MSC Industrial Supply Co., Melville, NY, went into its fiscal third quarter with the hopes of economic and industry stabilization. "Unfortunately, that did not materialize," President and CEO Erik Gershwind told investors on a call to discuss the company's earnings. "In fact, things weakened."
MSC reported sales for the third quarter ended May 28, 2016, of $727.5 million, down 2.4 percent over the same period a year ago. Fiscal year-to-date, sales were $2.1 billion, down 3 percent year-over-year.
"The root causes really point you back – amazingly – to the same drivers that it's been throughout this prolonged downturn," Gershwind said. "The ongoing effect of low oil prices and the effects of the strong dollar."
On the bright side, profits for the industrial distributor saw year-over-year growth of 2.3 percent for the quarter, primarily due to cost-cutting measures implemented across the company earlier in the fiscal year.
Those cost-cutting initiatives include everything, from supplier negotiations to minimizing professional fees to re-evaluating advertising expenditures. The company is even hosting more virtual meetings to limit travel expenses, said Rustom Jilla, CFO. And the company moved to a different health care plan nine months ago to help manage the rising costs of providing that benefit to employees. (Read more about addressing the rising cost of employment in Reduce HR Cost Pressure.)
Headcount fell by 184 when compared with the same period a year ago, but "headcount is dropping because of attrition," Gershwind said, rather than layoffs. The company's continued focus on productivity – as part of the broader cost-cutting initiatives – allowed those positions to not be filled without damaging overall results.
"It's really a testament to our team getting more creative, scrappier in terms of thinking about new and different ways of doing things," he said.
Even with the focus on a leaner, more productive business, the outlook still appears dimmer than it did just a month ago. Based on current market conditions, the company expects net sales for the fiscal 2016 fourth quarter to be between $730 million and $742 million. At the midpoint, average daily sales are expected to decline approximately 5 percent.
"Overall, the sense that the industrial economy may have been stabilizing has given way to more belt tightening and less optimism among our customers," Gershwind said. "…That said, we caution that our visibility is very low. At this point it's hard for us to say how much of this is a material step down in conditions as opposed to customers taking advantage of seasonal summer slowdowns with more extensive shutdowns.
"If things do continue to deteriorate, it would provide an opportunity for MSC to accelerate share gains as local distributors come under even greater pressure," he said.
