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MSC Industrial earnings jump; tariff exposure 'low'

Erik Gershwind, president and CEO of MSC Industrial

Erik Gershwind, president and CEO of MSC Industrial Supply, in Melville on Sept. 19, 2016. Credit: Barry Sloan

Fiscal fourth-quarter sales and net income jumped at MSC Industrial Direct Co. because of a stronger manufacturing environment and two previously reported acquisitions that continue “to perform well,” the Melville-based company said Tuesday.

In a morning earnings call with analysts, the company said its exposure to tariffs resulting from the U.S.-China trade dispute was minimal, and it expected that exposure to decline.

The distributor of industrial tools and supplies, which does business as MSC Industrial Supply, said sales for the quarter ended Sept. 1 rose 11.2 percent to $838 million. That number came in just shy of the $838.9 million consensus estimate of a panel of analysts surveyed by Bloomberg. Net income jumped 20.2 percent to $73 million. Per-share earnings rose 20.6 percent to $1.29.

"The manufacturing environment maintained its positive momentum in the fiscal fourth quarter, while pricing remained relatively stable,” Erik Gershwind, president and chief executive officer, said in a statement.

In a morning conference call with analysts he noted that “our two acquisitions continue to perform well, with DECO continuing to exceed our initial expectations and AIS off to a solid start.”

MSC, which also has a headquarters in Davidson, North Carolina, acquired Iowa-based Deco Tool Supply Co.  in July 2017. In April it bought All Integrated Solutions, a Wisconsin industrial-parts distributor.

Gershwind said the company’s continued focus on productivity helped to control expenses.

“Overall there is a sense of excitement here about our direction and momentum,” he told analysts.

Regarding the effect of the U.S.-China trade dispute, Gershwind said that between goods the company imports from China and products it brings in from multiple sources, including China, its potential exposure to tariffs is slightly more than 10 percent of the cost of goods MSC sells. But less than half those goods are subject to tariffs, lowering the company’s exposure to cost increase to under 5 percent of its total cost of goods, he said. 

“It is fair to say that our exposure to China is low, and it will almost certainly decline as the supply chains and sourcing adjust to the impact of tariffs,” he said. “There is some flexibility in the supply chain. We can give our customers many alternatives to products sourced from China.”

For the year, sales rose 10.9 percent to $3.2 billion, with net income rising 42.3 percent to $329.2 million.  

MSC shares closed up 6.65 percent to $81.62 on Tuesday.  

CORRECTION: MSC Industrial bought Deco Tool Supply Co. in July 2017. An earlier version of this story online gave the wrong date.

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