MSC Industrial Supply Co. Inc. reported stronger fiscal Q3 sales as the industrial distributor began seeing benefits from a sales reorganization that weighed on results earlier in the year.

For its fiscal Q3 ended May 30, MSC Industrial Supply reported net sales of $1.047 billion, up 7.8% from $971.1 million a year earlier. That marked an acceleration from 2.9% growth in Q2 and 4.0% growth in Q1.

MSC Industrial Supply did not disclose total ecommerce sales for the quarter. However, president and CEO Martina McIsaac said on the company’s earnings call that daily sales growth on mscdirect.com, MSC Industrial Supply’s B2B ecommerce site, increased at a double-digit rate.

MSC Industrial sales reorganization shows early benefits

The results provide early evidence that MSC’s sales reorganization is starting to support stronger productivity.

Even so, pricing remained the largest driver of the Q3 net sales increase. Price contributed 720 basis points to sales in Q3, said Greg Clark, vice president and interim chief financial officer, on the call. Volumes contributed 50 basis points, he said, marking a return to positive trends during the quarter.

McIsaac also pointed to signs of a broader industrial recovery. She said MSC’s average daily sales outpaced the industrial production index for the fourth consecutive quarter. Volume trends also returned to growth in April and continued through June, suggesting that the company’s initiatives are “starting to take hold,” she said.

During Q2, MSC said the final phase of its sales reorganization caused disruptions as the company simplified its sales structure and cut down on overlapping account coverage. In Q3, McIsaac said that headwind was “largely behind” the company.

Sales per rep per day improved in the high-teens year over year in Q3, McIsaac said. MSC also had 225 fewer employees in the field, she said, while customer touches are rising “through disciplined sales execution.”

“We are fundamentally doing more with less,” McIsaac said.

Additionally, the company has been changing how it trains and manages its salesforce. McIsaac said MSC has rolled out an improved onboarding and training process for new sellers, along with new sales management processes.

The changes are designed to “accelerate growth, reduce attrition, and strengthen our ability to quickly add new sales headcount where we see potential in the market,” she said. MSC is also benefiting from its new sales structure, which eliminated duplicative commissions on the same sales dollar, McIsaac said.

Vending and In-Plant Solutions drive volume

MSC Industrial Supply is also generating more sales from its vending and In-Plant Solutions.

During Q3, the number of vending machines installed at customer sites rose 7% year over year to about 30,800, Clark said. The machines function as automated supply cabinets on factory floors, tracking product usage and helping trigger replenishment orders.

Meanwhile, the number of customers using MSC’s In-Plant Solutions increased 7% year over year to 426, he said. Those programs place MSC personnel inside customer facilities to help manage inventory, purchasing and supply levels.

Looking at sales, average daily sales through vending increased 15% year over year and represented about 20% of total company net sales, Clark said.

Sales to customers with In-Plant Solutions increased 16% and represented about 21% of total company net sales, he said. At the same time, Clark said MSC is applying more “financial discipline” to its In-Plant Solutions, including shifting some lower-return programs “to more cost-effective service options.”

AI and automation remain part of MSC’s cost strategy

MSC Industrial Supply is also continuing to look to AI and automation as it works to restore operating margins to the mid-teens.

Currently, the company’s own benchmarking suggests it remains “relatively heavy” by about 1,000 employees, McIsaac said. Closing that gap will require both growth and changes in how the company works, she said, “with a focus on AI and automation.”

Previously, McIsaac said MSC Industrial Supply is using AI to improve inventory planning, procurement, distribution center operations and sales prospecting.

The company said its AI efforts are already being recognized. In June, MSC received a Verint Global Customer Award for accelerated insights with AI, which McIsaac said reflected the company’s efforts to move the technology “beyond pilots and into real-time use.”

MSC Industrial improves margins and operating expenses

MSC also reported improvements in profitability during Q3.

Gross margin was 41.1%, up 10 basis points from a year earlier. Reported operating margin was 10.2%, compared with 8.5% in the prior-year quarter. On an adjusted basis, operating margin was 10.6%, up from 9.0% a year earlier.

Operating expenses were about $324 million on a reported basis. On an adjusted basis, operating expenses were $319 million, up about $9 million year over year and $11 million from Q2, Clark said.

Still, MSC saw “a sizable improvement” in adjusted operating expenses as a percentage of sales, he said. Adjusted operating expenses as a share of sales declined 150 basis points year over year and 310 basis points from Q2, Clark said.

“This performance was better than expected as sales growth meaningfully outpaced expense growth, driven by our productivity and headcount actions taken over the year,” he said.

Despite elevated fuel costs this year, freight expense was also lower than a year earlier, reflecting “benefits from our various optimization initiatives,” McIsaac said.

Looking ahead, MSC said pricing will remain a factor in Q4. McIsaac said tungsten remains the company’s largest inflation driver, and MSC is planning additional price action in the fourth quarter tied to supplier increases.

Percentage changes may not align exactly with dollar figures due to rounding. Check back for more earnings reports. Here’s last quarter’s article on MSC Industrial ecommerce sales.

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