On this page of StockholderLetter.com we present the 12/13/2023 shareholder letter from MSC INDUSTRIAL DIRECT CO INC — ticker symbol MSM. Reading current and past MSM letters to shareholders can bring important insights into the investment thesis.

 •  12/13/2023 Letter Continued (Full PDF)
 •  12/12/2024 MSM Stockholder Letter
 •  12/11/2025 MSM Stockholder Letter
 •  More "Industrial Machinery & Equipment" Category Stockholder Letters
 •  MSM Benford's Law Stock Score = 59

MSM 12/13/2023 Shareholder/Stockholder Letter Transcript:

MISSION CRITICAL
PARTNERSHIPS
DRIVING VALUE
2023 ANNUAL REPORT

$3.00
$2.50
NET SALES
2021
2022
2023
DILUTED EARNINGS PER SHARE
(IN BILLIONS)
DRIVING VALUE WITH MISSION CRITICAL
PARTNERSHIPS
NET SALES
$4.50
(IN BILLIONS)
$7.00
For over 80 years, we have been helping manufacturers
be the best that they can be.
$6.00
$4.50
$4.00
Being Mission Critical means being core to our customers, being extremely connected
$5.00
to their businesses and helping to drive their success.
$4.00We partner with all sizes of
$3.50
$4.00
businesses to drive growth, productivity and savings. Thank you to our dedicated team
$3.00
$3.50
of more than
$3.00 7,000 associates who all play an important role in helping MSC be a
$2.00
mission critical partner.
$2.50
2021
2022
2023
$3.00
$1.00
$2.50
2021
2022
2023
2021
2022
2023
DILUTED EARNINGS PER SHARE
OPERATING INCOME
NET SALES
DILUTED EARNINGS PER SHARE
$7.00
(IN BILLIONS)
$500
$6.00
$4.50
$7.00
$400
$5.00
$6.00
$4.00
$4.00
$300
$5.00
$3.00
$3.50
$4.00
$200
$2.00
$3.00
$1.00
$2.50
(IN MILLIONS)
$3.00
2021
2022
2023
2021
2022
2023
OPERATING INCOME
(IN MILLIONS)
$100
$2.00
$1.00
2021
2022
2023
2021
2022
2023
CASH FLOW FROM OPERATIONS
(IN MILLIONS)
DILUTED EARNINGS PER SHARE
OPERATING INCOME
$7.00
$400
$500
$600
$500
$800
(IN MILLIONS)
$6.00
$400
$400
$300
$5.00
$300
$200
$4.00
$200
$3.00
$100
$2.00
$1.00
2021
2022
2023
2021
2022
2023
$200
$0
$100
2021
2022
2023
2021
2022
2023
CASH FLOW FROM OPERATIONS
(IN MILLIONS)
OPERATING INCOME
$800
(IN MILLIONS)
CASH FLOW FROM OPERATIONS
(IN MILLIONS)
$500
$600
$800
$400
$400
$600

DEAR SHAREHOLDERS
In fiscal year 2023, our company continued building
upon a track record of successful execution by
delivering another year of strong growth and
operational excellence. Despite a complex macro
environment, which became more uncertain as the
fiscal year progressed, we delivered strong growth in
average daily sales (ADS) of 11.2% and outpaced the
Industrial Production (IP) Index by more than 1,000
basis points. This growth was fueled by the continued
expansion across several areas of our business through
the execution of our Mission Critical initiatives.
Within our solutions offerings, we continued to
capture market share with ADS growth in the mid- and
high-teens through vending and In-Plant solutions,
respectively. In our Public Sector channel, we made
significant progress by securing new wins that drove
related sales growth above 45% and we continue
to see plenty of runway for future growth. Within
E-commerce, we strengthened our digital presence
through an exclusive agreement with MachiningCloud
that brings MSC closer to the earlier manufacturing
stages of our customers. Additionally, E-commerce
ADS grew 10% in the fiscal year.
We made strategic inorganic investments for longterm growth through the acquisitions of Buckeye
Industrial Supply and Tru-Edge Grinding that expanded
our geographical reach and service capabilities. Early
results are encouraging, and we are making great
progress integrating these businesses into the MSC
platform. Looking ahead, our M&A strategy will focus
on acquisitions that fit within our strategic, financial,
and cultural filters to drive further shareholder value.
As many of you may recall, in fiscal year 2020, we
introduced our Mission Critical program with a focus
on improving profitability and market share capture by
leveraging our portfolio strengths and metalworking
expertise, expanding solutions, growing E-commerce,
and diversifying the business. We also demonstrated
our confidence in the company   s trajectory, foundational
strengths, and    Built To Make You Better    brand
promise by establishing three-year performance targets.
We achieved notable growth in several areas across
the business with compounded annual growth rates
(CAGRs) over the three-year period of 10% across
our vending installed base, 35% in sales through
In-Plant customer locations, and 9% in both Class C
consumable products and E-commerce sales. We
also made significant progress in our diversification
efforts with Public Sector sales growing at a 7% CAGR
over the three-year period and currently represents
approximately 10% of company sales. Additionally,
we saw improvement in metalworking as related
sales produced a 9% CAGR over the past three years.
Lastly, it   s worth noting that we strengthened our
metalworking position by adding new technologies
and capabilities such as MSC MillMax   and tool
regrinding services. Together, this growth drove total
company ADS to perform 570 basis points above
$4.0B
8%
Net Sales
20-Yr Sales CAGR

the IP index, well above our stated goal of 400 basis
points. Combined with over $100 million in achieved
cost savings, this year   s diluted earnings per share of
$6.11, improved 35% over the three-year period or 11%
compounded annually. Our strong performance in fiscal
year 2023 resulted in us achieving every three-year
Mission Critical performance target presented in fiscal
2020, a significant milestone for MSC as we continue to
reshape into a more efficient and profitable company.
We achieved another milestone this year in taking
steps to improve our governance structure. In October
2023, MSC completed the reclassification transaction
with its controlling family, including myself, and
eliminated its dual-class share structure. We strongly
believe this decision will broaden our scope of
investors and ultimately make MSC a more attractive
investment. Our family retains a large economic stake
in the company and is confident in MSC   s future.
Looking ahead, although our initial Mission Critical
program was successfully completed, we are not
pressing pause. The next phase of our Mission Critical
strategy will be a transformation journey that takes a
continuous improvement mindset across three pillars,
one of which includes maintaining initial Mission
Critical program momentum. Additionally, we will be
adding new elements of growth, including reenergizing
our core customer base through strategic actions such
as improving our E-commerce experience. Lastly, we
will focus on optimizing our cost to serve customers by
improving network performance and productivity.
This strategy resonates well with the growing
drumbeat inside the organization as demonstrated by
the recent associate engagement pulse score in the top
decile. Our strategic direction, combined with MSC   s
strong culture, gives me a great deal of confidence in
our ability to generate longstanding profitable growth
and strengthen MSC   s position as a mission critical
partner across the North American manufacturing
landscape, including high-growth areas that require
our technical expertise, such as aerospace, medical,
and electric vehicle markets.
In closing, I am beyond grateful to be working with
such an amazing team of over 7,000 colleagues who
have all played a tremendous role in reinventing MSC
into a mission critical partner. I would like to thank
each of our associates as well as our customers and
suppliers for their trust and partnership. We believe
the future is bright at MSC and I look forward to
updating you throughout the year on our progress in
executing on our company   s momentum and creating
value for all stakeholders.
Respectfully,
Erik Gershwind
President and Chief Executive Officer
Note: Please see    Cautionary Note Regarding Forward-Looking
Statements    beginning on page 1 of the accompanying Annual
Report on Form 10-K.
11%
>900M
20-Year EPS CAGR
Returned to Shareholders
(over the last 3 years)

FORM 10-K



 12/13/2023 Letter Continued (Full PDF)