MSC Industrial Direct Co., Inc. Q2 FY2026 earnings call

• Service organization change: Completed last round of structural changes and headcount reductions related to sales optimization. Simplified resource model for a geographically aligned service organization, impacting ~130 customer-facing associates. - Supplier growth forum: Brought over 1,000 MSC associates and 400 suppliers together, facilitated over 3,000 pre-scheduled meetings, resulting in nearly 10,000 opportunities totaling close to $500 million in combined near-term and long-term potential. - Margin expansion: Growth margin of 41.1% improved 10 basis points year-over-year, driven by price actions and pricing process professionalization. Adjusted operating expenses improved 20 basis points as a percentage of sales due to headcount reductions and network optimization. - P&L progress: Adjusted operating margin was 7.5%, a 40 basis point year-over-year improvement, and 2Q adjusted incremental margins were 21% towards the upper end of expectations.

Fiscal 2Q ADS growth was 2.9%, falling short of the midpoint outlook of 4.5%. Vending had 8% year-over-year increase in machines installed at quarter end, representing 20% of total company net sales. Sales to customers with an implant program were up 8% year-over-year and also represented approximately 20% of total company net sales.

• Fiscal third quarter: Expect average daily sales to grow 5% to 7% compared to prior year. Adjusted operating margin expected to be between 9.7% and 10.3%. Implied adjusted incremental margin of approximately 25% at midpoint of outlook. - Full year: Depreciation and amortization expense 95 million to 100 million, interest and other expense ~35 million, Capital expenditures including cloud computing arrangements $100 to $110 million, tax rate 24.5% to 25.5%, free cash flow generation ~90% of net income.

• Geopolitical tensions, war with Iran, and rising fuel costs present heightened uncertainty. While no meaningful disruption yet, in constant communication with customers and taking proactive steps to secure supply.

Q: Brian Merkle with William Blair asked about confidence in average daily sales acceleration and national account recovery.

A: Explained impact of service organization change on volume, transitional nature of the impact, and seeing improvement in core and national accounts month-to-date.

Q: Ken Newman with KeyBank Capital Markets followed up on pricing and tungsten.

A: Talked about price increase notices for tungsten-related products, upcoming pricing actions, and color on pricing mix and sourcing.

Q: Tommy Mall with Stevens asked about disruption from sales organization changes fading.

A: Stated changes were necessary, seeing encouraging signs of growth in February and March, and confident in being on the right track.

Q: Patrick Bowman with JP Morgan followed up on pricing and headcount.

A: Clarified pricing comps and ongoing effort to challenge cost structure including headcount and automation.

Q: Stephen Volkman with Jefferies asked about pricing substitution and restock.

A: Talked about substitution opportunities and no significant restocking seen.

Q: Nigel Coe with Wolf Research asked about field office headcount and SG&A.

A: Explained sales headcount plans and color on OPEX changes.

Q: David Manthe with Baird asked about customer attitudes and headcount changes.

A: Talked about customer sentiment and details on headcount change timing and backfilling plans