MSC Industrial Direct (NYSE: MSM) may expect to sell fewer tools next quarter. But it isn't for lack of a diverse catalog.
The company's Big Book of products is thicker than the Yellow Pages of all but the biggest cities. MSC sets the standard for one-stop industrial shopping by selling everything from paint and adhesives to heavy machinery like lathes, milling machines, and vertical band saws, plus more than 500,000 other items.
Nevertheless, the company hasn't escaped the economic downturn. Earnings for the most recent quarter fell 4% from last year's levels, to $45.1 million, on slightly lower revenue. On a diluted per-share basis, though, earnings were up 3% to $0.72, thanks to a reduction in shares outstanding. With most of its business geared toward manufacturers, MSC's top line has been under pressure during the slowdown.
Naturally, MSC is preparing for foul weather -- although it might enjoy a head start. Its president and CEO, David Sandler, said that management anticipated the downturn and started reining in spending relatively early, thus putting the company in a better position to take advantage of growth opportunities. Yet even at the high end of the company's guidance, next quarter may bring double-digit drops in sales, and profits that are cut in half.
Whether the recession ends tomorrow or lasts well into 2010, MSC still plans to take action to improve its financial and business condition where it can. It expects that its smaller competitors will be more vulnerable during the downturn, and that they will be forced to stick out their necks. Then MSC will be there to deliver decisive blows, scooping up their market share along the way. Once the economy is healthy again, it hopes to have the upper hand. At least, that's the plan.
At least for now, the company's in pretty good financial shape to weather the storm. It has $91 million in cash and equivalents against $86 million in long-term debt. Total debt comes in at $227 million, which is reasonable for a company with an enterprise value of $2.2 billion and shareholders' equity of nearly $750 million.
For now, I'm keeping an eye on MSC. Along with other small-to-mid-cap industrials that are bracing for the downturn, such as logistics company UTi Worldwide (Nasdaq: UTIW) and filtration guru Donaldson (NYSE: DCI), MSC is hungry, and I like that in a company.
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