Grainger Reports Record Results for the 2011 Third Quarter

Printer Friendly Version View printer-friendly version
<< Back

Raises 2011 EPS guidance range to $8.80 - $9.00
Quarterly Highlights
- Sales of $2.1 billion, up 11 percent
- Operating earnings of $303 million, up 21 percent
- Net earnings of $182 million, up 21 percent
- EPS of $2.51, up 22 percent
- Pretax ROIC* of 34.3 percent versus 30.2 percent in Q3 2010

CHICAGO, Oct. 18, 2011 /PRNewswire via COMTEX/ --

Grainger (NYSE: GWW) today reported record results for the 2011 third quarter ended September 30, 2011. Sales of $2.1 billion increased 11 percent versus $1.9 billion in the third quarter 2010. The 2011 third quarter had the same number of selling days (64) as the third quarter of 2010. Net earnings for the quarter increased 21 percent to $182 million versus $150 million in 2010. Earnings per share increased 22 percent to $2.51 versus $2.06 for the third quarter 2010.

The third quarter of 2010 included a non-cash benefit of $5 million after-tax, or $0.07 per share, from changes to the company's paid time off policy. Excluding this item, earnings per share increased 26 percent versus the 2010 third quarter.

*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 (annualized based on sales days) divided by net working assets (a 4-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 (4-point average of $316.1 million), deferred taxes, and investments in unconsolidated entities, plus the LIFO reserve (4-point average of $342.1 million). Working liabilities are the sum of trade payables, accrued compensation and benefits, accrued contributions to employees' profit sharing plans, and accrued expenses.

"This was an exceptional quarter for Grainger," said Chairman, President and Chief Executive Officer Jim Ryan. "We saw consistent, double-digit, sales growth each month of the quarter and delivered strong earnings growth and cash flow. Grainger's ability to help customers do more with less has been key to our success. Our growth drivers such as product line expansion, eCommerce, inventory management services and sales force expansion are paying off and helping us gain share. Given our strong performance to date, we are aggressively investing in these proven growth drivers to help meet customers' needs, create competitive advantage and grow the business."

"Given our strong operating performance to date, and the inclusion of Fabory starting in September," Ryan continued, "we have raised our 2011 sales growth guidance to a range of 11 to 12 percent and increased our expected earnings per share guidance to a range of $8.80 to $9.00." The company's EPS guidance excludes the expected $5 million after-tax gain on the sale of its minority ownership position in MRO Korea, announced on October 11, 2011. The company's previous guidance, effective July 19, 2011, projected sales growth of 9 to 10 percent and earnings per share in the range of $8.40 to $8.70.

On August 31, 2011, Grainger completed the acquisition of Fabory Group. Fabory is a leading European distributor of fasteners and related MRO products serving 120,000 customers with more than 80,000 products in 14 countries. Effective September 1, 2011, results of Fabory's operations are included in Grainger's consolidated results. Fabory is expected to be earnings neutral in 2011 and accretive to earnings in 2012.

Grainger's 11 percent sales growth for the third quarter consisted of 8 percent volume growth, 3 percentage points from price, 2 percentage points from acquisitions and 1 percentage point from foreign exchange. Sales growth for the quarter was negatively affected by 3 percentage points due to sales in 2010 related to the oil spill clean up in the Gulf of Mexico. On a daily basis, sales increased 10 percent in July, 10 percent in August and 14 percent in September. Excluding Fabory, sales on a daily basis in September grew 10 percent.

For the quarter, company operating earnings of $303 million increased 21 percent, driven primarily by sales volume and higher gross profit margins, partially offset by operating expenses growing faster than sales, up 13 percent. Excluding the $8 million pre-tax benefit from the change in paid time off policy in 2010, company operating expenses grew 12 percent and operating earnings increased 25 percent.

Grainger has two reportable business segments, the United States and Canada, which represent approximately 94 percent of company year-to-date sales. The remaining operating units (Europe (Fabory), Japan, Mexico, Colombia, India, China, Puerto Rico and Panama) are included in Other Businesses and are not reportable segments.

United States

Sales for the United States segment increased 7 percent in the 2011 third quarter, driven by a 7 percentage point contribution from volume and 3 percentage points from price, offset by a 3 percentage point drag due to sales in 2010 related to the Gulf of Mexico oil spill. Daily sales increased 5 percent in July, 8 percent in August and 7 percent in September. Sales related to the 2010 oil spill created a 3 percentage point drag in July, August and September, respectively. Sales to all customer end-markets, except for reseller, were up in the quarter, led by heavy manufacturing, which increased in the mid-teens. The reseller end-market was down in the low twenties due to strong sales in 2010 related to the oil spill.

Operating earnings in the United States segment increased 15 percent versus the 2010 third quarter. The increase in operating earnings was primarily the result of higher sales and improved gross profit margins. Gross profit margins for the quarter increased 180 basis points driven primarily by price increases exceeding product cost increases and positive selling mix. Operating expenses increased 9 percent, 7 percent excluding the 2010 paid time off benefit, and were driven by higher volume and growth-related spending on eCommerce, advertising, the opening of a new distribution center and the addition of sales representatives.

Canada

Sales for the Acklands-Grainger business in the quarter increased 23 percent in U.S. dollars versus the 2010 third quarter. In local currency, sales increased 16 percent for the quarter, driven by 14 percentage points from volume and 2 percentage points from acquisitions. Daily sales in local currency increased 18 percent in July, 14 percent in August and 15 percent in September. Sales in Canada benefited from strength in the heavy manufacturing, retail/wholesale, transportation, and agriculture and mining customer end-markets.

Operating earnings in Canada increased 72 percent for the 2011 third quarter, 63 percent in local currency. The increase in operating earnings was primarily due to higher sales and a 30 basis point increase in gross profit margins. Positive operating expense leverage from continued cost management also contributed to the improvement in operating performance.

Other Businesses

Sales for the Other Businesses, which include Europe (Fabory), Japan, Mexico, Colombia, India, China, Puerto Rico and Panama, increased 66 percent versus prior year, due primarily to the Fabory acquisition and strong growth in Japan and Mexico. Although smaller in size, the remaining businesses also posted strong sales growth in the quarter.

Operating earnings for Other Businesses were $11 million for the third quarter of 2011 compared to $4 million a year ago. The improvement was primarily driven by strong earnings growth in Japan and Mexico, coupled with lower operating losses in China. Earnings from Fabory in the month of September also contributed to the earnings growth for the Other Businesses in the quarter.

Other

Interest expense net of interest income was $2.0 million versus $1.6 million the prior year. The increase was primarily attributable to interest on the new debt of euro 120 million used to finance part of the Fabory acquisition. Grainger's effective income tax rates were 38.7 percent and 39.4 percent for the third quarter of 2011 and 2010, respectively. The 2011 effective rate is lower than the prior year's rate primarily due to higher earnings in foreign jurisdictions with lower tax rates.

Cash Flow

Operating cash flow was $251 million for the 2011 third quarter versus $206 million in the third quarter of 2010. Capital expenditures were $47 million in the quarter compared to $43 million in the prior year quarter. Dividends paid in the 2011 third quarter were $47 million. The company purchased 360,000 shares of stock in the 2011 third quarter and has approximately 7.3 million shares remaining under the current repurchase authorization.

Year to Date

For the nine months ended September 30, 2011, sales of $6.0 billion increased 12 percent, or 11 percent on a daily basis, versus the nine months ended September 30, 2010. Net earnings increased 35 percent to $510 million versus $379 million in the first nine months of 2010. Earnings per share for the nine months increased 38 percent to $7.03 versus $5.10 for 2010. The first nine months of 2011 included a $0.12 per share benefit from the settlement of tax examinations related to 2007 and 2008. In the first nine months of 2010, there were two unusual non-cash items; a $0.24 per share benefit from changes to the company's paid time off policy and a $0.15 per share expense related to the tax treatment of retiree healthcare benefits following the passage of the Patient Protection and Affordable Care Act, which resulted in a net benefit of $0.09 per share for the nine months ended September 30, 2010. Excluding unusual items in both years, earnings per share for the first nine months of 2011 increased 38 percent versus 2010.

W.W. Grainger, Inc., with 2010 sales of $7.2 billion, is North America's leading broad line supplier of maintenance, repair and operating products, with an expanding presence in Europe, Asia and Latin America.

Visit www.grainger.com/investor to access a podcast describing Grainger's performance in more detail.

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 "helping us gain share", "proven growth drivers", "sales growth guidance", "expected earnings per share guidance", "guidance range", "projected" 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

September 30,


Nine Months Ended

September 30,


2011


2010


2011


2010

Net sales

$

2,114,647



$

1,899,412



$

6,001,281



$

5,355,462


Cost of merchandise sold

1,201,648



1,109,688



3,396,274



3,112,910


Gross profit

912,999



789,724



2,605,007



2,242,552










Warehousing, marketing and administrative expenses

609,959



538,451



1,774,071



1,593,479


Operating earnings

303,040



251,273



830,936



649,073










Other income and (expense)








Interest income

553



324



1,560



845


Interest expense

(2,579)



(1,954)



(6,437)



(6,204)


Equity in net income (loss) of unconsolidated entity

129



(6)



261



(257)


Other non-operating income and (expense)

(684)



207



(871)



173


Total other (expense)

(2,581)



(1,429)



(5,487)



(5,443)










Earnings before income taxes

300,459



249,844



825,449



643,630










Income taxes

116,412



98,547



310,745



263,249










Net earnings

184,047



151,297



514,704



380,381










Net earnings attributable to noncontrolling interest

1,926



892



4,765



1,726










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

$

182,121



$

150,405



$

509,939



$

378,655










Earnings per share

-Basic

$

2.56



$

2.10



$

7.18



$

5.19


-Diluted

$

2.51



$

2.06



$

7.03



$

5.10


Average number of shares outstanding

-Basic

69,846



69,924



69,622



71,384


-Diluted

71,280



71,168



71,105



72,638










Diluted Earnings Per Share








Net earnings as reported

$

182,121



$

150,405



$

509,939



$

378,655


Earnings allocated to participating securities

(3,285)



(3,447)



(9,953)



(8,294)


Net earnings available to common shareholders

$

178,836



$

146,958



$

499,986



$

370,361


Weighted average shares adjusted for dilutive securities

71,280



71,168



71,105



72,638


Diluted earnings per share

$

2.51



$

2.06



$

7.03



$

5.10



SEGMENT RESULTS (Unaudited)

(In thousands of dollars, except for per share amounts)



Three Months Ended

September 30,


Nine Months Ended

September 30,


2011


2010


2011


2010

Sales








United States

$

1,715,120



$

1,608,058



$

4,878,582



$

4,513,623


Canada

248,398



202,162



747,683



604,153


Other Businesses

168,251



101,603



420,768



273,342


Intersegment sales

(17,122)



(12,411)



(45,752)



(35,656)


Net sales to external customers

$

2,114,647



$

1,899,412



$

6,001,281



$

5,355,462










Operating earnings








United States

$

302,858



$

262,803



$

829,866



$

695,445


Canada

25,016



14,522



78,194



33,534


Other Businesses

10,551



4,412



25,576



6,264


Unallocated expense

(35,385)



(30,464)



(102,700)



(86,170)


Operating earnings

$

303,040



$

251,273



$

830,936



$

649,073










Company operating margin

14.3

%


13.2

%


13.8

%


12.1

%

ROIC* for Company





34.3

%


30.2

%

ROIC* for United States





48.7

%


43.2

%

ROIC* for Canada





20.3

%


10.4

%

*See page 1 for a definition of ROIC









CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

Preliminary

(In thousands of dollars)



At September 30,

Assets

2011


2010

Cash and cash equivalents (1)

$

360,663



$

286,508


Accounts receivable - net (2)

944,984



784,922


Inventories (3)

1,114,291



935,219


Prepaid expenses and other assets

108,127



81,048


Deferred income taxes

49,629



59,860


Total current assets


2,577,694



2,147,557


Property, buildings and equipment - net

1,007,623



942,354


Deferred income taxes

102,902



89,632


Goodwill (4)

546,701



374,785


Other assets and intangibles - net (4)

315,725



234,909


Total assets

$

4,550,645



$

3,789,237


Liabilities and Shareholders' Equity




Short-term debt

$

63,580



$

41,877


Current maturities of long-term debt (5)

230,430



35,775


Trade accounts payable

447,687



402,568


Accrued compensation and benefits

193,022



168,305


Accrued contributions to employees' profit sharing plans

125,206



109,912


Accrued expenses

148,872



120,711


Income taxes payable

15,811



16,112


Total current liabilities

1,224,608



895,260


Long-term debt (5)

313,416



427,495


Deferred income taxes, tax uncertainties and derivative instruments

114,872



71,324


Accrued employment-related benefits

266,244



246,629


Shareholders' equity (6)

2,631,505



2,148,529


Total liabilities and shareholders' equity

$

4,550,645



$

3,789,237



(1)

Cash and cash equivalents increased $74 million, or 26%, due primarily to less share repurchase activity and higher earnings.

(2)

Accounts receivable increased $160 million, or 20%, primarily due to higher sales and the Fabory Group acquisition.

(3)

Inventories increased $179 million, or 19%, due to higher purchases during 2011 in response to the higher sales volume and the Fabory Group acquisition.

(4)

Goodwill and intangibles increased primarily due to the Fabory Group acquisition.

(5)

The balance of the term loan is due within one year resulting in an increase in current maturities of long-term debt with the offsetting decrease in the long-term debt balance. The decrease in long-term debt was partially offset by new debt incurred as part of the Fabory Group acquisition.

(6)

Common stock outstanding as of September 30, 2011 was 69,747,589 shares as compared with 69,061,513 shares at September 30, 2010.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Preliminary

(In thousands of dollars)



Nine Months Ended September 30,


2011


2010

Cash flows from operating activities:




Net earnings

$

514,704



$

380,381


Provision for losses on accounts receivable

5,019



5,912


Deferred income taxes and tax uncertainties

(6,765)



(26,179)


Depreciation and amortization

103,573



109,223


Stock-based compensation

41,538



38,167


Change in operating assets and liabilities - net of business acquisitions




Accounts receivable

(138,726)



(153,807)


Inventories

(55,527)



(30,460)


Prepaid expenses and other assets

23,103



36,015


Trade accounts payable

59,193



97,473


Other current liabilities

(17,814)



7,996


Current income taxes payable

9,715



8,970


Accrued employment-related benefits cost

22,012



23,775


Other - net

(54)



(5,495)


Net cash provided by operating activities

559,971



491,971


Cash flows from investing activities:




Additions to property, buildings and equipment - net of dispositions

(123,840)



(64,867)


Net cash paid for business acquisitions and other investments

(348,251)



(51,644)


Net cash used in investing activities

(472,091)



(116,511)


Cash flows from financing activities:




Net increase in short-term debt

15,652



7,097


Net increase (decrease) in long-term debt

101,817



(25,784)


Proceeds from stock options exercised

52,837



68,325


Excess tax benefits from stock-based compensation

31,575



19,249


Purchase of treasury stock

(101,382)



(504,375)


Cash dividends paid

(132,719)



(114,128)


Net cash used in financing activities

(32,220)



(549,616)


Exchange rate effect on cash and cash equivalents

(8,451)



793


Net change in cash and cash equivalents

47,209



(173,363)


Cash and cash equivalents at beginning of year

313,454



459,871


Cash and cash equivalents at end of period

$

360,663



$

286,508



SOURCE W.W. Grainger, Inc.


Stock Quote

GWW (Common Stock)
ExchangeNYSE (US Dollar)
Price$292.51
Change (%) Stock is Down 12.47 (4.09%)
Volume446,335
Data as of 03/22/19 4:00 p.m. ET
Refresh quote
  • Questions? Call us
    1-800-Grainger
  • (472-4643)
Sign Up for Email
  • Get industry news,
    new product information,
    helpful tips and more.
  • Connect With Us
Home  |   Terms of Access  |  Terms of Sale  |  Return Policy  |  Privacy Policy  (Rev. June, 2013)  |  About our Ads  |  Sitemap
© 1994 - 2014 W.W. Grainger, Inc. All rights reserved.