09:31 AM EDT, 07/02/2024 (MT Newswires) -- MSC Industrial Direct ( MSM ) slashed its full-year average daily sales outlook on Tuesday, as lower public sector orders dragged down the company's fiscal third-quarter revenue on a yearly basis.

The distributor of industrial tools and supplies now expects average daily sales to decline 4.3% to 4.7% for fiscal 2024, compared with its previous guidance range of flat to up 5%. Adjusted operating margin is expected in the range of 10.5% to 10.7%, down from prior projections of 12% to 12.8%. The stock fell 2.6% in premarket activity.

"We began the second half of our fiscal year with unexpected gross margin pressure and a slower-than-expected recovery in average daily sales, particularly within our core customer base," Chief Executive Erik Gershwind said in a statement. "As a result, our third-quarter performance was below expectations and led to a revised full-year outlook."

MSC Industrial's adjusted earnings per share during the three-month period ended June 1 declined to $1.33 from $1.74 a year earlier, in line with the Capital IQ-polled view. Sales came in at $979.4 million, down from $1.05 billion the year before. Four analysts surveyed by Capital IQ expected $979.3 million.

Average daily sales fell 7.1%, impacted by a headwind of roughly 300 basis points from non-repeating public sector orders in the prior year, as well as continued softness in heavy manufacturing verticals, according to Chief Financial Officer Kristen Actis-Grande. By customer type, public sector daily sales dropped 25% and national accounts ticked down 1.1%, while core and other customers moved 7% lower.

Gross margin in the quarter totaled 40.9%, compared with 40.7% in the prior-year quarter, but down 60 basis points sequentially due to web price realignment initiative issues and mix headwinds, according to an investor presentation.

MSC Industrial carried out "swift corrective actions" to improve its gross margin and accelerate progress on the rollout of its web enhancements, according to Gershwind. "While results to date in fiscal 2024 are not up to our standards, we are confident we have the talent and strategy in place to achieve our long-term goals and create meaningful value for all stakeholders," the CEO said.

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