MSC Industrial Direct Co., Inc. Q1 FY2026 earnings call

• Reconnecting and growing with core customers, with a focus on executing initiatives like pricing, website, and marketing, and optimizing the sales organization. - Inaugural growth forum with approximately 1,400 MSC associates in customer-facing roles and suppliers in late February, designed to drive growth. - Progress on evaluating the systems roadmap and search for a permanent CFO. - Commitment to ESG, including reaffirming greenhouse gas emission reduction goals, recycling efforts, and partnerships with nonprofits. - Gross margin of 40.7% at the midpoint of the outlook, reported operating margin 7.9%, and adjusted operating margin 8.4% at the upper range of the outlook.

Fiscal first quarter sales were approximately $966 million, up 4% year over year. Price contributed 420 basis points to growth, offset by a 30 basis point decline in volumes due to the federal government shutdown. Core customers grew approximately 6% in Q1, buoyed by initiatives around e-commerce marketing and seller optimization. National accounts returned to growth, while public sector daily sales declined 5% due to the shutdown but resumed growth in December. In solutions, vending sales were up roughly 9% year over year (representing 19% of total company sales) and implant programs were up 13% at quarter end (representing approximately 20% of total company net sales). The net number of implant programs moderated due to an increased emphasis on financial acumen in the field, with some existing in-programs converting to more cost-effective service options.

• Anticipates average daily sales growth of 3.5-5.5% compared to the prior year in fiscal 2Q, with sequential daily sales decline of 4-6% compared to 1Q. - Adjusted operating margin for 2Q expected to be 7.3%-7.9%. - Full-year adjusted incremental operating margins expected to be approximately 20% under a mid-single-digit growth scenario. - Amended AR securitization facility to $350 million, lowering cost of funds by over $1 million annually. - Returned approximately $62 million to shareholders in fiscal 1Q via dividends and share repurchases.

• Risks associated with forward-looking statements, including actual results differing from anticipated due to various uncertainties. - Economic uncertainties impacting demand in certain markets. - Inflation impacts on pricing and cost structure. - Potential impact of federal government shutdowns on public sector sales. - Uncertainty regarding the impact of IEPA tariffs if ruled invalid.

Q: My first question is just on price, and I guess it's a two-parter. The 4% price, I think that was a little bit more than you expected. Could you just unpack what drove that? And then how should we think about price in fiscal 2Q? Do you think you'll see more price?

A: Ryan Mills talks about price coming in as expected with carryover from prior price actions, and Martina McIsaac discusses ongoing inflation, particularly in metalworking due to tungsten price increases and plans for mid to high single-digit price increases starting in mid-January Q: So maybe for my first question here, Martina, I just wanted to run through that comment around I mean, you guys have certainly kind of hammered this idea of, call it, 20% incremental margins in a mid-single-digit environment. You know, when I run through the historical seasonality against the midpoint of that 2Q guide, it does imply the back half is growing something a little closer to low to mid-single digits. You know, I just want to give you the chance to maybe clarify the intent behind that mid-single-digit comment and you know, the opportunity to help us understand, you know, maybe the opportunity for better operating leverage in the back half versus typical seasonality?

A: Ryan Mills and Martina McIsaac discuss confidence in growth momentum, outperforming historical trends, and productivity initiatives contributing to expected incremental margins in the back half Q: Martina, in your prepared comments, you talked about some cost measures taken in early 2Q, and it was in the same breath as a mention on turning your attention to the service model. So I guess it's a two-part question here on the cost measures. What can you share there in terms of details, perhaps sizing or context? And was that meant to be linked to your comments around service, or were they more aimed at the selling organization?

A: Martina McIsaac explains the sales optimization program applied to service organization to match resources to potential, with headcount actions in early 2Q as a result of optimization Q: Thanks. Good morning. And Martina, congratulations on the new role. I want to go back to December. Just you know, understand, you know, the holiday timing and the impact on the customer shutdowns. But any more color on why so extreme just given you know, it was a one-day shift from last year from Wednesday to Thursday. So just wondering if there's any more kind of color in terms of why customers decided to, you know, shut down over that period? And then have you seen sort of normal operations resuming in January so far?

A: Ryan Mills and Martina McIsaac discuss December's sales decline due to holiday timing (Thursday) and New Year's, with core customers continuing to grow despite challenges, and limited visibility into January operations Q: Hi, good morning. Thanks for taking the questions. I guess just to poke at the 2Q guide a little bit more here. So if we're expecting price to be up 5% or a little bit north of that in the second quarter? Obviously, there's moving parts with the supplier conference and whatnot, but volumes here are implied to still be flat to down a bit. Can you kind of put that in context? Is that just being cautious given the macro backdrop? Are we expecting to get positive in the back half of the year? Maybe like how we get that core volume back up? And how does that compare with what is the demand on the ground here?

A: Ryan Mills discusses cautious outlook due to limited visibility, supplier conference impact, and potential for volume improvement with price actions Q: I guess just to poke at the 2Q guide a little bit more here. So if we're expecting price to be up 5% or a little bit north of that in the second quarter? Obviously, there's moving parts with the supplier conference and whatnot, but volumes here are implied to still be flat to down a bit. Can you kind of put that in context? Is that just being cautious given the macro backdrop? Are we expecting to get positive in the back half of the year? Maybe like how we get that core volume back up? And how does that compare with what is the demand on the ground here?

A: Ryan Mills and Martina McIsaac discuss implant program growth context, noting focus on large customers and balance between implant programs and cost-effective service options Q: Thank you. Good morning, everyone. My question too is on the first quarter to second quarter sequentials. If I'm calculating this right, if go to say, a 6% ADS in the second quarter, theoretically, that would still be, sequential of, like, minus four, and you're saying the minus two is the historical average. And if you go to that, you know, five and a half or 6% I guess you'd be sort of, factoring out the holidays and sales meeting and all that stuff. So and then on top of that, you get better government sales. You get this pricing acceleration. I'm just what I'm getting at is unless market demand is deteriorating, why wouldn't you be seeing more normal sequential trends in the second quarter versus what was already a seemingly weak first quarter? And then why wouldn't those be more normal or even higher as we move through the year if the economy gets better?

A: Ryan Mills discusses December's non-surprise due to holiday timing, seasonal public sector trends, and limited visibility, while noting confidence in growth initiatives and potential for improved incremental margins in the back half