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MSC Industrial Direct Co Inc Class A MSM

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Morningstar’s Analysis

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Pandemic Headwinds Persist for MSC, but Q1 Results Show Signs of Rebounding Demand

Analyst Note

| Brian Bernard, CFA, CPA |

While the global pandemic continued to pressure MSC Industrial Supply's top line during its fiscal first quarter, management did a good job defending the firm's adjusted operating margin. First-quarter sales declined about 6% year over year as elevated demand for personal protective equipment (safety and janitorial product sales were up 20% year over year) was not enough to offset weakness across MSC's core business. Still, the adjusted operating margin only declined 30 basis points to 11%. MSC's gross margin contracted 30 basis points to 41.9% due in part to the contribution from lower-margin PPE sales. Management did an excellent job managing recurring operating expenses, which declined at the same rate as sales. The company removed $8 million from its cost structure during the first quarter, and management is still targeting $90 million-$100 million of cost savings by fiscal 2023, which we view as an achievable goal.

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Company Profile

Business Description

MSC Industrial Direct is a value-added industrial distributor with a focus on metalworking and maintenance, repair, and operations products and services. The company offers 1.9 million products through a distribution network of almost 100 branches and 12 fulfillment centers. Although MSC has a presence in Canada, Mexico, and the United Kingdom, it primarily operates in the United States. In fiscal 2020, 95% of the firm’s $3.2 billion of sales was generated in the U.S.

75 Maxess Road
Melville, NY, 11747
T +1 516 812-2000
Sector Industrials
Industry Industrial Distribution
Most Recent Earnings Nov 30, 2020
Fiscal Year End Aug 31, 2021
Stock Type High Yield
Employees 6,315