Event Brief of Q1 2008 MSC Industrial Direct Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

PARTICIPANTS

. Bob Joyce, MSC Industrial Direct . David Sandler, MSC Industrial Direct, President, CEO . Chuck Boehlke, MSC Industrial Direct, CFO, EVP . Dan Wong, Lehman Brothers, Analyst . Yvonne Varano, Jefferies, Analyst . Robert McCarthy, Banc of America, Analyst . David Manthey, Robert W. Baird, Analyst . Jeff Germanotta, William Blair, Analyst

. Brent Rakers, Morgan Keegan, Analyst . Adam Uhlman, Cleveland Research, Analyst . Unidentified Participant , Bear Stearns, Analyst

. Holden Lewis, BB&T, Analyst

OVERVIEW

Co. reported that 1Q08 sales came in roughly in the middle of guidance range and earnings came in at the upper end. 2Q08 sales is expected to be $430-436m and diluted EPS is expected to be $0.68-0.70.

FINANCIAL DATA

A. Key Data From Call 1. 1Q08 CapEx = $2.6m. 2. 1Q08 DSO = 44.7.

3. 1Q08 stock purchase = $24.4m of stock in open market. 4. 2Q08 sales guidance = $430-436m. 5. 2Q08 diluted EPS guidance = $0.68-0.70.

PRESENTATION SUMMARY

S1. 1Q08 Business Overview (D.S.) 1. Market Environment & Strategies:

1. Market conditions are mixed. 1. While there continues to be many pockets of strength, there is less optimism in general and more concern over cost inflation, especially in raw materials and energy costs. 2. In an environment of single-digit revenue growth, Co. can grow earnings while continuing to prudently invest in its future. 3. In order to protect Co.'s customers, MSM has invested in inventory. 1. By doing so, Co. impacted short-term cash flow, but will recover that cash over the next few quarters. 4. Will continue to invest in an enhanced customer experience

through this period of slowing economic growth so that MSM is

positioned to take even greater share when the direction of

the economy reverses. 5. Over the course of FY08, Co. will moderate incremental YoverY growth investments if the economy continues to deteriorate. 1. MSM is well positioned to take share and does not expect to see any material decline in its operating margin. 6. MSM is a different Co. than in last recessionary period of 2001 and 2002 when it: 1. Had just completed a program of national expansion. 2. Built three fulfillment centers and a completely new [IS] system, including a formidable Internet site.

3. Opened many branches. 4. Doubled sales force. 5. Had significant excess capacity. 6. Was burdened with an enormous fixed cost. 7. This is not the case today: 1. Much of those investments have been depreciated. 2. Carefully manages capacity.

7. Co.'s larger size and much efficient system has helped it to

increase operating margin dramatically over past several

years. 8. MSM is in a better position than ever to: 1. Prudently invest in the business. 2. Protect the associates and customers. 3. Drill down even harder on productivity. 4. Continue to grow earnings and generate significant amount of cash.

2. 1Q08 Results: 1. Continued to make progress executing growth plan and on the plan to sell MRO products and other MSC brands to J&L customer base. 2. West Coast initiative is making solid progress and continues to meet goals. 3. New sales offices in Seattle, Portland, and Salt Lake City are now open.

4. Grew sales force to 854 associates at 1Q08-end and expects to

reach 860 by 2Q08-end. 5. Due to timing in 1Q08, sales force continued to grow rates well in excess of Co.'s sales growth.

6. 1Q08 reflects spending in other growth areas as well. 7. Has increased focus on managing overall expense levels and is

pleased with operating margin. 3. 2Q08 Guidance: 1. Sales, $430-436m. 2. Diluted EPS, $0.68-0.70.

S2. 1Q08 Financial Review (C.B.) 1. 1Q08 Highlights: 1. Sales came in roughly in the middle of guidance range. 2. Earnings came in at the upper end as Co. executed on its plans and controlled OpEx tightly. 3. Sales projections for 2Q08 incorporates the effect of external indicators, such as: 1. Lower [durables] order.

2. Decline in ISM index. 3. Increasing the feedback from customers concerned about slow downs. 4. Effect of timing of Christmas and New Year holidays. 4. Revenues were impacted by timing of this year's holiday season. 5. Holiday week brought more in a way of shutdowns than last year and the timing of holidays on Tuesday, rather than on Monday as in prior year, meant that Co. experienced significantly weaker sales on the business day before Christmas and New Year than last year. 1. More customers this year decided to shutdown for the entire week.

2. Estimates that change in timing of these two days probably cost MSM between $4-5m in sales in 2Q08. 6. GM came in within guidance range. 1. Continuous to forecast GM in range of 46.3%, plus or minus 20 BP. 7. OpEx has been under tight control even as Co. continued to incrementally invest in its future at historically higher levels. 2. Balance Sheet: 1. Experienced a slight increase in receivable DSO to 44.7 days from 43 days in the prior qtr. 1. This appears to be mainly seasonal and anticipates a lower number at 2Q08-end. 2. Built inventory during 1Q08.

1. Primary reason for this was to ensure the best possible service experience to J&L customer base as they transitioned from J&L's fulfillment system to MSC system and to ensure that same experience for all the MRO SKUs that will be offered to them as well. 2. Plans to build inventory to support a higher sales level and protect its fill rates. 3. This inventory build started last summer and peaked in 1Q08. 4. Plans to adjust inventory to the right size for remainder of FY08. 3. Free cash flow (cash provided by operating activity less CapEx) was $29.4m for 1Q08 and was adversely affected by

growth in inventory and receivables. 4. Will convert a higher percentage of net income and the cash provided by operations over the balance of the year. 5. CapEx was $2.6m, somewhat lower than expectations due to timing. 6. Purchased $24.4m of stock in the open market.

QUESTION AND ANSWER SUMMARY

OPERATOR: (OPERATORS INSTRUCTIONS) Your first question comes from the line of Dan [Wong] from Lehman Brothers.

DAN WONG, ANALYST, LEHMAN BROTHERS: Yes. Good morning. First question was you talked about the changing sentiment of the customers and their different pockets of strength out there. Could you go into a little bit more detail about perhaps more details around the industries where you're seeing the different signals?

DAVID SANDLER, PRESIDENT, CEO, MSC INDUSTRIAL DIRECT: Dan, it is David. We don't like to signal specific industries that are up and down. Part of how we actually adjust our plan and focus our sales force is spending a disproportionate amount of their time in the areas that we see the greatest opportunity as well as servicing our entire general customer base. I guess to characterize a bit across-- related across the regions, is that we are clearly being affected by softness in the industrial economy.

The greatest areas of slowdown are concentrated naturally in the durables sector more than any other sector, and within manufacturing, light manufacturing as we refer to it, is actually growing faster to that segment as well. Basically, the mix that we're seeing is really spread throughout all of our regions where …