MSC 인더스트리얼 서플라이(MSM) 4분기 및 2026 회계연도 실적 발표 콘퍼런스 콜: 매출 8.6% 증가

핵심 요약

• 회계연도 4분기 매출은 약 11억 달러를 기록했으며, 일평균 매출은 전년 동기 대비 8.6% 증가했다. 가격 인상이 6.9%, 판매량 증가가 1.6% 기여했다.
• 조정 영업이익률은 27%의 조정 증분 영업이익률에 힘입어 170베이시스포인트 확대된 10.9%를 기록했다. 조정 EPS는 33% 증가한 1.45달러를 기록했다.
• MSC가 AI 우선 및 모듈형 기술 전략을 추진하기 위해 디지털 코어 프로그램을 중단함에 따라, 보고 실적에는 4,200만 달러의 비현금성 손상차손이 포함됐다. 이 차손으로 GAAP EPS는 0.56달러 감소했다.
• 핵심 및 기타 고객의 일매출은 10% 이상 증가한 반면, 전국 단위 대형 고객 매출은 약 9% 증가했다. 자판기 매출은 약 20% 늘었고, 임플란트 프로그램 고객 매출은 19% 증가했다.
• 2027 회계연도 1분기에 대해 경영진은 일평균 매출 성장률 9.5%~10.5%, 조정 영업이익률 9.5%~10.1%를 전망하고 있다.
• 경영진은 20%~30%의 증분 이익률 프레임워크를 계속 목표로 하고 있으나, 원자재, 운임, 인건비 및 의료비 인플레이션을 단기적 압박 요인으로 지적했다.

핵심 재무 데이터

사업 및 영업 실적

핵심 및 기타 고객의 일평균 매출은 10% 이상 증가해 핵심 고객 기준으로 3년 만에 처음으로 두 자릿수 분기 성장률을 기록했다. 전국 단위 대형 고객 매출은 약 9% 성장한 반면, 공공 부문 일매출은 기저효과가 높았던 전년 동기 대비 약 1% 감소했다.

솔루션 활동이 강화됐다. 자판기 일평균 매출은 약 20% 증가했으며, 자판기당 일평균 매출은 10%대 초반 상승했다. 임플란트 프로그램 이용 고객 대상 매출은 19% 늘었다. 경영진은 자판기 실적 개선이 임플란트 프로그램에서의 전환보다는 주로 생산 활동 및 수요 강세에 기인한 것이라고 설명했다.

이전 영업 조직 개편의 영향을 받지 않은 고객층은 10%대 중반의 성장률을 기록했다. 커버리지 공백이나 대폭적인 영업 담당자 교체를 겪었던 고객층은 회계연도 2분기 마이너스 성장률에서 4분기 한 자릿수 중반의 성장률로 개선됐다.

MSC는 영업 인력이 약 170명 줄어들었음에도 불구하고 일일 대면 고객 소통 건수를 두 배 가까이 늘렸다고 밝혔다. 또한 전체 직원 수가 약 250명 줄었음에도 거래량을 늘리고 있다. 비영업 부문 인원은 전분기 대비 43명 감소했으나, MSC는 성장 잠재력이 높은 지역에 한해 영업 담당자를 선별적으로 추가 채용하고 있다.

공급업체 리베이트는 회계연도 4분기에 전년 동기 대비 약 20~30베이시스포인트의 이익 개선 효과를 가져다준 것으로 추정된다. 경영진은 거래량 증가에 힘입어 추가적인 리베이트 기회가 발생할 것으로 예상하며, 이 중 일부는 추가 비즈니스 확보를 위해 재투자될 수 있다고 밝혔다.

MSC는 디지털 코어 현대화 프로그램을 중단하고 4,200만 달러의 비현금성 손상차손을 기록했다. 회사는 구현 리스크를 줄이고 고정비를 낮추며 수익 회수를 가속화하기 위해 더 작고 모듈화된 AI 프로젝트로 전환하고 있다. 기존 적용 사례로는 교차 판매, 재고 배치, 영업 지원, 제품 교차 참조, 주문 자동화 등이 있다.

경영진 가이던스

2027 회계연도 1분기에 대해 경영진이 제시한 전망은 다음과 같다.

경영진은 회계연도 1분기 가격 인상 효과가 4분기와 유사하게 7% 수준을 유지할 것으로 예상한다. 회사는 원자재 인플레이션과 가격 책정 조치의 시차로 인해 매출총이익률이 통상적인 전분기 대비 10베이시스포인트 하락 폭보다 다소 크게 감소할 것으로 보고 있다. 조정 영업비용은 인건비 관련 비용과 운임 상승으로 인해 회계연도 4분기 대비 소폭 증가할 것으로 예상되나, 생산성 향상과 가변 비용 감소로 일부 상쇄될 전망이다.

2027 회계연도 전체에 대해 MSC는 다음과 같이 전망한다.

• 감가상각비 및 상각비 1억 달러~1억 500만 달러.
• 이자 및 기타 비용 4,000만 달러~4,500만 달러.
• 자본적 지출 9,000만 달러~1억 달러.
• 실효 세율 24.5%~25.5%.
• 순이익의 80%~90% 수준의 잉여현금흐름.

경영진은 연간 가격 인상 이월 효과를 약 3%~4%로 추산했다. 인플레이션이 지속될 경우 한 자릿수 중반의 가격 인상이 가능할 수 있다고 밝혔으나, 최종 결과는 여전히 불확실하다고 강조했다.

리스크 및 주시 사항

원자재 인플레이션은 특히 텅스텐 및 금속 가공 제품을 중심으로 높은 수준을 유지하고 있다. 계약 가격 조정에는 협상이 필요하며 공급업체의 원가 상승보다 시차가 발생할 수 있어 매출총이익률에 일시적인 압박을 준다. 경영진은 거래 가격과 원가 반영 시차로 인한 현재 이익률 영향이 약 10~20베이시스포인트 수준인 것으로 추산했다.

운임, 인건비 및 의료비도 증가하고 있다. 매출 증가가 영업이익에 계속해서 긍정적으로 기여하더라도 이러한 압박 요인이 증분 이익률을 제한할 수 있다.

MSC는 핵심 고객 및 전국 단위 대형 고객의 판매량 성장을 지원하기 위해 가격 책정을 전략적으로 활용하고 있다. 신규 사업의 매출총이익률은 낮을 수 있으나 경영진은 가변 비용을 제하고 나면 영업이익에는 여전히 긍정적 기여를 한다고 밝혔다.

디지털 코어 프로그램에서 모듈형 AI 도입으로의 전환은 실행 리스크를 수반한다. 인원 감축과 생산성 향상 혜택은 선형적인 일정보다는 이니셔티브 중심의 단계별로 불균등하게 나타날 것으로 예상된다.

애널리스트 Q&A 하이라이트

• 회계연도 1분기 매출 추이: 경영진은 10월에서 11월로 가면서 예상되는 매출 둔화가 수요의 구조적 악화라기보다는 전년 10월 정부 셧다운 영향 등 전년 동기와의 비교 기준에 따른 것이라고 설명했다.
• 증분 이익률: MSC는 20%~30% 프레임워크를 재확인했다. 경영진은 생산성 향상 이니셔티브로 이 범위를 상회하는 기간이 나타날 수 있으나 인플레이션과 신규 판매량 확보를 위한 투자가 여전히 제약 요인으로 작용하고 있다고 밝혔다.
• 가격-원가 동향: 금액 기준 가격-원가는 플러스 상태를 유지하고 있으나 계약 시점에 따라 매출총이익률이 희석될 수 있다. MSC는 매출총이익률 목표 범위를 40%~41%로 계속 유지하고 있으며 시간이 지남에 따라 인플레이션을 회수하는 것을 목표로 하고 있다.
• 영업 조직 생산성: 신규 영업 담당자의 투자 회수 기간은 과거 12개월 이상이었던 것에서 약 3개월로 단축됐다. MSC는 지역별 경제성이 성장을 지원하는 곳에서 선별적 채용을 진행할 계획이다.
• 텅스텐 가격 책정: 경영진은 공급업체가 제조업체 권장 가격을 낮추지 않는 한 고객 공급 가격을 인하할 계획이 없으며, 단기적으로 공급업체의 가격 인하가 일어날 것으로 예상하지는 않는다고 밝혔다.
• 산업 수요 신호: 경영진은 주력 제조업 최종 시장 전반의 긍정적인 산업생산 수치, 50을 상회하는 MBI 및 자판기당 매출 증가 등을 여건 개선의 증거로 제시했다.

실적 발표 전화회의 전체 전문

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전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Good morning, and welcome to the MSC Industrial Supply Fiscal 2026 Fourth Quarter and Full Year Conference Call. [Operator Instructions] And please note that this event is being recorded.

I would now like to turn the conference over to Mr. Ryan Mills, Vice President of Investor Relations and Business Development. Ryan, the floor is yours.

Ryan Mills

Thank you, and good morning, everyone. Welcome to our fiscal 2026 Fourth Quarter Earnings Call. Martina McIsaac, President and Chief Executive Officer; and Rob Kuhns, 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 could 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 in 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

Thank you, Ryan, and good morning, everyone. We appreciate your interest in MSC and your participation on the call today. We are very happy with the way we finished our fiscal '26 and continued to strengthen our position in the marketplace. But before we get into those details, I want to turn to Slide 4 to share just how excited I am to have Rob Khun, who joined MSC last month as CFO, on the call with me today. For a brief introduction to Rob, he is a seasoned public company CFO with extensive financial and operational experience across both industrial and distribution markets.

In his leadership roles, he's demonstrated an ability to deliver high levels of profitable growth, developed a proven track record of successfully executing on M&A and has a history of strong team building and talent development. I look forward to increasing the value MSC creates for its stakeholders with Rob contributions towards the achievement of our long-term financial targets. At this time, I would also like to take a moment to thank Greg Clark for his interim leadership of our finance team over this past year and his ongoing support of the transition with Rob. Now moving to Slide 5.

I will begin with a high-level overview of our results for the quarter that Rob will cover in more detail. I'm really pleased by our strong finish to the fiscal year that resulted in record sales and further margin expansion in the fiscal fourth quarter. Sales of approximately $1.1 billion grew 8.6% on an ADS basis, driven by both price and volume. The team also did a great job executing on this growth as seen by the adjusted incremental margin of 27% that resulted in adjusted operating margin expanding 170 basis points to 10.9%.

Execution is improving as seen by these better-than-expected results and everything accomplished by the team this fiscal year. I would like to reflect on a view of the milestones the team achieved this year shown on the slide. First, we successfully navigated the impact of tungsten and tariff-driven inflation. As you recall, we entered the fiscal year in a tough price/cost position that pressured gross margin in 1Q. However, due to consequent actions throughout the year, we were able to manage gross margin to support volumes while navigating price cost dynamics. This resulted in gross margin expansion year-over-year beginning in 2Q and throughout the remainder of the fiscal year.

During this challenging period, we nevertheless made significant progress in strengthening our key supplier relationships. We continue to benefit in those partnerships, in particular, through the ongoing momentum from our growth forum in February that had over 1,000 associates and 400 suppliers in attendance. This event established a solid pipeline of joint opportunities, which has supported an important change in our sales culture as we continue to track and realize wins from this pipeline, which now exceed $100 million.

Fiscal year '26 also saw strength in other strategic relationships. A great example of this would be our relationship with Autodesk. As we announced recently at IMTS, we have deepened our partnership with Autodesk and now leverage Autodesk Fusion's connected supply capabilities and all-in-one cloud platform. This will further differentiate MSC as the leader in metalworking by allowing our experts to optimize tool paths and validate cutting tool parameters more efficiently through state-of-the-art virtual testing capabilities.

And lastly, we have transformed the way we operate in the field. We have an optimized structure that targets potential, maximize the coverage of the right customers and integrates MSC's full value proposition. We have an effective compensation system that rewards the right behavior. We have new standards within a professional sales management process that has accelerated momentum and supported execution. For example, by the fourth quarter, we've nearly doubled the number of daily in-person customer touches with roughly 170 fewer sellers and are growing volumes with roughly 250 fewer total heads. And we've rebuilt the team after a period of attrition. We're attracting great talent to MSC and have put a best-in-class onboarding program in place, which is already accelerating time to money for our sellers.

Turning to Slide 6. This improved execution is reflected in the KPIs that matter most to MSC. Starting with the core customer, ADS trends have now outpaced total company growth for 5 consecutive quarters. Achieving double-digit growth in the fourth quarter for the first time in over 3 years. Sales per rep per day and trailing 12-month sales per total head count trends also remain favorable and so we continue to do more with less. I take this improved performance during a period of immense organizational change as evidence that our team is with us and our execution and operational rigor is strengthening. This gives us the confidence to continue on our path to transformation across other areas of the business, for example, our technology strategy.

As a reminder, we have defined an aggressive productivity road map focused on customer experience, associate productivity and the head count opportunities that come with automation of manual work. To ensure our path to mid-teens operating margins, it was necessary to align our technology investments to this strategy. As I have shared on previous calls, our CIO, John Reichelt, has spent the last few quarters performing a detailed assessment of our technology infrastructure against the needs of the business. To this point, MSC had been pursuing a program we have referred to as digital core, which was an end-to-end modernization of our procure-to-pay and order to cash processes.

Following the completion of John's review this quarter, we concluded that a greater degree of speed and flexibility is required to achieve our goals. As a result, we have reshaped our tech strategy moving towards an AI-first modular approach to systems enhancements and have decided to discontinue the previous digital core program resulting in an asset impairment charge of approximately $42 million. This shift allows us to take a faster, more flexible pay-as-you-go approach to our productivity road map. We see lower risk due to smaller and narrower implementations, reduced fixed costs and faster time to money in achieving ROI.

We are already seeing benefits from our early implementation of AI solutions in the areas of cross-sell, upsell and inventory management. We will now accelerate this focus to other areas of the business. To support the speed and agility we seek in this transformation, I'm pleased to announce that we've added Andre Dimitri to my team in the newly created role of VP Business Systems and AI strategy. Andre comes to us from Shopify, where he most recently served as Head of Revenue Technology and AI. We will keep you posted as we progress and expect these investments to fit within the envelope of our profitability targets.

Switching gears to the macro environment. We continue to see increasing evidence of an industrial recovery taking hold with positive IP readings across all of our top manufacturing end markets. Further evidence can be seen in recent MBI readings that remain above 50 and in the ADS trends of our solutions that continue to show volume improvement on a per unit basis. As you can see on Slide 7, average daily sales outpaced the IP Index for the fifth consecutive quarter and was above our target of 400 basis points again this quarter. While this continues to be largely price driven, our improving volume trends signals that our initiatives are taking hold, and we are headed in the right direction.

Before I turn it over to Rob, I would like to acknowledge the efforts of the entire MSC team. We implemented a lot of changes during my first year as CEO. A year ago on this call, I said that we would succeed if we raise our own expectations, inspired curiosity and a spirit of continuous improvement in our team and drove speed and accountability as we deliver on commitments. We are building a performance culture, and I could not be more proud of our MSC associates for the way they have responded.

And with that, I will now turn the call over to Rob to introduce himself as our new CFO, and cover our financial results in more detail.

Robert Kuhns

Thank you, Martina, and good morning, everyone. I'm very excited to be here and to work with Martina and the entire MSC team as we make progress on the unique opportunity that MSC has for improved financial performance and shareholder value creation. My focus will be on the key drivers of that value creation, profitable organic growth, sustainable margins, strong cash flow generation and disciplined capital allocation. .

To further support the performance culture Martina mentioned, I will ensure we take a rigorous, fact-based approach, establish clear accountability and translate our priorities into measurable results. I commit to maintaining clear and consistent communication with all of our stakeholders as we move forward. Moving to our fiscal 4Q performance on Slide 8, and I'm encouraged by the continued momentum that led to these better-than-expected results. Sales of approximately $1.1 billion grew 8.6% year-over-year on an average daily basis. This performance was better than expected and primarily driven by price of 6.9% as well as improving volumes that contributed another 1.6%. Sequentially, average daily sales improved approximately 3% and outperformed historical 3Q to 4Q averages.

By customer type, we were pleased to see core and other customer daily sales growth above 10% and continued the trend of outperforming total company. We also saw continued improvement in national accounts with growth of approximately 9% in the quarter. In the public sector, daily sales declined approximately 1% due to a tougher comparison in the prior year. In Solutions, we are seeing a compelling growth setup with sales trends suggesting further macro improvement as our installed base continues to expand. In vending, 4Q average daily sales were up approximately 20%, while sales to customers with an implant program were up 19%.

Moving to profitability for the quarter. Gross margin of 40.6% improved by 20 basis points year-over-year despite slightly negative transactional price cost. Our price cost headwinds are being driven by targeted strategic volume decisions and timing differences between material inflation and changes to contract prices. However, it is important to note that while transactional price cost is having a decremental impact on our gross margins, it is still incremental at the operating margin level as we leverage our fixed operating costs on higher sales.

Operating expenses in 4Q were approximately $323 million and $321 million on a reported and adjusted basis, respectively. On an adjusted basis, operating expenses were up $16 million year-over-year and performed slightly better than expected. As a percentage of sales, adjusted operating expenses declined 140 basis points compared to the prior year due to the lift in sales and savings from our cost optimization efforts, partially offset by inflation in freight. In addition to the reported operating expenses, we incurred a $42 million noncash impairment charge related to our digital core project, as Martina mentioned.

Reported operating margin for the quarter was 6.7% compared to 8.6% in the prior year. On an adjusted basis, operating margin of 10.9% exceeded the high end of our guided range for the quarter and improved 170 basis points compared to the prior year. This resulted in an adjusted incremental operating margin of 27%, coming in slightly better than we expected for the quarter. Lastly, on the income statement, we reported GAAP earnings per share of $0.85 compared to $1.01 in the prior year. On an adjusted basis, EPS of $1.45 improved 33% from $1.09 in the prior year.

The asset impairment in 4Q negatively impacted operating margin by 390 basis points and $0.56 to GAAP earnings per share. Now let's turn to Slide 9 to review our balance sheet and cash flow performance. We continue to maintain a healthy balance sheet with net debt of approximately $412 million or roughly 1x EBITDA. During the quarter, we continued to generate strong cash flow despite the increase in inventories and receivables associated with the lift in sales. We delivered free cash flow of approximately $64 million or 133% of net income in the quarter. This resulted in free cash flow conversion of 102% for the fiscal year. However, it is worth noting that the asset impairment during the quarter was a noncash item that positively impacted our free cash flow conversion.

Turning to capital allocation on Slide 10. Our highest priorities remain organic investment to fuel growth and advancing operational efficiencies across the business. Returning capital to shareholders also remains a priority. We repurchased approximately 160,000 shares throughout the year. Combined with our quarterly dividend, we returned approximately $208 million to shareholders in the fiscal year. Moving to our expectations for fiscal '27. Let's look at our first quarter outlook on Slide 11. Starting with the top line, we expect first quarter average daily sales to grow 9.5% to 10.5% compared to last year. Sales were up 9.5% in September, and we expect growth of approximately 11.5% in October and 9% in November. At these growth levels, we expect our adjusted operating margin for the quarter to land between 9.5% and 10.1%. Breaking that down further, we expect gross margins to slightly underperform our typical fourth to first quarter sequential decline of about 10 basis points due to ongoing material inflation and the timing of our pricing actions.

In addition, we expect a slight sequential increase in adjusted OpEx due to higher employee-related costs and freight, partially offset by productivity gains and lower variable expenses. I will now turn to Slide 12 to review our expectations of certain line items for the full fiscal year. We expect depreciation and amortization expense to be $100 million to $105 million. Interest and other expense will be $40 million to $45 million. Capital expenditures will total $90 million to $100 million. Our effective tax rate will be in the range of 24.5% to 25.5%. And lastly, despite working capital needs to support growth, we see another solid year of cash generation and expect free cash flow to be 80% to 90% of net income.

And with that, we will open the line for Q&A.

Operator

[Operator Instructions] Our first question is coming from Ken Newman with KeyBanc.

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Kenneth Newman

Rob, congrats on the new home at MSM and I look forward to working with you. .

Robert Kuhns

You looking forward to it as well. .

Kenneth Newman

So for my first question, it's on the ADS growth guide for the fiscal first quarter. Rob, I think you just touched on it in your prepared remarks, but it does look like the midpoint of the range implies a modest step down in November versus both where you saw preliminary September and October numbers. Just to clarify, is that primarily just reflecting conservatism? Or is there something structural that we should kind of be aware of in that estimate? .

Robert Kuhns

Yes. The sequential is really driven by the comparisons to last year, Ken. So when you look at it in prior year, we had the government shutdown that really impacted the month of October. And then got better in the month of November. So that's why you see a bit of a stronger month of October and a little bit weaker month of November. The ADS across the 3 months is similar to kind of our historical ADS across those 3 months.

Kenneth Newman

Understood. Okay. And then for my follow-up here, it looks like the implied incremental for this first quarter guide is in the mid-20s. Just given all the work that you have been doing on cost out and volume improvement, I know you don't want to guide the full year, but it's just there a way to help us think about base case operating leverage as we move through the year and help us understand the cadence of some of these benefits from productivity initiatives as the volume continues to improve.

Robert Kuhns

Sure. I'll start. I'm sure Ryan or Martina may want to jump in here with a few more details. But as you said, we don't give full year guidance, but obviously, one of the things I've been digging into a lot is that flow-through methodology we look at and how we talk about that and what we're looking at for the full year. And the reality is right now, there's a lot of variables at play, right? I mean I think the framework we have out there of 20% to 30% makes a lot of sense. I think coming in at mid-20s isn't something we feel like we need to apologize for. We feel like that's a really good performance for the company and certainly is accretive to the to the overall company.

As you think about the year, we have a number of things going on in the business that we're dealing with right now as well that are going to have some impacts on that, right? We're from a price cost perspective right we're in a highly inflationary time. We're working -- putting through that price with our contract customers, and that takes time and negotiations. So there's sometimes a bit of a timing difference there. mean overall, it's still incremental to the bottom line, like we talked about, but it can have a little bit of impact on gross margin there. And it may not be coming full at the full 30% initially as well as we're out there going after incremental volume, right? National accounts, areas like that, and the reality is, hey, if you get new business at a 35% gross margin, 10% variable costs coming off of that, 25%, while that is below maybe the 30% you're looking for, it's still going to be incremental to the overall business. So those are some of the things going on. But like I said, Martina and Ryan may want to add on to that.

Martina McIsaac

Yes. I mean, let's talk about the first quarter first. Ken, I think what's happening is you get 2 intersecting factors. We have said we're going to start using prices in offensive weapon. We see the volume coming national accounts and core. We want to continue to fuel that. So that's putting some pressure on gross margin. At the same time, as we're taking just continued absolutely unprecedented inflation. So we had signaled to you that we -- the tungsten inflation and metalworking inflation was not behind us, and we were going to take price in the first quarter, which we have and now we've got another wave, which has to be worked out of the business.

And if you think about -- the same thing happened at this time last year, right, we entered Q1 kind of upside down on price cost and then worked it out of the business. So there's a little additional pressure right now which is, I think, driving that 24%. But the algorithm still -- we still expect to be able to deliver.

Ryan Mills

Yes. I think, Ken, the other factors I wanted to talk about also was on freight, we're seeing inflation there. And then on employee-related expenses as well and the biggest 1 being medical expense. So that's also something that we're navigating as well. .

Operator

Our next question is coming from Chris Dankert with D.A. Davidson.

Christopher Dankert

I guess I wanted to start off on just the pace of head count reduction. Obviously, we've seen some really nice sales growth here -- are we kind of moving a little bit more slowly on the head count reduction, just given, hey, we want to support that growth? Maybe just kind of talk us through some of the puts and takes around optimizing our labor here.

Martina McIsaac

Yes. Thanks for the question, Chris. So no, we're still full speed ahead with our plans. I think what we've tried to say in the past is I wish it were going to be linear. It's not going to be linear. It's going to be chunky and based on initiatives. We did have, I think, a net 40 heads in the fourth quarter. That was related to work that we had signaled a couple of quarters ago, which was related to our subscale businesses. So that's 1 of the initiatives on the road map. We're looking for synergies there.

So -- so a lot of work is ongoing. But honestly, the biggest step forward on this whole head count productivity initiative was the decision to impair that you stop the work on the digital core project and take that impairment this quarter. That was truly a rock in the river because a lot of these initiatives have to do with process change, but a lot of them have to do with automation and we were constrained with what we could do following that path. And so now that, that decision is behind us and Andre on board and Rob's on board, what it gives us the chance to do now is rephase some things because we want speed as well, right? So we -- what you'll -- I'm going to repeat what I've said before. We're not going to signal ahead of time. It will come on in chunks, but we'll be able to do smaller chunks sooner would benefit sooner. So everything is on track and that really sort of supercharges what we're doing.

Christopher Dankert

And just a follow-up, I guess, I forgive if I missed it, but on first quarter, the kind of sales expectation, can you just level set us on what you expect price to contribute in the quarter?

Robert Kuhns

Yes, this is Rob. So I'd say it's going to be pretty similar to Q4, which means volumes, we continue to see slightly improving quarter-over-quarter. .

Operator

Our next question is coming from Guy Hardwick with Barclays.

Guy Drummond Hardwick

Just wondering with volumes now picking up on including the benefit of the extra day, volumes are up like 3% year-on-year. At what point do you start benefiting from supplier rebates and I think Martina usage of strategy was some reinvest some of those in wallet share and growth. Just maybe if you can maybe potentially talk about dynamics for FY '27 in terms of the volume rebates and if they to what extent will you reinvest those?

Robert Kuhns

Yes. This is Rob. So I'll start off. Supplier rebates, we're starting to see some of those benefits this year as well. That was the benefit we saw in the fourth quarter year-over-year, call it, 20, 30 basis points in that ballpark and then some of the headwinds we mentioned are what offset that. The biggest driver of the quarter-over-quarter change there was really just normal seasonality that we typically see in the fourth quarter.

And as we move into next year, yes, with volumes starting to increase and continuing to accelerate, we would expect to continue to get rebates and yes, use those to help drive some of the things we're doing to capture additional volume.

Operator

Our next question is coming from William Blunt with Rothschild & Company.

William Blunt

Just firstly, could I ask a question for us for a bit of an update on the sales force disruption we saw in the year could you quantify maybe the current growth gap between those core customers that were affected by those changes earlier in the year and those that weren't. And then maybe sort of what are your expectations for that capital close.

Martina McIsaac

Yes, absolutely. So just to recap, we had shared that we're tracking customers in a couple of buckets. So customers that we would describe as not having had significant change during the restructuring and customers that did have either an uncovered period or a phase change in a significant amount of face change in the process. And our -- the first group is performing in sort of the mid-teens range for growth. Remember, I think I've said this is a game of averages. Second group was in the second quarter, negative went positive in the third quarter. By this past fourth quarter, they are in the mid-single-digit range.

And what's important to remember with that group is we've now even started to tease that apart a little bit more in the sense that in that group are also customers who will be permanently uncovered going forward. So I want you to think about a 2-person auto body shop that MSC used to be calling on. We're not calling on in person anymore. -- that volume loss will, of course, drop off as soon as we cross over into December. So I would say it's 1/3, 1/3, 1/3. So we're now -- we've come up to positive. Now we're mid-single digits, and we're closing that gap every quarter.

William Blunt

That's useful. And then can I just ask a follow-up, maybe actually on the vending sales, which accelerated again to -- I think you said 20% on the call this quarter. Is that seeing like an artifice boost from the conversion of some of your less profitable implants back to sort of vending only revenues? Or is this pointing to like a stronger take-up more generally?

Ryan Mills

Yes. Well, this is Ryan. I wouldn't say we're really seeing that. I mean the growth in vending -- the installed base in vending year-over-year was similar to what we've been seeing all quarter. I think what it is, is more of a reflection of an improving macro conditions. If you look at average daily sales per vending machine. They were up low teens year-over-year in 4Q. And to us, that's a real good gauge on production activity and increased demand. we're starting to see the volume benefits of that. So that's how I would look at that improvement there. .

Martina McIsaac

The rationalization you see in the net number of new implant programs. It's mainly on the implant side that we're assessing that profitability. So if you look in the offsets, you see maybe an increase of 5, net 5, but the new signings are that. So if you think about my analogy of when it rains, that's volume through existing installed base of vending and making it rain, we're seeing an acceleration in new signings and you see the strong growth in national accounts.

Operator

Our next question is coming from Tommy Moll with Stephens.

Thomas Moll

Martina, I wanted to circle back to some comments you made regarding personnel. If we just look at the quarter-over-quarter trends here, overall associate head count was down field sales associate head count was up for the second consecutive quarter. So we've got some cross currents here. Could you unpack both sides of that? I think you already commented on some of the reductions, but anything more you could offer would be appreciated. .

Martina McIsaac

Yes. Yes, absolutely. So on the sales side, you're seeing 2 things happen. The first is we're filling -- we had that attrition. And so we're catching up. And I would say we're caught up, we're pretty full in terms of the sales force. But in this onboarding -- in the sales onboarding program, and I've talked about it before, what we really want is time to money. Right? As soon as we can give Rob the algorithm that says a new seller is going to be productive at this date, then that's going to really allow us within the context of our turnaround to start adding sales heads back in where we see potential. .

And historically, a territory doesn't even start paying back after a new ad at MSC for more than 12 months, and we're already seeing payback within 3 months -- so what you're starting to see are some very surgical insertions of new sellers, and we intend to drive growth. We are going after coverage and growth. And so where we see potential, we'll continue to do that. Cautiously, right? We want the payback, but that's that plan. And so the net number -- as I said, in this quarter, in particular, the largest moves were in some of our -- finding some synergies in some of our subscale businesses. And so you're looking at it exactly the right way. If you -- to consider our head count productivity initiative, it's the net number. Sales may continue to -- sales has may continue to increase as we grow volume.

Robert Kuhns

That net number, as a reminder, is total headcount, less our sales headcount, and that was down 43 heads quarter-over-quarter.

Martina McIsaac

Yes. And so that's why we gave you that target of trailing 12-month revenue divided by total headcount, which continued to improve for another quarter because that sort of combines all of these moving parts together?

Thomas Moll

Yes. I appreciate it. Let me also ask about price cost. -- there are a lot of inflationary headwinds that you flagged this morning. And if I'm hearing you correctly, I think what you're saying is to start the year, we should think about price cost once again in a negative position. And then -- and I'm putting words in your mouth here, but I'm just going to guess full year aspiration for '27 would be neutral. I think, so that would imply that as you go through the year, things should improve and probably a lot of that's tied to the timing of these contracts that you can renegotiate. But if that framing is not accurate, please correct me .

Robert Kuhns

Yes. This is Rob. I'll add a little bit of color there. So overall, price cost from a dollar perspective is certainly positive, right, at the gross margin and operating profit level. because of some of that timing that we're talking about on contracts, we do have some things that take a little bit longer. And so at the gross margin line, we may not fully be recovering from a margin perspective. So there's a little bit of a decrement there, but we're talking 10, 20 basis points at this point in the quarter, nothing too significant. .

But we're managing through that, working through that. And we have some higher costs that are going to be rolling through. So we have more work to do to get through the year. Like I said in the prepared remarks, like that, it's important to remember, that is still incremental at the op income level, where we're at today. And we're working through what we're going to do the rest of the year. To your point, the goal is always to remain neutral on that, right? We're always looking to, from a margin perspective, fully recover and maintain our margins. That's the goal, but we're working through those negotiations, and we'll have to ultimately see where we land there.

But the overall goal on the gross margin, Martina said it before, is to stay in that 40% to 41% range. And we've got a lot of stuff going on with price cost in there. And we've also got new customers and incremental volume coming into it as well.

Operator

Our next question is coming from Ryan Merkel with William Blair.

Ryan Merkel

I wanted to start with first quarter, the volumes up 3%, I think, is what you're implying. I'm expecting -- I was thinking it would be more like mid-single digits or better. So I guess my question is, why isn't the volume better at this point given improving markets and it sounds like some of the growth initiatives are really kicking in. .

Robert Kuhns

Yes. This is Rob. So when we look at it from a sequential standpoint, right, and from where we are today, typically, Q4 to Q1, I believe this is a sequential step-up is around 1%. We're going to be a little bit better than that at 2%. So we do see us growing faster than what we anticipated. We think there's more opportunity out there for sure. I mean, we went through a major sales reorganization last year. And honestly, I'm impressed with where the company is today. from that in terms of how quickly they've recovered when you go through something like that.

And we're now driving sales to the bottom line, actually, with better margins than we had before. So we're very happy with that change, and we just see momentum building. But it's going to take time. We've hired new sales people. We've got a new time to win project that gets them on board quicker that I'm sure Martina has detailed in the past, if not she can give more detail. And we're excited about where volumes are going from here.

Ryan Mills

And Ryan, this is Ryan. I Just want to add another data point to. If you look at the volumes on a 2-year stack base from 4Q to 1Q, we're still showing further improvement at the midpoint of our outlook.

Ryan Merkel

Okay. Appreciate that color. And then I had a question on incremental margins. I mean I appreciate some of the pressures that you're talking about here in 1Q. But -- my question is, can we still do high 20s incremental margins in fiscal '27 if the top line is near 10%? Or are we saying that might be a little difficult, just given some of the cost pressures that you're seeing? .

Robert Kuhns

I didn't -- you just say 20% in the..

Martina McIsaac

High 20s .

Ryan Merkel

20s. Yes.

Robert Kuhns

We're shooting to do better than that, right? We're always working to do better than that. We're looking to drive more productivity with some of the big decisions we've made now, we think we can move faster with some of those things. So we're looking to do better. But we have headwinds, and we just want to be upfront with that, right, in terms of inflationary pressures, both on materials, freight, labor as well. So we're working through those. But we're confident we're going to be in that 20% to 30% range. And like we've said in the past, when we do these waves of head count adjustments and they will come in ways, we can certainly do better than that.

Operator

Our next question is coming from Robert Davies with Wolfe Research.

Robert Davies

I had 2. First 1 was just around kind of, I guess, evolution of pricing and the ability to hold on to price in the face of sort of deflating tungsten prices. I guess if tungsten prices were to go down over 2027. Are you comfortable being able to hold on the price you've already gotten to potentially benefit from a margin perspective? That was the first question.

And then the other 1 was just if we could get an update in terms of some of your kind of key AI initiatives and the rollout of that across the business where you think that's going to move the needle first.

Martina McIsaac

Yes. So let's talk about tungsten first. So we certainly don't see any deflation in the price of carbide cutting tools. So I think the indexes have started to stabilize. But at best, what our suppliers had been signaling coming into the fourth quarter with stability. And now we're starting to take on new increases. So what we've tried to do is protect our customers to the extent that we can and this uncertainty, which is the timing lag of pricing that we're all talking about now for the first quarter, we're going to have to move and we will move. And we will not have to reduce any prices until our suppliers reduce their manufacturers list price and none of that is coming in the near future.

So I think we can hold on to the price level where we are. And then your second question was around the AI initiatives. We've deployed AI successfully in a number of areas. So if you heard us talk last year, we had both in terms of guided selling and some of our network optimization initiatives around placement of inventory, which has let us stay in front of the largest piece of this freight inflation, right? We have had productivity offsetting freight inflation. This extreme inflation now that we're experiencing, we've got to work out of the business, but we've been using a lot of different productivity steps in supply chain to offset and we're also now using AI in a number of other areas.

We're using it in sales assists, particularly in the safety area to do assessments. We're using it in what we would call product cross reference, so managing product data, we're automating orders. And so the biggest opportunity that we feel that we have is really in the customer experience. So how can we drive speed and efficiency in our interactions with customers, whether that's on inbound orders, that's on product recommendations, et cetera. And so that's all part of the of our plan to get back to the mid-teens operating margin. And so we haven't shared more detail of what the implications of each of those changes will be, but those are the kinds of things that we're looking at.

Operator

Our next question is coming from David Manthey with Baird.

David Manthey

Congratulations, Rob. back on the cadence for price increases here, was it September that you raised price? And Rob, with your answer to a prior question, you sort of implied that the first quarter would see price close to 700 basis points against what looks like a 200 basis point harder comp, I just want to confirm that upfront. And assuming that is the case, even as comps get tougher through the year, it seems like maybe you can sustain a mid-single-digit pricing for fiscal '27. Is any of that outside the bounds of how you're thinking about things? .

Robert Kuhns

Yes. I mean you're definitely right that we took a price increase in September. Q1, we do expect to be in that 7% range. So some of that is carrier or a big chunk of that is carryover, but we do have the new price increase that went in as well that's going to offset some of the falloff from price increases last year. Obviously, how the rest of the year plays out is to be determined from here, but mid-single digits. It seems very -- we're looking at probably 3% to 4% carryover impact for the full year. So -- and we're still seeing inflation. So mid-single digits doesn't seem too crazy to me from here.

David Manthey

And then on your commentary around the normal fourth quarter to first quarter gross margin progression model only goes back to 1995. And I can't figure out a pattern here. Could you tell me what you see as normal? .

Ryan Mills

Yes, David, this is Ryan. What we look at is typically the 5-year average, but there's a big outlier in that one. you remember in 2023, we had some outsized public sector orders in the back half of the fiscal year. So that to us was an outlier because it pressured gross margin quite a bit and really helped out that sequential. But if you look at past 5 years and then pre-COVID, I think that is a good way to look at it. Directionally, it's about a 10 basis point decline from 4Q to 1Q.

David Manthey

Okay. It looks like it ranges between down, I don't know, 30 or 40 and up 30, but you're saying down 10%, is that what you said, Ryan? .

Ryan Mills

Yes. downtime, if you look at the 5-year average and exclude the 2023 outlier from 1Q '23 to 1Q '24 -- and then if you look past the COVID, the average is around down 10%. .

Operator

Ladies and gentlemen, we have reached the end of our question-and-answer session. So I'd like to turn the call back over to Mr. Ryan Mills for any closing remarks. .

Ryan Mills

Thank you for your interest in MSC today. Our next earnings call will be on January 6, 2027.

Operator

Thank you. Ladies and gentlemen, this does conclude today's call. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation.