Despite tepid growth in the fiscal third quarter for total organic sales, the distributor of industrial supplies says it’s benefiting from strong e-commerce sales and a “healthy” market among manufacturing customers.

MSC Industrial Supply Co. isn’t growing as fast it would like, but it’s looking toward stronger growth as it reworks its sales team, builds on its strongest product niches and rides a positive trend in e-commerce sales, president and CEO Erik Gershwind said today.

The overall trend remains positive and consistent, with e-commerce increasing modestly as a percentage of our overall sales.
Erik Gershwind, CEO
MSC Industrial Supply

The company’s e-commerce sales accounted for 60.6% of total sales in its fiscal third quarter ended June 2, MSC said. Applying that percentage to its total sales, e-commerce sales increased 11.3%, to $501.98 million from $450.82 million in the year-earlier quarter.

But total sales were off MSC’s expected pace. “We should be growing well into high single digits, but at the present time we are not,” Gershwind said on a conference call with stock analysts. “Our recent performance has been tracking lower than expected.”

MSC noted on the call that its total organic sales—separate from its acquisitions within the past year of distributors Deco Tool Supply Co. and All Integrated Solutions—grew a modest 6.1% year over year in its fiscal third quarter ended June 2.

Gershwind attributed the modest growth to a smaller MSC sales team amid new challenges in the selling process, but said he expects stronger growth next year as MSC expands and reallocates its sales team, focuses on its strongest market niches, including metal-working products and services, and continues to benefit from a positive trend in e-commerce sales.

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“The manufacturing environment in the third fiscal quarter was healthy,” Gershwind said. He added that the market strength enabled MSC to sustain its pricing levels.

MSC’s e-commerce sales include sales received through its e-commerce site MSCDirect.com and internet-connected vending machines based at customer locations. “The overall trend remains positive and consistent, with e-commerce increasing modestly as a percentage of our overall sales,” Gershwind said.

He added that MSC, with about 65,000 sales agents, is retraining many of its agents to provide a higher level of consulting services to customers and reallocating many of them in particular industry categories to better match selling skills with customer needs.

For example, MSC is clustering salespeople with metal-working expertise to serve one of its strongest niches, Gershwind said. The company’s acquisition last August of Deco, meanwhile, is expanding its reach in the metal-working industry. Products offered by Deco, which operated its own e-commerce site before the acquisition, are being added to the more than 1.5 million SKUs sold on MSCDirect.com.

Another niche is in supplying customized industrial fasteners, which MSC has expanded with its April 2018 acquisition of All Integrated Solutions, or AIS, MSC says. AIS and Deco—which combined accounted for less than $200 million in annual sales before MSC acquired them—are having a positive impact on MSC’s growth, Gershwind said.

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In other trends, Gershwind said MSC has not yet seen a drop in customer demand stemming from increased tariffs that the United States has recently imposed on exports, but that the tariffs were “top of mind” among manufacturers and were beginning to lead to some price increases from suppliers.

MSC’s formal corporate name is MSC Industrial Direct Co. Inc., but it generally uses the name of its largest division, MSC Industrial Supply Co.

For the third quarter ended June 2, 2018, MSC reported:

  • Net sales of $828.35 million, up 11.3% from $743.92 a year earlier;
  • Gross profit of $361.0 million, up 9.6% from $329.50 million;
  • Net income of $79.07 million, up 25.8% from $62.84 million.

For the nine months ended June 2, MSC reported:

  • Net sales of $2.366 billion, up 10.9% from $2.134 billion a year earlier;
  • Gross profit of $1.033 billion, up 8.4% from $952.80 million;
  • Net income of $256.21 million, up 50.1% from $170.68 million.

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