MSC Industrial Direct FY 2Q16 Earnings Call Notes

Erik Gershwind

The environment remained difficult and root causes haven’t changed

“As expected, the environment remained difficult and the root causes have not changed. Sustained low oil prices and the strong U.S. dollar with its negative impact on export demand continued to be a drag on manufacturing activity. While macro indicators have improved since our last call, they still reflect a significant slowdown in manufacturing with US factory activity continuing to contract.”

Prevailing sentiment is that business will possibly improve

“we just completed a survey of our customers and the prevailing sentiment is that business will at least stay the same and possibly improve in the months ahead. We would certainly like to see a bit more time pass before forming our own conclusions. ”

Pricing environment conditions remain extremely soft

“With respect to the pricing environment, conditions remained extremely soft due primarily to the lack of commodities inflation and a high degree of competitive intensity that comes with a prolonged downturn.”

I wouldn’t say explosive growth, I’d say stabilization

“to me the outlook is less about any sort of explosive growth. The word I would use is potential for stabilization. So things have been at a low level.”

Deflation is causing pricing pressure

” I mean if you look at what’s happened deflation in commodity, so lack of any inflation in this case deflation has resulted in no ability to take pricing. So that’s in these overwhelming headline number one. I guess it depends on your take. From my standpoint that is cyclical, we’ve got decades and decades of history to say that that ebbs and flows.”

Did see aerospace soften a bit mid march

“Anything heavy equipment machine related, infrastructure related, really tough. Aerospace has obviously been a bright spot. We did see, as Rustom pointed out particularly in that mid-March period, we did see it soften a bit.”

There was a softening in March, but we think it’s just timing

“Look, in speaking to customers and government by the way, what we would say is, we also saw really softening in March. As best we can tell, a lot of that has to do with timing. End of March is their quarter end and then there was a squeeze. As best we can tell and we just pulse checked our customers, general sentiment would be things stabilizing. If we looked out to next few months, most felt like stable, maybe some signs of life. Certainly there were some we felt further erosion, but majority not.”

Rustom Jilla

March saw considerable mid month softness

“March started out quite strongly, but we then saw considerable mid-month softness driven by confluence of factors. In terms of end-markets, the extreme pressure in oil and gas and continued challenges in heavy equipment and machinery. Then we also saw some weakness in aerospace driven by a push out in orders of commercial aircraft and in government, the timing of quarter-end budget crunches. Some customers also used spring break to take time off. Finally, if our own recent inventory actions are indicative of the broader supply chain then there was some potential drawdown as well.”