MSC Nails Another Quarter

MSC Industrial Direct (NYSE: MSM) is one of those companies whose products we come into contact with and probably don't realize it. It's a premier distributor of metalworking and MRO (maintenance, repair, and operation) supplies to industrial customers throughout the United States. Perhaps the best proof of its wide reach came with the numbers it just released for its 2007 fiscal third quarter. In short, MSC nailed down another solid performance.

Net sales rose a mighty 31% to $431 million, and profits came in at $46 million, or $0.69 per diluted share, up 28% from the comparable quarter. MSC generated free cash flow during the quarter of a solid $38 million.

The company's MRO lineup includes such commonly used things as power tools, plumbing and janitorial supplies, measuring instruments, and electrical supplies. It distributes about half a million SKUs to more than 2,100 suppliers, who then serve about 348,000 customers. It helps that MSC recently acquired J&L America, a supplier of metalworking products to small and medium-sized businesses in the U.S and the U.K. J&L accounted for approximately 74% of MSC's sales growth -- not to be confused with sales volume -- for the quarter.

Part of MSC's success can also be attributed to its flexible supply-chain system. Approximately 99% of MSC's catalog is always on hand, and next-day delivery is available in most parts of the country. With 30 million direct mail catalogs, 95 branch offices, and 780 salespeople, this company can reach just about anyone and do it quickly.

Considering that it specializes in products that will be needed and used for a long, long time, MSC surely has plenty of staying power and healthy growth ahead. Yet at a $3.5 billion valuation, you are paying 24 times earnings for that future growth. Close competitors like Applied Industrial Technologies (NYSE: AIT) and W.W. Grainger (NYSE: GWW) sell for 16 and 20 times earnings, respectively.

So if you're a cheapskate like I am, you'd be hard-pressed to pay 24 times earnings for any company unless there is something incredibly special about it, such as a superb management team. Instead, I prefer the likes of USG (NYSE: USG), and Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) -- both very attractively valued at their current prices.

USG and Berkshire Hathaway are both Motley Fool Inside Value recommendations. Berkshire Hathaway is also a Stock Advisor selection. Both newsletter services are handily outperforming the market, and both are available for a free 30-day trial.

Fool contributor Sham Gad heads up Gad Partners Fund, a value-centric investment partnership. He owns shares of USG and Berkshire. You can reach him at shamMF@gmail.com. The Fool has a disclosure policy.