MSC Industrial \EPS Beat Expectations by $0.02, March Accelerates as Expected

Overall, this was a fairly strong report from MSC with a nice rebound in March, as we expected.

The strong growth in March appears to be driven by manufacturing, government, and national accounts.

Management’s tone remains upbeat and our sense is that growth could continue to accelerate in the back half. Easy comparisons are a piece of the story, but enough indicators suggest that true underlying manufacturing activity is improving and MSC is taking share.

The stock should be higher today despite the fiscal third-quarter EPS guidance at $1.03-$1.07, below consensus at $1.08. Most likely the guidance is conservative and with organic growth picking up, our guess is that there could be nice upside.

We suspect MSC may have put through a midyear price increase, but we expect to hear more on the call. If so, this would indicate the backdrop is firming.

MSC’s organic growth pickup to 10% in March is stronger than we expected and is a big positive for the group.

Also, guidance implies a 400-basis-point pickup in organic growth from the prior quarter.

We expect the distributors with the most cyclical leverage such as Fastenal, Wesco (WCC $86.04; Outperform), and Airgas (ARG $104.18; Outperform) to see the strongest improvements in monthly comps.

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