10% market share. MSC has historically been a conservatively capitalized company, but it is not afraid to flex its balance sheet when the right opportunity presents itself. The company spent $900 million to acquire J&L Industrial Supply in 2006 and Barnes' North America distribution business in 2013, which bolstered its metalworking and inventory-management products and services. In our view, these acquisitions were prudent uses of capital that improved MSC’s competitive standing.

The market reacted negatively to MSC’s fiscal third-quarter earnings (shares down over 2% in intraday trading), but we remain encouraged by MSC’s resilience in a moderating economic environment. We think investors were focused on the near-term gross margin pressures. The key callouts here are mix headwinds from the recent large public sector contract win, recent small acquisitions, and price/cost dynamics. Management is now expecting annual gross margin to be down between 100-120 basis points compared with fiscal 2022 (compared with a 40-70 basis point contraction previously). It’s important to keep in mind that this new win will increase cash flow and set the company up for more share gains in the future.

Since its initial public offering in late 1995, MSC Industrial Direct has increased its top line at an impressive 11% compound annual rate. Over the past 25 years, MSC has become one of the largest industrial distributors in United States and is especially well known in the metalworking industry, where we estimate it enjoys approximately 10% market share. MSC has historically been a conservatively capitalized company, but it is not afraid to flex its balance sheet when the right opportunity presents itself. The company spent $900 million to acquire J&L Industrial Supply in 2006 and Barnes' North America distribution business in 2013, which bolstered its metalworking and inventory-management products and services. In our view, these acquisitions were prudent uses of capital that improved MSC’s competitive standing.

MSC Industrial reported solid results to close the first half of fiscal 2023. Even so, we have elected to leave our $99 fair value estimate unchanged, as we were already baking solid sales and margin expectations into our forecast. We’re slightly more positive on the name than the market is; our valuation implies approximately 16% upside from current levels. But our near-term estimates are quite conservative, giving us reason to believe we’re taking a measured approach.

Since its initial public offering in late 1995, MSC Industrial Direct has increased its top line at an impressive 11% compound annual rate. Over the past 25 years, MSC has become one of the largest industrial distributors in United States and is especially well known in the metalworking industry, where we estimate it enjoys approximately 10% market share. MSC has historically been a conservatively capitalized company, but it is not afraid to flex its balance sheet when the right opportunity presents itself. The company spent $900 million to acquire J&L Industrial Supply in 2006 and Barnes' North America distribution business in 2013, which bolstered its metalworking and inventory-management products and services. In our view, these acquisitions were prudent uses of capital that improved MSC’s competitive standing.

We raised our fair value estimate by $1 to $99 following MSC’s fiscal first-quarter results, largely due to the time value of money since our last update. We remain confident in the company’s ability to grow sales in 2023, despite some cooling in industrial markets. Management reaffirmed its 2023 guidance, which calls for 5%-9% average daily sales growth. The low end of the company’s range implies a slowdown in industrial markets, while the high end reflects a flat economic environment. To us, this shows MSC’s exposure to improving end markets, such as aerospace and oil and gas will support sales growth in the near term. As a result, we’re projecting between 5% and 6% sales growth in 2023 for the company.

Since its initial public offering in late 1995, MSC Industrial Direct has increased its top line at an impressive 11% compound annual growth rate. Over the past 25 years, MSC has become one of the largest industrial distributors in U.S., and it is especially well known in the metalworking industry, where we estimate the firm enjoys approximately 10% market share. MSC has historically been a conservatively capitalized company, but it is not afraid to flex its balance sheet when the right opportunity presents itself. The company spent $900 million to acquire J&L Industrial Supply in 2006 and Barnes Distribution North America in 2013, which bolstered its metalworking and inventory management products and services. In our view, these acquisitions were prudent uses of capital that improved MSC’s competitive standing.

MSC Industrial closed out its fiscal fourth quarter on a solid note, growing average daily sales by approximately 14% year over year. Of that, acquired sales in the fourth quarter made up roughly 250 basis points. MSC recently acquired two regional distributors, Engman-Taylor ($60 million in annual sales) and Tower Fasteners ($35 million in annual sales).

Since its initial public offering in late 1995, MSC Industrial Direct has increased its top line at an impressive 11% compound annual growth rate. Over the past 25 years, MSC has become one of the largest industrial distributors in U.S., and it is especially well known in the metalworking industry, where we estimate the firm enjoys approximately 10% market share. MSC has historically been a conservatively capitalized company, but it is not afraid to flex its balance sheet when the right opportunity presents itself. The company spent $900 million to acquire J&L Industrial Supply in 2006 and Barnes Distribution North America in 2013, which bolstered its metalworking and inventory management products and services. In our view, these acquisitions were prudent uses of capital that improved MSC’s competitive standing.