MSM
#Sure, <UNK>.
So CCSG, I would say we cite CCSG and metalworking both being below Company average, honestly, both in similar ranges.
Certainly, I'd like to see CCSG growing faster.
I'd like to see metalworking growing fast, and I'd like see the business growing faster.
I think the overwhelming headline there is they are being impacted by the macro like everybody else.
Execution at CCSG remains focused on the three levers that we've talked about, which are service improvements ---+ core customer service improvements, which are going quite well; cross-selling, which is really picking up traction; and then salesforce retooling and transformation, which I would say remains a work in process, have a lot of confidence in the Team and the plan there.
Thank you, <UNK>.
Good morning.
Thank you.
Yes, sure, <UNK>.
So let me start.
When we look at share gains, we begin with the bottom line, so we'll look top down to evaluate overall Company performance, and then in a very granular way, we look bottom up at a ton of different metrics.
The bottom line for us when we look top down is, how does the Company's growth rate compare to industry.
And as you know, we triangulate ---+ and by the way, your work is an excellent piece of work, along with some others on the distributor surveys.
We triangulate data, including your surveys, including supplier feedback, including macro indices, peer comparisons, to get at what we believe market is growing at and assess our growth relative to market.
At the end of the day, that is the bottom line, and that's what we can't out run.
Our assessment is that our share gain performance remains quite strong as measured along that dimension.
I think what you're then getting at is, hey, where is it coming from.
The where is it coming from, there's two things I'm going to cite.
One is program execution, and that program execution is both directed at share of wallet penetration and new account acquisition.
And the other is going back to the strength of the value proposition and the customer service.
Particularly what we find in times like this, when times are tough and customers really need to lean out their operation, they need to rely more heavily on supplier partners, whether that's helping them in the plant, whether that's them getting product quickly, so we see the MSC advantage really being widened when times get difficult So I think that's part of the story.
The other part of the story is program execution, again, directed at share of wallet penetration and account acquisition.
I'll touch on one other thing you mentioned, piggybacking on the account acquisition piece, and that's customer count.
Not surprising to us here, it's a metric that we've said for awhile is not top of mind for us.
It's really been a left over.
It's more of a direct marketing metric.
Not surprising to us that it would flatten out.
If you look back at other periods of economic difficulty, that number tends to ebb and flow with the economy.
In fact, in the last downturn, it was down significantly.
It's now flat, so not a particularly surprising result to us.
No, I couldn't, and for probably competitive reasons and the fact that we work with our suppliers, and just for competitive reasons, I couldn't.
But those are the main drivers, and they are just the levers, <UNK>, that we keep working on.
Thanks, <UNK>.
Yes, Rob, so let me start with two things there.
I'll start with energy and then get to the December number.
But on the energy front, really no change.
And just a reminder, our direct exposure to energy is really low, really low meaning well under 5%.
The indirect exposure is I think what's taken everybody by surprise, not only at MSC, but in the broader economy, and it's ugly.
There's no other way to say it.
And I think in the past, we've shared that when we look at our manufacturing end markets, that they're what would be traditionally thought of as metalworking markets in areas that are energy exposed, i.
e.
, Texas, Oklahoma, et cetera.
The results are really, really poor, and not surprisingly.
I would not read anything into that.
With respect to December, as I've said, the holiday impact, call it roughly 250 basis points, when we look month to month, there can be noise in the growth rates.
What we're really focused on is what's happening on an average daily sales level in absolute dollars.
And what we're seeing there, over the past couple of quarters, going into our Q2 guide, is effectively average daily sales stabilization.
And I think that's really where we're focused because the growth rate is strictly a function of how it lines up to comparisons prior year, and again, I think we feel pretty good.
What we've seen is average daily sales stabilization in the face of a deteriorating environment.
Well <UNK>, if you just continue to assume that we have sales per day running per day at more or less the same level as we're running today, and we don't have the visibility to be able to tell you any different to that, right.
If you project at that, the back half of the year would be close to breakeven, very slightly negative, call it, you can do the math yourself, but close to breakeven.
Well first of all, we also ---+ we prefer the approach of working through very bottoms up, very collectively with the Team and trying to see how we can improve productivity and doing it without trying to take cost out, purely reactively to market conditions, right.
That's one of the reasons why MSC bounced back so strongly from 2008 and 2009 as well.
So right now, we're not really seeing an environment where we need to do that.
If things get much worse, then obviously, we'll respond accordingly, accelerate cost actions that we've taken and do stuff.
But as of now, no, I think we continue to innovate discipline with focus and execute and let the Team run away with it.
No, Rob, I think <UNK> is really leading us through the approach to expense management and productivity in a very effective way, and it's not going to be about a big bang and a massive transformation.
The transformation is happening one cost center at a time with just doing things smarter, one productivity initiative at a time, and I think it's working.
I will tell you, I think there's still a lot of runway.
That's the exciting part.
It just is not going to be in a big bang.
The only other thing I would add to <UNK>'s first comment and your question on the back half of the year, look, we are squarely ---+ one thing I want to reiterate ---+ we are squarely in that lower left quadrant, so that demand quadrant that we call slightly negative and we said was 0 to minus 4, right now, with everything we see, and granted, our visibility is extremely low, but we would characterize it as right smack in that quadrant.
You too, <UNK>.
Yes, Dave, good questions.
Nothing major to report on weather that would have been a factor either way.
We didn't see anything big there.
With respect to shutdown activity, we would characterize the shutdown activity as relatively similar to last year.
So if you take a similar level of shutdown activity combined with the benefit of the Thursday versus the Friday holiday effect, we think that's what helped us in those last couple of weeks.
And I'll admit it's hard to parse out the shutdown activity from the Thursday-Friday phenomenon because again, just going back to the analogy, when the holidays fall on a Thursday, it's unlikely that a business is going to come back for that Friday, so you're effectively losing a selling day twice, one for Christmas, one for New Year.
So hard to parse those out, but I'd call it similar to last year.
Yes, boy, I wish I had something [quantitive].
It's a tough one to get precise on, Dave.
What I would tell you is, certainly, like what MSC is doing, which you see inventory levels have come down, our customers are doing the same thing.
However, I would say I want to draw your attention to what we see as the bigger headline, which is the results we saw and others have seen in terms of the macro for the back half of the year and the last few months.
The primary driver there is a reduction in incoming orders, in demand, in backlogs, not in destocking, and I think that's the bigger headline.
Dave, I think the honest answer is we're thinking about the relationship ---+ if you go back, and you probably have seen the same thing with other distributors, but historically, the correlation with PMI was quite tight, and over the past couple of years, not just for us but for peers, it's not been nearly as tight.
So we certainly look at it, but we look at a bunch of other factors as well in forming judgments.
We introduced for awhile now the MVI, which seems to have a tighter correlation.
So again, we'll look at PMI, but not with the same degree.
I don't think it has the same degree of predictive correlation as it did years ago.
Hey, <UNK>.
Happy New Year to you.
Yes.
<UNK>, I think what we try to do is highlight for you, and there's three dimensions by which we look at the business, by customer type, by product type, and by channel, to highlight for you what we think is driving ---+ and look, I think we're doing well in a lot of areas, but certainly, what we'll do during the prepared remarks is highlight where we think we're doing particularly well.
So by customer type, we've been calling out the large accounts as an area that's done particularly well, and that's not just national accounts, but we think that it's an area where technology is allowing for supplier consolidation to happen at our customers at an accelerated pace, and we think we're benefiting quite nicely from that.
Along the product dimension, look, we've talked about metalworking as a key area of focus, as an area of leadership where we feel like we're doing quite well.
We've talked about the Class C area as an area of focus.
And then along the channel dimension, there's two that we've highlighted that we think are doing quite well, vending and eCommerce So those are the ones that we call most attention to.
I'll take that.
We do see that gradually beginning to accelerate as we go on, and that's ---+ we've been working with our suppliers, and the suppliers who see us as a value add driver of growth, the brand building platform, they're investing in us, and obviously, we're focusing more on them.
And we kicked off a lot of work on this back in November with a second round pretty much rolling out now, and so we've seen some of these benefits come in as we go into the back half of the year, and then some of them will actually flow into FY17.
Broader.
We started with our key strategic suppliers, clearly, and focused on that, but definitely broader.
It's working across the whole base.
<UNK>, the one comment I'll add-on the supplier front is this has been ongoing.
It's not a one and done.
It's ongoing discussions.
It's ongoing actions.
And look, to some degree, it has to be a win-win situation, so it's not just a matter of us going back and beating the supplier over the head saying give us more money.
That's not going to be sustainable and long term not good for both sides.
So it's been about dialogue, certainly, with strategic suppliers, as <UNK> said, going broader, but also about not just what the supplier is going to do for us, but what can we do for them to make it worth their investment in us.
Sure, absolutely.
Well, we've been self-insured through the end of calendar 2015, and so we've always had variability in our quarterly medical costs, right.
And this year's Q1, which for us ends at the end of November, remember, so it's been compounded by the introduction.
The Q1 peak that we [haven't seen] was compounded by the introduction of our private health exchange.
And then probably see, based on what we've seen anyway so far, some reasonably high medical costs so far coming through December, right.
But going into Q3 and Q4, then you'll start to see the benefits of a steadier run rate of medical costs and certainly a lower run rate than what we've had in Q1.
In this particular quarter, medical costs were almost $4 million higher sequentially compared to the quarter before.
But like I said, you don't really take away too much from that because they do vary quite a bit.
They bounce around quite a bit.
Thank you, <UNK>.
Hi, <UNK>.
<UNK>, it's been an area of focus; it remains an area of focus.
And it's been ---+ I think what you're seeing as slight positive is ---+ it's again, going back to the two drivers of performance right now in terms of execution and the strength of the value proposition, and I think both are at play with respect to national accounts and with respect to government.
So both of those segments have been pretty soft, so we feel good about a positive result as being indicative of strong share gains, and that's been an ongoing area of focus, and it will remain an ongoing area of focus.
Yes, sure, <UNK>.
I would say despite the significant changes in environment, not a significant change in our approach here and what we're seeing or in how we're thinking about M&A, which is we certainly keep our ears and eyes wide open.
Have not seen a radical change in activity levels, and certainly, M&A part of the equation.
And as I've said for the last couple of quarters and I'd reiterate is, at the moment, certainly, we're open to, it but the bar is a bit higher than it normally is just given everything going on inside the Company and outside of the Company, and quite honestly, the nice traction that I think we're seeing on the top line, on gross margin, and on expense controls.
I feel like the Company is executing well, and so to divert attention to an acquisition, we would do it for the right acquisition, but the bar is just a bit higher.
We certainly have the capacity to make acquisitions as well because remember that under our debt covenants, we can go up to 3X, if you would, and we're at 0.71.
Thank you, <UNK>.
Hi, <UNK>.
<UNK>, you got it.
It's just that it's a partial day.
It's not that it's ---+ there's business coming in, but it's not a full day, so that's it [that set us apart].
It's not ---+ those days are not the equivalent of a full day.
Yes, it does.
And I think that's how I look at it.
I couch it by saying, as <UNK> said, our visibility right now is extremely low.
This is always a tough quarter for us, <UNK>, because we come off of the holidays and really don't have any peek into how things bounce back.
It's compounded, the low visibility this year, by the environment.
But yes, essentially, you're right.
If you do the math, you're right.
It averages about 4% down January, February, and our assumption is more or less a continuation of what we're seeing in the environment.
<UNK>, good catch on Government.
Not so much an anomaly.
Generally, there's a seasonal pattern with the Government.
You're right, their fiscal year ends in September, so as you can imagine, there's a lot of spending leading up through September and then a big drop off as people spend their final budget dollars.
That happens every year, so no big surprise there.
We've been really pleased with the performance in Government.
That has been a very strong grower for us.
You are right to note the growth slowed down.
The big factor there, and it wasn't so much ADS, it was more a function of the ongoing lack of budget resolution within the Federal Government that did not get resolved until late December that most certainly had an impact on spending environment in Government.
We did see a change there.
We're hopeful with resolution ---+ hopefully, that bodes well for the back half of the year, but like everything else, visibility is low and to be seen, but that was the big driver.
<UNK>, let me take your questions in reverse order.
Look, I do think there is still some runway there left, and yes, we've been adding them at 100,000, 150,000 clip for the last few years.
We still do see some runway there.
And look, I do think it's been a piece of the market share story has been capture of new products.
No question.
To answer your question, the 70,000 would not have a material impact on the results to date.
Think of these in waves that hit the beach, so the impact actually happens cumulatively over a couple of years, but the 70,000 would not yet have a material impact on the current results.
At some point, I hope so because it means we've grown so much that we do.
We've talked about on the warehouse side is that what we see right now, Columbus should take us to $4 billion, assuming the next billion looks like the first $3 billion, and that's factoring in what we're doing on the SKU front.
The other thing I'll call out we've talked about is we are trying to be smart about these, that they get added to the web.
They don't immediately get added to stock until we see them trip certain thresholds, so we're trying to be inventory and capital wise about how we do it.
Thank you, <UNK>.
Okay, thank you, everyone, for joining us today.
Our next earnings date is going to be April 6, and we certainly look forward to speaking with you over the coming months.
Take care.
