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MSC Industrial Direct Co. Inc. Reports Operating Results (10-K)

October 31, 2012 | About:
10qk

10qk

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MSC Industrial Direct Co. Inc. (MSM) filed Annual Report for the period ended 2012-09-01.

Msc Industrial Direct Co., Inc. has a market cap of $4.44 billion; its shares were traded at around $74.6 with a P/E ratio of 18 and P/S ratio of 2.2. The dividend yield of Msc Industrial Direct Co., Inc. stocks is 1.4%. Msc Industrial Direct Co., Inc. had an annual average earning growth of 17.2% over the past 10 years. GuruFocus rated Msc Industrial Direct Co., Inc. the business predictability rank of 3-star.

Highlight of Business Operations:

Operating expenses increased 12.7% and 12.6% in fiscal years 2012 and 2011, respectively, as compared to fiscal years 2011 and 2010. This is a result of the increased sales volume related expenses (primarily payroll and payroll related costs and freight expenses), costs associated with our investment programs, acquisition-related operating expenses as well as additional costs associated with the extra week in fiscal 2012. In addition, we incurred operating expenses of approximately $1.2 million in fiscal 2012 related to the establishment of our new co-located headquarters in Davidson, North Carolina. The increase in payroll and payroll related costs in fiscal 2012, as compared to fiscal 2011 is primarily a result of the additional sales associate headcount and increased fringe benefit costs. The payroll and payroll related costs increase in fiscal 2011, as compared to fiscal 2010, primarily resulted from the additional sales associate headcount, as well as increased sales commissions, the reinstatement of our matching contribution under our 401(k) savings plan, and increased other fringe benefit costs. Medical costs of our self-insured group health plan increased in fiscal years 2012 and 2011 as compared to the prior year periods as a result of the increased number of medical claims filed by participants. In fiscal 2012 as compared to fiscal 2011, the average cost per claim also increased. Our income from operations as a percentage of net sales increased to 17.5% for fiscal 2012 from 17.3% for fiscal 2011 as a result of benefits realized from increases in productivity investments and leveraging existing infrastructure, partially offset by the decline in our gross profit margin. Our income from operations as a percentage of net sales increased to 17.3% in fiscal 2011 as compared to 14.3% in fiscal 2010, as a result of increases in gross profit margin, benefits realized from productivity investments, and leveraging existing infrastructure, which were partially offset by an increase in operating expenses.

averaged 52.0% during our fiscal year 2012. Details released with the most recent index indicate that economic activity in the manufacturing sector related to new orders, employment, and inventory, are growing whereas production is contracting. There remains uncertainty relating to the current economic environment as the recent measurement trend indicates that the manufacturing sector is contracting. The ISM was trending above 50.0% during the first nine months of our fiscal year 2012 and dropped below 50% in June 2012 for the first time since July 2009 and remained slightly below 50.0% during our fourth quarter of fiscal 2012. This recent declining trend has contributed to heightened caution about future growth rates of the U.S. manufacturing economy. There are increasing concerns relating to macroeconomic factors and the potential impact of the European debt crisis on the U.S. Also, current high unemployment rates, uncertainty relating to the upcoming presidential election, and the instability in the housing market may influence our customers to become more cautious in their purchases of MSCs products. In addition, growth in sales to governmental agencies continues to be constrained by the government spending environment. Sales to our government accounts represented approximately 9% of our total sales for the fiscal year ended September 1, 2012. We are continuing to take advantage of our strong balance sheet, which enables us to maintain or extend credit to our credit worthy customers and maintain optimal inventory and service levels to meet customer demands during these challenging economic conditions, while many of our smaller competitors in our fragmented industry continue to have difficulties in offering competitive service levels. We also believe that customers will continue to seek cost reductions and shorter cycle times from their suppliers. Our business model focuses on providing overall procurement cost reduction and just-in-time delivery to meet our customers needs. We will seek to continue to drive cost reduction throughout our business through cost saving strategies and increased leverage from our existing infrastructure, and continue to provide additional procurement cost savings solutions to our customers through technology such as our CMI, VMI, and vending programs.

through all eCommerce platforms. The new measurement for the fourth quarter of fiscal 2012, which measures all sales made through our eCommerce platforms, includes sales made through EDI systems, VMI systems, XML-based systems, vending machine systems, hosted systems and other electronic portals. Because sales made through these other electronic means, have a similar cost-efficiency profile to sales made exclusively through the MSC Websites, we believe that providing a consolidated measurement of all sales made through our eCommerce platforms will provide investors with a meaningful perspective on, and best reflect how management views, our ordering productivity. Sales made through all of our eCommerce platforms were $966.0 million in fiscal 2012, representing 41.0% of consolidated net sales, compared to $809.7 million in fiscal 2011, representing 40.1% of consolidated net sales.

Income from operations for fiscal 2012 was $412.2 million, an increase of $62.5 million, or 17.9% as compared to fiscal 2011, and as a percentage of net sales, increased to 17.5% in fiscal 2012 from 17.3% in fiscal 2011. The dollar increase in income from operations for fiscal 2012 was primarily attributable to the increase in net sales and gross profit, offset in part by the increase in operating expenses as described above. For fiscal 2012 compared to fiscal 2011, income from operations as a percentage of net sales increased due to the distribution of expenses over a larger revenue base, partially offset by the decrease in the gross margin percentage.

Income from operations for fiscal 2011 was $349.8 million, an increase of $107.9 million, or 44.6% compared to fiscal 2010, and as a percentage of net sales, increased to 17.3% in fiscal 2011 from 14.3% in fiscal 2010. The dollar increase in income from operations for fiscal 2011 was primarily attributable to the increase in net sales and gross profit, offset in part by the increase in operating expenses as described above. For fiscal 2011 compared to fiscal 2010, income from operations as a percentage of net sales increased due to productivity gains, the distribution of expenses over a larger revenue base, in addition to the increase in the gross margin percentage.

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