Good morning and welcome to the MSC Industrial Direct 4Q and Full Year 2014 Conference Call. All participants will be in listen-only mode. (Operator instructions) Please note this event is being recorded. I would now like to turn the conference over to John Chironna, Vice President of Investor Relations and Treasurer. Please go ahead.

Thank you and good morning everyone. I’d like to welcome you to our fiscal 2014 fourth quarter and full year conference call. An online archive of this broadcast will be available one hour after the conclusion of the call and for one month on the investor relations’ homepage at www.investor.mscdirect.com. During today’s call we will refer to various financial and management data in the presentation slides that accompany our comments as well our operational statistics, both of which can be found on the investor relations’ section of our website. With regard to our Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995, please note that our comments on this call as well as the supplemental information we are providing on the website contain forward-looking statements within the meaning of the US securities laws including guidance about expected future results, expectations regarding our ability to gain market share and expected benefits from our investment and strategic plan including the CCSG acquisition and expectations regarding future revenue and margin growth. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated by these statements. Information about these risks is noted in the earnings press release and the risk factors in the MDNA sections of our latest annual report on Form 10-K filed with the SEC as well as in our other SEC filings. These forward-looking statements are based on our current expectations and the company assumes no obligation to update these statements. Investors are cautioned not to place undue reliance on these forward-looking statements. In addition, during the course of this call we will refer to certain adjusted financial results, which are non-GAAP measures. Please refer to the tables attached to the press release and the GAAP versus non-GAAP reconciliations in our presentation which contain the reconciliation of the adjusted financial measures to the most directly comparable GAAP measures. I’ll now turn the call over to our Chief Executive Officer, Erik Gershwind.

Thanks John. Good morning and thank you for joining us today. Also in the room with us is Jeff Kaczka, our CFO. As we are now entering our fiscal 2015 I will use this call to step back, assess the company’s progress over the past year and update our path forward. And I will start with the headlines, we are seeing the benefit of our market share gains through accelerated growth rates and momentum as the manufacturing economy improves. We are building a new growth platform in CCSG with a very strong value proposition and a huge growth runway and high incremental margins. We are executing on our growth and infrastructure initiatives as planned. We are moving our portfolio of business to value add sticky channels with high retention rates, and while we are temporarily impacted by the current pricing environment and that is affecting our anticipated near-term operating margin performance, I remain confident in our earnings power as we leverage our investments and move through the abnormally soft pricing environment. Last year at this time we provided an annual framework to gauge progress during our fiscal 2014 and then a three-year perspective on the company’s performance. I will summarize our view as follows. The company has been in a period of investment required to position it for success. Much like we have done at other points in our history we stepped up infrastructure and growth investments to position us for the next chapter of the story. Additionally, we have been absorbing CCSG, the largest acquisition in company history and one that offers a new strategic avenue for growth in the years to come. Those investments have temporarily suppressed operating margins, but will produce long-term returns in the form of sustainable market share gains that translate into top line growth…

Thanks Erik and good morning everyone. We continue the trend of improving average daily sales growth with an increase of nearly 8% in the fourth quarter, and that momentum continued into our 2015 fiscal first quarter. In addition we achieved the top end of our adjusted earnings per share guidance of $1.02 for the fourth quarter, despite gross margin coming in below our guidance. As I get into the details of our fourth quarter results please note that this was the first quarter where comparisons to prior year included a full quarter of CCSG activity. Accordingly our sales growth for the quarter is completely organic. I will remind you that while non-recurring integration cost related to the CCSG business were quite small in the quarter. I will continue to speak in terms of our reported and adjusted results. So our sales for the quarter came in at $726.6 million, reflecting an average daily sales growth of 7.8%. The base MSC business grew at rates well above that while CCSG grew in the low single digits. Growth in the base business was fuelled by national accounts and government, each of which grew at healthy double-digit rates. Growth from vending accounts also continued to be a big driver contributing roughly 4 points of growth. Turning to gross margin, we posted 45.6% for the quarter just below the low-end of our guidance of 45.7%. The pressure on gross margin can be attributed to two factors, the mix of business coming from large accounts in vending and the soft pricing environment. Our reported EPS for the quarter was $1.01 and $1.02 on an adjusted basis, which excludes the non-recurring costs CCSG integration cost. Achieving the high end of our adjusted EPS guidance of $1.02, despite the pressure from gross margins reflects our continued careful…

Thanks Jeff. As we did last year, we will now look beyond our first quarter and I will provide a framework for thinking about our operating margin performance for fiscal 2015. And we should hope you understand how our business will perform under various scenarios, and summarized that on Slide 5 in the presentation. The four operating margin scenarios that you see are based on two factors, the demand environment and the pricing environment, and both have a meaningful impact on our business. On demand, we see a moderate and high demand environment as the likely scenarios. The moderate environment should correlate with high single-digit sales growth rates up to about 10%, and this is how we characterize the current environment based on macro indicators, customer sentiment and supplier outlook. A high-growth environment on the other hand should correlate with strong double-digit growth rates. While a low growth environment is possible at this point we don’t see it on the horizon. Under either scenario what is most important is that we continue to maintain and accelerate our share gains. I remain pleased among that dimension as I look back to fiscal 2014 and our performance in this first quarter. We are currently growing at high single digits and the distribution industry is growing somewhere in the 3% to 4% range. The resulting share again delta of 4% to 5% annually is one that we expect to maintain and ultimately grow as our investment programs pay off, and you can see this playing out on Slide 6. With respect to the pricing environment, we also contemplate two scenarios, a lower soft price environment and a moderate one. As of now, we are in a soft pricing environment. We make this judgment based primarily on the rate and taste of manufacturer list…

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Sam Darkatsh of Raymond James. Please go ahead.

Hi this is Josh filled in for Sam, thanks for taking my questions guys. Could you talk a little bit more about what some of the primary puts and takes might have been in the margin in the fourth quarter versus what you may have been planned internally six months ago?

Yes, sure it's Eric and I assume in margin you are referring to gross margin?

Both, gross and operating margin.

I think so if I step back for a second, and look big picture and then I will drill on your question, we feel very good how we are executing and I think you had asked us how did the fourth quarter and even the first quarter play out relative to the expectations, I think what we are seeing on the revenue side is what we expected to see as the environment improves our share gains maintain and expand and we see that in sequential top line improvement and we did. On the OpEx line, really just as planned. We did expense control, we did sequential increases based on the step-up as just as planned, I think certainly the one surprise would be on the gross margin line and as we talked about it, have talked about historically on gross margin equation is really a set of puts and takes as you refer to it all what sometimes called tailwinds and headwinds. And as Jeff described, what we’re seeing is these two unusual large headwinds right now that overtime we expect to abate one being the soft pricing environment, and two being a more pronounced mix effect then we would typically see based on strong growth and share gains in certain of the segments that we described and growth in the core CCSG, our higher margin segments that led company average.

Thanks. And then you talked about the mix headwinds from large customers updating overtime would that be because of an acceleration in the smaller customers or could you in the smaller customers or could you tell that a little more?

Sure. Good question and the short answer is yes. We certainly like what we are seeing in the large customer segments of government national accounts and in our vending channel. So, we absolutely like the momentum there, what we are seeing and what we would anticipate out on the horizon is that just as you said, those two channels; CCSG and our core would take up the growth and I will touch on each briefly for you. With respect to CCSG you heard in the prepared remarks, we have a whole lot of focus on heavy lifting that has gone over the past years, we feel like we are ready to leverage that platform and well preserve the tremendous growth run rate. With respect to our core, I think we are seeing in the core traps very much with what we are seeing and zeroing in customer sentiment and in the macro industries which is that the core smaller customers are lagging larger customers. It's not a phenomena on the CDS, if you look back over the prior cycles, we have talked about this that both up and down the larger accounts tend to lead the way and the smaller accounts follow on our senses that’s what happening here and that sense is confirmed when we look at some of the forecast for 2015 that contemplate, I mentioned strong consumptions most of those forecasts are suggesting that that would be both larger and smaller shops. So short answer is we expect the two higher margins segments to improve in growth.

And one more if I might. It looks like the implied range for November daily sales growth is pretty wide. Is there a reason for the wide range?

I don't know that it's wide. The one thing we would call out Josh is that remember Jeff referred to last's year direct ship accrual that was for the month, couple of hundred basis points done strictly in November. So that is impacting in a – on a transactional basis, I think the headline is we really like what we are seeing particularly right now in the base business, solid sequential growth improvements and when we look at October and November, as Jeff had mentioned, solid growth with double digits.

Thanks guys. Good luck with the next year.

Thank you.

The next question comes from Ryan Merkel from William Blair. Please go ahead. Ryan Merkel – William Blair & Company: Thanks. Good morning everyone.

Hey Ryan. Ryan Merkel – William Blair & Company: So, I think first of gross margins you are guiding it down about 80 basis points I think for fiscal 2015. Can you just break that out; how much of that is mix and how much of it is softer price backdrop?

Ryan Merkel – William Blair & Company: Okay. And then I want to ask question about fiscal 2016 just so like kind of understand what you are saying there. So for an hike environment in fiscal 2016 and you get 1% price again, could incremental margins approach 20% because the investment spend is falling off and then second part to that question is if we are in a 3% price environment, some more normal, are you over 20% increment margins in 2016?

So, okay. So Ryan let me try to explain the dynamics of what’s happening here. So right now what you are seeing is three things impacting the current performance of the business that’s a great operating margins percentage and those three things are number one; a temporary headwind that we expected, as we anticipated from the investment staff, we had said that this was the last year of the loan growing effects so that’s one. Two is that normal soft pricing environment. And then there is, an unusual large mix effect. Okay so as take the first, the first effect we extract as we need -- nothing has changed with respect to how we are executing and our investment programs and expense management. So as we move to fiscal 2015, we anticipate the OpEx headwind, the investment headwind to mitigate. The other two factors; the mix factor and the price factor we would as we look out of the time we think that for now it’s now we would also expect them to abate. Certainly when you take those three factors together what we were trying to get across is when we look out cast the current environment we see all three of those factors moderating that produces historical levels of incremental margin between the 20s. Ryan Merkel – William Blair & Company: Okay. Perfect. And then just last one for me. You mentioned that your competitive environment today is really no different than five years ago, but I just want to ask an Amazon supply are you seeing them at all in the market if anything changed there, or customers asking you about Amazon just little update there?

Yes Ryan, good question. And let me just clarify. So certainly like the competitive environment is more intense now than it was couple of years ago ought to be clear, but my point is that’s the same answer that you would have received two years ago that as the industry unfolds, certainly competitive intensity picks up, I think you are right. The big headline is, no real change in the dynamic, meaning where the pressure is coming from. To answer your specifically [Inaudible] that very minimal, Ryab? Yes, I think it could triangulate it outside of MSC and just look the reports on their traction. Certainly not to suggest, we don't take it seriously for the future. But if your question is, any impact today really minimal. Ryan Merkel – William Blair & Company: Perfect. Thank you.

The next question comes from Matt Duncan, from Stephens Inc. Please go ahead. Matt Duncan – Stephens Inc.: Good morning guys. Going back to gross margin for a second. Jeff, the really impact on gross margin from the opening of the Columbus DC here in the first quarter of it, that maybe lessons over the balance of the year?

No impact from the Columbus opening on gross margin. Matt Duncan – Stephens Inc.: Okay. So, there is no doubling of inventory or double headcount right now, you would have headcount --?

There is an increase in inventory, associated with that. But that no impact on gross margin. Matt Duncan – Stephens Inc.: Okay. All right. So, and that’s fine.

That sale, so there is an impact at the operating margin level. Matt Duncan – Stephens Inc.: Okay. And then Erik, last year, you had said that you would get back to a high teams op margin at 3.5 billion in sales. I want to make sure that we sort of understanding, that still a doable thing or is it really going to be a function of how sale gets to 3.5 billion, going back to your conversation around price, can you get to that high teens at 3.5 billion without moderate price and we have to have it?

Matt, very good question. So, here is that I would say, so world's measure, the high teams, at 3.5 billion is going to be function at what price out this year, I will tell you. So, if you tell me right now that where we land, for fiscal 2015, and that upper right quadrate. What I would say is, we are basically right on track with what we had anticipated last year and its well within reach. And it’s now well indicating, in the extreme case, if where we landed were in the lower quadrate, what I would tell you is, certainly it's still an achievable goal. However, we would need one or two years of robust pricing offset the couple of years of sell pricing because that robust pricing would lead to significant gross margin expansion and hence, significant incremental. So, the answer is, it's largely function of where we land this year. Matt Duncan – Stephens Inc.: Got it. On the special dividend can you talk about the rationales to right now?

As Erik had described, we see the opportunity to be a little more progressive in our approach to capital allocation and the business consistently generate the cash of beyond what the business requires and we took the approach of being a little more progressive yet maintaining our conservative nature and our flexibility and we believe this would increase the returns to the shareholders. We will also believe we will continue to take the balance approach there and you have seen the investing organically in the business, we did a large acquisition not too long ago, we did share repurchase, a significant amount of share repurchase this year, and we are balancing that, with the special dividend. Matt Duncan – Stephens Inc.: Okay. The last thing for me, is special dividend say anything about your appetite for larger acquisitions or the two really mutually exclusive?

I would say, Matt, this is Erik. I would not connect the two. I think, yes, strategic M&A remains a part of our plan and I think what you should reading to the special is two things. Number one is confidence in our plan in the future and then the cash generation of the business, we feel very good about our prospects. And number two as Jeff describes, we together really step back, look at our balance sheet and look and saw an opportunity, we have done a very good job historically in this business of operating well. And we feel like, this is another tool in the arsenals increase, double shareholder every time, well, keeping the company conservative to manage. Matt Duncan – Stephens Inc.: Perfect. Thanks Erik. Appreciate it, guys.

Our next question comes from David Nancy from Robert W Baird. Please go ahead. David Nancy – Robert W. Baird: Thank you. Good morning guys. First off, with the change in gross margin and its flat and going in reverse, the contribution margin, clearly gets tougher and becomes less means for the performance metric. As you are thinking about the managing the business the cost side, you are looking more now, the redrew or both our margins change and even ever change in growth profit dollars and it gets or even if not, can you tell us, how we should think about that metric, where do you think that would land in the, going forward?

I think for us, as we look at standing, if you look at what's happening here, we are operating two plans, with respect to our expenses and certainly we are mindful of the fact that gross margins are pressured and it's all pricing environment and we noted that, keep that extended, we are certainly we would evaluate tampering some of our investments. But we do look out, with respect to investments standing for instance, decoupling it from gross margin per se and looking at the investment on its merits and spend on its merits. Certainly we haven't lost sight of, one of the metrics for a long time that we have, reference which is incremental margins in the business. So, that's something we look at. And as we said, as we get to a more studied state, we still see incremental in the studies and we still see this as a high change up margin business overtime. And our perspective is, we are going to manage expensive carefully, make investments decision truly really regardless of environment. David Nancy – Robert W. Baird: Okay. And then, with the gross with large customers and government investing, could you remind us, in terms of EBIT contributions of that next well to gross margins, in terms of lower cost to serve, this is the delta and on the EBIT line much, much closer or can you just talk about what that is?

Yes, the answer is that, it's a lot closer, it's a more significant headwind on gross margin. Much closer on EBIT margin. One I will call out, we have – we refer to our vending improvement plan for a while. While vending does continue to be, that's what the gross margin headwind. I will say that, we see nice improvements that we don't see right now, as an improvement on the operating margin line. Excuse me, headwind on the operating margin line. David Nancy – Robert W. Baird: Okay. And then finally, in last call, you talked about some of the industries and areas where you are seeing better strength or weakness, etc. I think that can we talk more about how the equipment, primary metals, metal working. Are those still doing well for you or any other areas we can talk about?

Yes. I would say in general, what we are describing is a gradual, I say, we certainly wouldn't say, we see rapid exhilaration in the economy but, we will continue to see progressive improvements, across most segments and I think you have seen that reflected in our growth rate. I think the one thing that I call out is, right now that the divide between the wealthy businesses and the smaller businesses. And that is impacting and specifically the fact that we are seeing larger businesses, growing faster businesses. About growing and more robust than smaller businesses and the way that's playing out in our dynamic is, as we described the larger segments growing faster than the core. It is something as we look ahead, there is a few theories on why that's became, it's something that we have seen, historically in our business before, it's a national account tends to be a leading indicator and we are encouraged to most of the 2015 forecast that is suggesting a small businesses, they are going to enjoy good growth as well as the larger businesses and I think that goes well for mitigating some of the mix that one. David Nancy – Robert W. Baird: All right. Thanks Erik.

Our next question comes from John Baliotti from Janney Capital Markets, please go ahead. John Baliotti – Janney Capital Markets: Thanks, good morning. Erik, I think, the comment you made about large customers growing faster and that tends to lead the rest of the group, that I think it's gone up a couple quarters but I think what's interesting is that your active customer - your active customer size had steadily improved its growth year-over-year growth rate since the beginning of the fiscal year and had, what appears to be the best growth in this final quarter. I just want you – could you talk about that little bit?

Yes. Sure John. One I think is, this quarter we added into the offset, you will see a – that we added in for the first time, give that we lacked CCSG, you are going to see a big jump up, that is the unique CCSG customers are coming into the fold. Exactly, look, you right. What you have seen in this quarter, is still sequential improvement in the customers’ account. I should be said, probably less to macro in order to things that we are doing in the business on the retention side, on the marketing side, we have not put too much onto our customers now and to be honest, we still don't. So, certainly all of the equal, Yes, I would like to see that, I wouldn't make it too much of it though. John Baliotti – Janney Capital Markets: I guess, if you lead out the fourth quarter, you can look at the other quarters and then you look at your total associate growth, it seems like this opportunity for leveraged, I know we talked a lot about gross margins on this call, but the other side of your operating expenses, and teams like, I know they are going to go up initially but it seems like the - aside from the headcount gross, you are talking about after the year, it seems like what we saw on this couple quarters this year, that those implied, you are going to get some leverage off of those, that headcount?

I think John, I think it's a fair point. And it certainly one of the messages we want to get across. We see a lot of leverage inherit in the business because we had, over the last couple of years, put them a significant infrastructure build that's been the offset headwind, we did on the MSC side, so I think you are right. We also see it on the CCSG side, where we done a lot of heavy listing to get the business a place to grow so. We do leverage on both side, which is why, once we get through the noise, we do see significant operating margin extension and it's certain is to get back the high teams what we have done. John Baliotti – Janney Capital Markets: Great. Okay. Thanks Erik.

Our next question comes from Flavio Campos, from Credit Suisse. Please go ahead. Flavio Campos – Credit Suisse: Hi, good morning everybody. Thank you for taking my question. I just wanted to focus for a second on the manufacturing side, the business, that's been accelerating are quite significantly over the past couple quarters. If you could give us some color on what's driving that and if there is any, what's the margin profile that's helping or hurting gross margins and what's the outlook, on that side of the business.

Well, so good observation and what you are referring to is a non-manufacturing growth rates, really tracks back to the success that we are having in the large account segments. So, government is going to fall in non-manufacturing, what we have described really a strong period of growth, to some degree, we would attribute that to a more stable budget environment on both federal and on the state side but to be honest, we also see, a lot of share gains there, we take that, while things were solved in the government sector. We took the time to really focus and achieve some nice share gain that we are seeing, now as that takes up. I can also say on the national accounts that this is slightly larger exposure to non-manufacturing. So, what you are seeing is the benefit of the large accounts growth, which as we described that the margin side is slightly lower on the gross margin side and, part of the headwind. And moving forward, as we discussed, should things play out as many as the forecast indicating calendar 2015, what we would anticipate as we move to the back half of the year is not that – the non-manufacturing growth rates comes down but rather the mixed impact, mitigates because the manufacturing growth takes up, it's on the part of the smaller shops, as we described. Flavio Campos – Credit Suisse: Perfect. That's very, very helpful. And just a quick follow-up on the different front. E-commerce, what about e-commerce expanding, how is that doing online and VMI and as I understand those are a higher-margin businesses?

Yes. So, e-commerce, right. Flavio, as e-commerce, is an accumulation of a few pieces of electronic business. And that continues to grow, we didn't call out, we can certainly – we will make sure of the follow-up call, we will give you the percentages as we normally do. It continues to do quite well, like the primary channel there is mscdirect.com, that continues to grow as a percentage of sale in important part of our value proposition and how we get, as we refer to sticky with customers. The one thing I would know, mssdirect.com from a margin standpoint, tends to be quite good, we have said, vending, a portion of our vending program is part of e-commerce and those gross margins are lower. So, the e-commerce bucket, sort of mixed thing on gross margin but in terms of the performance of the e-commerce channel, very strong and as I said, part of our plans to get stickier. Flavio Campos – Credit Suisse: Perfect. Very helpful. Thank you for taking my questions.

Our next question comes from Scott Graham from Jefferies. Please go ahead. Hello Scott? Scott Graham from Jefferies? Our next question comes from Eli Lustgarten from Longbow. Please go ahead. Eli Lustgarten – Longbow: Good morning everyone. Just a couple of fine points, we covered a lot of material here. Can you talk about what's your actual investment spending and CapEx spending would be in 14, 15, 16. So, we can get headwind to calibrate that and since we are talking about approaching to figure that market, so we can get some – we can calibrate, there is no much -

Sure, I will take that Eli. In FY14, our CapEx, was about 96 million dollars, as I had mentioned, that was slightly below our expectations. As we looked at FY15, I would expect it to kind of be in the range of $75 million to $85 million. We do have some carryover associated with the Columbus facility in that number and then of course continued investment in vending as well as IT and some other supply chain improvements. Eli Lustgarten – Longbow: And you expect that to continue going down on 16, is that correct?

The trend and it would depend on another investment opportunity the expectation would be that, that would let moderate. Eli Lustgarten – Longbow: In terms of that, I know a lot of the focus was normalized pricing, more normalized customer mix. To start look at the probability that there is a new norm that is developing and it may not be at one extreme or the other extreme but somewhere between. For example, vending will continue to be one of the stronger growth market, e-commerce will continue probability stronger growth market. National council will continue to be very strong over the next couple of years with that expectations. And the probability of commodity price and investments and these are fully main to do, at least in the couple of years as pointed, of every point of every mining company that we talk to across the board. I just wonder have you, is there a contingency plan, or do you have you factor the case of some combinations that to think not going back to the level that we would like it to.

Eli, very good question. What I remind you is right now, what have you seem right now, you got three things going on. And so, one is the temporary cited investment standing off to abate. Sure, we saw pricing, that should be mentioned and the third is the mix. So, in terms of the new normal, the first one is going to mitigate as we move through the year. So, that we know, and it's in our control. Of the other two, certainly, its plausible, it's on the pricing side, it's plausible that commodity inflation would stay soft for a while. It's why we wait out for quadrants. If certainly to see another couple of years with it, we are back to the historical trends, which is why we wanted to layout the, PPI long runaway of data on PPI statistics. But yes, certainly, it's not out of the question. That's said, the third element, the mixed headwind, we would expect to mitigate and we don't see it as a normal, we see it as more timing. So, we look at even one word to hypothesize that pricing remain soft, we still do see leverage in the business and think that right now, what you are seeing right now, is an abnormal picture to the timing.

This concludes our question and answer session. I would like to turn the conference back over to John Chironna for any closing remarks.

Thank you everyone for joining us today. As always, I will be available to remain till the day and throughout the week for your further questions. Our next earning date is set for January 7, 2015, same time and we will look forward to speaking with you also coming months. Thanks again.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.