MSC Industrial Direct (NYSE:MSM) executives said fiscal 2026 second-quarter results reflected stronger-than-expected margin performance and disciplined cost management, but sales growth fell short of the company’s outlook as organizational changes in the field created near-term disruption. Management also pointed to early signs of improving industrial demand and guided to faster sales growth in the fiscal third quarter, with pricing expected to remain a meaningful contributor.
Sales growth misses outlook as sales and service restructuring adds “noise”
President and CEO Martina McIsaac said average daily sales (ADS) grew 2.9% year over year in the fiscal second quarter, below the company’s outlook midpoint of 4.5%. While weather and a partial government shutdown were modest headwinds, McIsaac emphasized that the most significant factor was the company’s final phase of sales optimization work, which included consolidating overlapping customer-facing roles and simplifying how customers are serviced.
During Q&A, McIsaac said the transition created more disruption than expected due to two issues: weather prevented planned in-person handoffs to new customer contacts, and attrition occurred sooner than anticipated after MSC raised performance standards and changed compensation. “We had customers that were uncovered for a period of time,” she said, which affected unplanned demand capture.
McIsaac added that the impacted associates were notified “right before Thanksgiving,” with actions occurring through December and into January to accommodate an overlap period, and she said “by mid-January” essentially all of the headcount reductions had taken effect. She also noted that while the sales force was permanently reduced by 130, the company plans to backfill “a couple of tens of roles” left vacant due to attrition.
Pricing offsets volume declines; national accounts show signs of improvement
Interim CFO Greg Clark said second-quarter sales were $918 million, up 2.9% year over year. He attributed the increase primarily to price benefits of 6.6%, while volume declined 4% year over year. Clark said volume results included a combined headwind of about 100 basis points from weather and the partial government shutdown.
By customer type, Clark said core customer daily sales continued to grow above the company average and “improved approximately 6%” versus the prior year, while national account daily sales were “essentially flat.” Public sector daily sales declined roughly 1% on tougher comparisons and shutdown-related impacts late in the quarter.
Looking ahead, management argued that trends have improved as the field transition has progressed. McIsaac said national accounts were up low single digits in February and “mid-single digits month-to-date in March,” while core customers exited the quarter with positive volume. Clark said February results were “masked” by public sector weakness, noting public sector was down mid- to high-teens percent due to delayed funding and a tough comparison, while core was up mid- to high-single digits and national accounts were up low single digits in February.
On pricing, McIsaac said tungsten-related input pressures are increasing, with price increase notices “between 7%–15%” and scrap carbide up “500%” since the company last discussed the issue in January. She said those supplier increases could become effective in May or June and that MSC will “likely have another pricing action around that time.” Ryan Mills, vice president of investor relations and business development, said the company implemented a “surgical price increase” in March of less than 1% and that year-over-year price benefit in the fiscal third quarter should be “pretty similar” to the second quarter. Mills later suggested modeling pricing in the “6.5%–7% range” for the back half as the company begins comping against prior pricing actions.
Asked about tariffs, McIsaac said the “math” remains “fairly stable” for MSC because it is “not the importer of record for three-quarters plus” of what it brings in, and she said the company has not seen meaningful supplier movement tied to tariffs.
Margins expand as pricing and cost actions take hold
MSC reported gross margin of 41.1%, which McIsaac said was better than expected and up 10 basis points year over year. She attributed the improvement to pricing actions taken in fiscal Q1 and Q2 in response to inflation, plus continued “professionalization” of pricing processes and margin management. McIsaac said price contributed approximately 6.5% to daily sales performance in the quarter.
Clark said operating expenses were about $310 million on a reported basis and $308.5 million on an adjusted basis. Adjusted operating expenses improved 20 basis points year over year as a percentage of sales, which management said reflected headcount reductions and productivity actions tied to network optimization.
Adjusted operating margin was 7.5%, within the company’s outlook range of 7.3% to 7.9% and up from 7.1% in the prior year. McIsaac said the company delivered adjusted incremental margins of 21%, “towards the upper end” of expectations.
Clark said GAAP EPS was $0.76 versus $0.70 a year earlier, while adjusted EPS was $0.82 versus $0.72, representing a 14% increase.
Solutions footprint grows; MSC cites improved metrics and use of AI
Management said the company’s vending and in-plant programs continued to expand during the quarter, and McIsaac said the sales and service changes did not hurt their momentum. Clark said vending machine count increased 8% year over year to about 30,400 machines. In-plant program customers rose 9% to 423 programs.
Clark said average daily sales through vending grew 8% year over year and represented 20% of total net sales, while sales to customers with in-plant programs also rose 8% and represented about 20% of net sales. He noted that in-plant program count growth had moderated last quarter as the company “strengthened financial discipline,” including transitioning certain existing in-plant programs with suboptimal returns to other service options.
McIsaac also highlighted internal productivity initiatives, including work by the planning and procurement team to embrace AI and embed it into daily processes, as well as distribution center optimization efforts. She said these actions contributed to operating expense discipline and improved performance metrics.
Balance sheet and cash flow; third-quarter outlook calls for faster growth
Clark said MSC ended the quarter with net debt of about $466 million, roughly 1.2x EBITDA. He noted that the company amended its accounts receivable securitization facility and increased capacity by $50 million. Operating cash flow conversion was 224% for the quarter, and free cash flow conversion was approximately 173% for the quarter and 86% year to date. Clark said the company remains on track to achieve its full-year target of about 90% free cash flow generation as a percentage of net income.
The company returned about $49 million to shareholders during the quarter and $110 million year to date via dividends and share repurchases, Clark said.
For fiscal third quarter, Clark guided to ADS growth of 5% to 7% year over year, including a March daily sales estimate of about 4% that incorporates an anticipated 100-basis-point headwind from the timing of Good Friday. Under that sales outlook, the company expects adjusted operating margin between 9.7% and 10.3%, with gross margin around 41% and a sequential increase in adjusted operating expenses tied primarily to higher variable expenses from expected sales growth.
Management also discussed the broader industrial environment. McIsaac described “a tale of two realities,” citing improving industrial production trends in several end markets and customer sentiment readings, alongside uncertainty from geopolitical tensions, rising fuel costs, and the war with Iran. She said the company has not seen meaningful disruption but remains in constant communication with customers and is taking proactive steps to secure supply. In response to analyst questions about uncertainty, McIsaac said customers are focused on securing supply “against an increasing demand that they feel they’re gonna see,” and the company has not observed a demand slowdown in customer conversations.
Looking further out, McIsaac reiterated an ambition to restore operating margins to “mid-teens,” saying this will require accelerating organic sales growth and continued scrutiny of cost structures, including productivity improvements in fulfillment centers and applying automation and AI to reduce the need to replace attrition.
About MSC Industrial Direct (NYSE:MSM)
MSC Industrial Direct Co, Inc (NYSE: MSM) is a leading distributor of metalworking and maintenance, repair and operations (MRO) products serving a broad range of industrial customers across North America. The company offers an extensive portfolio of cutting tools, abrasives, measuring and inspection instruments, fasteners, safety supplies and other essential components used in manufacturing, metalworking and production environments. MSC delivers products through a multi-channel distribution network, including an extensive branch system, e-commerce platform and dedicated sales force.
In addition to its core product offerings, MSC Industrial Direct provides value-added services designed to improve productivity and reduce downtime for its customers.
