Manufacturing Slump Hurts MSC Industrial: Q3 Disappoints On Weak Demand

MSC Industrial Direct Co., Inc. MSM reported third-quarter FY24 net sales decline of 7.1% Y/Y to $979.4 million, missing the consensus of $1.014 billion.

Adjusted EPS of $1.33, down 23.6% Y/Y, missed the consensus of $1.50.

This compares to preliminary results announced last month for net sales of $978 million-$980 million and adjusted EPS of $1.32-$1.34.

Average daily sales fell 7.1% Y/Y due to non-recurring Public Sector orders from the previous year and weakness in manufacturing sectors.

Adjusted operating income declined 19.6% to $111.5 million, with the operating margin compressing to 11.4% from 13.1% a year ago. As of June 1, 2024, the company held $25.9 million in cash and equivalents. 

Erik Gershwind, President and Chief Executive Officer, said, “As announced on June 13th, we began the second half of our fiscal year with unexpected gross margin pressure and a slower than expected recovery in average daily sales, particularly within our Core customer base. As a result, our third quarter performance was below expectations and led to a revised full year outlook.” 

Last month, MSC Industrial declared cash dividend of $0.83 per share, payable on July 23, 2024, to shareholders of record as of July 9, 2024.

FY24 Outlook: MSC Industrial continues to see FY24 ADS growth of (4.7)% – (4.3)%, an adjusted operating margin of 10.5% – 10.7%, and operating cash flow conversion of more than 125%.

While announcing its preliminary financial results last month, the company revised down its ADS Growth outlook from 0% – 5% to (4.7)% – (4.3)% and adjusted operating margin guidance from 12.0% – 12.8% to 10.5% – 10.7%.

Price Action: MSM shares are trading higher by 0.05% at $78.27 at the last check Tuesday.