On April 4, MSC Industrial Direct (NYSE:MSM) released Q2 2007 earnings for the period ending Apr. 24.

  • Sales for the quarter increased 32.3%. Seventy percent of the growth was from the acquisition last March of J&L Industrial Supply.
  • Management reiterated its confidence in reaching $20 million in margin improvement from cost cutting related to the integration.
  • However, management also noted there was a bit of slowdown in certain niches of its customer segments (notice that shares of Applied Industrial Technologies (NYSE:AIT) and Fastenal (Nasdaq FAST) are languishing). However, they believe even in a downturn they will continue to capture market share.

(Figures in thousands, except per-share data)

Income Statement Highlights

Q2 2007

Q2 2006

Change

Sales

$404,618

$305,927

32.3%

Net Profit

$40,507

$33,329

21.5%

EPS

$0.61

$0.49

24.5%

Diluted Shares

66,781

68,327

(2.3%)

Get back to basics with the income statement.

Margin Checkup

Q2 2007

Q2 2006

Change*

Gross Margin

46.36%

47.54%

(1.18)

Operating Margin

17.19%

17.68%

(0.49)

Net Margin

10.01%

10.89%

(0.88)

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

Q2 2007

Q2 2006

Change

Cash + ST Invest.

$5,054

$7,718

(34.5%)

Accounts Rec.

$197,894

$146,158

35.4%

Inventory

$309,754

$241,705

28.2%

Liabilities

Q2 2007

Q2 2006

Change

Accounts Payable

$67,768

$44,943

50.8%

Long-Term Debt

$177,531

$905

NM*

*Percent change is not meaningful because of acquisition.

The balance sheet reflects the company's health.

Cash Flow Highlights

Q2 2007

Q2 2006

Change

Cash From Ops.

$73,717

$47,879

54.0%

Capital Expenditures

$14,729

$8,033

83.4%

Free Cash Flow

$58,988

$39,846

48.0%

Free cash flow is a Fool's best friend.

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Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above. Emil appreciates your comments, concerns, and complaints. The Motley Fool has a disclosure policy.