Grainger Reports Record Results For The 2013 Second Quarter

Narrows 2013 Sales and EPS Guidance

Quarterly Highlights

-- Sales of $2.4 billion, up 6 percent

-- Operating earnings of $350 million, up 11 percent

-- EPS of $3.03, up 15 percent

-- Operating cash flow of $210 million, up 59 percent

17 Jul, 2013, 08:00 ET from W.W. Grainger, Inc.

CHICAGO, July 17, 2013 /PRNewswire/ -- Grainger (NYSE: GWW) today reported record results for the 2013 second quarter ended June 30, 2013.  Sales of $2.4 billion increased 6 percent versus $2.2 billion in the second quarter of 2012.  There were 64 selling days in the quarter, the same as in 2012.  Net earnings for the quarter increased 14 percent to $218 million versus $191 million in 2012.  Earnings per share of $3.03 increased 15 percent versus $2.63 in 2012.  

"Our solid performance reflects the continued focus, dedication and hard work of our Grainger team," said Chairman, President and Chief Executive Officer Jim Ryan.  "We will continue to invest in helping our customers be successful by adding more products, sales people, inventory management solutions and eCommerce capabilities to further our leading position in the MRO industry," Ryan added. 

Ryan continued, "Given our strong execution and the additional perspective provided by our first half performance, we are able to further refine our expectations for 2013 sales and earnings per share."  The company now expects 2013 sales growth of 5 to 8 percent and earnings per share of $11.40 to $12.00.  The company's previous 2013 guidance issued on April 16, 2013, was sales growth of 5 to 9 percent and earnings per share of $11.30 to $12.00.     

Company Sales in the 2013 second quarter increased 6 percent consisting of 4 percentage points from volume, 2 percentage points from price and 1 percentage point from acquisitions, partially offset by a 1 percentage point decline attributable to unfavorable foreign exchange.    

The company's gross profit margin increased 0.5 percentage point to 44.0 percent versus 43.5 percent in the 2012 second quarter, primarily driven by Canada and the Other Businesses.  Company operating expenses in the quarter increased 5 percent driven primarily by payroll and benefits and included an incremental $37 million in spending to fund the company's growth programs.

Company operating earnings of $350 million for the 2013 second quarter increased 11 percent versus the prior year.  The increase in operating earnings was driven by higher sales, improved gross profit margins and positive expense leverage.  

Grainger has two reportable business segments, the United States and Canada, which represented approximately 89 percent of company sales for the quarter.  The remaining operating units located primarily in Asia, Europe and Latin America are included in Other Businesses and are not reportable segments.  

United States Sales for the United States segment increased 7 percent in the 2013 second quarter versus the prior year.  The 7 percent sales growth was driven by 4 percentage points from volume, 2 percentage points from price and 1 percentage point from acquisitions.   The sales increase for the quarter in the United States was led by solid growth in the light and heavy manufacturing, natural resources, commercial and contractor end markets.

Operating earnings for the United States segment increased 9 percent in the quarter driven by the 7 percent sales growth and positive expense leverage.  Gross profit margins for the quarter were essentially flat versus the prior year.  The company was able to increase prices above product cost inflation however this was offset by unfavorable selling mix driven by stronger sales to larger customers.     

Canada Sales in the 2013 second quarter in Canada increased 3 percent versus the prior year.  The 3 percent sales growth consisted of 2 percentage points from volume, 2 percentage points from favorable timing of the Easter holiday and 1 percentage point from sales of flood-related products, partially offset by a 2 percentage point decline from unfavorable foreign exchange.  In local currency, sales increased 5 percent.  The sales increase for the quarter in Canada was led by solid growth to customers in the construction, forestry and light manufacturing end markets.

Operating earnings in Canada increased 11 percent in the 2013 second quarter, up 13 percent in local currency.  The improvement in operating performance was primarily driven by higher sales and a 1.4 percentage point improvement in gross profit margins.  The gross profit margin improvement was due to cost savings from freight consolidation, higher supplier rebates and favorable mix.  Approximately half of the improvement is expected to continue into future periods.

Other Businesses Sales for the Other Businesses, which includes operations primarily in Asia, Europe and Latin America, increased 5 percent for the 2013 second quarter versus the prior year.  The sales growth consisted of 9 percentage points from volume and price and 2 percentage points from acquisitions, partially offset by a 6 percentage point decline from unfavorable foreign exchange.  The sales increase was primarily due to strong revenue growth in Mexico and the timing of the Brazil acquisition in the second quarter of 2012.  In local currency, sales for the business in Japan grew in the high teens, however this was offset by unfavorable foreign exchange.    

Operating earnings for the Other Businesses were $13 million in the 2013 second quarter versus $11 million in the 2012 second quarter.  Improved performance for the quarter versus the prior year's quarter was primarily driven by earnings growth in the businesses in Japan and Europe. 

Other Interest expense, net of interest income, was $2.4 million in the 2013 second quarter versus $2.3 million in the 2012 second quarter.  The tax rate in the quarter was 36.5 percent versus 37.9 percent in the 2012 quarter.  The 2013 second quarter tax rate reflected a benefit from a resolution of foreign tax matters in the current period.  Excluding this benefit, the effective tax rate for the quarter was 37.3 percent.  The company continues to project an effective tax rate for the year 2013 of 37.3 to 37.7 percent.

Cash Flow Operating cash flow was $210 million in the 2013 second quarter versus $132 million in the 2012 second quarter.  Cash flow in the 2013 quarter benefitted from higher earnings and lower inventory purchases versus the prior year.  The company used cash from operations to fund capital expenditures of $40 million in the quarter versus $56 million in the second quarter of 2012.  In the 2013 second quarter, Grainger returned $200 million to shareholders through $67 million in dividends and $133 million to buy back 521,000 shares of stock.  As of June 30, 2013, the company had 4.5 million shares remaining on its share repurchase authorization.

Year-to-Date For the six months ended June 30, 2013, sales of $4.7 billion increased 5 percent versus $4.4 billion in the six months ended June 30, 2012.  There were 127 selling days in the first six months of 2013, one less than in 2012.  On a daily basis, sales for the first six months of 2013 increased 6 percent.   Net earnings increased 14 percent to $429 million versus $378 million in the first half of 2012.  Earnings per share for the six months increased 15 percent to $5.97 versus $5.20 for 2012.     

W.W. Grainger, Inc., with 2012 sales of $9 billion, is North America's leading broad line supplier of maintenance, repair and operating products, with expanding global operations.

Visit www.grainger.com/investor to view information about the company, including a history of daily sales by segment and a podcast regarding 2013 second quarter results. The Grainger website also includes more information on Grainger's proven growth drivers, including product line expansion, sales force expansion, eCommerce, inventory services and international expansion.

Forward-Looking Statements This document contains forward-looking statements under the federal securities law.  Forward-looking statements relate to the company's expected future financial results and business plans, strategies and objectives and are not historical facts.  They are generally identified by qualifiers such as "will continue to invest", "further refine our expectations for 2013 sales and earnings per share", "expects 2013 sales growth", "2013 guidance", "expected to continue", "continues to project an effective tax rate" or similar expressions.  There are risks and uncertainties, the outcome of which could cause the company's results to differ materially from what is projected.  The forward-looking statements should be read in conjunction with the company's most recent annual report, as well as the company's Form 10-K, Form 10-Q and other reports filed with the Securities & Exchange Commission, containing a discussion of the company's business and various factors that may affect it.

 

CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (In thousands, except for per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

2013

2012

2013

2012

Net sales

$

2,381,561

$

2,249,275

$

4,661,996

$

4,442,720

Cost of merchandise sold

1,334,577

1,270,932

2,583,276

2,490,045

Gross profit

1,046,984

978,343

2,078,720

1,952,675

Warehousing, marketing and administrative expense

696,912

664,343

1,385,344

1,334,314

Operating earnings

350,072

314,000

693,376

618,361

Other income and (expense)

Interest income

796

602

1,694

1,197

Interest expense

(3,201)

(2,910)

(6,367)

(5,967)

Other non-operating income

(147)

(963)

741

(349)

    Total other expense

(2,552)

(3,271)

(3,932)

(5,119)

Earnings before income taxes

347,520

310,729

689,444

613,242

Income taxes

126,767

117,628

254,164

230,683

Net earnings

220,753

193,101

435,280

382,559

Net earnings attributable to noncontrolling interest

3,093

2,397

5,782

4,339

Net earnings attributable to W.W. Grainger, Inc.

$

217,660

$

190,704

$

429,498

$

378,220

Earnings per share

  -Basic

$

3.08

$

2.68

$

6.07

$

5.30

  -Diluted

$

3.03

$

2.63

$

5.97

$

5.20

Average number of shares outstanding

  -Basic

69,665

69,937

69,614

70,034

  -Diluted

70,801

71,308

70,788

71,481

Diluted Earnings Per Share

Net earnings as reported

$

217,660

$

190,704

$

429,498

$

378,220

Earnings allocated to participating securities

(3,055)

(3,451)

(6,642)

(6,747)

Net earnings available to common shareholders

$

214,605

$

187,253

$

422,856

$

371,473

Weighted average shares adjusted for dilutive securities

70,801

71,308

70,788

71,481

Diluted earnings per share

$

3.03

$

2.63

$

5.97

$

5.20

 

SEGMENT RESULTS (Unaudited) (In thousands of dollars)

Three Months Ended June 30,

Six Months Ended June 30,

2013

2012

2013

2012

Sales

United States

$

1,863,112

$

1,742,101

$

3,637,650

$

3,442,810

Canada

288,645

279,617

571,786

552,500

Other Businesses

261,282

249,131

509,156

488,087

Intersegment sales

(31,478)

(21,574)

(56,596)

(40,677)

Net sales to external customers

$

2,381,561

$

2,249,275

$

4,661,996

$

4,442,720

Operating earnings

United States

$

338,884

$

310,683

$

669,772

$

609,647

Canada

37,299

33,555

70,155

63,255

Other Businesses

12,799

11,244

21,050

21,959

Unallocated expense

(38,910)

(41,482)

(67,601)

(76,500)

Operating earnings

$

350,072

$

314,000

$

693,376

$

618,361

Company operating margin

14.7

%

14.0

%

14.9

%

13.9

%

ROIC* for Company

34.6

%

31.9

%

ROIC* for United States

51.4

%

49.3

%

ROIC* for Canada

23.7

%

23.0

%

*The GAAP financial statements are the source for all amounts used in the Return on Invested Capital (ROIC) calculation.  ROIC is calculated using operating earnings divided by net working assets (a 3-point average for the year-to-date).  Net working assets are working assets minus working liabilities defined as follows: working assets equal total assets less cash equivalents (3-point average of $351.1 million), deferred taxes, and investments in unconsolidated entities, plus the LIFO reserve (3-point average of $381.3 million).  Working liabilities are the sum of trade payables, accrued compensation and benefits, accrued contributions to employees' profit sharing plans, and accrued expenses.

 

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) Preliminary (In thousands of dollars)

Assets

June 30, 2013

December 31, 2012

Cash and cash equivalents

$

488,741

$

452,063

Accounts receivable – net

1,075,592

940,020

Inventories – net

1,221,888

1,301,935

Prepaid expenses and other assets (1)

119,673

150,655

Deferred income taxes

56,290

55,967

Total current assets

2,962,184

2,900,640

Property, buildings and equipment – net

1,118,750

1,144,573

Deferred income taxes

53,414

51,536

Goodwill

513,545

543,670

Other assets and intangibles – net

382,242

374,179

Total assets

$

5,030,135

$

5,014,598

Liabilities and Shareholders' Equity

Short-term debt

$

70,007

$

79,071

Current maturities of long-term debt

25,502

18,525

Trade accounts payable

452,179

428,782

Accrued compensation and benefits

157,259

165,450

Accrued contributions to employees' profit sharing plans (2)

90,152

170,434

Accrued expenses

182,682

204,800

Income taxes payable

9,104

12,941

Total current liabilities

986,885

1,080,003

Long-term debt

452,449

467,048

Deferred income taxes and tax uncertainties

118,326

119,280

Employment-related and other non-current liabilities

230,280

230,901

Shareholders' equity (3)

3,242,195

3,117,366

Total liabilities and shareholders' equity

$

5,030,135

$

5,014,598

(1)

Prepaid expenses and other assets decreased $31 million driven by lower prepaid income taxes from the timing of tax payments.

(2)

Accrued contributions to employees' profit sharing plans decreased $80 million primarily due to the annual cash contributions to the profit sharing plan.

(3)

Common stock outstanding as of June 30, 2013 was 69,497,219 shares as compared with 69,478,495  shares at December 31, 2012.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Preliminary (In thousands of dollars)

Six Months Ended June 30,

2013

2012

Cash flows from operating activities:

Net earnings

$

435,280

$

382,559

Provision for losses on accounts receivable

3,783

4,428

Deferred income taxes and tax uncertainties

(1,074)

(3,874)

Depreciation and amortization

80,813

73,442

Stock-based compensation

31,372

30,573

Change in operating assets and liabilities – net of business

acquisitions

    Accounts receivable

(155,887)

(128,648)

    Inventories

57,771

4,918

    Prepaid expenses and other assets

31,369

39,907

    Trade accounts payable

31,472

(6,751)

    Other current liabilities

(128,468)

(145,965)

    Current income taxes payable

(2,648)

(11,407)

    Employment-related and other non-current liabilities

8,088

1,886

Other – net

(5,048)

(2,848)

        Net cash provided by operating activities

386,823

238,220

Cash flows from investing activities:

Additions to property, buildings and equipment

(83,175)

(96,378)

Proceeds from sale of property, buildings and equipment

2,528

3,950

Net cash paid for business acquisitions

(8,234)

(24,336)

Other – net

100

63

        Net cash used in investing activities

(88,781)

(116,701)

Cash flows from financing activities:

Net (decrease) increase in short-term debt

(9,024)

4,010

Net (decrease) increase in long-term debt

(4,845)

29,417

Proceeds from stock options exercised

48,142

39,060

Excess tax benefits from stock-based compensation

41,690

35,502

Purchase of treasury stock

(202,400)

(210,981)

Cash dividends paid

(123,549)

(105,361)

        Net cash used in financing activities

(249,986)

(208,353)

Exchange rate effect on cash and cash equivalents

(11,378)

1,089

Net change in cash and cash equivalents

36,678

(85,745)

Cash and cash equivalents at beginning of year

452,063

335,491

Cash and cash equivalents at end of period

$

488,741

$

249,746

 

 

SOURCE W.W. Grainger, Inc.



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http://www.grainger.com