A lot has been written about the increase in business confidence and the projections for a pickup in the industrial economy. Today, MSC Industrial Supply (MSM 102.67), which is a North American distributor of metalworking and maintenance, repair, and operations ("MRO") products and services, helped validate such reports after releasing its fiscal second quarter results.
The proof, as they say, was in the numbers. The pudding, however, was in the company's qualitative guidance.
For its second quarter ended March 4, 2017, MSC reported a 2.9% jump in net sales of $703.8 million. That was above analysts' average expectation, and while the growth itself was not robust, it represented an important inflection point as the company's average daily sales had declined for five consecutive quarters.
Capitalizing on an efficient operating model, that modest sales growth fueled an 8% increase in operating income and an improvement of approximately 50 basis points in the operating margin rate of 12.3%. MSC's diluted earnings per share increased 16% to $0.93, bolstered in part by share buyback activity and a share-based compensation tax change. MSC also exceeded analysts' average earnings per share expectation.
In the press release, MSC management acknowledged that the business environment improved during its fiscal second quarter and that the momentum sustained into March. Most of the company's customers, it was said, continued to express an improving outlook, particularly those in MSC's core metalworking market.
With the latter in mind, MSC is forecasting fiscal third quarter net sales to be between $734 million and $748 million, with average daily sales up roughly 3.5% at the midpoint of that range. Diluted earnings per share are anticipated to range from $1.05 to $1.09 versus $1.05 in the same period a year ago.
The respective guidance ranges are in-line with analysts' average expectations, yet MSC conceded that, as it looks to the future, it sees a strong growth and leverage story playing out, particularly if inflation tailwinds continue to build as expected.
Shares of MSM, which are up 11.1% year-to-date and 40.3% over the last 52 weeks, are trading 2.8% higher in pre-market action. Based on yesterday's closing price, they are trading at 26x trailing twelve-month earnings.