MSC Industrial Direct Company, Inc. (MSM) shares hit a fresh 52-week high on Wednesday after the industrial distributor reported fiscal third-quarter results that comfortably beat Wall Street estimates. But tucked inside the earnings release was a warning that one of its key raw materials — tungsten — has gotten so expensive that the company is bracing for more price hikes from suppliers, with no end in sight.
President and CEO Martina McIsaac said the stronger-than-expected results reflected “strength in the Core Customer, which continued to outperform the total company, and notable improvement in National Accounts.”
Earnings Beat Expectations
Adjusted earnings came in at $1.43 per share, beating the analyst consensus estimate of $1.26. Revenue increased 7.8% year over year to $1.047 billion, exceeding analysts’ expectations of $1.031 billion. Pricing contributed 720 basis points to growth, while volume added 50 basis points sequentially.
Adjusted operating margin expanded to 10.6% from 9.0% a year earlier. The company ended the quarter with approximately $433 million in net debt. Capital expenditures totaled $21 million.
MSC returned $49 million to shareholders during the quarter through dividends and share repurchases. Year-to-date capital returns totaled about $160 million.
Sales Trends Remain Strong
Average daily sales increased 7.8% from a year earlier, driven by strong demand from core customers and improving national account performance. Core customer average daily sales rose about 8%, while national accounts and public sector sales each increased 7% and 8%, respectively. Defense-related demand supported public sector growth.
Sales through MSCDirect.com grew at a double-digit rate, while OEM fastener sales climbed more than 15%, helped by cross-selling initiatives.
Tungsten Prices Stay Elevated
Despite improving demand trends, MSC cautioned that raw material inflation remains a key challenge. McIsaac said tungsten, a critical input for cutting tools, has risen more than 500% and continues to drive supplier price increases. The company expects additional pricing actions in the fiscal fourth quarter and said it has not yet seen signs that the cost pressure is easing. Management added that, so far, customers have continued buying despite higher prices, with cutting tool volumes still growing.
MSC Industrial Outlook
For the fiscal fourth quarter, MSC expects average daily sales growth of 6.5% to 8.5%, with June average daily sales projected to increase about 7%. The company expects gross margin to decline 40 to 50 basis points sequentially because of normal seasonal trends. Adjusted operating margin is forecast to range between 10.0% and 10.8%, implying incremental operating margins in the mid-20% range.
For fiscal 2026, MSC raised its free cash flow conversion target to approximately 95% from 90% and lowered expected capital expenditures to about $100 million from its previous range of $100 million to $110 million. The company also reiterated its goal of maintaining gross margin within the 40% to 41% range while prioritizing volume growth.
Price Action
MSC Industrial Direct Co. shares were up 6.41% at $126.57 at the time of publication on Wednesday. The stock is trading at a new 52-week high, according to market data.
