MSC Industrial at 18th Annual Conference: Strategic Growth Amid Challenges

On Tuesday, 20 May 2025, MSC Industrial Direct Co. (NYSE:MSM) presented at the 18th Annual Global Transportation & Industrials Conference. The company outlined its strategic direction amid a challenging market environment influenced by tariff volatility. CEO Eric Gershwin emphasized growth initiatives, while acknowledging uncertainties affecting trading conditions.

Key Takeaways

• MSC Industrial is targeting growth 400 basis points above the Industrial Production Index.
• The company is leveraging AI for targeted marketing and productivity improvements.
• "Mission Critical 2.0" program focuses on high-touch business, core customer growth, and cost reduction.
• Strong cash generation supports reinvestment, dividends, and limited M&A activity.
• The public sector continues to see double-digit growth, with strong performance in national accounts.

Financial Results

The financial outlook for MSC Industrial highlights a focus on maintaining strong cash generation and strategic capital allocation. The company aims for at least 20% incremental margins on growth, driven by volume leverage and productivity measures. Key financial priorities include reinvestment in organic growth, consistent dividend increases, and selective buybacks and M&A.

Operational Updates

Under the "Mission Critical 2.0" program, MSC Industrial is prioritizing:

• Maintaining momentum in high-touch segments like vending and implant programs, which are growing at 10% and over 20% year-over-year, respectively.
• Re-energizing growth in the core customer segment, focusing on small and medium-sized businesses, which represent about 50% of revenues.
• Reducing costs through productivity initiatives, including supply chain efficiencies and sales force optimization.

Future Outlook

MSC Industrial aims to exceed the Industrial Production benchmark within the next 1-2 quarters. The company is focusing on productivity initiatives, such as optimizing supply chain efficiencies for annual savings of $10-15 million and enhancing sales productivity with a $300 million revenue potential.

Q&A Highlights

During the Q&A session, CEO Eric Gershwin addressed the fluid market conditions, noting that about 10% of the company’s cost of goods are sourced from China. The company is adopting a precise pricing strategy to maintain margins amid tariff changes. Gershwin also highlighted the fragmented nature of the industrial supplies market, emphasizing the need for a stable environment in heavy manufacturing sectors.

In conclusion, MSC Industrial’s strategic initiatives at the 18th Annual Global Transportation & Industrials Conference reflect a balanced approach to growth and operational efficiency. For more details, refer to the full transcript.

Full transcript - 18th Annual Global Transportation & Industrials Conference:

Ryan Mills, Head of Investor Relations, MSC Industrial: You all set? Great. Well, thanks for joining us here today, everyone. We’re joined by Eric Gershwin, CEO of MSC Industrial and Ryan Mills, Head of Investor Relations. So for anyone that’s unfamiliar with MSM, Eric runs the largest distribution business in North American metalworking markets with about 95% of sales here in The U.

S. They offer a broad array of cutting tools and metalworking products, It’s about 45% of sales and the remainder would be other MRO products that keep businesses running, largely in manufacturing end markets like aero, auto, machinery and metal fabrication to name a few. So with that, Eric, I think I’d like to start with an update on trading conditions and what your conversations have been like with customers in the past few weeks as we’ve been dealing with all the tariff volatility and noise out there.

Eric Gershwin, CEO, MSC Industrial: Brian, so thanks for hosting us, first of all. I wish I had more insight to offer than I will because the story will probably sound familiar. But I would say, and maybe as a point of reference, so we last reported earnings, we had the pleasure of scheduling our earnings call for the morning premarket after Liberation Day announcement postmarket. So it was a rather interesting call that had one subject and one subject only. I would say since that point in time, though, the discussions have been fluid, uncertain and agile is the way I would describe things.

So we sell Ryan did a nice job summarizing the company. Most of our revenues, about 70% of our revenues, virtually all of our almost nearly all of our revenues are into North America, mostly U. S. And of that, we are about 70% into the manufacturing industry, a large portion of heavy manufacturing. So all of the end markets that you’d expect to find, aerospace, automotive, oil and gas, heavy equipment and machinery, metal fabrication and so on.

So take it with that context. But it’s been really fluid. Unlike we leading up to the tariff headlines, we were sort of preparing. We had a playbook from the last iteration of Tariff one point zero, and we had a playbook ready. What I would say is the playbook has largely remained intact.

It’s just had to be modified and adjusted on a daily basis, which is how we’re operating. But the our customer base remains uncertain and the situation remains fluid as you’d expect.

Ryan Mills, Head of Investor Relations, MSC Industrial: That all makes sense. And it’s a good segue into the next question of how does the news of a lower China tariff rate change your game plan or outlook for the next few quarters? And maybe you could remind us like what amount of price are you seeing from your suppliers? What should we be expecting for the back half? And maybe how do you see that playing out if tariffs do dial back?

Is there some rollback there?

Eric Gershwin, CEO, MSC Industrial: So another maybe point of reference for the company. So of our from a sourcing perspective, our cost of goods are from China, where we are the direct importer of record. So that percentage would go up where we’re not the importer of record as a distributor. The majority of our sales are products for resale from industry brands who may be sourcing from anywhere. From what we source directly, it’s about 10%.

I would say pricing, once again, has been a bit more unusual than it has been in the past just because of the uncertainty and kind of the lumpiness of how things have rolled out. So we ourselves, where we’re an import of record, took an increase late in March. Relative to past cycles, though, where we would have expected to go broad scale, significant price moves in big chunks, This go around, we’re taking kind of a more scalpel like approach based on what’s been happening so we can avoid having to roll things back. So and I think that’s been true of our manufacturers, of our supplier community, the manufacturers of the products. They’ve been less reluctant to go all out with big price increases because of the uncertainty and where there have been pricing moves.

So there have been some, and we passed those along. It’s been a combination of pricing and surcharges, more so than we’ve seen in the past. The only thing I’ll call out, Ryan, is our industry, and I speak on behalf of MSC and then our industry as industrial distributors, have been historically very good at passing pricing through. I would expect that to be the case. All the uncertainty notwithstanding, expect that to be the case this time around, too.

And you’d

Ryan Mills, Head of Investor Relations, MSC Industrial: be passing through price. Is that maintaining

Eric Gershwin, CEO, MSC Industrial: the margin or dollar for dollar? Just clarify that, Scott. We certainly would our goal is the margin, not just the dollar for dollar.

Ryan Mills, Head of Investor Relations, MSC Industrial: Makes sense. And tariffs have certainly been a topic of conversation for you guys, added another kind of layer of complexity to the business. I think if we maybe just step back, could you just talk about how you feel better positioned to manage through things today versus say five years ago, where you didn’t have Kristen in the CFO role, Martina as COO and President, more I guess, firepower in the leadership team?

Eric Gershwin, CEO, MSC Industrial: Yes. So I’ve been CEO of the business for, it’s now going on, these are like dog years, like twelve, thirteen years as CEO. I’ve been in the business for over twenty five years. And over the past few years, as you mentioned, particularly the past three years, Ryan, we’ve really put an emphasis on building out Ben’s strength at the leadership level. And so Martina MacIsaac came to us about two point five years ago as our Chief Operating Officer, which is the first Chief Operating Officer we had since I filled the role about fifteen years ago.

And our CFO, Kristin Actis Grande, has been with us about four point five years. And the two of them, Martina has since taken over as President in the fall and really with a charter to improve performance on the base business. And so she has all responsibility for the day to day. She partners with Kristin, and it’s given me time really to focus on strategy, on more direct interaction with all of our stakeholders, and team development has been so I think actually from that standpoint, much better positioned than we were from a leadership standpoint.

Ryan Mills, Head of Investor Relations, MSC Industrial: Yes, that sounds like a positive change. And I think one area that you’ve been clear that has been more of a focus for you with this I mean, is reinvigorating growth in that core and other customer group. Could you maybe just talk about what you view as kind of the what are the one or two things that need to be achieved to unlock better growth there? Would you say website enhancements is one of those areas of focus? Or are those largely underway at this point?

Eric Gershwin, CEO, MSC Industrial: Yes. Maybe what I’ll do, Ryan, is maybe even take a step back and just talk a little about the company’s growth agenda. We call our growth program our mission critical program. And mission critical one point zero was a three year period that ended in our full year runs September to August. So we’re squarely in the middle towards the back stages of fiscal ’twenty five.

But through the three year period, fiscal ’twenty one through ’twenty three, we saw really strong organic revenue growth, which our benchmark there is 400 basis points above Industrial Production Index, and we were about 500 plus and operating margin expansion. We are now in mission critical two point zero. We’ve had a rough eighteen months. And so really a combination of two things, I would say, macro softness with our portfolio exposure, metalworking products manufacturing markets have been really historically soft in terms of the length of time, a protracted twenty four months, and then some execution issues that we’ve since shored up. But basically, the mission critical program has three priorities to it.

Number one is to maintain momentum in what we refer to as our high touch portions of the business. So MSC, if I go back a decade ago, would have been more of a spot buy supplier, catering to unplanned customer needs, next day delivery, great service and a great product offering. And while those things are still intact, we felt like that was no longer those were becoming more table stakes in the industry, and we were hearing a cry from the manufacturing community for productivity, help to run their businesses better. And so we have been on a really, over the past decade, an aggressive campaign to migrate MSC to play a much bigger role inside of manufacturing customers. So today, you would find MSC inside of our customers with technical experts, with sourcing people, with vending machines or inventory management, industrial grade vending machines.

So it’s a very different face to the customer. So the first priority is to maintain momentum there. And two data points I would share. One is our vending or inventory management footprint continues to grow. So that business products running through a vending machine are around 15%, a little over 15%, Ryan, if I have right, percent of revenues and continuing to grow the footprint there, continuing to grow at close to a 10% clip year on year.

The second one is a newer program but fits into this high touch priority, and that is our implant program, where we’re actually placing full time MSC employees inside

Ryan Mills, Head of Investor Relations, MSC Industrial: of

Eric Gershwin, CEO, MSC Industrial: our customers. So this would have to be a larger customer certainly to justify the cost of a full time person, but that person is playing the role of storeroom and tooling management of procurement, of put away, of some value added services like kitting and technical expertise. And we think we’re really tapping into something there because our customer base who are manufacturers, all of them are challenged with a labor and skills gap and a labor shortage. So we’re certainly tapping into something. That program pre COVID was low single digits as a percentage of revenues.

As of last quarter, it was 18% of revenue. So we want to continue momentum there in that portion of the business. And just an interesting data point there is so that program is growing in terms of signings and a footprint over 20% year on year, and yet revenues on a per site basis are down in the double digits. And I think that’s illustrative of what we see happening in the heavy manufacturing end markets with reluctance to spend. But we feel very good about that footprint.

We see sort of what we refer to as a coiled spring effect building as the environment restores. We get through some of the tariff noise that there’s a lot of latent growth potential there at very low marginal cost. So that would be the first priority. The second priority, I’m getting to you this is a long winded way of getting to your answer, is around reenergizing growth in our core customer. So this is more back to the legacy MSC sort of traditional spot buy business, and our core customer is makes up roughly 50% of revenues.

And it would be small and medium sized customers. So the other two, there’s core customers. The other ways we chunk out the business are national accounts and public sector, both of whom tend to be larger, more sophisticated buyers with more complex contracts in place. There’s a stickiness factor there. The small and medium sized customers are where we’ve lost ground and have an effort to reenergize growth there.

And the nice thing about that is to the extent we can get that going, it’s higher gross margin, lower cost to serve. So there’s a lot of goodness there. And there’s really four priorities. You had mentioned the web, but there was four things that we felt needed to be in place to restore growth in our core customer. Number one is our public facing pricing or web pricing to the marketplace, which over the years had gotten high as we offered more value added services to large customers.

We executed successfully realignment about a year ago. And our goal is certainly not to win business on price because we sell on value and total cost savings, but not to lose business on price. So price reset, number one, that’s complete. Number two is upgrading our e commerce experience to make it world class. It had been world class.

It was certainly okay. But as time went on and competitors moved more quickly there, their experience got better. So that upgrade is by and large complete. We completed what we said we would complete last quarter. We’ve certainly learned in e commerce, you’re never done.

So the work is ongoing, but the heavy lifting behind us. The third element was marketing program. And we felt like the critical path there was getting the pricing and the web experience to be where we wanted it. We did. So we’ve launched enhanced marketing efforts, much more aggressive marketing efforts, primarily digital, some print, some human touch.

But towards the end of our fiscal quarter, what we had telegraphed on the last call, so beginning really in the February time frame, marketing. And then the fourth element to the formula is optimizing sales coverage. So we have a large sales force, well over 1,000 people in the field calling on customers that could be medium sized businesses, albeit not at the size of a national account and ensuring that our coverage model is optimal optimized, I should say. That’s one of the areas where Martina has been heavily focused. And we feel like we had shared on a recent earnings call that we can unlock through just some effective productivity techniques, dollars 300,000,000 in growth without adding to headcount.

So those are the four elements, Ryan, of reenergizing the core customer base. And then the third of our mission critical priorities, I’m sure we’ll get there at some point, is reducing cost to serve through productivity initiatives, and we’ve got a whole slew of them.

Ryan Mills, Head of Investor Relations, MSC Industrial: Great. No, that’s very helpful, comprehensive answer. Thank you, Eric. Maybe to drill into that the third point that you were talking about with reinvigorating the core another customer. So the marketing efforts, you’ve done a lot over the past twelve months and now in more recently the last couple of months, you’ve been going out and trying to win back that share.

Is there anything, I guess, tangible that you could share with us in terms of like KPIs or metrics that you’ve seen in terms of the pickup there?

Eric Gershwin, CEO, MSC Industrial: Yes. So look, the ultimate result will be seeing the core customer growth rate restore. And as of the last quarter, and this was right on the cusp of Liberation Day, but we had started to see, I would say, some sequential improvement after a rough stretch. We were seeing sequential improvement in strengthening. But underneath, we’re looking at a lot of metrics.

So the marketing program, there were some basic blocking and tackling like pricing and web. But then I think the big thing, our business so we sell over 2,000,000 SKUs to over 400,000 customers, is really primed for AI, both productivity and growth. And so one of the priorities in our marketing effort has been to apply technology, digital technology and some AI into our marketing efforts. And what that’s allowed us to do is get much more targeted, much more personalized and much more real time with the offers that we serve up to customers, whether that’s on the website, whether that’s through email, whether that’s by a salesperson via CRM. But that’s probably been the biggest theme that I’d call out.

In terms of the KPIs we’re looking at, we’re looking carefully at customer counts, and we did start to see a nice climb in customer counts and sequential improvements there. And in new customer acquisition, we’re looking at retention rates, and then we’re looking at average order value share of wallet. So I would say still early, started to see some signs of life. But all four we felt like those four initiatives need to be in place. They’re just put in place, and now it’s a matter of harvesting them and seeing the results.

Great.

Ryan Mills, Head of Investor Relations, MSC Industrial: And I guess as how do you suggest we think about kind of the time line to realizing those benefits? Understandably, this is more of a spot buy model as opposed to more contractual on the national account side. So is it a quick snapback in your view? And do you have any visibility into kind of where share was seeded with those customers, more a larger player, mom and pop competitors?

Eric Gershwin, CEO, MSC Industrial: So maybe I’ll hit that question first and then go to the time line. But yes, the interesting, fascinating thing about the industrial supplies, the distribution market is it’s so it’s large and it’s incredibly fragmented. So the marketplace in North America is around $250,000,000,000 when we aggregate all the end markets and the product categories. The top 50 distributors have around 35% share. So that means 65% of the market sits with regional and local distributors.

And I think if you gauge where MSC wins share, where we lose share, it generally doesn’t vary too much So I would say in the case of the core customer, it wouldn’t look too different from how the marketplace would shake out. In terms of time line, and obviously, we put environment to the side and let’s assume things normalize. I mean, we’d expect to start to see improvements. To your point, Ryan, it’s not like a contract win where there’s an onoff spigot where it happens overnight.

This is probably more gradual. But we would expect to see a building improvement in our core customer growth rate and in growth above gross growth spread relative to IP.

Ryan Mills, Head of Investor Relations, MSC Industrial: So clearly, a lot of momentum building in the core and other customer side. I guess maybe if we could just spend a moment on the other two customer groups with national accounts, public sector. You alluded to earlier on national accounts, you’ve seen very strong KPIs there, implant signings growing double digits, vending installations also growing double digits. How do you think about the near term or midterm growth algo for that part of the business in that regard? And I guess similar, if you could touch on public sector where you’ve seen double digit growth roughly through the first half of this year.

How do you think about forecasting that for the second half?

Eric Gershwin, CEO, MSC Industrial: Yes. I think national accounts, which is around 35% of our business, and by national accounts, our definition is these are companies with multiple buying locations where there’s a program in place, typically with the potential to spend in the 7 figures. The value proposition we have there seems to be resonating really well as evidenced by the inventory management, the vending growth and the implant growth. And our growth rate has been suppressed there relative to where I’d expect it. And I think there, the execution has been pretty good.

The value proposition is resonating. So Ryan, that’s an area where as things restore, I would expect to see improvement. So just back to the implant example, 18% of revenues, 25% year on year growth in signings, and yet Ryan likes to point out that the implant if you take the revenue growth of the pool, it’s only up mid single digits. So again, down low double digits on a per location basis. We think there is a lot of growth in share capture embedded there that’s just waiting to get unlocked with some improvement in the macro.

So we feel pretty good about and I had mentioned some of the sales changes we made. We did this in waves, all at once. Public sector came first at the end of our fiscal twenty twenty four, national accounts early in 2025. So we feel like the sales changes are complete. The value proposition is strong.

The footprint is in place. So we would expect strong growth as things restore. The other one you mentioned, public sector, has been actually a shining star for us, double digit growth most recently. I think that’s a combination of some of the sales changes that were made there along with strong contract wins. Look, if we had the guy up here who runs our public sector business, and I’ll tell you, I would expect I expect that of the group, the double digit growth would be their rallying cry.

He may get a little squeamish, but that would be certainly our long term goal.

Ryan Mills, Head of Investor Relations, MSC Industrial: And it seems like you felt really no impact from stimulus rollback or doge implications there? So I would say a little bit of noise, but not

Eric Gershwin, CEO, MSC Industrial: a lot. So of our public sector business, we are about two thirds federal, one third state. So the obviously, if you’re looking at the two thirds federal, we saw a little bit of near term chop in the quarter last quarter. But big picture, obviously, still pretty good. And I think the reason is that when we focus on public sector, we’re focused on business that is consistent with our high touch value proposition where we want to be close to the customer helping them.

So a lot of our federal business is military, Department of Defense, and a lot of it you would find not just the transactional relationship, but you’d have an MSC presence on a base, for example, a la our implant program.

Ryan Mills, Head of Investor Relations, MSC Industrial: So I guess, as we wrap together those comments with everything we’ve gone through with the core and other customer, how are you thinking about the time line to ADS inflecting positive today? And getting back to growth versus your IP benchmark, do you think this divergence between MSM growth and the IP benchmark goes away in the next one or two quarters and then mid single digit growth in 2026 and beyond? Or how should we

Eric Gershwin, CEO, MSC Industrial: be thinking about things? I would certainly hope so, Ryan. Look, I think that to some degree, the macro will play influence. We don’t feel like we need a robust environment to get back to the kind of growth above IP. We just need more of a stable environment, particularly in the heavy manufacturing end markets.

So if we get past the tariff noise and that happens, that is certainly our expectation. I think from a margin and operating margin expansion standpoint, our goal is 20% plus incremental margins on growth. We feel like so our fiscal year twenty six will begin in September. We feel like we position the company where that should be achievable at a mid single digit growth range. And then certainly, if we do better as we would hope we do, there would be more room for expand.

Ryan Mills, Head of Investor Relations, MSC Industrial: And that’s good entry to kind of the next topic I wanted to dig into, which is growth is definitely an important factor in getting operating margins back on the path of expansion. We’re kind of compressing to the high single digit range in ’25. How are you thinking about that pace of recovery as sales inflect positive? I know you mentioned at least 20% incremental margin framework you guys have long term. How do you think about the scope to overdrive or exceed that when you are in the upswing of a sales cycle?

Eric Gershwin, CEO, MSC Industrial: Yes. I think the first thing I’d say, Ryan, step one is leveraging restoring growth and leveraging growth. And if we do start to see the kind of growth rate that we would expect to see in any sort of up cycle, high single digit, low double digit, that by itself would improve the incremental margin picture considerably. The second thing is really self help around productivity. And there’s a pretty big funnel that Martina and Kristin are driving right now.

We’ve highlighted first body of work around supply chain this fiscal year. We had closed the distribution center last fiscal year that provided some benefit without impacting our next day service promise to our customers. We have another line of sight to 10,000,000 to $15,000,000 annualized that’s been building in the will build in the back half of this year through some other supply chain efficiencies. So that’s the first body of work. There’s another kind of closely related body of work around freight and transportation costs, which is closely coupled with supply chain for us.

There’s another body of work in flight around sales force optimization, where there the play, to be honest, is less of cost down than it is get more revenue, I. E, the path to the $300,000,000 at the same level of cost without having to add. And then there’s a significant amount of work in the company right now, Kristin and Martina are driving around productivity, inclusive of AI. I mean, we mentioned, so we have a team fully deployed there that there are so many use cases that there’s a portfolio being applied against the largest ones right now for productivity. So when you put that together, Ryan, looking ahead, we would expect to eat into a considerable amount of inflation that we have moving forward.

Ryan Mills, Head of Investor Relations, MSC Industrial: Only thing I’d add is if we close that gap between the core customer and the average daily sales for

Eric Gershwin, CEO, MSC Industrial: the rest of

Ryan Mills, Head of Investor Relations, MSC Industrial: the business, that core customer is margin accretive. So that’s another margin benefit that is on the rise as well.

Ryan Mills, Head of Investor Relations, MSC Industrial: Good point. Yes. Definitely a lot of items called out at your back. I’m curious, outside of volume leverage, which of those do you see as like most important for improving SG and A intensity, which has stepped up from maybe high 20s historically to low 30s today?

Eric Gershwin, CEO, MSC Industrial: So outside because I would say the number one most important thing is restoring the core customer for the reason Ryan just mentioned. I would say outside of that, the two biggest bodies of opportunity, supply chain and sales, because that’s where the most cost and resources are deployed. And I think we have really fresh looks on both on the supply chain side. And we’ve been strong historically, particularly on next day delivery and had a strong team. But Martinez brought somebody in with a terrific background and just she’s bringing a fresh set of eyes to productivity inside of the four walls of a distribution center and then across the network.

And then she’s bringing her own fresh set of eyes on the sales deployment, which is how we’re going to unlock that the path of $300,000,000 But those are the two biggest.

Ryan Mills, Head of Investor Relations, MSC Industrial: Sorry, go ahead

Ryan Mills, Head of Investor Relations, MSC Industrial: and say, and then Eric talked to the 18% of revenues through implant for implant down low double digits. When things inflect positively, we’ll get the pull through on sales where we really start to lever our fixed cost, the D and A and the salary of that rep where that implant could be at or above company average job margin. So that’s another area as well.

Ryan Mills, Head of Investor Relations, MSC Industrial: And just to clarify that, is that on mature implants, like over a period of time, they’re accretive to operating margins? How long does it typically take to kind of scale up to that

Ryan Mills, Head of Investor Relations, MSC Industrial: to scale up from revenue generation from signing to revenue generation that occur, it takes about three months. You have to flush out, the incumbents’ inventory, train the rep, get him, trained. And then you have about a six month ramp to you get closer to that contracted spend where it’s at where it should be outside of production rates and consumption levels. So it’s about, on average, a nine month lag until you really start to see that revenue shine through. Got

Ryan Mills, Head of Investor Relations, MSC Industrial: And then Eric, you had just mentioned some changes to the distribution footprint towards the end of last year. Do you see much scope to further rationalize that without impacting your next day delivery promise?

Eric Gershwin, CEO, MSC Industrial: I would say there’s probably some so we now have four major hubs and then some other ancillary satellite facilities. There may be I don’t see a major step function change at the moment. There may be some opportunity on network. I think probably the bigger opportunity and by the way, even moving from five to four, the unlock there was really two things that enabled us to do it without impacting the service promise. One was the move to managed inventory as opposed to next day delivery allows us to stage things out.

And the second was investments we’ve been making into automation. So particularly automated picking was a big unlock for us in freeing up space and relieving capacity in our existing centers. I think the bigger supply chain unlock is likely to come in the form of what happens inside the four walls of the large four centers. We see big opportunity there.

Ryan Mills, Head of Investor Relations, MSC Industrial: Great. And that was actually my next question on to what extent have you deployed automation across these facilities. Could you maybe give us like an inning that we’re in, in terms of how widespread this is today?

Eric Gershwin, CEO, MSC Industrial: Yes. I would say it’s probably third inning or so. There’s still a lot of opportunities. So the automation that we put in place is still only in place in our in two of our four centers in Harrisburg and Elkhart. So there’s runway there.

And then outside of picking, there’s several opportunities for more automation that would yield good payback.

Ryan Mills, Head of Investor Relations, MSC Industrial: Good. So still early innings there. We could pause now. If we have any questions from the audience, we could take those. Otherwise, we can continue up here.

Unidentified speaker: I’m not sure if I missed that point in the beginning about tariffs. Do you see any increased level of pre buy? And like how do you manage this versus, let’s say, first wave we had before the liberation day? And how do you compare it? And how do you manage the inventory based on that?

Eric Gershwin, CEO, MSC Industrial: So and pre buy, not our pre buy, mean our customers pre buy to us? We in preparation for our last earnings call, we dug deep here, and it we did not find a material amount of prebuying. I’m sure there were some at the margin, but what we would be looking for and what we’ve seen in past times like this would have been a significant increase in large order activity, and we did not see that. So I would say not a ton. It’s just been such an unusual time that no one is sure how much to pre buy.

And I think about the calculus we went through as a distributor, not knowing what the rules were going to be. So I would say marginal.

Ryan Mills, Head of Investor Relations, MSC Industrial: Such a low cost of our customers’ overall production spend that they might have been pre buying direct materials or somewhere else.

Ryan Mills, Head of Investor Relations, MSC Industrial: Great. Any others from the audience? Well, we’ll continue then. So maybe we could pivot over to capital deployment. MSM has been extremely consistent in delivering 100% free cash flow conversion or better over the past few years.

How do we think about deployment priorities in the near term? Should we plan for similar rate of shareholder returns in the back half as what we saw in the front half of the year?

Eric Gershwin, CEO, MSC Industrial: Yes. Ryan, I think so. I’d start out by highlighting what you just mentioned, which is the cash generation of the company has been good. As a distributor, it’s great. It’s somewhat countercyclical in that regard because we tend to generate more cash as sales drop because of inventory and receivables.

So cash flow has been strong. From an allocation standpoint, our formula is more or less the same as it’s been, which is there’s kind of a 1A and a 1B. 1A is reinvestment into sound organic investments into the company. And it basically, they fall along the lines of the priorities that we’ve already talked about. And to the extent we continue to see those, that’s priority 1A.

1B will be consistent increases in the ordinary dividend. And then from there, we’ve been in a fortunate position to have more cash. I think return of cash through buyback and M and A would both be on the table. I would say that our M and A appetite right now, given what we just outlined, we think that the value creation story is really great if we can just execute on the priorities I mentioned without doing a ton of M and A. So acquisitions that fold into our core that are relatively small in size can make a lot of sense, and we’ve done those quite well.

I don’t expect right now to do anything big that would distract us from what we think is the best path to value creation. And so therefore, that would be the priorities. And I think it would be fair to say from a return of cash to shareholders’ standpoint, something similar to what you’ve seen would be a reasonable expectation.

Ryan Mills, Head of Investor Relations, MSC Industrial: That’s very clear.

Unidentified speaker: I was going to dig more into M and A, but it sounds like we

Ryan Mills, Head of Investor Relations, MSC Industrial: don’t need to do much there, more so just bolt ons. So I guess just kind of final question I want to wrap up with was MSM has been a public company for close to thirty years now. Could you just leave us with why is now the right time to be investing in your business?

Eric Gershwin, CEO, MSC Industrial: Yes. I think it’s a really interesting time. Number one is the company took a lot of effort to go through a lot of change in reshaping the role we play in the marketplace and pretty much behind us at this point. So I think there’s a really good value proposition that’s sold that works and that the heavy lifting to get it done is behind us. Number two, from a timing standpoint, we’re coming off of a period of suppressed operating margins right now after the past two years and two years of contracted softness in heavy manufacturing.

And if I look back in history, I am not good at judging much of anything and certainly not timing anything, but it certainly would one would think we’re a lot closer to the end of the cycle than the beginning of a cycle. So I think the heavy lifting to get the value prop is right is complete. I think that the timing from an end market standpoint is probably more favorable than unfavorable. I think we talked earlier the team, the quality of the leadership team put in place is good. And then the fourth thing is given the last two years performance from a valuation standpoint, compared to historical, we’re pretty cheap.

So I think it’s an interesting time.

Ryan Mills, Head of Investor Relations, MSC Industrial: A lot to be excited about ahead of us. That concludes it for today. Thank you all for joining us. Thank you, Eric.

Eric Gershwin, CEO, MSC Industrial: Thank you, Ryan. Appreciate it.

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