MSC Industrial Direct (MSM) 31 Oct 172017 Q4 Earnings call transcript

Good day and welcome to the MSC Industrial Q4 and full year-end 2017 earnings conference call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. event recorded. this note, please is being And I to Mr. like to conference over turn the would now John President Chironna, Treasurer. Vice of Investor and Relations go ahead. Please

to Gershwind, year Chief conference Thank I In Jilla, the fiscal good our and me call. Executive fourth welcome are Officer with like Rustom Erik XXXX full you our Chief you Financial and morning quarter Officer. room to our Alison would everyone. and

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

Let Act statement Harbor of Litigation XXXX. me our Reform Securities Safe under the reference Private

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

call, reconciliation the presentation, Please reconciliations measures refer non-GAAP adjusted contain In the to the GAAP we addition, certain to results comparable financial are of GAAP refer which the non-GAAP in of to our measures. which most directly adjusted may the this course during versus financial measures.

Erik, to our wanted model to we statistics. a evolved report has lost no Before business are I count as its in mail Last longer full year, note performance. a service that that from I grown and to direct operating has over to distributor, this the turn going we explained engaging our call usefulness customer our statistic

despite the underlying it recent up business. has ticked the trend changed in our over count actually materially years has quarters, While significant customer not last couple in changes of

will eliminate call Erik. reflection with of altogether. count So I turn and customer decided after discussions now over many the to further we to you, have

Thanks John. continues Good the guidance then morning and in margins underlying our fiscal trends, our XXXX joining and share stable will begin then full-year some thank will I detail Ruston show discuss and gross our discussion range broader covering today's of improvement. the additional which revenue Halloween by conclude financial provide were DECO. which continued solid top-end improvements quarter, well first fiscal fourth us today highlighted of And with guidance above on framework. business I will as in this to the I by you strengthened, discuss growth our for environment on development morning. environment the with share perspective. our results, acquisition our earnings will quarter per

XX respectively. and through rolling then most points four-month firm. market to because the markets. the growth questions. July rolling manufacturing an MBI the will to readings month August and Conditions XX XX metalworking had an in at expanding XX. month average. came a at our The as begin have to for reading above average on sales environment. the for rolling correlation We a MBI a on trends end in Historically, XX were XX.X average rolling month This things high correlates with continued XX.X month open environment. now XX important, now XX MBI readings will recent manufacturing I also basis is and September's up reflect lag quarter improved the is steadily basis,

this From like while during gas strength continued sales Feedback impact, perspective, less an truck with from sales. did to levels, a basis first of quarter. and points quarter and several In is is points as of and estimate The end in strength general, of metals oil continued sentiment. growth. agriculture in improvement. we than in theme most that hold small to virtually XX had we customer all order all the of bottomed sentiment our improved market continue it improving. and the and reflected trends. quarters remains So customer end current out markets to should be solid the heavy other and show earlier our consistent to general volumes, positive the steady backlogs This is industries have customers negative Aerospace, hurricanes although which fabricated see are

Our environment. XX% impact own recent Quarter-to-date, will roughly our roughly Taking exclude DECO rates the from look total acquisition excluding it's the growth a is pretty reflect rate various across growth stronger our X%. at types, customer any trends much and DECO comments the board. growth increased and my

inventory Government to low National showing to our strengthened well lifted improvement traction. and quarter-to-date in in bring digits into see the into growth digits also as our MSC our the reaching are We core nice CCSG Initiatives reached are as customer from range. single particularly the CCSG single customers. double the growth fact and digit accounts vendor growth customers mid double pleased core in high QX. August in and base offering managed to CCSG digits.

was e-commerce now one up quarter, from fiscal and last and of quarter e-commerce up vending, sales fourth from XX.X% ago's including DECO, for year XX.X%. to Turning the

quarter. of managed of go it's Sales or e-commerce I net SKUs we sales SKUs selling. XX,XXX a to vendor number account approximately our for roughly in important fiscal our before, We similar Product to in fact sales fiscal slightly to less half than contributed fourth vending forms XXXX. added in XXXX machines vending add the solutions As for that additions total that bringing customers automated sales. said of to expect our e-commerce XXX include basis through growth quarter, XX,XXX inventory the points all fiscal on note and in

Our slightly, decline our total the fiscal with million. We quarter ended with quarter. count X.X and for over And SKU from DECO. additions remains X,XXX the salable active in versus a is sales is fourth last X,XXX associates it while slight service excluding this line as expectations reported, field

expect trend underlying near continue. the We effectiveness in programs continue this to sales as our term

am our by margin. I encouraged results. to gross Turning particularly

realization price increase we modest price an X%, just During summer the took of the fourth quarter, of improved we CCSG growth increased solid from achieved improvements core. through and discipline, over contribution

first fiscal reflects Our stability. quarter continued guidance

sequentially the past In a several for fact, quarters. future. look soft is environment, may which we despite been margin this flat And gross as has to be pricing the roughly changing

high, price While increases in or timing. not coming began prices taking due increase of that competitive up these likely several remains are our were the in intensity signaling suppliers included to summer price months. Most

continues as year. it mid-year So bode early increase the building, occurs momentum would which in well a typically calendar for

more to to Rustom, turn about things a bit talk want over I DECO. I Before

we adherence remained excellent roughly reputation $XXX have In is opportunities meet we among criteria to always general and and strong with exceptional XXX flying technical of our a has metalworking an of DECO, found high ways, with our MSC's its a to metalworking, including While selective million and values. distributor a leadership to at a strengthen evaluating that quite mirrors a in business we team industry for colors. associates. focus in great customer the looking service, in are customers, nearly acquisitions. levels DECO suppliers It many culture expertise in its

of DECO longtime Dennis Quinn this testament the to All CEO a is the and entire team. company's

in a area incremental a other with done. average is share metalworking under-penetrated, their for in an customer's next similar to and customers that and of products the consumed model. DECO's of us customer this and in acquisitions branch-based is around brings we team DECO making great offering We website MSC in to plants, country bring to in fit. similar and such that line that broad low an industry-leading also our acquisitions. the at day branch-based to and DECO of many assortment The are value relationships Additionally plan margins build of market gross a have place as strong strategy deep XXs,, are MRO DECO's past industry metalworking, the delivery wide our where

turn enhance things number higher over will We capitalizing now Rustom. and MSC's products. of sales buying scale that over on in to time by will I margin MSC by other blending

Good Erik. morning you everyone. Thank

Let's turn to years. fiscal our made in first QX, acquisition In we greater fourth four quarter in detail. our

included. So DECO we our shown and on QX DECO presentation, the therefore three slide have results excluding both in with

year prior include notes first then QX which are Our our DECO, QX excluding and results not discuss I DECO our results since DECO. guidance include reported will do

of XX. was overview the our an was $X.XX was contributions results which quarter. growth from MSC's on margin XX.X% in XX.X%, operating X.X%, with five gross margin DECO, these Included start per was reported results average was and for EPS roughly share. are weeks me of daily Let sales acquired July

simply ADS X.X%. gross the X% DECO, X.X%, sequentially of less Excluding of was Again the discipline from an of partially summer lower slower noted, midpoint provisions as up impact growth DECO, recent the The well versus and sales moving are better outperformance. supplier year's of excluding third profile are mostly lower our higher modest our of than margin versus XX.X% the margin and are XX.X%. inventory the our That's about offset a above our pricing. guidance and XX.X% guidance, and came we rebates outcome the midpoint contributed stock. quarter's our was improved remainder, negative half the on supplier provisions nicely inventory Higher of provisions Erik price last higher lower guidance pricing increased function inventory and growth holding where and supplier mix increase gross inventory rebates of rebates

Our expense focus on management operating continued.

year. was week to last of XX.X% guidance extra of than ratio sales course in OpEx excluding QX QX's with line DECO XX.X%. an right lower was There last reported and Our

estimate would QX basis ratio. fiscal than this which points XXXX's XX So year's a to higher relevant roughly more be XXX with OpEx ratio sales week comparison we was

of gross Our was XX improvement as same lower excluding year And basis quarter DECO. XX the by more last unfavorable points a fourth basis fiscal again This than ago XXXX points XX was being we estimated XX.X% guidance XX%, OpEx an operating fourth margin largest in more quarter based improved operating basis margin. accounting in leverage the the our compensation of compared impact in at about of contributor. higher offset reported QX XX.X%, than the quarter over an to came share points. OpEx XX expense relevant with year's from XX.X% margin, week

which we briefly cash the and I P&L or like I would year talked sheet incremental flow, margins often. have Before performance full to balance the turn our to about read-through and review

As we the fiscal we have $XX XXXX's adjusting after shown estimate extra week. of $X.X for on DECO and sales fiscal up had of XXXX excluding four, billion, of about slide million our impact

on continue points productivity roughly offset We year, delivered and gross reducing XX which focus of this points lower to our basis than to leverage operating margin. expense basis XX of serve cost more fiscal approximately and

$XX roughly Our roughly rose by operating points from a approximately XX% million results, XX.X%. improved by estimated profit our read-through year's to XX-week XX and basis margin last operating

$X the Excluding consistent sales our first of XX% XX%, our bonus and read-through roughly the expectations with increase, growth. $XXX commitment million million on was

Now balance sheet. turning to

DSO line with QX's was by expected third QX. three ground We and end days, recover quarter of lost some fiscal in had up DSO the XX to year-over-year. in days Our the

higher this during the with an flow as fiscal turned to fiscal was XXX% quarter, modest cross-functional X.X remains XXXX. our income we net other times finance about inventories of So fourth operations. and we hand, improving from on area sales. improvement better expected the Inventory, into turns cash slightly despite expect and focus of In declined than sales

at In the the sales For $XX million was XXX%, million capital $XXX the due provided fourth expected. conversion quarter XXX% or we $XX that last million cash. as with by sales working full grew, working was of capital fiscal In XXXX's year, our better the stood fourth funds. operating quarter was working in to this activities in approximately ratio quarter, Net fourth line fiscal cash $XX cash versus in source Basically, roughly declined, fourth XXXX's used capital. million year. of as quarter

provided This flow were the projects cash from the expenditures deferred million were $XX activities, year. expected capital cash our was subtracting in some by than and million XXXX. After capital lower fiscal quarter $XX Our for into $X fourth fourth and quarter XXXX, and as operating expenditures net fiscal million $XXX was million respectively. our in free

quarter nearly higher cash cash of ended XXX,XXX $XX see price agenda. tax are fourth building not in X.X acquired we of DECO times ordinary hopeful conversion bought in million year XXXX, fiscal of a our a our fiscal $XXX We comprised with $XX $XXX some million although expect X.X $XX times. we with at to still XXX%. on ratio facility the fiscal is on working out the a million and of $XX back of $XX.XX legislative the Therefore average million in, mainly cash market leverage of shares the net expansion and dividend good continue $XXX an reduction capital leverage paying compares the revolving XXXX, to In addition and during in of ratio but year in debt. to and with expenditure it ended million roughly of We taxes, and credit debt. end private in debt, placement equivalents QX in for, a revenue million fiscal to We million XXXX. ended lower balance XXXX, we on expect open growth, to at capital we and In This corporate reduction the

and XXXX's the complete of report continuing with transparency, in included. DECO. you out which impact shows guidance DECO of let's of as comment for breaking the the will And excluding keep fiscal MSC on XXXX the DECO which guidance discuss both of Now business will presentation, first results. then our we on guidance to slide can QX our guidance base five fiscal including without move first we operating our spirit see for our quarter and the I DECO

quarter-to-date to Excluding revenues DECO, to our is up approximately X% on our increase we ADS prior basis by versus the fiscal first an period. year quarter expect last ADS X%. X% Through Friday,

quarter's QX's higher. QX's Excluding XXX%. rebates is down or expect is inventor be plus minus we and slightly This DECO, and lower basis gross XX points points first XX basis XXXX's fourth Adjusting supplier margin provisions, down to XX from basis for fiscal last roughly XX.X% points. XX.X% gross quarter sequentially margin QX's the from sequentially additional

growth. our QX cost operating improvement be of DECO, using half increase ratio quarter. year-on-year rest expenses due still basis solid The to QX OpEx expect mostly year's million, medical is spending up Roughly of to first XX% sales Note from to investment due of and We salary million last estimate $XX expenses excluding the points. register bonus sales variable around we to is our of XX expect inflation. to year-on-year another and that about $XXX

midpoint So after more expense impact. excluding guidance, XX.X%. year's on gross margin DECO, expect operating margin to operating we would offset be negative approximately up XX.X% leverage Essentially, the at of the last slightly than

$X.XX versus or due over this Finally, share up to of year's guidance into built midpoint tax at for the QX. our EPS XXXX's is in is last XX.X% guidance. credits to about the are $X.XX, X% $X.XX. XX% This impact compensation rate QX based No tax

taking XX% business to the off our We the And quarter, thus reduce is contribute in anticipate I expect strong sales am say, ADS XX We of to of a terms range growth. points guidance XX%. XXX the DECO points. gross roughly DECO reported basis in to that will basis margin pleased to to by growth start about to

QX's gross minus DECO with range points. plus is So basis margin included or XX.X, XX

approximately onwards. DECO $XXX,XXX, the expect a QX number add be year that in intangibles includes second will million of amortization, OpEx. also This We a roughly, $X to lower about and third

quarter. we the the expect guidance a DECO such, in basis about XX XX% negative As of impact roughly an having points at of with midpoint margin operating first

to now framework. our full XXXX fiscal Turning year

X% seven, pricing these growth lay of with scenario with out and DECO X% and as X% to DECO is slide basis scenario XX%. the moderate you scenario ADS our range to of to growth see and points DECO growth, we and XX%. is moderate XX% and sale an growth growth XX% to expected ADS on regards to X% Again, slightly the our slightly environment. net pricing. continue are the growth scenarios scenario positive. flat our With two scenarios and excluded moderate our The zero has growth excluded, included add comparison. and With growth for scenarios positive two slightly negative pricing X% scenario to X% negative fourth is DECO strong the the factors, and two growth base had to facilitate zero envisages ADS strong to strong to on net our and slightly roughly We pricing, included minus scenario pricing the are pricing. operating With XXX to quarter, assumes positive In levels we margin to

pricing would the mid-year possibility, So a slightly year, make this moderate moving while for scenarios no of from regardless pricing increase, is whether XX.X%. mid-year of increase to would price or which compensated an XX.X% negative net negative are the scenarios not mid-year a under The range of excluded, absent materializes. movements. the if scenario positive scenario robust in same framework. pricing increase XX.X% DECO is other these operating A assumes likely to half excluded price price margins With slightly with And back included. DECO these average the is positive

DECO, XXXX expect XX% each or excluding slide see margins margins all reduces expect on XX better operating the the quadrant. basis six DECO presentation, of We left. in you of points incremental in the by quadrants as can roughly bottom Including of

XX.X%. they So to with XX.X% an XX.X% range from average of

provided some supplier fiscal we are which from mix we mix as Our and noted first price in pricing than have a saw Erik and increases. is seen a have seen last the context much And quarter we where several flat high quarters. roughly in a negative smaller earlier, is finally impact environment pricing the sales borderline environment being of XXXX guidance QX growth today.

now QX I back mix/pricing it to assumes a as Erik. contribution will our similarly guidance QX. turn However,

Thank you Rustom.

has our our in face the years, company challenging several market of past heads the down been strategic For conditions. executing plan

our and have competitive enhanced proposition the business. We value around our moat

captured and targeted margin we in kept gross severe face have We of customer segments the in our share pricing conditions. market stable

We invested scale and leverage have improving foundation in And streamlined as grow. more company. have the throughout expenses our we to create productivity we by

capital approach shareholders. acquisitions includes select and We to have that returning organic balanced deployed carefully in a cash reinvestment,

to now have as fiscal comparable fruits and we the XX beginning As Earnings of associates. the quarter dedication we a are per XX% of turned, realize fiscal conditions to start in work are of compared in grew XXXX. first XXXX's share hard market to strong our number. week entire off team fiscal And of the XXXX

the are to looking for treats We morning we and I Happy you than tricks you will wish very forward us the line much upcoming and joining now open up year. more questions. thank for Halloween. this We

Instructions]. [Operator

Our first Macquarie. question with will Mazari come ahead go from Please with Hamzah question. your

Good Thank morning. you. Yes.

was what cost The account sitting accounts expected national a any you competitive MRO on with by give been sense quarter. know more that Are on documentation? more changed? first this better business. become the And question savings direct I the consultants? just they just it national there have versus business in this sense, has in But is, focus you do that than requiring more over Could I years? years? mean past And has us business has grew spend if

it. question. great It's take This will I a is Erik.

yes, So short is, the answer absolutely.

customers, the that's interesting five if I been No are the business And years, XX that's been question, ago. way in over that that's a XX years, sophisticated more customers I years been trend occurring, an dynamic the past I really would say, look I though. since describing, smarter you entered think escalating.

to gross we a as it some competitive, it headwind. national yes, and why margin as to ways relates margin it's makes in particularly gross refer So it pressures more accounts

for it's to why around distributors up tell becomes less share perform the they and with hand, you is capture and easier On compelling local those And that smarter that capture the it because so think our easy when players the are business, reasons to our also fragmented get the you like MSC other XX% total dynamics seeing really create one a you accounts the I national how of spend, marketplace well, small of customer market remember justify companies I a share. opportunity. for program and and local made regional are market their evaluating less of having would

two do seeing. driving it's dynamic coin, of So and think the real I I the of is but think elements are growth one sides the we that

just gross follow-up And Great. a question on margin.

fiscal exclude at XX how us is? understand Just seems conservative increase in bips that XX.X maybe like we range. sequentially puts DECO, margins something range. QX historically or still to trying that QX guide in to then And It the maybe that or QX, somewhere if

on are So pricing? like Or upside of has the guide Or backing in, of you guide what QX in terms maybe backing it's terms sense negative just feels mix? in Any QX more maybe the of you what is that it in? are you conservatism?

this Hamzah, Erik. is

cycles to QX big So you if you years, It's look, shared if and is go year, in will, mind, rather the implementation are of between looking over pricing. with QX QX, if that past difference X%. over is the we to you thing book small. look one sequentially, and increase, you just and you keep big past QX back the This

the QX in why to adjustments that just size we and there XX outsized bips. way, the described, a of when that The that and correct saying would big But is it QX. taken in is be was something So you which would you reason there inventory biggest be was for sequential lift book QX, as like the provisions small. and increase below account the had Rustom rebate by driver pretty biggest

of a will it they inventory Great. your seeing expect last three we inventory Should demand? question, up inflection in just the quarters. given appear in turn last And the you terms flat pretty levels, step I are On over.

Actually improvements, lot those in good me and lower improvements, supply that. provisions helped a SKU launch optimization management, like of process enhancements that continued of And process seeing our inventory we us with are take chain. let is product procurement things Hamzah, planning what that. demand QX. also process

inventory increase up. or to go as some good continue at think turns having least hopefully there as I we where So But our slightly probably slight than will are be of we better be will today. sales no,

you. Great. Thank

Our from go Stephens. come will Please question next ahead. Matt of Duncan

A guys. Good Hi. quarter. nice morning

Thank you you? Matt. are How

you. Thank

Doing great, Erik. thanks.

I start shorter term. focus margin, want and in So term on both to with the longer

for contemplated framework? on all, framework margin you gave the that margin the FY in in what operating gross XXXX, of is change First year-over-year us

Yes. Good Matt. question

will So to simply as it the environment you can. would has realize, I say the assumption framework, gross try pricing environment is okay. I And trajectory And you as that moves, demand I the environment. the or that dimensions, pricing that does two growth baked what margin tell and framework as that could imagine are into as so

the So if axis, that, that's axis, you went of frame, take right vertical I Y-axis, is middle to the right. think the the which so the pricing

of flat it zero. gross were flat, some end than at marketplace margins XX be would from margin flat. move to there or one price decline. Should, move gross down we axis, environment. zero, be of that as close less middle we pricing one, into past, gross roughly talked and plus all little If would a should in would effect. seeing then the have right discreet pricing in mentioned a but up axis. more increase, And anticipate moves mid-year to we expect primarily earlier high we that as margins X%, increase, we minus talked to moderate expect price something we would go a of If points, some were modest I the range up in basis and So firming mid-year are on look, get mix be about But bit, would the on towards due getting of that we pricing would signs are we slightly the sort that we Rustom

Okay.

other the hand On --

that pressure including Is DECO no? or from

am virtue did I XX of just it say? ex-DECO Rustom, we business. to is, DECO, the of you basis giving that So then math by points and what

but to term, out more right for margin. peers a and margin obviously have there gross your Okay. And on conversation really want as That gross I focus focus of now, operating helps. then you look, longer counts is lot about what on a looking than and margin

are As there? mix And happening importantly, you years, operating look in what do expect what happen the happen do see frame? it, your your margin? expect that the over five what's both time all with next, to business call then given factors, business, guys what margin price to your XX you you different to at to you gross more manage these doing transparency, see And over with

pressure So than Matt, margin. framework. op touch on I if multiple even are were years in that expansion. we of on that go scenario, have high growth are that I margin a it margin that happen, to over if one on productivity scenarios nice over term, I terms single contemplated we earnings to getting result. primarily wouldn't you leverage little tell this what really robust And the talk bit on in are like and But we due at couple and years, as guide bottomline some the move gross flat into if I look, that shocking. the growth last But good single digit, look, talk and gross Rustom want what, going in up. for of very think I microcosm the trajectory look, am incrementals near you was out. organic obviously mid business, But we of modest last of the about seen mix Seeing doing due I out over I chunk going to the more would take, long-term we about could am a margin perhaps didn't to be look, of margin. time, was little what holding look be pricing are the get and more some gross digit in quarters seeing to of couple

Rustom on I one. other So let will that touch

cost in productivity on a of terms And lot expenses. know absolutely. operating our and on our we focusing been to Yes, you have serve look,

to OpEx, continue. usual don't call that of have if operating sales amount cost XXXX's years, a heading have leverage, still And So of the through we leverage. And longer a looking at the couple last variable at decent come XX%, would you the and offset increase on at questions it I of growth. strong assumptions fully looked go-forward, we expect offsetting investments. expenses, your productivity bunch term, our productivity, sort because our are see know unlike into inflation future, can if in is XXXX's And basically but would and the with variable see continue to you the we we XX% you assumption, if

positive a impact have would that on operating margins. So

will back. microcosm, take take just this I right. it But And QX Matt, turn as one last I will a and then little

touched So on that. Rustom

So this a OpEx. it, try to points about call here guide revenue is again ex-DECO business base XX talking of growth, the basis leverage isolate to are on X% we of, at

that's would So little long offset what the if run gross any be more we anticipate there over certainly were than microcosm margin a dilution. would that

the right. I Sure. Thanks. All appreciate insight, guys.

Our BMO next of Graham Please ahead. go Scott Capital question will come Markets. from

you us morning. of have prices? Good Scott. roughly is your what tell can pricing, This raised Katja for On percent suppliers

the November point was I X% since I of the XXXX suppliers mentioned, we over will calendar I tell you our would we So or next happens, position you announce tell a just more our was that you more discussions and most What it summer. with generally that pretty move but those is which market on will several, are the give that word we meaningful it increase after well. was January would in have Katja, increase that, suppliers about that to over wise, in that start specifics took time modest. It and be entertained in serious what coming. increases year. would increases early the will I say, the call. of tell bodes had, in I December. will done either us better Generally would have the we use, be Timing would I into is

So than I time. to But in firmer in seen this expect past telegraphing defined bit here what that big we more is and what soon. at have years a we point materialize are activity

Okay.

able see that to prices be to So confident else seeing come. you are are indicating the prices raise that are What you do to have suppliers mid-year? you will higher to going more at be

for now. need little signs think right And the more the a time. seeing is, I are we think answer we I just

because we discussions to get couple As November real. in and the suppliers, move But that signs. would the indices discussions conceptual right terms the of important from what are the from you of I supplier tell December seeing increasing, between and very a months I said, metrics it's suppliers announcements pricing are seeing with when with are they we pricing

just a I be would increase. cards, matter out next to couple of the seeing based plays it's expect expect the If we out. a of months to mid-year I get it play time in able on as think

Okay. One little you are groups if sales can first highest driving customers Which in the discuss more. of Q, bit? that a

what So pretty positive we the thing across we board. the much momentum the movement, is, have described, the seen nice

there relative growing would stars, if think out National as I quarter as our be shining couple the were growing digits. as a call particularly areas CCSG digits. the double to double would another I described, business be of healthy one, into accounts first

pretty in lift have we But out. two a those call seen segments. I most much So

for my taking Okay. very much question. Thank you

Sure.

Our Robert Please next of ahead. go come from will McCarthy question Stifel.

Good a morning, on quarter. guys. solid Congratulations

out context gross their and this Because there. I profitability. us been heads squaring at the could vision did scratching bit. conversion picked in any amortization what's of the about in I as of guess the in give an cause operating are for I on question there? But And DECO, a you just my sense a apologize. I circle you may gross the about do I first little questions of and existing been have talk where and here the a the of event, just the little would Some some in have, excluding bit answered multitasking investors But have we margin are think transitory terms on margin margin forward expansion I terms of intangible margin each, going example? opportunities

it's Rustom. hi, Robert, So

Erik the to. well, take me as part in Let if first can wants chip and he

that. might talking We will feel But that's expensing then to whatever need their that margin like the is make thing so I on anything and enhance P&L, we worth or we to so it is, hold have probably about the in you business that gross most. we intangibles amortization, been any the in entire investments systems expense mean, on that.

value to in DECO's gross incremental existing hundred addition DECO's base products to improve the a however synergies. basis customer few business So metalworking we Then by margins purchase their on selling to current the portfolio, through cost points expect is production MSP's right. MRO

coming occur a people this am much acquisition to branch. I but margins. doing MSC typical about, like at MSC that's the is margins, shown time immediately, acquisitions past this over about years. the getting gross about talking will that, close And over have happen doesn't can and So it. It very And Rob, that we margins improve

anything synergies type synergies. baking are of We that not in terms any or OpEx cost of in cost like

been great that and Erik? made We reiterate a I we as to business will we on out have culture with feel the operating build that there great have teams just want a alongside we Erik acquire and and slop it, team fortunate enough got, it. just a to our point,

Yes.

So I financial Rob, explained Rustom well. think the if look, you elements

their pretty point done haven't Look, Just about looking. tell. and scratching years currently Look, as are an few we to acquisition comment your you heads. selective, on are we investors so in could we a

bar tell of would that and a high you are there of is I and really there are them. DECO distributors Our companies out one that handful metalworking blue-chip is

is they of feel When look dissimilar market the past out is branch. branches, our we I flying are XX% we typically I looks great said, look, like. go from it such that with our we a the is a as But the scratching in acquisitions this Rustom at time. that here. as path And you typical. business. as MSC, questions. now It's said, This what now the colors. competing It marketplace the this look decade If MSC margins, what an great don't happens you to Hopefully is MSC of companies tell ago, over so look your met And business. there answered would a the about against at the is head and that's average criteria if

there want margins too One or of incremental clarification, to just XXXX ones, is, other don't I parse And much, think that of I better. point an hopefully. I you contemplate want brief Two XX% wasn't Yes. but to make in sure as a wrong? to has about the be it expectation incremental state it Or what XXXX? there been for that guide conversion What there And previously change for is in XX%? of play thinking the would I am is? of terms any there closer margin

year Yes. seeing much what long been. with Rob, I targets we say, range what this are would have is line in feel pretty our you

And revenue have environment. how is is heard XX% strong we where a is is we about talk is have two and two going said the is you the what trajectory what that is XX% that, between function target pricing firm how So long range of One in and is incrementals. be our range us fall to things.

is, negative in the not still are environment. north XX% had we get we four quadrant So were in to we here, you are what revenue with where are we quadrants of even where that way, is seeing pricing, if the one XX% By or and negative three negative price. to we slightly can the stronger

be right from we think in should that are I our perspective, where we range. look, So

and happens, robust environment. push where you our a to of chance point ranges it we pricing in I see mentioned And the not would north the contemplate It that note framework historical robust we back end think towards does if a pricing top environment. if think range, is is that quadrant. you could on positive the we I pricing other environment. and talked be also Look, about I pushing contemplates realize a go it a earlier, there slightly the what of that one happens

Business? And could you then then the it's can't sense because it increased environment just right in heart terms Anything about about costs, that can argument where longer on know, announcement the finally, Anything transparency respect to bind to to you Obviously debate your do you the of to you actions thinking because environment anecdotes And business want the with affecting with any that inquiring at a talk the you in your know, business? but stagflation rising speak explicitly not marketplace. term, refute current that then affecting the and you get minds pricing competitive Grainger in and or can issue? of as pass of respect of the you any by Amazon now. see

So you got a three-for-one there.

actions. So regular have we pricing got

seeing So on will still fragmented. it's is, are Rob, we Remember, I really Grainger, you much. tell what not

well. You know the industry

fragmented very a market. So

company, own locals, has We are of of the many even against competing so large players, each companies lot a nuances. their pricing

little you, tell there. would So what I very

am was around, sorry? Your point second I

in comment Amazon there? Business launch terms any of

similar. It's Yes.

numbers, of in really not terms speak our see think. much of we can I seeing hearing, not You or to there, are

ground to was your point then in the make much news, around the not no So least on at field, third pricing. And there. up

is contemplated think robust a framework, the fact in pricing that the I don't scenario Which have your you table. on

the for see at of much bet your transparency you pricing won't just growth, is, But aggregate scenario a hedging level tougher could some witnessed, are but a that you we have the probably happen. given question in volume guess could So that historically I than and the investors even environment. you have where the

see now, those increase seeing realization very putting X% for you is it on point are along The didn't reason would mentioned see small pass the not we of far we just we see years, their been, Yes. sample you the point, everything that you, put we strong I few move plus experience solid to point, that hesitant right. reality hedging about we should think given prices I implemented Rob, The data suggest would have in our best. put the just a it actually levels. that anything so one until the robust, price last just realization. tell our is, on framework, happen. we your but are that we and it's Look, manufacturers list and would

case to we So a reason if otherwise, a But to mid-year. until I wouldn't little see believe no bit of it the data there. do support be that

you I will next see month. Thanks again.

Rob. Thanks

Our go Please Barry of Susquehanna. will Robert from next ahead. come question

Hi guys. morning. Good

Hi Robert.

back, Rob. Hi Welcome Rob.

Thank you. It's be to good back.

of wanted to couple a things. Just clarify

basis impact the of that rebates you the guide, the So so being talked about versus XX..X% XX.X% the points? outperformance. Was about the half XX

was together half That of inventory outperformance. the roughly Rob, the being Rustom. and it's provisions rebates

XX.X%. versus XX.X% being outperformance The

yes? -- XX the implies that So

outperformance that higher being midpoint. were basis XX or The the the points we than so No.

Got you.

Okay. That's to I what want clarify.

So the inventory rebates? the and XX of half is the

Roughly.

is just accelerate? to continue we, the fair will should And it from rise assume you. here that Got to given sales

necessarily. more Do of should it its Well, get yes, necessarily. Yes, quality a There supplier inventory rebates and the an of the profile we quarter? to -- inventory? quarter it call expect the No, we Not it manage quarter. expect just end the But to the honestly, get to go rebates. accelerate, of and on a that together. lot was particular I in depends in Would continue inventory it have. our as occurs supplier as they absolutely. as we every the everything because of on we out evaluation call much inventory? But depends Yes, sales or our not we couldn't

I in past mix then HVAC on the just talk think And sales weighing you lastly, have in typically Sure. XQ. about

or not? I think Any a impact material sales. HVAC was typical for if had quarter color versus a weak I quarter this it don't know that what's there?

less way is, ago, to back was quarter behind out. see the of quarter QX it trend we any going to track the but to third things more logic Things to this being generally referring tick down the do Yes. guide what acts Rob, called correct are below did you I with very generally QX. consistent. By sort pricing you that we a What tell our we a mix, of seasonally part quarter that would that down anything. will are you is, or fourth absent with factors yes, any year tick do the buck

quarter. and pricing So discipline with the we what in beyond what Rustom did mention inventory, see rebate stronger

So increase. strong summer the improvements and from we think we some realization made there

bigger a was change any that in effect. So mix than factor

you. Got it. Thank

Rob. Thanks

Inch will from Bank. go Deutsche question next of Please ahead. come Our John

everyone. morning Good you. Thank Yes.

Hi John.

John. Hi

year Could ago? over a us, ago? or did just price you it remind a X% increase was So you What was around the what X%. year

Do page. you? I the don't have right

a increase price year realized ago? Our

increase, the mean catalog John? you Do

Erik. am sorry, I Yes.

You are increase. right, the catalog

between John. John, exactly, don't it's X%. offhand the same We X% remember and

Okay. Yes, fine. that's

earlier So fair it's for or kind lower, to hoped but had little that? in it's the like something than you probably of better a it's bit year say,

is lower than saying. say, on John would a last based what I little year

see the put give have this back had thought, be does you and work? hold this kind you drift price lower? Rustom, quarter, Or you how I price do level? this expect of it was I then words, in guide, you flat of to Erik, sequentially to your what pricing Like in can flat think expecting, and is price you course through Would that year. the do price the at increase so you over your realized other

roughly at is, QX, the stay flat. said, assumption sort pretty that as the I we in are, Well, basically of which that will levels we is

Okay.

of pricing, assuming right? margin your flat is the drag guide not have that sort So we seen historically,

In QX.

the certainly you drill John, know of the business. Yes.

pricing, in is, year, be encouraging we What we so mid-year there what the mid-year the happens pricing the which on, that competitive change the a pressures year. what getting generally I are So during signs down contemplating during realization and of say there you marketplace is would the drift a trend. in framework is, then that course are will get and it should could

we what we you I some think is Or stymied better optimistic think makes this than pricing year? were something mid-year right. So hoping go hope there to of year. strong? a more the Is kind for know environment that if it? in back Like, why time, last economy that in that fact past should were we obviously that, you that if we sauce pricing the that versus secret really how year other this about for recall, I way? Was

small so be year. we would I you data this right. hoping say, points would know for but John, here, get two Look, last year, one more did we because a are Yes. you

So think to I what year last there different year, two this was things. is

it's yes, the is MBI, environment for you and and firmer than been. definitely is, the demand demand one at the you if to related So indicator, look instance it's look environment, at pricing firmer

would one. that So And suppliers. be two be would

say more some a is towards that's sitting definitive year who suppliers or are I that there in here coming mentioned, have I announced than would we increase were an ago. a way As signaled specific

be two. So those would the

-- to going Rustom, back

I was negative. Demand much was of Rustom. year. Sorry, it's mean last over year's actually declining last environment business

seen have broadly robust demand you talking inflation you not the we environment, lot seeing to expectations more so And last a probably anything is And year. being are deflation also more are else. compared than what just

is, the for Rustom, able through are actually as right? what in we the margins it question. are cost a No. reasonable and exactly the going I going to along, rising, agree. I Op the quarter? were That's to you like issue those be product gross But pass if things to are guess $XX,XXX other commodities off and DECO seems start. to

And Sorry, in five up weeks. QX, we In it was it almost nothing. for picked QX.

Yes.

And that -- the way also with

kind I pro can forma. meant imagine. I Right, so of

sorry. So am I

quarter, for and margins you If quarter their looked op gross would your just at their like? fiscal looked fourth fourth financials what have

in run low They the XXs.

what's ever from lower out when it that details acquire looks so math If slightly you our you and because that's in did than there, simply you inventories. get the the

months up you to the first You value that so. write then have have and or got the to amortize over six

proportionately, kind So the But XX% doing of were at we of right pro some would range. very of be much impact. there it's if the XX% it north just sort forma, and

business, accretion margin, one if John, the breakeven XXs there. in gross of about the year you low the model basically model $XXX one revenues, neighborhood think from for and in is year million improves the So

that's mean profitable Yes. And business. I a the business is realized.

saying cutting that. and forma exceptional not or are out anything pro We it like

cost, integration we cost all any absorbing are whatever We any post-acquisition, are the doing. post-integration, amortization,

in them are absorbing numbers. We just our

being So are more we conservative there.

Is X% to that was margin, And margin roughly Op the X% zone? in like was their lastly, If X%? about XX% just got to the a have Op gross what, you margin X%?

slightly take more you that Yes. I than we account into doing, would before say are it's things that actually the all yes.

it. Okay. Thanks Appreciate guys. Got it.

Thanks John.

Welcome.

from Junk Our of Luke Baird. will question go come ahead. next Please

Erik. Hi

First efforts you MSC integrate relative legacy offerings you guess share better uptick your in question, to you just VMI if relative any are sales that force additional to can think how CCSG, on is? wondering with I color sustainable seeing, the their the is and that there to do and growth

do efforts be the paying Luke, seem They off. we been have pretty look, encouraged talking to we we making Well, business. in about are have been by the it.

the it business. quite So in our feeling, growth is the sustainable,

the single-digits. question, was core on curious mid within know just And out in going today? I customer I turning what's prepared then you base your mentioned second remarks

that is industrial would customers? general, be are you in getting growth the expecting economy seeing As to the with you those of translate that kind better

Luke, definitely, pattern. which at accounts us, look, to Yes. It's is lagging core the the national this given shocking is point, not growing.

we to continue bigger the growth farmout to MBI companies work. grow rates those things As expect would improves, increasing as the see as

surprises to as we us It's So no big to would there. doing what MBI expect it the improves. do

Okay. Thank you.

ahead. go from And Blair. Merkel our Ryan question last William will of come Please

Last Hi but not guys. least.

Hi Ryan.

So covered. of a lot ground

go to question. an Just wanted to back Amazon

for guys were will your down and day you Prime But can you saw, to Amazon the charge business group. on that have comment, any stocks As ability for this just announced freight? impact

Yes.

that's It's years. free trend or here So that It's freight for there industry of our is Ryan, the our freight in nothing escalating or the reality years. business promotions is new. been for something been

evaluate got the you has they have at volume and but you BXB retail, for practice look it may been the from purchasing. as seeing, for effect financials, been have been of particularly when time, you MSC indirect Amazon part this some into and So been seeing

the other to as the realize road, And So the really It reading it does With would what significant, et shipment I of could point say. boxes quality a right. the look, consistency. is, it's not consistent? the for be as be shipping complete How any down about day receive? they There one value delivery, and impact? is would the think next it's for there a customer, Are that cetera? make in How by value is Hard come getting in? MSC, BXB to a that. there is headlines, do nearly MSC, are about think wouldn't that I the just as packaging, standards, you difference how the the many you significant easy

And get absolutely. I shipping, or most your many it's think of true already that free correct? your also Yes, customers customers of

sensitive been have responding, but one and just has we trend growing Look, responding this imagine, last immune have over it's years been have to if for been I to haven't we the we competitively you and to decade, can been be that sensitive, it. the want Yes.

produced So are past. seeing numbers we it you over in that the the

Right.

question. then And level another Okay. high secondly,

Can would. example? reason in said, this you of overhead this if hasn't why more a MRO Just XX% life big that, success this had reason of on the this big and in is is bring matters about to cost you And just distribution. You e-commerce the comment an is with buying then, service industry? why

Ryan, So yes.

value right raised You the something our heart proposition. that's the at of

industrial plant, are of what business a on an plants. you industrial We And the manufacturing made of of price and say, calling cost percentage when operations supplies. their of look total at cost indirect up is

You is under are right. It XX%.

the And so has really geared XX% money. products into get the and the pricing And that money biggest gotten starving are to getting market that of on proposition make our products products, make reality is for the the productivity, productivity plant the lot been getting while that's pricing are And focus, lever focusing around customers and into market they how on a they on not by because starving floor. MSC their value the XX%. has that's faster they

we what metalworking. do be, with would example an So

specialists before, our take they walking coming raw I labor The our I operations. it new have and to by we where field improve I in got are the the and part time. question, floors draw are in have folks there, improved So forget. That's shared of not are on cost And we They process. talking out about plant excess material. price live right but folks to are we out. rates availability this up of That's spend helping are you your and and they actually ideas manufacturing They reducing of with but Ryan, of think and just breathe. and saving their how last products, where customers are these metalworking who are hundreds

this Everyone as pretty is but far been Just industry? success as why e-commerce tell. has reality I worried is the had impact it, hasn't can about the more in minimal,

remarkable a way just success, e-commerce has amount think look numbers. I I of Look, -- the had just at not mean in our

you to up our sales. find ways that's It's going through be plants driver important speed things Direct important not you behind process MSC a the very way their are that just business-to-business value a some of value help to the as part and can move I that an if fear is them adding. proposition, in for describing e-commerce just down. are of procurement you customer, it e-commerce website pricing think seeing after, drives the is that But Our the why

I down just force right. a think, small are business pricing pure quite a a let take me What cost. you been for customer total hasn't of big percentage because their the a to, is transparency say, that's

Right.

Thank Okay. Very you. good.

Ladies I and any for conclude like remarks. session. gentlemen, over turn this will closing would John to the our conference to question-and-answer Chironna back

everyone Thanks us for joining today. again

see date on Our for earnings you is And set will the January next XX, road. XXXX. we

will several We the coming be over as as roadshows. well at month so conferences next up or doing some

with months. over the speaking So we you to certainly forward look coming

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

disconnect. now may You