MSM - Earnings call transcript Q2 2020 | MSC Industrial Direct Co., Inc.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning, and welcome to the MSC Industrial Supply 2020 Second Quarter Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to John Chironna, Vice President of Investor Relations and Treasurer. ahead. go Please

John Chironna

good Officer and Erik our Gershwind, Thank on morning, the Executive is call Chief you, everyone. with me.

We remote. are

with call the in us, will bear back of drops, dial course. So we if

in our of we on call, the be our various management that refer During our both the well of today's slides as will presentation as found section website. statistics, financial Investor to and Relations data operational comments can accompany which

Litigation statement Let of Reform me Securities safe the Act harbor under reference XXXX. Private our

Risk noted the press the on XX-K as obligation SEC reliance our undue other are with in to earnings in the place our filings. Our this information as forward-looking no our as COVID-XX. results as we forward-looking and update regarding including from of by comments are and involve based including those well strategic are statements. annual not of the market Company expectations ability contain these our actual results, these laws, forward-looking the release on to could statements our within statements comments well from our Information website, expected investment include guidance Form the from to and These call, to these filed the about These statements. share on assumes on expected future the about uncertainties sections that forward-looking and potential results risk impact expectations, anticipated our These statements. report U.S. risks cause securities providing supplemental on factors SEC benefits plans, statements expected current acquisitions. is on cautioned latest MD&A risks of materially meaning the gain and differ and these Factors Investors

I'll now to turn call Erik. over the

Erik Gershwind

you thank today Thank these joining and us John. Good morning, during unprecedented everybody times. for you,

for all doubt wishes of begin dealing sharing start mind get of by families the an we me and safe now, so with with and is to COVID-XX no my how to me issue. right you top you Let before healthy. are your this expressing best into by let we of stay to quarter, us overview

We've to the of effort period continuity navigate company-wide launched help this through business uncertainty. a business us

imagine, are just now plan likely for constant our full stakeholders, communication As team's contingency associates, is attention extended our we the you right our economy. be and getting suppliers leadership to disruption to in can our an our customers, we as what with

their priority one our of and is associates and partners. customers number our Our the safety families, our other health and

home, who are in associates our from can corporate so do particularly working functions. So those

essential continue centers business, we be to operate As so are an our we to those centers distribution associates customers. our fulfillment serving are on-premises continuing or customer

shipping with we frontlines the This facilities. instituted battle outbreak. timely of while some cleanings equipment We've including to health safety frequent creative this is particularly running and important of and helping to nation's keep our of protective our are additional and safety enhanced the use procedures we sourcing, the because team, all safeguard

we do our Given to many services plans centers. have response frontlines time COVID-XX, not the the to we on that shutdown of essential to any fulfillment providing this at organizations are customer

we are we with operating the and contact health them of follow close across footprint. of However, will, guidance in officials our course,

in travel eliminated order We health have essentially all safety. ensure and to

spending only reducing across operating moving also ahead company, the capital more critical. that is broadly deemed are We on spending and

including more. cut resources, hiring, ceased like all expenses items on consulting have outside We and

it deteriorates well-developed we further may. contingency Looking here the if as well costs very from ahead, reduce to have plans situation

have am how our I of proud up this time during stepped of uncertainty. associates unprecedented

day. associates the Our out product getting warehouse continue every door

with frontlines the on remain the teams service company and sales of Our face our customers. the

moved in going. is team coming customers entire And that scarce to team are access. nearly speed safety find to and management janitorial work keeping products has enable our remote up category Our company miracles our the with with IT

turn more in call, the some our share now closed but I'll fiscal later detail February. end will second actions our at quarter to the We of on that we

to MSC on the that we on We as our continued the During manufacturing critical three focus industrial the partner operating over mission supplier reposition expansion. plan, to effectiveness of journey expenses. a the of couple are and programs remained on of progress plant quarter, discussed by we've calls, operating ultimately customers. initiatives and profitability those the margin and improving last the our sales to stability restore improving productivity And refining reducing floor

fiscal roughly refining continued was quarter. we force growth. during sales our second the preparing flat and Sales headcount First, to accelerate

though, or increased that we've CCSG business areas priorities. of and investment other talked into about roles the in couple growth Importantly, such development as headcount we the hunter a

wins on business continued and remained a new strong pace plan. at Our

While encouraging, gap that be will realized the market. measure we our ultimate growth above

our as Our on track. improving second in do however, back COVID-XX mute and of ripple hence, million resulting fiscal benefit near-term equally remains our the program and overall roughly We and $XX improvements, levels our annualized about in supplier we've initiative negotiated Recall payouts, of The is rebate between XXXX. expect, the the fiscal purchase profitability XXXX down. of the programs. that split the could half economic that some profit come

to and The reduce fiscal XXXX is our third improve initiative expenses realigning model operating productivity.

with end and for offering others. intensity some up at some of our the early ratcheting fiscal associates this voluntary management performance retirement to that recall XXXX You'll of began

was We also positions selectively where eliminated our changing. focus

that began roles, in continued as and we our fiscal selectively certain quarter of second customer-facing All hiring mentioned. I into

a ratio. the of points basis OpEx by we our model sales to align path also hypothesis productivity, additional the to operating to We opportunities the our improved as exercise hundred measured That and assessment new of strategy. that to our couple continued see confirmed

as until could identified required and meetings, they on you travel down. the initiatives of team so Many settle pause imagine, are things

improvements speak. other moving are we indirect are some as such there However, savings and procurement initiatives contract forward as that

led Our transformation being Kari by effort is Heerdt.

right quarter. review interim doing CFO, We'll then in environment been a his to out it Greg quarter the caution, that staying to then fiscal an now as the home, turn I'll over wrap the open job to and our now expected. under would second turning of he our note things and up John abundance providing team great and results have Clark, questions. of details an of is I before on for up financial weather and update the finance

Our expenses quarter this gross than margin midpoint, fiscal it. second gross with in was results to sales the mentioned came the operating guidance our and execution share and of of of guidance our our margins guidance also told, the our despite ranges $X acceleration below reflected review environment. midpoint uncertain related above operating while All the better margin Both was range. per Operating were solid of fees within in consulting and sales at falling both an that the I came earnings extra roughly earlier. million an midpoint model

Turning us. start We not which MBI environment. demand no and to of XX.X of the points data overall the but one to the the readings a erased surprise to March reading February Industrial by was, did COVID-XX couple did encouraging of with unfolded remained with relatively saw improving doubt trends course, for quickly see soft. quarter January you outbreak, this XX.X, and

and softness industrial COVID-XX. terms pockets the in Aerospace In in developments and oil has gas, in with weakened brought heavy and end weakness truck, to building demand markets, concerns areas agriculture. the also of around due of like automotive, the Boeing further

environment, from price been suppliers increase our pricing the continue With regard a we March. midyear list and quarter our beginning fiscal has we at the good. beginning took the to quite of of third movements to price see or Realization

the seen past we've In over good several as fact, anything as years.

customers levels weighed feels remained Turning so to to our the To though, National of by down the in which digits in teens, the while this spot down most ancient mid-single portion to like metalworking, customer honest, levered core sales deteriorated of heavily bright declined accounts in CCSG low-single performance and overall declined the digits, type. our history. is no low all business be that the low-single Government surprise. growth growing digits. growth. the

I'll we acceleration since is more what because are of COVID-XX. fiscal March reflective it March, now turn seeing to the of our

few overall, March’s note trends there sales are our a surface. While at in the negative estimate to came X.X% important fiscal under

the a prior customer there. low-single April, three of given were runs two. drop from across the accelerated last two our nation. there's saw big I'll And and the last a between April. last and revenues This Through the rapidly over three shutdowns actually then into began our shutdowns days big the up remind weeks spread first the weeks three auto as calendar discrepancy just We that of runs so First, included March in you first big year. off with digits the three week weeks, fiscal

substantial weeks. Once over and sales and other with prior line the sales customers. we note drop a saw janitorial At two big a not the The particularly control surprisingly products through again, is surged I'd Large to surprising efforts second declines product the our point given performance. and same worldwide neither with COVID-XX. time, that lines month safety last in of orders government shutdowns discrepancy in saw the year, double-digit product is

times. gap our these calls, not bookings I'll Third revenues, an or these unusually and Normally we but between discuss normal what only thing note, we saw are we big orders invoiced. on

Our orders year. prior were the bookings digits over or March for high-single up

of year, last bookings prior In March. weeks fiscal fact, the our were our during two over up even

to where during to of in June, longer growth year. we to The April, majority large bookings We offer us This surge bookings versus yet in that in supplier backlog gap and invoice scarcity would function softness of lead come. a bookings additional May, some large the prior to unusually any times began be orders, is anticipate revenues janitorial tailwind months growth a of our and a in warehouses. safety the larger-than-normal and February gap the may that revenues of in actually buffer of bookings also over which these saw own product,

back and I'll come now over concluding to John I'll then things some turn remarks. with

John Chironna

you, Erik. Thank

get numbers. me let right QX into the So

an daily basis was points XX quarter. acquisitive below X.X% XX the Our million, a the on quarter were sales decrease range. approximately total $XX.X contributed Mexico negative overall of ADS growth guidance last X.X% versus basis the points in decrease MSC of in midpoint basis same of The our year. average ADS

points half was Our above prior gross margin year, QX margin roughly XX.X%, down basis of Mexico higher vendor range, XX roughly accounting reported decline. reflecting Versus for rebates. our guidance basis points midpoint the the XX was with gross of

gross escalation due margin As margin price to year-over-year of cost showed nice expected, realization. benefit continued strong continued shrinking the as March decline to wane. the gross performance purchase

due QX as to model million of that of the was that our included $X Erik the this to expenses out about expected were the of million, operating other million that review while related operating than of guidance, point in expense slightly investments $X our QX work. acceleration sales. Total was earlier. of productivity I'll OpEx lower $XXX mentioned a percentage in million

As going these us. now, resume become on out we this are is provide spend slowing Erik visibility. reported work Therefore, type mentioned, it expenses forward, additional expect our more once should material of to our to you we behind right will of earnings we break them but COVID-XX

was guidance versus Moving of margin on, X.X% our X.X%. operating

for rate line tax in Our the quarter prior was and with guidance the year. first XX.X%

this of earnings per All of share $X. resulted in

would through Normally, sheet discussion. the take the you in we balance at point this

where I'd of to our on in this end about to balance uncertainty. now we continuity we answer and the the may ensure business XX-Q time today we numbers taking the of questions where and QX. that you and However, course, are, like happy of are are we QX resilience at stood sheet actions any of are focus have and to filing, The press that as release during

in from drew managing we we are liquidity. liquidity down of last downturn to weeks very our and million that ensure our we two the in the sales revolving facility credit With March, $XXX saw closely greater

card the the pushed have we to approval Most the being are new and closely. side customers. existing On managing carefully credit of customers business, payments credit receivable process are been allocating inventory we toward

large are non-cancellation collections We on coming most from the relatively orders remained customers. and longstanding have government of have implemented large policies orders Many strong.

we will that in strong to comes you will heard closely, differentiator, can us times, booking it levels quickly. we and through say we further, have a use and our as difficult competitive are March. our adjust before have environment the levels inventory Should watching levels When inventory, remember, but weaken remained

levels suppressed, continue have to volumes inventory several bring down assuming so In order buying doing fact, take adjustments down. we levels already remain made we'll in to and

give that the On and we a pushed will side, front payable continue us suppliers offering basis, Those on of position. paying timely and timely the delivery suppliers those deep a terms good discounts line. to particularly preferential the be

our dividend. ordinary Turning to

dividend our business the running continue level all severe in scenarios. current to the liquidity and ample have paying but We of most the

cash the numerous XX% liquidity to actions levels, decline negative. and in our before analyses revenues given range multiple XX% We down we have have sustain additional turn could best would our somewhere conducted operating take would case sensitivity of worst cost these position. to and At quarters flow and

I'll Erik. back over to now turn it

Erik Gershwind

John. Thanks

including not Given provide have changing, the would value. unprecedented right think facing that all of fast just going things forward the uncertainty and we that lack we do now, visibility much we are that how guidance quarterly are

understand we for for However, stakeholders, all and including need now our right analysts. the of investors transparency our

average So of we've quickly comments following until close sales as the well over we get developments heightened be updates the through providing as seen end as daily as business this course the month. on period that we'll trends our of uncertainty, on possible monthly month

thoughts. closing some I'll offer

confident the right associates, to safety customers the time, are to economy in keeping is on continue our play critical right this the that am serving to our focus our Our things we health protect I impact and of manufacturing the COVID-XX. and doing part of now and navigating running.

our all to and come thank address our that face. together challenges us team customers and of who've I appreciation this supply partners to for our chain all I extend entire the this

impact it get of the ultimately on COVID-XX industrial will better, will before likely things worse economy the While get better. gets

times through has difficult been before. MSC

playbook, values. in our statement We time-tested and will on our ourselves anchoring lean our mission

times, We critical supporting to these through will strategy our customers advancing suppliers mission the continue our plant our floor. and tough on become while

but will we emerge ultimately culture stronger strong our company. this mean survive, will not MSC and Finally, only our a sheet, from as resolve that balance

now questions. open We'll the line for up

Operator

question-and-answer question today of the Merkel [Operator begin now from comes Blair. Please will The session. We ahead. Instructions] first Ryan William go

Ryan Merkel

Hey, thanks. Good all. morning

John Chironna

morning. good Ryan,

Erik Gershwind

Ryan. morning, Good

Ryan Merkel

a want sense the off, better into line through April. March first I So sales get early of to and trend

digits, weeks And really, the first two in the but of I'm wondering up three just what line for worse? reaching April whole and weeks were how kind low-single is be. getting said a could the trend happened of on read You I'm any March last lot bad

Erik Gershwind

Yes. Ryan, sure.

three and which, the So invoicing don't mentioned, weeks, first discussion usually, then do into what out booked on talk as we this mentioned, I'll orders, March yes, about as we call, the these split I is and digits. was weeks. two first Invoicing those the you wouldn't I two times. the falling average say weeks through do unusual low-single certainly are three weeks last but math, it digits, the can progressively dropped into last double but

I’d in March thing for us week other three included of us the last Ryan, And April, is for days note, that April.

out a getting you're week discernible and week April. March. for in So taste And I difference five call any wouldn't four between

are the We of fiscal week our in now first April.

So our weeks two days from And I it's side. two for worth, it of different have two anything days the the call wouldn't what we invoicing belts. literally note. prior under the That's for

weeks. the obviously, orders would we’re of what as But weeks through doing. that single-digit, in were indicator Bookings what's booking call month, mentioned, Ryan, will up the the we're month year-on-year, it The most it's high first will. look we'll and as forever, On and side, how those said that up, even thing those a for last believe my up because we interesting, three the which being out certainly we the I come we leading I two for invoicing as as mean stronger catch business fiscal buffer. this at and usually – provide long

I'd So would that through the be you month. give the color

Ryan Merkel

Okay.

is it, it's – the to not here days. off yes, in the So XX line bottom falling last, aren't seven sales dramatically call

think… I

Erik Gershwind

see as But between week correct. April, I March, of five big and certainly it relative two straight I line weeks, the wouldn't I of again step to a say week down, trend crept four three wouldn't into which the down. mean, first weeks

Ryan Merkel

do I math, assume continued quantify sales a could then how I follow-up I as could back And well. but Okay. on of order are can there. you order get? probably the this back And April big as into the that mean, the has March?

Erik Gershwind

mean, then a number, quite dollars. between That's the you a invoicing just and the you said, the on difference of X.X – give a on bit you minus I order high single-digit about side. as think to Hard but Ryan, could side

Ryan Merkel

Yes.

Okay.

Erik Gershwind

And said, coming over of we as a bill I expect to lot three months. the that out

Ryan Merkel

Right.

and margins. a decremental question And Okay. lastly, on just I'll then it over, turn

This if you is XX% were down provide sales decremental on decremental X%. not any representative, quarter margins about could next sales I'm were sure XX%. and XX%, but for the assuming help this quarters, margins are down two maybe

John Chironna

I'll take that John. Ryan. This is

time, you of think, right, us followed long a I course.

being say in XX% decremental range. range low to margins downside, margins call the a similar doing, XXs. about in to XXs we're would XX% So history our Based incremental our on I'd obviously, the be we've on low let’s that the modeling in it, talked

you there's of a parts As lot moving can right. imagine, there,

mix, XXs like in quite number size factors. the of XXs things range. you and of and But right I would other margin gross So think the few actions timing low a cost performance, low put to

Ryan Merkel

right. guys. on. Perfect. Very it helpful. I’ll All pass Thanks

Erik Gershwind

Thank you, Ryan.

Operator

Your Haskett. next today ahead. comes Please go John of Inch Gordon question from

John Inch

hopefully Greg morning, you. just Thank Good everyone, morning, cold. morning, and has a Erik. Good Good John.

John Chironna

good John. Hey, morning,

Erik Gershwind

John, he okay. doing is

John Inch

I you morning. in trying what buckets in kind the safe. categories And with the the do versus normally orders, I'm total fact mix seeing for could there put fiscal personal of Erik, proportionately you sort what us these finer that surge a is What the around government, that is? flat in the Can be actually sequentially, today? but way of magnitude point to X% quarter, still it represent you terms normally just protective second of of size despite the only revenues a kind are understand, dovetail and Good of to equipment, these janitorial? better maybe of

Erik Gershwind

the of changes funny at saw. that thing it don't if of I you're difference It's – was because at same see a right look in John, and big noticed QX, you you the that couple we government. looked at in the back almost all a much numbers honing Look, Yes. on

in a almost activity expect jump like would certainly the we government, different up world. based If we order for and to activity ahead X%, at You're number on right invoicing feels early that which February ended look considerably.

John, actually did a jump our is to when if sales of QX. me I'd government orders give number, surprised the be as part for suffice these but of here to tough challenge meaningful say, timing a It's percentage it take you hit. a not of in the

to, a say built What related safety would away, is, was a safety product the biggest question category. let's I over and for Metalworking the you. PPE, there years quietly two and that and one other far lines, Your product the strong janitorial. really up say we've of We've colored sort business.

the next C colored we've It's second as biggest floated, the growing being of imagine. It parts been has years. those that also you. Class would this Behind for The be biggest kind you and two, for could category.

past So of prior order versus sort bigger six if month, rate look we it was. than the activity weeks the multiples at in the the run

So if didn't again, be a of revenues. percentage as I'd we a big surprised jump see moving up forward,

John Inch

Right.

you're we're historically – then And sounds those going probably the if like of you it were combined that. a teens. categories So in saying on big surge two maybe to see top

makes I think sense. that

Erik Gershwind

not janitorial be for note John, of this in the there's demand boxcars. call environment. and is, look, it's that wouldn't I'll by surprising It way out products safety products, products one that interesting

given finding out lot to of we're supply out. and And secret to but that we've of of maybe having capabilities give is supply some others think good so years, an to I a help a team, of a relationships do think is that can't. us and our the shout category sourcing access and I tap lot take people success over sources because a sources gave lot into and limited. I where trick have opportunity sauce advantage hopefully developed think will us it's I real the the

John Inch

to letter those This basically in I just a Yes. skills its give XX% price a Honeywell obviously along an supplies is and other federal its maintenance Maybe Are materials wondering you go seeing repair different the than business, imposing operating performance cut the product that understand procured government. I'm line. issued – components it’s to on be you to extreme could suppliers. so specific I'm that board. pass a to their example. about products feedstocks case, – across into going are that going

get just it's account you acceptance pretty pretty customers whatever because are going about of talked though, it's you, obviously on seeing interesting say the you increasing look wondering, as of national good, early But companies kind right, to realization, and for through and all you national a to MSC been of talked or do getting base from, you to you what pressure forward, price be are contracts of renegotiate from of are and very the similarly customer the accounts kind reads your I'm various is price had fare your important lot stressed about, good. this? think how

Erik Gershwind

Really question again. good Yes.

say, Here's what I John.

improvements So me we realization. better-than-expected. because first let just briefly flagged to surprise. And we I that call sales was our it it our wasn't price been actually made a because are mean, implement off. on it I the pricing few, comment paying – total off, And between team our front – team. on and it has I those execution would our pricing a

took. those tracking I and on seeing based we results back the to how actions sustain think they're I'm should

what like I'm I seeing there. So

interesting is who feeling have hand, certainly lot this a you're a and typical bit environment, an is John, there. be many of In companies of side dynamic, key kind one going it's the look will and is The the terms price. in of to flip of access product but going No scarcity different, because ways, are to That financial one take pressure on a question. are cost way to out. to recession

to to going. keep their the keep safe and product in door just people customers be get their where to want So there's certain areas able operations

typical different bit recession. a it's your So from

realization anything factors. would So far, competing so here. seeing should reason that no be I'm believe not would pricing lead to decline those Net-net – of kind me from

John Inch

Got it.

do mean, are is drag in cash and either capital? large particularly seeing are large calendar quarters, what turn, source. thinking We guess managing working were with sequential What last – of sequential I a flow, Are you maybe you in to In your actually Just the – payables time. I mentioned inventory you're to they was sort slower on customers paying are a respect pay, one one. you about in second source only hope how use terms quarter the sales? quarter. toughest your of to are quarter you And this going be the topline, working coming Obviously of toughest guys expectations right, or for capital? the the quarter. – in June it's

John Chironna

Let John. me that take

you cash reports As thing imagine, is working we're every our on can I watching day. closely flow and extremely in capital our morning. single first get the

because Our world not receivable our the is as yet, numbers, been I why so least, have world far look if – say, we've up falling relatively right. that's apart strong, we're you at in payables, very watching but it very, kept at – remarkably would the the closely,

a a From of of cash an in a downturn as we generate inventories. inventory typically because you distributor standpoint, as lot know,

using to we the that keep keep and the as with want plus well coming straddled that bookings because which the of seen when buys, QX towards QX, fact opportunity And take we have course, advantage means, product that on that wouldn't have then March is our end and that fiscal You combine customers, differentiator. year-end, very our as to a February of available shelf our into big were the and our through positive right. of typically it commitment to inventory

safety is the we of all cash. weakens and can buy a them end lot adjust products. so kinds to supply janitorial very down further, environment generate the have we're we going But Lastly, that those can inventories of quickly I'll limited, if at add draw will and more day, and we and the

John Inch

Thanks very appreciated. Good Much much. luck.

John Chironna

you, John. Thank welcome. You're

Operator

Hamzah Jefferies. Please of The ahead. go from next question today Mazari comes

Hamzah Mazari

Good as in and prepared Hey. first your you little safe permanent it's coming question, you culturally, changes this touched see wise, but do high Erik I changing guys any a led your high any and are strategy on know remarks, you. your you this COVID-XX business in level positively morning. early. Do I hope out this bit or business? level you Thank recession healthy. operationally, Just thoughts? My see of negatively,

Erik Gershwind

yet tell question. Hamzah, in cross got but Hamzah, are we little beginning I so you, that's my so long before of back tell to mean, bit and we're great it's what this early still the something to mind, I early normal would that would much – about to how a and to I say you what a is in another be is, new determined – how long it's means this it's normal, say. sort I new

is The one culture. I our just, to that would it's me amazing been to see thing flag

action a a So to thing, more But brain of left of see been culture, that this people seeing our to, and right sort adhere invigorating the how company, watching our we've will, support a to is rally rally in of other, and always action there's kind us whole adhere values been support take brain thing customers than if to the and right. see to culture in the in seeing each around a rally it's team suppliers, perspective. and real long-term sort of renaissance surge you we and to

standpoint, in like that the I'm what I I'd So how that from a from one seeing thing face adversity, of we is the responding. positive out call are

early think too to say. that, Beyond little I a

John Chironna

to of our solutions, service can premises. having and us operating Erik I there the be don't, environment. into our they our goods but goods would they in full to keep docks they works ship and can want the Hamzah, add with without can and that this right their distributing and we to customer us there, really come we if model directly If well products

Hamzah Mazari

Last know assets and there Got M&A I sort is of potentially do higher. M&A. it. distressed And you maybe just to on out where do follow-up, you can bar the liquidity quarter, you balance you are how excited.

Or sort You're have a M&A has your book business? change may changed of high? pretty restructuring the out little may bar sort Is fit companies does now of of that world there sort you that going a of the of but lot still, bit. because through still a distressed

Erik Gershwind

this to liquidity with a in is for would framework capital performs I as of a you why really what good a Hamzah, downturn to you earlier. our Look, working on think how especially about M&A you is through give sort with about bar as John high, in environment. this now John sense touching business then And with So on were the ran still normally and position. say we we feel very

we just it here be the that's position. sure liquidity the opportunities going or is going systems our for So given answer at, relates or opportunities bar not There's where emerge good M&A we're to and remains certainly to be companies, to to there yet. invest people feel that whether as now, is and high. certainly in about And for

Hamzah Mazari

safe Be out a Thanks you. Thank lot. there. Great.

Erik Gershwind

Same to you Hamzah.

John Chironna

Hamzah, care. take

Operator

today The of James. question Darkatsh from next Please Raymond ahead. Sam comes go

Sam Darkatsh

Good of your well. and morning, I Erik. both morning, families Good are hope you John.

Erik Gershwind

Same to Sam. you

Sam Darkatsh

I questions, Two may. if

is One question piggyback of receivables your around collection. on a prior them a

we're a guideposts One of all at XXXX mean looking in the for might of terms I things, least what happen. XXXX, at

Is how collectibility do drag historically list? least scenario tactically if how on? not One at of spike And your something about is it receivables worst-case really as help COD? look dissimilar why of XXXX, It thing go with allowances remind the you don't now. or I customer which it doubtful from things at to where spiked allowance got that really for you this us to was Erik, all something in you're X% or XXXX. to spike Is to recessions. receivables, interesting that a found accounts gross don't never does in at us might in your

Erik Gershwind

what manage means on mean, Yes, the historic customers. is you tightly relationships now. I can it John all time. But I proactive it relationships managing how happy Sam, some And and more we're perspective to longstanding good think, I'm customers, give now. look, managing having that very it weigh with with We're in tightly we sure.

there's not the dialogue so in And all And combined John customer to with, sort sense going some that moves with to payment. credit and on be familiar time. making common so card that we're a there's as move new going referenced, a coming of

in orders, that cases with policies. large When longstanding it good sure making comes records, payment good customers track to we're some with non-cancellation

relationships. good of know I you John, think leveraging lot have some So to doing add. then sense things, and don't of a I common if years anything

John Chironna

XXXX but I revolver, down out, with really think, I million XXXX, a building to point now Sam know. so pretty pretty far and drew I sharp thing momentum, we I other was could liquidity It's on we that bad Right have as is, it get. guess We as quick. our don't crisis COVID, the said, not little it's preserve $XXX cash. so as would that

to haven't yet. We it had use really

thing continue do. So for we'll company, it receivables to right very, was feel closely. our very We watching the but

Sam Darkatsh

are proficient retention technically considering but cost months question, Thanks. addressing is a next to that with to this over critical. quite My fixed few specifically sales guessing be maintain very a and variable the got you're last How or largely I'm going force a you might be cost. this least salespeople retention granular, you've at fixed comp levels?

Erik Gershwind

Yes, that's a our salespeople. question. a good And our right. that's look, – mean, fundamentally you're really I frontlines, is this

we're environmental taking look say, You making can factors and we imagine, thing. addressing salespeople, it about but Sam, to that account it that say comes a inside company comp at proactively our And kind competitive into we thing. right to are suffice have of it but when to right the we we sensitive standpoint, are sure doing just leave a the the the that, variable issue. a as I'll from mantra at one doing

Sam Darkatsh

well. of you stay both And helpful. Very

John Chironna

you, Sam. Thank

Erik Gershwind

Sam. with Same you

Operator

Adam today ahead. Please Cleveland next of from Uhlman comes The go Research. question

Adam Uhlman

Hey guys. Good morning.

Erik Gershwind

Adam. Hey,

Adam Uhlman

about Let me company you the of was government good would I'm price business, to product increase. think the be gross echo and for that the us you could margin would margin Greg. wondering margin just everyone for performance that through? for that we as some orders gross I thought type and safety for couple you. have mentioned pretty margin maybe I And best of softer but had guess, I my had questions wishes with gross products a if John, dimension in start March not those that business of total, come when profile

Erik Gershwind

headwinds. have of there’s different called on always in what the was strong a margin – you What like Adam, realization. say gross and kind margin I tailwind – the was would tailwinds so gross increase of sort out a we is series price this always took we is

forward, So that's a as tailwind. we certainly look

to other what mix. of the difficult trying hitting the – one relates cost you're now reasons price, reasons it's one one by why would and gross the it it's of of it's the is factors give to on that fruitless margin, As because so and way, influences and guidance it's be

and is hard the real to right the described remarks, in of is prepared it and about. is of moving on timing card three because the some about because of in of move talked the two just to pricing John it size wild And predict now these in factors, is cost so direction starting we orders. direction. the talked right the right Mix He a

Our we two we've approach before it crisis. of consistent it just to been has with ago pricing business there always to it, how priced a a was months as done lot this do

So or it cases, they'll case to above. are In some relates you in difficult, some orders could but make average. going are little company in for those as choppiness mix. Very to right. yes, in of What below come at come a some it is

John Chironna

in think the are add least, than directly the just at national sales said average are would well. we've, alluded, I Adam, account Yes. as like not just margin, typically if I over lower gross government that sales company years

know. a I So that be would headwind. don't yet

broken – certainly stuff. haven't on gross so gen won't margin, there We the product safety I various haven't go center out

Adam Uhlman

that And Okay. magnitude dimension of price the could then Remind you was? us the increase? what

John Chironna

than I’d definitely last smaller the It was X% midyear year's of X%, neighborhood increase. It was to say. in

Adam Uhlman

but of call that mentioned think how or for do then for start of of And in I'm the much we this of directional heard year, the of programs, had as it, that through so accruing you that is some volume-related just that accounting you. for fourth I might've accrued sense? rest could that them quarter? misheard. the got the think say And that, Any rebates, Thanks. majority the just risk the we Erik are move the Okay, with that the potentially wondering, we I beginning stay supplier you at of at – then

Erik Gershwind

just and Adam, to intact, our this, on all need Yes. programs no I to fact, suppliers at lean Programs need be we and in the change. are other. each clear intact and on think time We us. programs, suppliers the need are all like a our supplier

guaranteed change there’s a across. program come if benefits trying of gets I and what come look were only period down. flagged in to purchases. is rebate of at, the and forward the the that I rebates, paid purchases of you the purchases Obviously, slowdown of one guaranteed form was So say, back economic let's if an decent if levels down, portion to the That's down, come get will absolute dollar extended dollar of

so to supplier-by-supplier, it's where purchases in some they Adam, things believe and the be be safety through it's In cases, terms see calendar of the those when predict the the of you to hard in to of fourth it's one the the accrual roof. will fiscal And rebate, could John, begin suppliers, lower. to the I you'd again, move and going way year. are to that it's extent start imagine somewhere through are it's because it that works our If rest quarter going for else,

out, downturn. So could a but headwind tricky it's I protracted model likely because really it to if it there's be a flagged

Adam Uhlman

Thanks. it. Got Okay.

John Chironna

Welcome.

Operator

comes ahead. Baird. today Manthey David question go next of Please from The

David Manthey

Hi, good guys. morning

Erik Gershwind

Hi Dave.

David Manthey

weak strategy crisis you even the in second thereafter? but keep potentially hunter a as and of you and wheels tell now, motion you quarters lot increased there? quarter then during you'll First, the can us headcount forward the moving keep the during defense in how company, playing indicated mission How obviously the several you do Erik, that right you're critical roles a partners

Erik Gershwind

Dave, question. good Yes.

crazy, or of concept I've a our essential are what in So where they this relationship important In role really up I – seeing the shape of now we but seeing capturing or it was sort some new more some considered BD did big the that business sounds expanding operation mention we've so of company hunter inside that cultural and hunter keep critical the small or many becomes whole were running relationship. Businesses their surge way, form. to about in yes, a the and ways, mission in our I'm – need than customers talked good businesses success was the throttling ever. part been into the the relationships customer

being some to operations But to because giving we're this So and the way. new you. this adapt in with problems. with strategy mission critical think We're shop value doing deliver exciting keeping prop we're with solve we're I the mean, the had it's bring actually and inside there a there way on We've you a on maybe going. by toughest chance not a cases phone. customer we plant the little means, floor. us we're and there idea your I this in this promise, of We're alive you virtually helping to bit new

David Manthey

then see make wait past in Okay, in just Is that into you MSC make it cases. before looks past thanks. decline the coronavirus until do And has like to downturns invested what get and then thereafter aggressively you economy Erik, too some that the call? you call? the early

Erik Gershwind

looking being on going and there's approach Dave, bit not and to opportunities, think I of do consistent some that that in would take terms capitalizing we yet. just little on and early. I our those a think a emerge, toes I it's be opportunities good think

David Manthey

Perfect. Thank you.

John Chironna

Dave. Thanks

Operator

from Please of The Fargo. McGinn go next Wells question today comes ahead. Michael

Michael McGinn

time. for everyone. morning, the Thanks Good

John Chironna

Hey Mike.

Michael McGinn

a off worse, start what would consulting, spend CapEx, could T&E, get SG&A direct the like? savings, first I second that, tranche tranche? initiatives, figure If maybe the you with and the progressively then to are And things able dollar put a if the look discretionary what to

Erik Gershwind

Sure.

So we yes, early, I taken you've on, I moves basic we've pretty hit were the mean, out think. much

out is depending way bad point, out the involve if it that begin in get, We The take have Certainly, We stuff, we that? rate. earlier. looking come. we neighborhood call actions talked how out the through is a we're be – about. of somewhere taken which $XXX,XXX people, for we to would need more have we're to taken more careful actions would a range you're Why about at week ready run out significantly to to be upon going that, the some costs, really do of cost things there some to,

things and mantra doing to and statement, that about would the would in was how going sharing and from we us I'm top. lean mission need record in it if going way navigated David ago, lean would very values, I The say our we go And the That's do it. same all our deeper. collectively of playbook And a through the about XXXX, to the Sandler back our XXXX, we we're track the to much doing on take on areas my thing thing. years approach our predecessor, team brilliantly to right pain leading the go

Michael McGinn

could just gears distancing, always it. the if future the ends done up more having how your being And this or to studies. guys looking effect spec switch are line to some the Got for You have social color. down I sales? long-term you Appreciate – in-shop question. a of If these

at it a using maybe? better of be you'll should From sales and of better you sharing this able you instead You or X efficiency that you with to How turns, CAD standpoint, are long-term? your do spec do product. product get you Y, lower that whatever look online costs documents virtual get

Erik Gershwind

question. That's a great

time, say. let's of low new remote model, our a things period start long for touch. mentioned itself the logistics this One think, that normal normal John became or locations, is if world I lends because two with to a centralized it well is So I'd shipping earlier, this model relatively sort new really the it of into

out really works that think I well. So

technology what In the to look, of mission value technology and terms been side for I quite is we've of engineered while use would using actually we’re critical part, the proposition, the a going say

So our have technical and the over center lot in or with team technology. we with does or believe not FaceTime as locations, phone centralized deep a call and in it and just of and environments provides advice sits expertise tech it certain actually

expand is upon would would and would that bigger take we what think customers. we that model I happen for

but not be it'd So to. something we're unaccustomed different, certainly

Michael McGinn

to orders, sneak for customer order Okay. order in has shop flow far? thus What more from at come what there disaggregate If has employees that shutting in more products isn't the one maybe an down? those government that risk high smaller large on could at discrepancy been XX of demand invoices standpoint potentially a versus I the versus way that from that is that is

Erik Gershwind

Yes.

customers would So coming the but everything What majority, the we Sunday it invoicing the till coming be at orders of in, janitorial Mike, there's product are and would certainly looked and large And coming larger them related. for we from. where orders by of ways be are but and safety accounts for government our would a from coming of a from customer from some national say there is, XX standpoint, in. the the – some I look, do, concentration smaller the shops, bulk between then segment, would the be majority

Michael McGinn

time. Thanks. the Appreciate

John Chironna

Mike. Thanks

Operator

Baumann today next comes The Please of go Patrick from JPMorgan. question ahead.

Patrick Baumann

Good Thanks taking Hey. questions. for morning, Erik. Good my morning, John.

John Chironna

Patrick. Hey

Patrick Baumann

kind going? Maybe Hey, back discussion. of on of just how's earlier it the circling some

expect – to you certain a If you the I went do it decremental a how it margins through, bit. declines? little sales XXs that expenses margins, of maybe framework? just kind gross framework? could that low on You help us behave – Is kind of low to a Is key understand XXs operating in in the think, range of the variables

the what how Just framework think curious are kind of high to about that and variables? level

John Chironna

say. let's and nowhere of where we looked the we're near we general that much think the range XXs areas XXs Pat, modeled down numerous beyond all at So from But down to I XX% further and way least, even low towards scenarios pretty at that today. that, obviously worked XX% low scenarios to worst

gross model we add. the So far, margins I wouldn't think anything we if you do the and all get can that did into know that, the that's so with you to best unless details Erik, I have but of

Erik Gershwind

two John. maybe Yes, just comments,

broad that XXs, biggest is the reason of the factors, one XXs to the of low low I think actually range So range for Pat.

You're hard predict how to hitting on It's it performs. margin. gross is

last Ryan XXs. range actually can we The gave. this, better So you XXs worst call and the I'd question the decrementals thing low asked over year looked does, in margin I to the the get initial think to than the the the imagine closer gross the we low and worse the out, other only

company. is taken considerable Obviously, is what the being of by that actions range reflective

to significant cost done be the be year. we've low seeing gross you're at beyond what the size XXs, being the So driver the the to low behind over past margin there then XXs the what is would keep various levels taken able to to the range. And actions of

Patrick Baumann

if the was Okay. Ryan's maybe three but first March down but to I don't single to digits back weeks. That's so know earlier, somebody sales, was – it – low question saw helpful. March was Got X%, about guess, going asking improved it. X% I And to you in February

drove of Was that step-up that janitorial kind Just what improvement? Is and versus that drove all February? stuff? safety what that the

Erik Gershwind

mean, was there's call back or a and wanted step-up the buy and we customers bookings theory actually it low it’s relative lot and strength Actually direct ended where more little in invoice safety gap I Trying up strength. is were, from – just or in building we single-digit was broad-based. strength. the to, why, ship, bit. improvement out times and being you broad-based uncertainty between one it stuff it's whether if to because janitorial a Relative saw ordered the of this parse of safety product not up why

but So I broad-based. would probably biggest factor, it that's say was the more

Patrick Baumann

the of what so don't mid-teens as first the in run of that then of three growth on in the I to last If And of saw question weeks that Is kind single-digit that last well. earlier quick at get the like, declines. and something low the for two weeks, end the back month? I implies I what to know, one, Okay. ballpark or you envelope that back just

Erik Gershwind

ballpark That's of five. week the a only week the between and difference be somewhere four not other would color in there and much

Patrick Baumann

a luck. time. appreciate of Makes lot I sense. the Good Okay. Thanks guys.

Erik Gershwind

Pat. you, to you. Same Thank

John Chironna

you, Thank Pat.

Operator

And Steve our Markets. Capital ahead. go last KeyBanc of question Barger today comes from Please

Stephen Barger

time. Thanks morning. taking the good for Hi,

Erik Gershwind

Steve. Hi

John Chironna

Steve. Hi

Stephen Barger

back delivering access wanted given interest Just to more facilities? control there vending to the attitudes the and they to customer do delivery of to to some are want I how tracking? conversations Is dock changing. going and towards VMI ask more value Or proposition, around limit better

Erik Gershwind

competing What a Steve. so say, question, things. Interesting would to two we've Two, it's new. I had early One, say brand is is dynamics. little this

customers shutdown latest restricted changing another somewhere that's access have data any and our our keeps by from a and shutdown. data hand, are or have have chunk to but outside. the of of our portion And either the now, So so, based around good the way customers visitors XX% little one customers a XX% on on the over then right operating, of

think So to somewhere it's how when installation range. the about often or in in actually replenishing VMI now, we're and right going we XX% XX% vending a

a that's been So it side we this flip believe look, week think certainly, the or ever us. implementations surprised instance said, of, and of VMI the surprised we has we've – one the which like, Temporary, highest was really temporary. for or that not, done, two number and that ago us, did new

mixed a a right it's little bit So of now. bag

temporarily which down – think not they're may seeing restricting you're I what is access. access, though, customers shutting restricting if

to need them temporarily. the and we're them, the So able their we're enabling to on be if replenish giving technology own to they tools

Stephen Barger

customers metalworking supply are the in XX% Yes. our something. that And of automotive lot a or those that shuts that sure chain I'm down of

decelerating more any March? customers levels in systems how already? given those Just your trends own And progressed in we’re on commentary you do demand products some of half seeing the with where for inventory your think metalworking back in are and

Erik Gershwind

are correct. So your question, of first part you

everywhere, auto, closures of in terms Midwest to In acute but question. the related no

You correct are there.

especially almost In be when they but like terms these definitely large they've there's to comes of it to been it's really had. levels, inventory say – some enough customer orders, hard building, to because it's not look, of

– even quantities A really fulfilled, lot are murky hard a and more. being they're It's just huge need and time. coming we these getting we're back So customers saying when to judge.

Stephen Barger

Understood. Thanks.

John Chironna

Thanks, Steve.

Operator

like for conference over This the I to Chironna John question-and-answer closing would concludes session. our turn remarks. any back to

John Chironna

you, thank and Melissa, for us you, Thank everyone, today. joining

for earning next is XXXX. July date X, set Our

providing updates. interim monthly mentioned, Erik we As will be

by after so May. healthy in this please week expect release or safe. want to first thank for just you today, our stay within a update do for will I care. We and joining Take and a press more of week so close, importantly, us April the monthly developments the

Operator

presentation. The is attending for concluded. today's you now conference Thank

disconnect. now may You

MSC Industrial Direct (MSM) 8 Apr 202020 Q2 Earnings call transcript