Accelerating sales growth, an EPS beat, and positive management tone drove MSC Industrial shares up nearly 5%. EPS were $0.02 ahead of the Street, although the bar was low due to weather fears. The headline was accelerating organic sales growth in March to 10% and guidance for 7%-9% growth in the fiscal third quarter. Management said that metalworking demand has improved “considerably” and cited a rising Metalworking Business Index and more-optimistic customer tone. Also encouraging, the federal government is spending again, and on easy compares, MSC delivered double-digit government growth.

March organic sales growth of 10% is a nice acceleration from 5% in October and 5.5% in November. Underlying activity is improving, and MSC has a positive outlook for the second half. March did benefit from the timing of Easter and possibly pent-up weather demand. April growth should ease some, but our sense is 7%-9% growth is realistic for the quarter.

MSC continues to see strong realization of its 3% Big Book price increase, but mix to national accounts/ government/vending is an offset. Second-quarter pricing improved to roughly 1% with help from a modest mid-year price increase. Implemented in February, the increase was selective to offset supplier increases and was smaller than usual. MSC did not enjoy a midyear price increase in 2013 so year-over-year gross margins should see a small boost.

MSC guided fiscal third-quarter gross margin to 46.0% plus/minus 20 basis points. Oneoff lower reserves and favorable rebates provided a 30- to 40-basis-point lift to second quarter gross margin at 46.4%.