Sign in

You're signed outSign in or to get full access.

MI

MSC INDUSTRIAL DIRECT CO INC (MSM)·Q4 2025 Earnings Summary

Executive Summary

  • Q4 fiscal 2025 net sales rose 2.7% year over year to $978.2M; adjusted diluted EPS increased 5.8% to $1.09, with adjusted operating margin at 9.2% despite tariff-driven gross margin pressure; GAAP diluted EPS was $1.01 .
  • Revenue and normalized EPS exceeded Wall Street consensus; revenue beat by ~$14M and normalized EPS beat by ~$0.06. Management cited price actions and core customer inflection as drivers, while tariffs compressed gross margin to 40.4% in Q4 *.
  • FY26 guidance introduced: Q1 FY26 ADS growth up 3.5%–4.5%; adjusted operating margin 8.0%–8.6%; FY26 D&A $95–$100M, interest/other expense ~$35M, capex $100–$110M, FCF conversion ~90%, tax rate 24.5%–25.5% .
  • Potential catalysts: restoration of core customer growth and margin expansion roadmap, continued high-touch solutions momentum (vending/implant), and CEO transition to Martina McIsaac effective Jan 1, 2026 .

What Went Well and What Went Wrong

  • What Went Well

    • Core customer average daily sales turned positive (+4.1% YoY), supported by website and marketing upgrades; management: “core customer…growth rate inflect and turn positive” .
    • High-touch solutions momentum: installed vending count grew 10% YoY to >29,600; vending ADS +10% YoY (~19% of sales); implant programs +20% YoY to 411 with ADS +11% (~20% of sales) .
    • Cash generation strong: FY25 operating cash flow conversion 169% and FCF conversion 122%; $229M returned to shareholders via dividends and buybacks .

  • What Went Wrong

    • Gross margin fell to 40.4%, down 60bps YoY and sequentially; management cited “tariff-driven purchase cost escalation…faster and hotter than we expected” .
    • Operating margin down YoY: GAAP 8.6% vs 9.5% prior-year; adjusted 9.2% vs 9.9% prior-year, reflecting higher personnel and D&A and mix headwinds .
    • Public sector pacing impacted by government shutdown, turning negative in October vs up low double-digits in September; guidance brackets that uncertainty .

Financial Results

MetricQ2 2025Q3 2025Q4 2025
Net Sales ($USD Millions)$891.7 $971.1 $978.2
Diluted EPS (GAAP, $)$0.70 $1.02 $1.01
Adjusted Diluted EPS (Non-GAAP, $)$0.72 $1.08 $1.09
Revenue Consensus Mean ($USD)$908.3M*$969.2M*$964.3M*
Primary EPS Consensus Mean ($)$0.72*$1.03*$1.03*

Values with asterisk retrieved from S&P Global.

ProfitabilityQ2 2025Q3 2025Q4 2025
Gross Margin %41.0% 41.0% 40.4%
Operating Margin % (GAAP)7.0% 8.5% 8.6%
Adjusted Operating Margin %7.1% 9.0% 9.2%
Customer Type ADS Growth (YoY)Q2 2025Q3 2025Q4 2025
Core Customer-6.8% -0.8% +4.1%
National Accounts-5.4% -1.7% -0.7%
Public Sector+13.2% +2.4% +8.5%
KPIsQ2 2025Q3 2025Q4 2025
Vending Installed Base>28,000 >28,700 >29,600 (+10% YoY)
Vending ADS Growth (YoY)+1% +8% +10%
Vending % of Sales~18% ~19% ~19%
Implant Program Count387 399 411 (+20% YoY)
Implant ADS Growth (YoY)+1% +10% +11%
Implant % of Sales~18% ~19% ~20%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
ADS Growth (YoY)Q1 FY26—Up 3.5%–4.5% New
Adjusted Operating MarginQ1 FY26—8.0%–8.6% New
Gross MarginQ1 FY26—~40.7% ±20bps New
Depreciation & AmortizationFY26$90–$95M (FY25) $95–$100M Raised
Interest & Other ExpenseFY26~$45M (FY25) ~$35M Lowered
Capital ExpendituresFY26$100–$110M (FY25) $100–$110M Maintained
Free Cash Flow ConversionFY26~120% (FY25) ~90% Lowered
Tax RateFY2624.5%–25.0% (FY25) 24.5%–25.5% Maintained
Quarterly DividendFY25 Q4Prior levelIncreased ~2% Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
Digital/web & marketingWeb upgrade launched; conversion and traffic KPIs improving; marketing ROI +20% QoQ Direct traffic, conversion rates improving; cart adds faster; abandoned checkout down Improving execution
Tariffs & price-costSurgical tariff price moves; China direct COGS ~10%; small price benefit; scenario planning Broad-based supplier increases; price +170bps YoY; gross margin miss 50–60bps from cost escalation; additional price moves in Q1 FY26 Intensifying inflation; mitigation in place
High-touch solutions (vending/implant)Install base growth; ADS growth modest; ~18–19% of sales Vending +10% ADS, implant +11% ADS; base expanded; ~19–20% of sales Strong momentum
Public sectorDouble-digit growth; e-comm mix considerations Strong in Q4; temporary October softness due to shutdown; ~10bps margin positive mix Resilient with temporary headwind
Cost/productivity & network optimization$10–$15M annualized savings by FY26; OpEx growth moderating later On track; pipeline building into FY26; incremental margins teens in Q1, ~20% for year at MSD growth Building productivity
End-market mixHeavy manufacturing soft; aerospace strong; auto/heavy truck weak Stabilization in heavy equipment/ag; heavy truck still soft; aerospace strong Mixed/stabilizing
Leadership/organizational changesCIO added; sales coverage optimization CEO transition announced (effective Jan 1, 2026); new SVP Sales & SVP Customer Experience roles Succession underway

Management Commentary

  • CEO: “Average daily sales perform better than expected…improved 2.7% year over year…Core Customer growth rate inflect and turn positive…gross margin came in below our expectations…tariff-driven purchase cost escalation…” .
  • CFO (Q4 highlights): “Adjusted operating margin of 9.2%…exceeded the high end of our outlook by 20 basis points…free cash flow conversion of 122% for the fiscal year” .
  • President/COO: “Installed vending count grew 10% YoY…program count of 411 expanded 20% YoY…gross margins improve off Q4 levels with further pricing moves during fiscal first quarter” .
  • FY26 focus: “Deliver profitable growth…grow to 400 bps or more above IP Index and expand adjusted operating margins to the mid-teens” .

Q&A Highlights

  • Gross margin drivers: unusual surge in supplier increases compressed price-cost; management took additional pricing in Q1 FY26 to restore margins; expect price-cost stability across cycle .
  • Pricing outlook: two low single-digit increases (end of June and Q1 FY26), implying ~4% full-year pricing if sustained .
  • Seller effectiveness: customer touches up double digits; sales per rep per day improved; territory redesign with fewer sellers covering more effectively .
  • Public sector/govt shutdown: September double-digit growth turned negative in October; impact bracketed in Q1 FY26 guide; mix adds ~10bps to margin .
  • Direct-ship orders: minority of sales; correlation with public sector; noted as a piece of Q4 gross margin gap but not a structural headwind .
  • Headcount and OpEx: force reduction among underperforming sellers; OpEx step-ups to moderate in FY26; productivity programs to build .

Estimates Context

  • Q4 2025: Revenue $978.2M vs $964.3M consensus; Primary EPS (normalized) $1.09 vs $1.03 consensus — both beats*.
  • Q3 2025: Revenue $971.1M vs $969.2M consensus; Primary EPS $1.08 vs $1.03 consensus — in line/slight beats*.
  • Q2 2025: Revenue $891.7M vs $908.3M consensus (miss); Primary EPS $0.72 vs $0.72 consensus (in line)*.

Values retrieved from S&P Global.

MetricQ2 2025Q3 2025Q4 2025
Revenue Consensus Mean ($USD)$908.3M*$969.2M*$964.3M*
Revenue Actual ($USD)$891.7M $971.1M $978.2M
Primary EPS Consensus Mean ($)$0.72*$1.03*$1.03*
Primary EPS Actual ($, normalized/adjusted)$0.72 $1.08 $1.09

Key Takeaways for Investors

  • Q4 inflection evident: core customer ADS growth +4.1% YoY and normalized EPS +5.8% YoY, with revenue and EPS beating consensus; pricing contributed +170bps YoY *.
  • Tariffs are the key swing factor: compressed Q4 gross margin to 40.4%; further pricing taken in Q1 FY26 should restore price-cost, but supplier inflation cadence remains fluid .
  • High-touch solutions scaling: vending/implant penetration rising, expanding share capture potential when volumes recover; sticky programs provide operating leverage as activity normalizes .
  • FY26 setup: Q1 ADS growth guide up 3.5%–4.5% and adjusted OM 8.0%–8.6%; full-year FCF conversion guided lower (~90%) as working capital supports growth, but balance sheet remains healthy .
  • Expense discipline and productivity: OpEx increases expected to moderate with $10–$15M supply chain savings building; management targets ~20% incremental margins at MSD growth .
  • Public sector is resilient but temporarily constrained by the shutdown; expect recovery post-resolution; mix is slightly margin accretive .
  • Leadership transition is orderly; CEO succession to Martina McIsaac with sharpened focus on sales excellence and customer experience — a narrative positive for execution .

*Values retrieved from S&P Global.