Earnings Call Transcript - MSM Q2 2026

Operator, Operator

Good morning, and welcome to the MSC Industrial Supply Fiscal 2026 Second Quarter Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Ryan Mills, VP of Investor Relations and Business Development.

Ryan Mills, VP of Investor Relations and Business Development

Thank you, and good morning, everyone. Welcome to our fiscal 2026 second quarter earnings call. Martina McIsaac, President and Chief Executive Officer; and Greg Clark, Interim Chief Financial Officer, are on the call with me today. During today's call, we will refer to various financial data in the earnings presentation and operational statistics document, both of which can be found on our Investor Relations website. Let me reference our safe harbor statement found on Slide 2 of the earnings presentation. 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 U.S. securities laws. 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 are noted in our earnings press release and our other SEC filings. Lastly, during this call, we may refer to certain adjusted financial results, which are non-GAAP measures. Please refer to the GAAP versus non-GAAP reconciliations on our presentation or on our website, which contain the reconciliations of the adjusted financial measures to the most directly comparable GAAP measures. I'll now turn the call over to Martina.

Martina McIsaac, President and CEO

Thank you, Ryan, and good morning, everyone. On today's call, I will briefly cover our performance in the fiscal second quarter, then share my thoughts on the progress of our initiatives and the current state of underlying industrial demand. I will then turn the call over to Greg to provide greater detail on our quarterly performance and outlook for the fiscal third quarter. Starting with our performance in fiscal 2Q. ADS growth of 2.9% fell short of 4.5% growth at the midpoint of our outlook. While we did experience modest headwinds from weather and the partial government shutdown, the change in our service organization, which represents the last structural phase of our sales optimization work, created some noise in the quarter that's worth digging into. As we previously shared, at the end of 1Q and early 2Q, we completed the last round of structural changes and accompanying headcount reductions related to our sales optimization work. To recap, in fiscal year '25, we took actions designed to bring headcount levels more in line with an efficient territory design. Those actions primarily impacted our core sellers. Then in December, as we shared, we had a final round of changes, which involved all of our remaining customer-facing roles. Prior to this change, for legacy reasons, it was possible that an MSC customer was serviced by 2, 3, 4 or even 5 MSC representatives, creating overlap of multiple sales and service activities and resulting in multiple MSC reps supporting the same revenues. These inefficiencies caused our cost to serve to become inflated over time, particularly within national account customers where customer needs are the greatest. In the action taken at the beginning of our fiscal 2Q, this resource model was greatly simplified to create a geographically aligned service organization that matches our sales structure and is appropriately sized to customer potential. Total impacted customer-facing headcount was approximately 130 associates. This consolidation was complex and could not be achieved without some level of relationship change in the field. We anticipated this and intentionally calendarized this change in fiscal 2Q when demand is seasonally low. Impact varied by customer but was most felt in our National Accounts and larger Core Customers who have the largest service teams. Those customers saw some level of face change as the responsibilities were handed off through the consolidation of the team that supports them. The new structure now clarifies responsibilities and will result in greater ownership and accountability in our teams, driving focus across all of MSC's product offerings. It's important to note that these changes did not impact the momentum of our vending and In-Plant programs as reflected in our op stats for the quarter. Now under Jahida Nadi's leadership, we are accompanying these organizational enhancements with a strong sales management process and improved pipeline management. While these actions weighed on our results in the quarter, this change was necessary. We are enhancing MSC's ability to produce sustained levels of profitable growth for the future by taking measured steps to optimize our cost structure and improve our effectiveness in the field. We have greatly simplified and aligned our sales and service organizations. And though it takes time for a change like this to take hold, month to date in March, we are seeing the year-over-year trend in the sales to impacted customers continue to improve compared to levels in January and February as new relationships are developed. Following these changes, growth acceleration is our primary objective. Supporting my confidence is the momentum I see building across the organization from our supplier growth forum. By intentionally bringing more than 1,000 MSC associates and 400 suppliers together, we strengthened relationships, aligned priorities, set the foundation for meaningful long-term growth and created a defining moment for our company. We facilitated over 3,000 prescheduled meetings to discuss white space overlap and joint growth opportunities that we identified using AI, and I couldn't be more pleased with the outcome. In just 3 days, these strategic conversations translated into nearly 10,000 opportunities totaling close to $500 million in combined near-term and long-term potential, creating tremendous energy, both internally and externally, as shown in the quote from a supplier on Slide 4. Strong execution, like that seen in the growth forum, can be seen across MSC. A good example is the year-over-year margin expansion that our team achieved in the quarter. Gross margin of 41.1% performed better than expected and improved 10 basis points year-over-year. This improvement is the result of price actions taken in fiscal 1Q and 2Q in response to inflation as well as the continued professionalization of our pricing processes and margin management. The combined impact of these activities resulted in price contributing approximately 6.5% to our daily sales performance in the quarter. In addition to gross margin, I'm encouraged by how the team managed operating expenses more closely to sales during the quarter. Adjusted operating expenses improved 20 basis points compared to the prior year as a percentage of sales. This was primarily driven by the combined benefits of our headcount reductions and the productivity actions associated with our network optimization strategy, which is beginning to show through in our financial performance, as you can see on Slide 5. Our planning and procurement team, led by Kathy Mauch, has been focused on improving our planning processes, embracing AI and embedding it into our daily work to produce the improved inventory metrics shown on this slide. Our operations teams, led by Darrick Collier, continue to optimize within the four walls of our distribution centers as seen by the favorable trends in their headcount and compensation expenses. Both cases are perfect examples of the results a data-driven focus on continuous improvement could have, and I'm looking forward to the greater impact it will have on MSC as this mentality takes shape across the company. Progress made in both these areas of the P&L resulted in adjusted operating margin of 7.5%, a 40 basis point year-over-year improvement and within the range of our outlook. Together, this allowed us to achieve 2Q adjusted incremental margins of 21%, towards the upper end of our expectations. Switching to the macro environment, I would describe the current state as a tale of two realities. On one hand, signs of a potential industrial recovery are encouraging. As you can see on Slide 6, the IP readings across most of our top manufacturing end markets are beginning to form more favorable trends. Customer sentiment has been improving also as seen by recent MBI readings, which have produced consecutive monthly readings above 50 for the first time in a multi-year period. However, on the other hand, geopolitical tensions, the war with Iran and rising fuel costs present heightened uncertainty. While we haven't seen any meaningful disruption yet, we are in constant communication with customers and are taking proactive steps to secure supply. Looking at our performance against the IP index, our average daily sales has outperformed for the third consecutive quarter. That said, outgrowth remains below our stated goal of 400 basis points and has been primarily supported by price. I am encouraged, however, by our volume performance in February that began showing modest year-over-year improvement in core customer daily sales. The changes to our sales structure were the right ones and were necessary to set MSC up to achieve higher levels of growth. We see encouraging signs of improvement and this momentum is captured in our outlook for the fiscal third quarter as seen by the accelerated growth that is implied in April and May. We are making progress on our strategic initiatives. We are operating with greater focus and discipline, and we have a leadership team committed to building a stronger business. Looking ahead, this gives me confidence in MSC's ability to execute and create long-term value for shareholders. And with that, I will now turn the call over to Greg to cover our financial results in greater detail and expectations for the fiscal third quarter.

Gregory Clark, Interim CFO

Thank you, Martina, and good morning, everyone. Please turn to Slide 7, where you'll find key metrics for the fiscal second quarter on both a reported and adjusted basis. Fiscal second quarter sales of $918 million improved 2.9% year-over-year, primarily driven by benefits from price of 6.6%. Volumes in the quarter declined 4% year-over-year and included a combined headwind of approximately 100 basis points related to the weather and the partial government shutdown. Sequentially, average daily sales declined 6.5%. By customer type, we remain encouraged by core customer daily sales that continue to grow above total company and improved approximately 6% this quarter compared to the prior year. National account daily sales were essentially flat compared to the prior year. In the public sector, daily sales declined roughly 1% due to tougher comps and impacts felt later in the quarter from the partial federal government shutdown. In solutions, we were pleased by the continued expansion of our footprint in 2Q. In vending, the number of machines installed at quarter end increased 8% year-over-year to approximately 30,400 machines. The number of customers with an In-Plant program improved 9% year-over-year to a total of 423 programs. As you recall, last quarter, our In-Plant program count growth moderated as we strengthened financial discipline in the field and sharpened the quality of our decision-making. This is prompting us to transition certain existing In-Plant programs with suboptimal returns to more cost-effective service options that are better scaled to customer needs. As a result, signings in the second quarter were higher than the sequential increase in total program count. Looking at the sales through these solutions, average daily sales through vending were up 8% year-over-year and represented 20% of total company net sales. Sales to customers with an In-Plant program were also up 8% year-over-year and represented approximately 20% of total company net sales. Moving to profitability for the quarter. We were pleased with gross margins of 41.1% that improved 10 basis points year-over-year or roughly 40 basis points sequentially. This gross margin performance was better than expected and primarily driven by favorable price-cost as a result of our pricing actions and the continued professionalization of our pricing processes. Operating expenses in the fiscal second quarter were approximately $310 million on a reported basis. On an adjusted basis, operating expenses were $308.5 million, down approximately $3 million versus the prior quarter, but up approximately $7 million year-over-year as ongoing productivity improvements and headcount actions were more than offset by the combination of personnel-related cost increases, investments and higher depreciation. When combined with higher sales year-over-year, this resulted in year-over-year improvement of 20 basis points in adjusted operating expenses as a percentage of sales for the quarter. Reported operating margin for the quarter was 7.1% and compared to 7% in the prior year. On an adjusted basis, operating margin of 7.5% was within our outlook range of 7.3% to 7.9%, and compared favorably to 7.1% in the prior year. We delivered GAAP EPS of $0.76 compared to $0.70 in the prior year. On an adjusted basis, we delivered EPS of $0.82 compared to $0.72 in the prior year, an improvement of 14%. Turning to Slide 8 to review our balance sheet and free cash flow performance. We continue to maintain a healthy balance sheet with net debt of approximately $466 million, representing roughly 1.2x EBITDA. As a reminder, during the quarter, we amended our AR securitization facility and increased its capacity by $50 million. Excluding this $50 million reduction in AR, working capital was a use of cash in the quarter with the proactive build of inventory being the primary driver. Together, this resulted in operating cash flow conversion of 224% for the quarter. Capital expenditures of roughly $21 million were down approximately $9 million year-over-year and similar to levels last quarter as expected. This resulted in free cash flow conversion of approximately 173% in the fiscal second quarter and 86% fiscal year-to-date, keeping us on track to achieve our target of approximately 90% for the full year. Looking at our capital allocation strategy on Slide 9. Our highest priorities remain organic investment to fuel growth and advancing operational efficiencies across the business. Returning capital to shareholders also remains a priority with approximately $49 million returned to shareholders in fiscal 2Q and $110 million fiscal year-to-date in the form of dividends and share repurchases. Moving to our expectations for the third quarter on Slide 10. We expect average daily sales to grow 5% to 7% compared to the prior year. The range of our outlook takes into consideration our daily sales estimate for fiscal March of approximately 4% when including the anticipated headwind of 100 basis points from the timing of Good Friday. Under this revenue assumption, we expect our adjusted operating margin for the fiscal third quarter to be between 9.7% and 10.3%. Driving this expected range are the following assumptions for the quarter. Gross margin of approximately 41% and the sequential step-up in the adjusted operating expenses primarily driven by higher variable expense associated with the expected increases in sales. Together, these assumptions resulted in an implied adjusted incremental margin of approximately 25% at the midpoint of our outlook, keeping us on track to achieve our expectation of roughly 20% adjusted incremental margins for the full year and a mid-single-digit growth outcome. Turning to Slide 11. Our expectations on certain line items for the full year remain unchanged. As a reminder, this includes depreciation and amortization expense of $95 million to $100 million, interest and other expense of roughly $35 million; capital expenditures, including cloud computing arrangements of $100 million to $110 million; a tax rate between 24.5% and 25.5%; and lastly, free cash flow generation of approximately 90% of net income. To assist in modeling the cadence of sales for the remainder of the fiscal year, the bottom of the slide provides historical quarter-over-quarter averages and key considerations.

Operator, Operator

Your first question for today is from Ryan Merkel with William Blair.

Ryan Merkel, Analyst

I wanted to start with the sales trends. Can you just talk about why you're confident that average daily sales is going to accelerate to 7% plus in April and May? And in your answer, can you talk about is price going to build more? And then what are you assuming for the national account recovery because I think it was sort of flat in the quarter?

Martina McIsaac, President and CEO

Let me start by discussing the impact of the second quarter, which is driving our confidence for the third quarter. In the second quarter, we made changes to our indirect sales force, and many customers experienced shifts that led to a decrease in volume. It's important to note that the individuals who interact with our customers daily need time to adapt, build relationships, and manage various programs. The disruption we anticipated resulted in a softer performance, as adverse weather conditions affected our customers during the transition. This prevented new team members from fully integrating into their roles. We had planned a smooth transition with overlapping resources to support the change. However, the weather caused delays, pushing our planned recovery further into the calendar than expected. In addition, we experienced higher attrition than anticipated due to changes in our performance culture, which we expected but thought would happen later in the process. This meant some customers were left temporarily unattended, leading to missed opportunities. As a result, our headcount decreased by more than expected, but we are now beginning to see the volume recover. Specifically, in March, we are witnessing improvements in our operations, including better integration across our various business segments. For instance, our OEM business saw strong growth in February and March, indicating the behavior change we aimed to achieve. Month-over-month, our core customers reported positive trends, and National Accounts improved from low single digits to mid-single digits in March. Overall, the second quarter's volume was impacted more than we predicted, primarily due to weather and transitional challenges. We believe that National Accounts will bounce back, and we can count on solid performance moving forward in March and April.

Ryan Merkel, Analyst

Got it. All right. That's actually very helpful. And good to hear the National Accounts is recovering. Just a follow-up on price then. Are you expecting more price increases from your suppliers? And maybe talk about tungsten because it sounds like there might be another price increase there.

Martina McIsaac, President and CEO

Yes. Since our conversation in January regarding tungsten, we have received price increase notices ranging from 7% to 15%, indicating that prices are still rising. Additionally, the market for scrap carbide has surged by 500% since we last spoke. We are certainly experiencing pressure from these changes. These price increases are likely to take effect around May or June, so we anticipate another pricing adjustment at that time. We are uncertain about where this situation will ultimately lead. I still believe that suppliers have not fully absorbed all the cost increases, and we are beginning to notice some supply constraints now.

Ryan Mills, VP of Investor Relations and Business Development

And Ryan, this is Ryan. Just come over the top. We took a little surgical price increase in March, less than 1%, but as you think about 3Q year-over-year, the price benefit should be pretty similar to what we saw in 2Q, just to give you a little color on that.

Operator, Operator

Your next question is from Ken Newman with KeyBanc Capital Markets.

Kenneth Newman, Analyst

So maybe to follow up on the pricing question. It sounds like you feel pretty confident in improving volume trends here in March to date. But just given all the uncertainty in the macro, I'm curious if there's a way for you to decipher if the customer conversations have suggested that there's been a negative impact on the uncertainty? And is there a risk that starts to get pushed out to the right?

Martina McIsaac, President and CEO

We are currently engaged in extensive discussions with customers. At this stage, they are beginning to evaluate potential risks and are focused on ensuring the security of supply. However, we have not observed any indications that suggest a slowdown in demand. In fact, the opposite is true; customers perceive demand as increasing and want to ensure their supply remains secure. This has been our observation up to this point.

Kenneth Newman, Analyst

Understood. For the follow-up, I know that tungsten-oriented inventory makes up only about 15% of the portfolio. Could you provide some insight on how much of that is being sold through Core Customers versus National Accounts as we consider the pricing dynamics? Additionally, could you remind us how you source the tungsten? I assume it's index-based, but is there a delay in the pricing compared to the spot price?

Martina McIsaac, President and CEO

So we don't source tungsten; we focus on carbide cutting tools. Some of our suppliers have some backward integration to tungsten. We're tracking the price of tungsten as it relates to carbide cutting tools, and we're also monitoring the supply. I'm not sure if I understood your question, Ken.

Kenneth Newman, Analyst

Yes. I am trying to understand how much of the pricing is influenced by tungsten-oriented inventory compared to the overall portfolio.

Gregory Clark, Interim CFO

Yes, Ken, I can provide some insight on that. The price increase we implemented in mid-January was in the low single-digit range, with a significant portion occurring in the cutting tool segment. As Martina mentioned in response to Ryan's question, we expect to make some additional pricing adjustments between May and June, and I believe a large part of that will also be in the cutting tool area.

Martina McIsaac, President and CEO

We have started to receive notices from other suppliers as the conflict continues, so there may be various impacts on the portfolio, including fuel surcharges and discussions. It's not just carbide that we will see affecting us going forward. Up until now, that has been the primary factor.

Operator, Operator

Your next question for today is from Tommy Moll with Stephens.

Thomas Moll, Analyst

Martina, I want to make sure I heard you correctly, December was the last planned round of significant headcount actions. And assuming the answer there is yes, that I heard you correctly, what's your confidence level in the disruption from all the sales organization changes fading as quickly as it sounds like you're assuming? I mean, noted that the most recent quarter, perhaps the headwinds were a little bit worse than expected, but that you've seen some more recent signs that are really encouraging. These progressions tend to not be linear. And so I'm just curious what your conviction level is that it's all clear from here or all better from here.

Martina McIsaac, President and CEO

I appreciate the question and the observation that this is disruptive. We believe it was absolutely necessary. We need to balance indirect resources with direct resources. We had to shift the sales culture back to a hunting mentality and empower people to adopt that approach. There are numerous positive developments within our sales team including new tools, enhanced support like the growth forum, and a new compensation plan that strongly incentivizes the hunting behavior we desire. While I can't disclose too many specifics for competitive reasons, examining our portfolio reveals that, aside from customers who were introduced to the changes later due to the previously mentioned attrition, we are experiencing very exciting growth rates. I do expect some ongoing attrition. The selling environment in MSC today feels quite different than it did six months ago, and I anticipate it will continue to evolve positively over the next six months. We are establishing a framework that will ensure sustainable organic growth for the future, and I am very confident that we are moving in the right direction.

Ryan Mills, VP of Investor Relations and Business Development

And Tommy, maybe I'll give a little bit more detail on February and March. February, that growth rate is a little masked by public sector. It was down mid- to high teens, reason being is the partial government shutdown delayed funding, and we had a tough comp there. As you heard Martina say, in February, core was up mid- to high single digits. National Accounts was up low single digits. And then as we look at March month-to-date before we go against that Good Friday headwind, the core is growing at a similar rate and National Accounts is up a little bit more than low single digits. So we're starting to see that improvement now that Martina is alluding to.

Thomas Moll, Analyst

So pivoting to a broader demand discussion. To the extent you can exclude all the factors, the MSC-specific factors that you've already identified that impacted recent results, is it possible to just benchmark the tone of some of the end market dynamics or customer conversations, I don't know, year-to-date, quarter-over-quarter, however you want to slice it? Feel like things have gotten a little better or stay the same?

Martina McIsaac, President and CEO

Yes, thank you for the question. We do see a mixed picture at the moment, but we are optimistic about improvement and recovery in both fabricated metals and primary metals, which we are currently experiencing. We are surpassing the growth of IP in these end markets, which boosts our confidence in the ongoing recovery of our core customers. As for other segments, excluding aerospace, those where we have substantial involvement in National Accounts, such as agriculture and automotive, are not deteriorating. We are beginning to observe some positive signs. Although these may not affect our fiscal year immediately, as the changes and investments projected will influence the latter half of the calendar year, we clearly see that activity is picking up among some of our largest National Accounts.

Operator, Operator

Your next question is from Patrick Baumann with JPMorgan.

Patrick Baumann, Analyst

Just wanted to follow up on a couple of things. Just on the pricing comment. So I think I heard you say that there was a surgical increase in March in addition to what you did in January, and then there's more to come in May. But then I thought you said that the year-over-year price in the back half would be like similar to what it is in the second quarter, which I guess makes some sense because of the year-over-year comps maybe. But maybe just clarify, I just want to make sure I heard that right. So maybe like 6.5% to 7% price in the back half is kind of what you're thinking at this stage? Or is that off?

Martina McIsaac, President and CEO

Yes. I think, yes, we're going to start to comp some of the actions that we took last year when the tariffs first started to roll out and maybe for modeling purposes, Ryan, you can...

Ryan Mills, VP of Investor Relations and Business Development

Yes, Patrick. We will begin to compare some of our pricing actions again in the third quarter, based on the timing of the price increase in late May and June. The comparisons will become more challenging in the fourth quarter. So, as you model the second half, I believe you are correct; I would suggest keeping the pricing range between 6.5% and 7%.

Patrick Baumann, Analyst

And is there any impact from like the evolving tariff situation on that in terms of the changes that have been talked about, IEEPA versus Section 122 or what have you?

Martina McIsaac, President and CEO

No, the math on that works out to be fairly stable for us right now. And remember, we're not the Importer of Record for more than three-quarters of what we bring in. So we haven't seen any meaningful movement from our suppliers right now. So at this moment, we're modeling stability.

Patrick Baumann, Analyst

Understood. I have a follow-up regarding headcount. We previously discussed the field associates, but overall, total headcount decreased by about 240 in the quarter, which exceeded our expectations of around 100 people. You also mentioned some attrition in field associates. As you look ahead in the near to medium term, do you see opportunities for cost reductions from redundancies similar to those identified in the second quarter? Do you think this will continue to be a viable option for operational expense savings? Additionally, I’m trying to grasp how you foresee the total headcount changing over the next 6 to 24 months, considering you had a slide on supply chain headcount and I'm not clear on the rest of the headcount.

Martina McIsaac, President and CEO

Yes, thank you. So our ambition, Patrick, which we've stated publicly, we want to restore MSC to the mid-teens level of operating margin. And in order to do that, we have to accelerate organic sales growth, which is behind this first range of initiatives, and we've got to challenge all of our cost structures. And that includes some legacy structures like we collapsed in this last change of the sales force. And there are other places in the business where we will look to change the way that we perform work, and we'll look at automation and AI in the facilities and in the office. And I do think you'll see us continue to try to challenge that cost structure for greater leverage as we continue to grow with mid-teens being kind of the target. So if you look, we brought the headcount down by more than 400 heads in the last 12 months. The sales changes are done now, but we are making improvements in productivity within the CFCs, which is allowing us to bring headcount down. We're deploying AI across the business, which is letting us not replace attritted headcount for the moment. But yes, we're absolutely committed to challenging our cost structure.

Operator, Operator

Your next question for today is from Stephen Volkmann with Jefferies.

Stephen Volkmann, Analyst

Just a couple of quick follow-ups for me. One, I'm trying to think about since this whole tungsten explosion has happened in terms of pricing, how much do you think pricing is up since, I don't know, 2 years ago or something? I'm trying to think about whether there is going to be some demand destruction because the stuff is getting really expensive or maybe some sort of different product, maybe substitution or something? Just anything in those lines we should be thinking about?

Martina McIsaac, President and CEO

I mean, as the leading metalworking distributor, we are always working with customers to look at substitutions, to take cost out of their business. We took $500 million out of customers' operations last year. And if it were to become an extreme situation, we could always support. But it's not easy to change a cutting tool once a customer is working with certain technology, and it depends on what you're doing and what you're cutting. So I think, obviously, there is a limit where anything would create demand destruction. But I think right now, we're supporting customers where they're asking for help, and we'll continue to do that. On the 2-year stack, maybe Ryan, I don't know if I can throw that one over to you, do you have any additional comments?

Ryan Mills, VP of Investor Relations and Business Development

No, I would just say for the cutting tool side, there might be an opportunity to switch to a high-speed steel cutting tool. I mean it varies by customer, whether it's a custom tool. That being said, I think it provides a good opportunity for us to leverage our technical expertise, an ability to drive savings in customers' facilities to offset that inflation. So we look at it as more of an opportunity and also you heard Martina talk about us building our inventory, availability is #1 priority of our customers. So we're also taking advantage of that as well.

Stephen Volkmann, Analyst

Okay. Great. And then I think last year, we were sort of comping against some destock, if I remember correctly. I assume that's kind of ended, but is there any sign of like a restock? Or is anybody trying to get ahead of some of these price increases with some inventory build? Just any commentary there, and I'll pass it on.

Martina McIsaac, President and CEO

It's interesting to consider our business where a majority, about 60%, is based on planned demand, which means there isn't much restocking involved. Instead, we are responsible for maintaining the customers' inventory, so there isn't much action on their part. We monitor indicators like pre-buying, large orders, or any signs of change, but we're not seeing much of that. There has been some slight demand increase for certain products, particularly as the conflict escalates, so it’s understandable that some end markets might be experiencing higher demand right now. However, we haven't observed a significant restocking or return to inventory levels, nor are we seeing customers preparing for an anticipated increase in demand. There's been no pre-buying for price or restocking.

Operator, Operator

Your next question is from Nigel Coe with Wolfe Research.

Nigel Coe, Analyst

Obviously, we covered a lot of the topics here. On the field office headcount, so just to be clear, are we assuming that the headcount from here is fairly stable in the back half of the year? Maybe could you just maybe quantify kind of the cost reduction and what that does to SG&A in the back half of the year?

Martina McIsaac, President and CEO

Yes. I'll throw the SG&A question to Greg. But the sales headcount is not stable in the sense that we are going to fill those attritted positions and then we expect to be adding direct sellers, Nigel. Like our goal was to bring into balance direct and indirect. When you have too many indirect sellers, you have too many people being paid on the same sales dollar. But as we see sales acceleration, we hope to be able to be adding sellers and covering more customers, which is something MSC has not done for a very long time. But in general, we're not projecting massive changes to the size of what we just cut. But Greg, do you want to share any additional color there?

Gregory Clark, Interim CFO

Certainly. In the second quarter, operational expenses increased by approximately $7 million compared to last year. This rise was mainly due to a $9 million increase in personnel-related costs, primarily driven by merit increases and inflation in fringe benefits. Additionally, stock-based compensation added about $1 million, and there was also an increase of around $2 million in depreciation and amortization tied to our digital and e-commerce expenditures aimed at web enhancements. We incurred another $2 million in outbound freight costs due to rising rates. Furthermore, we invested about $1 million in initiatives aimed at growth solutions, including our growth forum. These increases were somewhat mitigated by the productivity improvements we mentioned earlier, including benefits from network optimization and certain workforce adjustments.

Nigel Coe, Analyst

That's great information. I’d like to revisit the pricing question. Did the March price increase take effect in March, or was it implemented in April? I understand it's a minor detail, but it's quite significant. Considering the sequential figures, if we view March as a solid baseline and factor in the Good Friday timing, we are approaching the upper end of your forecast with normal monthly seasonality. I'm curious if the 5% to 7% projection assumes that any volume decline will persist into the third quarter.

Ryan Mills, VP of Investor Relations and Business Development

Yes. Nigel, this is Ryan. The March price increase, that was mid-March and keep in mind that we have to give notice period to our contract customers. So I'd say it really didn't provide that much of a benefit in March. As we look into April and May, the midpoint of our guidance assumes growth of about 7%. So that would imply a little bit of volume growth year-over-year and then low single digits, call it, 2%, 3% on the top end of the range. Feel good about where we're at right now, still had a little bit of some of this sales force optimization noise in March, but it's easing. That's giving us confidence. We talked about the growth rates we saw in March in core and National Accounts, that's improving. As Martina mentioned, the impact of customers. We're improving both month-over-month and year-over-year modestly in March. This is all month-to-date, but feel good where we're at right now.

Operator, Operator

Your final question for today is from David Manthey with Baird.

David Manthey, Analyst

First off, Martina, you mentioned that you expect volumes to improve through the year. As we look at the year-over-year trends, the comps are pretty easy. I think they're low single-digit negative in April and May. So effectively, this statement on the fiscal year is a bet on June, July and August. And I know we've asked you about your conviction in the outlook a number of times here. But given the fact that your customer event was in February, which is sort of ahead of the conflict, and I think there was some optimism growing then, have you gotten early reads from customer attitudes since the conflict began like in the last month, for example, that still gives you confidence in that growth through the end of the fiscal year?

Martina McIsaac, President and CEO

Yes. I mean I think, as I shared before, customers are mostly asking us right now to secure supply against an increasing demand that they feel they're going to see. So they want to make sure that we are planning volumes that they're imagining and understanding. So we haven't seen a dampening of sentiment. And of course, the indexes wouldn't show it yet.

Ryan Mills, VP of Investor Relations and Business Development

Yes. Dave, the thing I'd add too is encouraging to see the MBI be above 50 for 2 consecutive months. That's the first time over a multi-period. Not seeing anything too concerning from a demand destruction standpoint as of today due to conversations we're having in the field and with customers. I'd say we're probably cautiously optimistic on the end market fundamentals for the remainder of the fiscal year.

David Manthey, Analyst

That's good to hear. And then finally, I too, I'm trying to dimensionalize the impact of these headcount changes. So could you tell us when in the quarter the rift happened? I mean I guess you're down 158 field sales heads sequentially and if I heard you correctly, you said you're going to refill those positions. I'm just thinking about how we thread the needle between 9% less year-over-year and then adding those people back and then what's the cost impact and you're assuming no sales impact. So I'm sorry to ask it again, I'm just trying to really dimensionalize the changes.

Martina McIsaac, President and CEO

No. Thank you, Dave, for the question. As I mentioned, we didn't provide many details in our January call for competitive reasons, but I'm happy to elaborate now. The sellers impacted by the service changes were notified right before Thanksgiving, and the adjustments occurred throughout December and into January as we planned for an overlap period. When I say we will backfill those roles, I'm referring to some of the positions that were vacated. We permanently reduced the sales force by 130 people, meaning there are a few vacant roles that we intend to fill to achieve the full complement of sellers we had planned for this change. Depending on the position, the transition happened quickly, and some sellers left the company in December, while a few stayed on a bit longer. Although we had expected a longer transition period, by mid-January, most of those positions were vacated, with only a few exceptions due to the extended handover period. Most of these changes occurred in early December.

Ryan Mills, VP of Investor Relations and Business Development

Thank you for joining us on today's call. We look forward to seeing you on the road at NDRs and upcoming conferences. Our next earnings call for the fiscal third quarter will be on July 1. Have a good day.

Operator, Operator

This concludes today's conference, and you may disconnect your phone lines at this time. Thank you for your participation.