What led to MSC Industrial Direct Co Inc (NYSE: MSM) stock pressure despite market recovery

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MSC Industrial Direct Co Inc (NYSE: MSM) stock fell over 3.4% on 9th April, 2020 (as of 12:38 pm GMT-4; Source: Google finance) as the company posted mixed results for the second quarter of FY 20. During the second quarter the company continued to progress on the journey to reposition MSC as a mission-critical partner on the plant floor of manufacturing and industrial customers. The company remained focused on the three initiatives to restore operating margin stability and ultimately expansion. That includes the refining the sales effectiveness plan, improving the profitability of the supplier programs and improving productivity by reducing operating expenses.

Further, during the quarter, Industrial demand trends remained relatively soft. The company were seeing a couple of encouraging data points, with January and February MBI readings improving to 50.2. However this was of course quickly erased by what unfolded with the COVID-19 outbreak, and the March reading of 41.0. The weakness in industrial demand increased further, with pockets of softness in areas like automotive, heavy truck, oil and gas and agriculture. Aerospace has also weakened on the back of the Boeing developments and the building concerns around COVID-19. With regard to the pricing environment, the company continued to see list price movements from the suppliers, and the company took a midyear price increase at the beginning of the fiscal third quarter or the beginning of March.

Moreover, the National accounts had fallen in the low single digits, while core customers fell in the mid-single digits. And this is the portion of the company’s business most heavily levered to metalworking, so no surprise. Government sales growth levels had fallen to down low teens, which weighed down the overall growth. CCSG remained a bright spot, as it grew in the low single digits.

MSM in the second quarter of FY 20 has reported the adjusted earnings per share of $1, which is in line with the analysts’ estimates for the adjusted earnings per share of $1. The company had reported 4.5 percent fall in the adjusted revenue to $786,094,000 in the second quarter of FY 20, missing the analysts’ estimates for revenue of $789,680,000. The company’s total average daily sales were $12.9 million, which reflects a decline of 2.9% on an ADS basis versus the same quarter last year. MSC Mexico had contributed approximately 90 basis points of acquisitive growth in the quarter.

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