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MI

MSC INDUSTRIAL DIRECT CO INC (MSM)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY25 net sales were $0.892B (-4.7% YoY) with GAAP EPS of $0.70 and adjusted EPS of $0.72; gross margin held at 41.0% and adjusted operating margin was 7.1%, slightly above guidance midpoint .
  • Versus S&P Global consensus, revenue missed ($908.3M* vs. $891.7M) and GAAP EPS was modestly below ($0.72* vs. $0.70); adjusted EPS aligned with consensus ($0.72* vs. $0.72) .
  • Management introduced Q3 FY25 guidance of ADS growth -2.0% to 0.0% and adjusted operating margin 8.7%–9.3%; full-year D&A, interest/other, capex, FCF conversion, and tax rate were maintained .
  • Call catalysts: early progress from web upgrades and enhanced marketing, strong Public Sector growth (+13.2% YoY), tariff-driven pricing playbook, and expected sequential margin lift in Q3 despite macro uncertainty .

What Went Well and What Went Wrong

What Went Well

  • Public Sector strength with ADS up 13.2% YoY; vending and In-Plant both up 1% YoY and each ~18% of net sales in Q2 .
  • Gross margin resilience at 41.0%, with 30 bps sequential improvement aided by supplier rebates and execution; adjusted operating margin at 7.1% slightly above guidance midpoint .
  • Strategic initiatives executed: website upgrades (faster product discovery, single-page checkout), enhanced marketing launched, and solutions footprint expanded (In-Plant programs +24% YoY to 387; vending >28,000 machines) .

What Went Wrong

  • Top line softness: net sales -4.7% YoY, National Accounts -5.4% YoY, Core/Other -6.8% YoY; macro in heavy manufacturing remained weak (auto and heavy truck notably soft) .
  • Operating expense mix pressure: adjusted OpEx up ~$11M YoY, lifting adjusted OpEx as % of sales by 270 bps; GAAP operating margin fell to 7.0% (from 9.7% YoY) .
  • E-commerce down 4% in Q2 with mix headwinds (public sector less e-comm intensive); website sales only half of e-commerce, limiting immediate digital offset to macro softness .

Financial Results

MetricQ2 2024Q1 2025Q2 2025
Net Sales ($USD Millions)$935.3 $928.5 $891.7
Diluted EPS (GAAP)$1.10 $0.83 $0.70
Adjusted Diluted EPS ($)$1.18 $0.86 $0.72
Gross Margin %41.5% 40.7% 41.0%
Operating Margin % (GAAP)9.7% 7.8% 7.0%
Income from Operations ($USD Millions)$91.2 $72.3 $62.2
Consensus vs. Actual (Q2 2025)ConsensusActualSurprise
Revenue ($USD Millions)$908.3*$891.7 -$16.6 (-1.8%)
Primary EPS ($)$0.723*$0.70 -$0.023
Adjusted EPS ($)$0.723*$0.72 ~$0.00
EBITDA ($USD Millions)$84.4*$86.6*+$2.2 (+2.6%)*

Values retrieved from S&P Global*

Segment/KPI detail:

KPI / SegmentQ1 2025Q2 2025Notes
Public Sector ADS YoY+9.8% +13.2% Continued momentum
National Accounts ADS YoY-1.6% -5.4% Weaker end-market demand
Core/Other ADS YoY-5.3% -6.8% Macro softness
Vending Share of Net Sales18% 18% ADS up 1% YoY in Q2
In-Plant Share of Net Sales17% ~18% ADS up 1% YoY in Q2
In-Plant Programs369 387 +24% YoY
Installed Vending Machines>27,000 >28,000 +9% YoY

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
ADS Growth (YoY)Q3 FY25N/A-2.0% to 0.0% Newly introduced
Adjusted Operating MarginQ3 FY25N/A8.7% – 9.3% Newly introduced
Gross Margin (assumption)Q3 FY25N/A~40.9% ±20 bps (sequential rebate benefit fades) Modeling color
Depreciation & AmortizationFY25~$90M–$95M ~$90M–$95M Maintained
Interest & Other ExpenseFY25~$45M ~$45M Maintained
Capital ExpendituresFY25~$100M–$110M ~$100M–$110M Maintained
Free Cash Flow Conversion (adj)FY25~100% ~100% Maintained
Tax RateFY25~24.5%–25.0% ~24.5%–25.0% Maintained
Quarterly DividendQ2 FY25Prior cadence only$0.85/share declared; payable Apr 23, 2025; record Apr 9, 2025 Declared

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY24, Q1 FY25)Current Period (Q2 FY25)Trend
Tariffs/MacroPrepared for tariff impacts; soft heavy manufacturing; Mission Critical priorities outlined Pricing playbook enacted; small March price increase (~0.5 pt topline); China ~10% of COGS, importer-of-record <5% COGS; auto/heavy truck soft; aerospace robust Elevated tariff focus; cautious macro
Digital/Web & MarketingWeb performance, navigation and product discovery improvements underway; enhanced marketing to launch late Q2 Upgrades completed; faster search, visual comparison; single-page checkout; early KPI progress (conversion rate, website revenues) Execution progress; KPIs improving
Solutions Footprint (In-Plant/Vending)Installed base expanding; Q1 vending ADS +5%, In-Plant ADS +5%; sticky programs Programs expanded (In-Plant 387; vending >28k); ADS +1% YoY each amid demand softness; long-term margin accretion expected as demand normalizes Continued expansion; near-term mix pressure
Network Optimization/CostTarget $10–$15M annualized savings by FY26; inventory planning and freight optimization On track; $10–$15M annualized by FY26; supplier rebates boosted gross margin in Q2; productivity supporting OpEx Steady execution
Public SectorRebuilt coverage; Q1 ADS +9.8% Q2 ADS +13.2% YoY Strengthening

Management Commentary

  • “Average daily sales declined 4.7% year-over-year, but we are encouraged by January and February performance which exceeded historical month-over-month trends… our strong gross margin performance, partly aided by favorable supplier rebates, resulted in an operating margin of 7.0% and adjusted operating margin of 7.1%, slightly above the midpoint of our guidance range.” — CFO Kristen Actis‑Grande .
  • “We continued expanding our solutions footprint, maintained momentum in the Public Sector, and completed important milestones in reenergizing our core customer growth rate… launching our website upgrades and an enhanced marketing campaign.” — CEO Erik Gershwind .
  • “We offer over 200,000 Made in USA products… 40,000 are our own exclusive branded products… lower price points… and gross margin accretive.” — President/COO Martina McIsaac .
  • “Looking forward, this will strengthen MSC’s position… and ability to achieve our long-term objectives of reaching 400 basis points or more of growth above the IP Index and expanding operating margins to the mid-teens.” — CEO Erik Gershwind .

Q&A Highlights

  • Top-line cadence and back-half outlook: March ADS improved ~1.3% YoY (Easter timing adds ~200 bps benefit); Q3 guide assumes flat to Q2 with room for macro softening; share-gain initiatives expected to help .
  • Margin bridge: Q3 gross margin guided ~40.9% ±20 bps; supplier rebates from Q2 won’t repeat; productivity offsets mix headwinds; variable OpEx modeling rule-of-thumb 8%–10% of revenue change for H2 .
  • Tariff pricing actions: Late March price increase (~0.5 pt topline); importer-of-record exposure <5% of COGS; broader supplier GPIs could drive general price increases; mix shift toward Made in USA and private brands planned .
  • Digital KPIs: Conversion rate and average order value showing early positive momentum; sequential increases in website revenues; website accounts for ~half of e-commerce .
  • End-market color: Auto/heavy truck remain very soft; aerospace outlook robust; no outsized prebuying detected .

Estimates Context

  • Q2 FY25: Revenue $908.3M* consensus vs $891.7M actual (miss); GAAP EPS $0.723* consensus vs $0.70 actual (miss); adjusted EPS ~$0.72 actual aligned with consensus* .

  • of estimates: EPS (10), Revenue (9); FY25 consensus EPS $3.68 and revenue $3.75B* (context for full-year positioning).

Values retrieved from S&P Global*

Implications: Street likely trims near-term revenue and GAAP EPS on macro softness and e-comm mix, but may lift margin expectations for Q3 on guided 8.7%–9.3% adjusted operating margin and productivity execution .

Key Takeaways for Investors

  • Q2 print was operationally solid within guidance, with gross margin stability and adjusted operating margin slightly above midpoint; revenue/GAAP EPS modestly below consensus amidst heavy manufacturing softness .
  • Sequential uplift expected in Q3 margins (adjusted OM 8.7%–9.3%) despite limited top-line growth, supported by productivity, pricing actions, and less rebate benefit vs Q2 .
  • Public Sector strength and expanding solutions footprint (In-Plant, vending) provide durable growth levers; mix pressure short term, but strong operating margin potential as demand normalizes .
  • Tariff playbook (pricing, assortment, Made in USA/private brands) and scenario planning should mitigate cost pressure; watch for general price increases from suppliers and customer mix effects .
  • Digital/web upgrades and enhanced marketing showing early KPI improvements; traction in conversion and site revenues could accelerate core customer growth later in FY25/FY26 .
  • Balance sheet remains healthy; Q2 shareholder returns of ~$60M (dividends and buybacks) and FY25 FCF conversion target ~100% maintained .
  • Trading setup: near-term revenue headwinds likely cap multiple expansion; upside thesis hinges on execution in core growth (digital/marketing/sales optimization) and margin uplift as productivity scales and end-markets recover .