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MSC Industrial says suppliers starting to raise prices on goods from China

The Melville distributor reported strong gains in sales and earnings, but said it is keeping a watchful eye on trade developments.  Tariffs have not impacted customer demand yet, the CEO says. 

Erik Gershwind, president and CEO of MSC Industrial,

Erik Gershwind, president and CEO of MSC Industrial, at the company's customer support center in Melville. Photo Credit: Barry Sloan

The sales and earnings of MSC Industrial Direct Co. rose in the company’s fiscal third quarter because of a “healthy” manufacturing environment, the Melville-based distributor of industrial tools and supplies said Wednesday.

But in an earnings call with securities analysts, the company also noted it was starting to see some increased prices from suppliers because of trade tariffs on goods from China.

Sales rose 11.3 percent from the year-earlier quarter to $828.3 million. Net income jumped 25.8 percent to $79.1 million in the quarter ended June 2. Earnings per share jumped 27.5 percent to $1.39.

The sales number fell just short of analysts' expectations. MSC's stock closed at $80.86, down  4.5 percent in New York Stock Exchange trading.   A year ago the stock closed at $84.31.

The company, which is co-headquartered in Davidson, North Carolina, said operating income rose 13.4 percent to $115.4 million. That latter number is a direct gauge of how healthy a company’s operations are. And it rose despite the expense of the acquisition in April of All Integrated Solutions, a Wisconsin-based distributor of industrial tools and supplies for about $68 million, the company said.

Erik Gershwind, MSC’s president and chief executive, said “the manufacturing environment in the third fiscal quarter was healthy.”  And he said that “our ongoing productivity efforts” helped to boost results.

But he also said that sales growth fell below company expectations because of a new sales initiative that intensified the company’s focus on solutions and cost savings for customers.  The new model resulted in fewer sales personnel because of “normal attrition," but MSC  has resumed hiring, the company said.

On trade tariffs, Gershwind said it was too soon to predict the impact on MSC. Its suppliers source some of their products from China, the company said.

“Like many others, we are watching the tariff developments closely,” Gershwind said.  “We haven’t yet seen tariffs impacting customer demand, although they are now top of mind for both customers and suppliers and are beginning to impact manufacturing input costs.”

He also said some suppliers are already raising costs. But he added, “As of now, it is too early to predict any longer-term implications.”

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