On this page of StockholderLetter.com we present the latest annual shareholder letter from MSC INDUSTRIAL DIRECT CO INC — ticker symbol MSM. Reading current and past MSM letters to shareholders can bring important insights into the investment thesis.
2024 ANNUAL REPORT
DEAR SHAREHOLDERS, Despite a challenging fiscal year in 2024 for MSC, the team remained steadfast on the advancement of our Mission Critical strategy. As a reminder, we embarked on the next chapter of our Mission Critical journey with a focus on maintaining the momentum from the completion of the first stage of our Mission Critical initiative, while simultaneously investing in areas of the business to create new elements of growth and acting on opportunities to improve our cost to serve. I am confident that our achievements and the meaningful progress made across these strategic efforts during the fiscal year will strengthen our long-term position. NET SALES ($B) DILUTED EARNINGS PER SHARE $4.50 $7.00 $6.00 $4.00 $5.00 $3.50 $4.00 $3.00 $3.00 $2.00 $2.50 2023 2024 2022 2023 2024 CASH FLOW FROM OPERATIONS ($M) $500 $800 $400 $600 $300 $400 $200 $200 $100 $1.00 2022 OPERATING INCOME ($M) $0 2022 2023 2024 2022 2023 2024 First, within our solutions offerings, we continued to take market share throughout the fiscal year with 9% growth in our installed vending machine units and 29% growth in the number of In-Plant programs, both of which will enhance our ability to drive above-market growth when our primary end markets recover. Further, we strengthened our culture, which was recognized when we received our 2024 Great Place To Work Certification, as well as our corporate governance by adding Rob Aarnes as an independent member of our Board of Directors fulfilling a promise we made in last year s reclassification transaction. Secondly, we made progress on creating new elements of growth through investment and strategic action. One area of focus is improving the customer experience on our website through a series of targeted investments. This includes increased focus on drastically enhancing our search and product discovery functions as well as the checkout experience. While we needed to delay the launch of these investments in fiscal year 2024, we have taken corrective action and believe we have the right team in place for a successful launch in fiscal year 2025. We also successfully converted our product offering of over 2.4 million SKUs to a more competitive web price structure.
This will help us ensure that the first price presented to any visitor to mscdirect.com will be fair and credible. The combination of these actions strongly aligns with our culture of always putting the customers first and is expected to reenergize our core customer base. Optimizing our cost to serve is the remaining pillar of our new Mission Critical chapter, and we made progress on this front as well. In fiscal year 2024, we made the difficult decision to close our Columbus CFC following our investments in automation at our Elkhart and Harrisburg locations that allow us to maintain future capacity needs across a smaller distribution network. We are expecting this decision to provide annualized savings beginning in fiscal year 2025 of $5 to $7 million and expect to achieve additional savings throughout the year from opportunities identified by our recently completed network optimization study. Though I am confident that we are taking the right steps to strengthen our company and drive long-term performance, the demand environment didn t support the heavy lift of investment required to execute. In the beginning of fiscal year 2024, we faced headwinds related to the UAW strike, which began to alleviate as we entered the holiday season, and experienced additional headwinds from extended plant shutdowns. Adding to this was weakening demand across the metalworking verticals where we are heavily exposed, which persisted throughout fiscal year 2024. As a result, our average daily sales (ADS) declined 4.7% and operating margin declined 190 basis points in the fiscal year as we balanced the impacts of lower volumes and investments to our strategic pillars with softer near-term profitability. While fiscal year 2024 necessitated investment into the business to advance our Mission Critical strategy, the strength of our balance sheet and cash flows also enabled us to act on acquisition opportunities that are expected to create long-term value for MSC. In our fiscal second quarter, we acquired KAR Industrial, a distributor supplying metalworking and related MRO supplies into eastern Canada. This acquisition brings in a highly technical salesforce and strengthens our presence in this region. Additionally, that same quarter, we acquired certain intellectual property from SMRT, which consists of technology assets developed by Dr. Tony Schmitz and his wife Christine. This transaction brings to us one of the nation s foremost manufacturing minds and new capabilities such as the next generation of predictive milling technology, which underpins MSC MillMax .
Later in fiscal year 2024, we made two more exciting additions to the portfolio with Premier Tool Grinding and ApTex. Premier Tool Grinding strengthens our regrind and special tooling service offerings that was recently enhanced through the acquisition of Tru-Edge in fiscal year 2023 as it expands our reach to the western parts of the United States. ApTex is a production-oriented industrial distributor with a heavy focus on cutting tools located in Waukesha, Wisconsin. ApTex s strong team of sales engineers, combined with our breadth of products and best-in-class metalworking offering, strengthens our technical expertise and ability to gain market share in this region. We plan to seamlessly integrate ApTex and further strengthen our regional market position as we did with the fiscal year 2022 acquisition of Engman-Taylor. As we enter fiscal year 2025, we are focused on driving efficiencies across the organization and completing our strategic growth initiatives through incremental investments. We are focused on executing the three pillars that define our new chapter of Mission Critical maintaining momentum by winning in metalworking and driving innovative solutions to expand share of wallet, reenergizing the core customer base through an improved web experience and better pricing, and optimizing our cost to serve through productivity improvements. While macroeconomic headwinds remain, we are laser focused on realizing our long-term goals of achieving adjusted operating margin in the mid-teens, driving 400 basis points of growth above the Industrial Production index over the cycle and ultimately getting MSC back to the performance we are confident it can achieve. Sincerely, Erik Gershwind Chief Executive Officer
FORM 10-K
 • shareholder letter icon 12/12/2024 Letter Continued (Full PDF)
 • stockholder letter icon 12/13/2023 MSM Stockholder Letter
 • stockholder letter icon More "Industrial Machinery & Equipment" Category Stockholder Letters
 • Benford's Law Stocks icon MSM Benford's Law Stock Score = 51


MSM Shareholder/Stockholder Letter Transcript:

2024
ANNUAL
REPORT

DEAR SHAREHOLDERS,
Despite a challenging fiscal year in 2024 for MSC, the team remained
steadfast on the advancement of our Mission Critical strategy. As a
reminder, we embarked on the next chapter of our Mission Critical journey
with a focus on maintaining the momentum from the completion of the
first stage of our Mission Critical initiative, while simultaneously investing
in areas of the business to create new elements of growth and acting
on opportunities to improve our cost to serve. I am confident that our
achievements and the meaningful progress made across these strategic
efforts during the fiscal year will strengthen our long-term position.
NET SALES
($B)
DILUTED EARNINGS
PER SHARE
$4.50
$7.00
$6.00
$4.00
$5.00
$3.50
$4.00
$3.00
$3.00
$2.00
$2.50
2023
2024
2022
2023
2024
CASH FLOW FROM
OPERATIONS ($M)
$500
$800
$400
$600
$300
$400
$200
$200
$100
$1.00
2022
OPERATING
INCOME ($M)
$0
2022
2023
2024
2022
2023
2024
First, within our solutions offerings, we continued to take market share
throughout the fiscal year with 9% growth in our installed vending machine
units and 29% growth in the number of In-Plant programs, both of which
will enhance our ability to drive above-market growth when our primary end
markets recover. Further, we strengthened our culture, which was recognized
when we received our 2024 Great Place To Work   Certification, as well as our
corporate governance by adding Rob Aarnes as an independent member
of our Board of Directors   fulfilling a promise we made in last year   s
reclassification transaction.
Secondly, we made progress on creating new elements of growth through
investment and strategic action. One area of focus is improving the customer
experience on our website through a series of targeted investments. This
includes increased focus on drastically enhancing our search and product
discovery functions as well as the checkout experience. While we needed
to delay the launch of these investments in fiscal year 2024, we have taken
corrective action and believe we have the right team in place for a successful
launch in fiscal year 2025. We also successfully converted our product
offering of over 2.4 million SKUs to a more competitive web price structure.

This will help us ensure that the first price presented to any visitor to
mscdirect.com will be fair and credible. The combination of these actions
strongly aligns with our culture of always putting the customers first and
is expected to reenergize our core customer base.
Optimizing our cost to serve is the remaining pillar of our new Mission
Critical chapter, and we made progress on this front as well. In fiscal
year 2024, we made the difficult decision to close our Columbus CFC
following our investments in automation at our Elkhart and Harrisburg
locations that allow us to maintain future capacity needs across a
smaller distribution network. We are expecting this decision to provide
annualized savings beginning in fiscal year 2025 of $5 to $7 million
and expect to achieve additional savings throughout the year
from opportunities identified by our recently completed network
optimization study.
Though I am confident that we are taking the right steps to strengthen
our company and drive long-term performance, the demand environment
didn   t support the heavy lift of investment required to execute. In the
beginning of fiscal year 2024, we faced headwinds related to the UAW
strike, which began to alleviate as we entered the holiday season, and
experienced additional headwinds from extended plant shutdowns.
Adding to this was weakening demand across the metalworking verticals
where we are heavily exposed, which persisted throughout fiscal year 2024.
As a result, our average daily sales (ADS) declined 4.7% and operating
margin declined 190 basis points in the fiscal year as we balanced the
impacts of lower volumes and investments to our strategic pillars with
softer near-term profitability.
While fiscal year 2024 necessitated investment into the business to advance
our Mission Critical strategy, the strength of our balance sheet and cash
flows also enabled us to act on acquisition opportunities that are expected
to create long-term value for MSC. In our fiscal second quarter, we acquired
KAR Industrial, a distributor supplying metalworking and related MRO
supplies into eastern Canada. This acquisition brings in a highly technical
salesforce and strengthens our presence in this region. Additionally, that
same quarter, we acquired certain intellectual property from SMRT, which
consists of technology assets developed by Dr. Tony Schmitz and his
wife Christine. This transaction brings to us one of the nation   s foremost
manufacturing minds and new capabilities such as the next generation of
predictive milling technology, which underpins MSC MillMax  .

Later in fiscal year 2024, we made two more exciting additions to the portfolio
with Premier Tool Grinding and ApTex. Premier Tool Grinding strengthens
our regrind and special tooling service offerings that was recently enhanced
through the acquisition of Tru-Edge in fiscal year 2023 as it expands our reach
to the western parts of the United States. ApTex is a production-oriented
industrial distributor with a heavy focus on cutting tools located in Waukesha,
Wisconsin. ApTex   s strong team of sales engineers, combined with our breadth
of products and best-in-class metalworking offering, strengthens our technical
expertise and ability to gain market share in this region. We plan to seamlessly
integrate ApTex and further strengthen our regional market position as we did
with the fiscal year 2022 acquisition of Engman-Taylor.
As we enter fiscal year 2025, we are focused on driving efficiencies across
the organization and completing our strategic growth initiatives through
incremental investments. We are focused on executing the three pillars that
define our new chapter of Mission Critical     maintaining momentum by
winning in metalworking and driving innovative solutions to expand share of
wallet, reenergizing the core customer base through an improved web experience
and better pricing, and optimizing our cost to serve through productivity
improvements. While macroeconomic headwinds remain, we are laser focused
on realizing our long-term goals of achieving adjusted operating margin in the
mid-teens, driving 400 basis points of growth above the Industrial Production
index over the cycle and ultimately getting MSC back to the performance we
are confident it can achieve.
Sincerely,
Erik Gershwind
Chief Executive Officer

FORM 10-K



shareholder letter icon 12/12/2024 Letter Continued (Full PDF)
 

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