Grainger Reports Results For The 2018 First Quarter

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Raises Sales Guidance to 5% to 8% and EPS Guidance to $14.30 to $15.30
Quarterly Summary
- Sales of $2.8 billion, up 9 percent
- Reported EPS of $4.07, up 39 percent
- Adjusted EPS of $4.18, up 45 percent

CHICAGO, April 19, 2018 /PRNewswire/ -- Grainger (NYSE: GWW) today reported results for the 2018 first quarter ended March 31, 2018. Sales of $2.8 billion increased 9 percent versus $2.5 billion in the first quarter of 2017. There were 64 selling days in the 2018 first quarter, the same as the 2017 first quarter. Net earnings for the quarter of $232 million were up 32 percent versus $175 million in 2017. Earnings per share of $4.07 increased 39 percent versus $2.93 in 2017.

"Results for the quarter were strong, led by increased volume in our U.S. business with both large and medium customers, supported by a strong demand environment. Performance in Canada has improved although we are still in the early stages of the turnaround. Our single channel and international businesses also contributed to the strong performance," said DG Macpherson, Chairman and Chief Executive Officer. "We remain confident that the strategic actions we are executing in the United States and Canada are helping us create a stronger business. Based on the encouraging results we're seeing," Macpherson concluded, "we are increasing our sales and EPS guidance for the year."

As a result, the company raised its 2018 sales and earnings per share guidance for the year and now expects sales growth of 5 to 8 percent and earnings per share of $14.30 to $15.30. The company's previous 2018 guidance, communicated on Jan. 24, 2018, was sales growth of 3 to 7 percent and earnings per share of $12.95 to $14.15.

Company
Sales increased 9 percent in the 2018 first quarter versus the prior year, driven by an 8 percentage point increase from volume, 2 percentage points from foreign exchange and 1 percentage point from higher sales of seasonal products, partially offset by a 1 percentage point decline in price and a 1 percentage point decline from the divestiture of a specialty business.

Company operating earnings of $335 million for the 2018 first quarter increased 14 percent versus $293 million in the 2017 quarter. The increase was driven by higher sales and strong expense leverage.

The first quarter contained the following restructuring items:


Three Months Ended March 31,




2018


2017


%

Diluted earnings per share reported


$         4.07


$     2.93


39%

Pretax adjustments:







   Restructuring (United States)


0.05


0.05



   Branch gains (United States)


(0.13)


(0.16)



   Restructuring (Canada)


0.19


0.02



   Restructuring (Other Businesses)


0.02




   Restructuring (Unallocated expense)


0.01




Total pretax adjustments


0.14


(0.09)



   Tax effect (1)


(0.03)


0.04



Total, net of tax


0.11


(0.05)



Diluted earnings per share adjusted


$         4.18


$     2.88


45%








(1) The tax impact of adjustments is calculated based on the income tax rate in each applicable jurisdiction, subject to deductibility limitations and the company's ability to realize the associated tax benefits.

The company has two reportable business segments, the United States and Canada, which represented approximately 79 percent of company sales for the quarter. The remaining operating businesses are located in Europe, Asia and Latin America. The single channel online businesses are included in Other Businesses and are not reportable segments.

United States
Sales for the U.S. segment increased 8 percent versus the 2017 first quarter. The increase was driven by 9 percentage points from volume growth, 1 percentage point from intercompany sales and 1 percentage point from higher sales of seasonal products, partially offset by a 2 percentage point decline in price and a 1 percentage point decline from the divestiture of a specialty business. Sales to customers in the Retail and Contractors end markets led the sales performance in the quarter.  

Operating earnings for the U.S. segment increased 15 percent in the quarter driven by higher sales and improved expense management. Gross profit margins for the quarter declined 1.0 percentage point driven by the company's strategic price initiatives, partially offset by positive customer mix. The lower gross profit margin includes a 0.6 percentage point decline from implementation of the Financial Accounting Standards Board's new revenue recognition standard that primarily reclassifies certain costs related to KeepStock services from operating expenses to cost of goods sold. In the 2018 first quarter, operating expenses were down 1 percent.   

Canada
First quarter 2018 sales for Canada decreased 2 percent in U.S. dollars and 6 percent in local currency. The 6 percent decrease consisted of a 13 percentage point decline in volume, partially offset by 7 percentage points from higher price.

The business in Canada posted a $20 million operating loss in the 2018 first quarter versus a $17 million operating loss in the prior year, primarily driven by higher restructuring expenses. The gross profit margin in Canada increased 3.3 percentage points versus the prior year largely due to price increases that began in late 2017. Operating expenses increased 12 percent, driven by costs related to the business model reset. Reported results include $10.9 million of restructuring costs. Excluding those charges, operating expenses were down 3 percent and the operating loss was $9 million.

Other Businesses
Sales for the Other Businesses increased 18 percent versus the prior year, consisting of 12 percentage points of growth from volume and price and 6 percentage points from foreign exchange. The performance was driven by 24 percent sales growth for the single channel online businesses.

Operating earnings for the Other Businesses were $36 million in the 2018 first quarter versus $32 million in the prior year. This performance included strong results from MonotaRO in Japan and Zoro in the United States and improved performance from the international businesses.

Other
Other income and expense was a net expense of $28 million in the 2018 first quarter versus a net expense of $22 million in the 2017 first quarter. This increase was primarily due to interest expense from the $400 million in additional long-term debt the company issued in 2017. For the quarter, the effective tax rate in 2018 was 21.6 percent versus 32.4 percent in 2017. The decrease was primarily due to the 2017 tax legislation. The company is currently projecting an effective tax rate of 23 to 26 percent for the year 2018. The first quarter tax rate was below the full year range primarily due to the benefit from stock-based awards. Future tax benefits from stock-based awards are not estimated in the full year projection.

Cash Flow
Operating cash flow was $147 million in the 2018 first quarter versus $181 million in the 2017 first quarter. The company used the cash generated during the quarter to invest in the business and return cash to shareholders through share repurchase and dividends. Capital expenditures in the 2018 first quarter were $49 million. In the quarter, Grainger returned $245 million to shareholders through $72 million in dividends and $173 million to buy back 668,000 shares of stock.

Webcast
Grainger will conduct a live conference call and webcast at 11:00 a.m. Eastern Daylight Time on April 19, 2018, to discuss the first quarter. The webcast will be hosted by DG Macpherson and can be accessed at www.grainger.com/investor. For those unable to participate in the live event, a webcast replay will be available for 90 days at www.grainger.com/investor.

About Grainger
W.W. Grainger, Inc., with 2017 sales of $10.4 billion, is North America's leading broad line supplier of maintenance, repair and operating products (MRO), with operations also in Europe, Asia and Latin America.

Visit www.grainger.com/investor to view information about the company, including a supplement regarding 2018 first quarter results. The Grainger website also includes more information through our Fact Book and Corporate Social Responsibility report.

Safe Harbor Statement
All statements in this communication, other than those relating to historical facts, are "forward-looking statements." These forward-looking statements are not guarantees of future performance and are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from such statements. These forward-looking statements include, but are not limited to, statements about future strategic plans and future financial and operating results. Important factors that could cause actual results to differ materially from expectations include, among others: higher product costs or other expenses; a major loss of customers; loss or disruption of source of supply; increased competitive pricing pressures; failure to develop or implement new technologies; the implementation, timing and success of our strategic pricing initiatives; the outcome of pending and future litigation or governmental or regulatory proceedings, including with respect to wage and hour, anti-bribery and corruption, environmental, advertising, privacy and cybersecurity matters; investigations, inquiries, audits and changes in laws and regulations; disruption of information technology or data security systems; general industry or market conditions; general global economic conditions; currency exchange rate fluctuations; market volatility; commodity price volatility; labor shortages; facilities disruptions or shutdowns; higher fuel costs or disruptions in transportation services; natural and other catastrophes; unanticipated weather conditions; loss of key members of management; our ability to operate, integrate and leverage acquired businesses; changes in credit ratings; changes in effective tax rates and other factors which can be found in our filings with the Securities and Exchange Commission, including our most recent periodic reports filed on Form 10-K and Form 10-Q, which are available on our Investor Relations website. Forward-looking statements are given only as of the date of this communication and we disclaim any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.

 

CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)

(In thousands, except for per share amounts)



Three Months Ended

March 31,


2018


2017

Net sales

$

2,766,401



$

2,541,129


Cost of merchandise sold

1,674,642



1,521,937


Gross profit

1,091,759



1,019,192


Warehousing, marketing and administrative expense

756,929



726,691


Operating earnings

334,830



292,501


Other income and (expense)




Interest income

628



193


Interest expense

(24,665)



(18,713)


Loss from equity method investment

(11,497)



(8,374)


Other non-operating income

7,698



5,066


Total other expense, net

(27,836)



(21,828)


Earnings before income taxes

306,994



270,673


Income taxes

66,209



87,820


Net earnings

240,785



182,853


Net earnings attributable to noncontrolling interest

9,250



8,109


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

$

231,535



$

174,744






Earnings per share

  -Basic

$

4.09



$

2.95


  -Diluted

$

4.07



$

2.93


Average number of shares outstanding

  -Basic

56,063



58,720


  -Diluted

56,403



59,203


Diluted Earnings Per Share




Net earnings as reported

$

231,535



$

174,744


Earnings allocated to participating securities

(1,990)



(1,470)


Net earnings available to common shareholders

$

229,545



$

173,274


Weighted average shares adjusted for dilutive securities

56,403



59,203


Diluted earnings per share

$

4.07



$

2.93



NOTE: Results for 2017 have been restated due to adoption of Accounting Standards Update (ASU) 2017-07, Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The ASU effectively increases Warehousing, marketing and administrative expense, lowering Operating earnings, and decreases Total other expense, net, with no impact on Net earnings or Earnings per share. Restated 2017 quarterly and annual financials can be found at www.grainger.com/investor.


 

SEGMENT RESULTS (Unaudited)

(In thousands of dollars)



Three Months Ended

March 31,


2018


2017

Sales




United States

$

2,107,686



$

1,953,444


Canada

181,764



186,141


Other Businesses

588,092



497,407


Intersegment sales

(111,141)



(95,863)


Net sales to external customers

$

2,766,401



$

2,541,129






Operating earnings




United States

$

356,504



$

309,642


Canada

(20,157)



(16,729)


Other Businesses

36,422



31,507


Unallocated expense (1)

(37,939)



(31,919)


Operating earnings

$

334,830



$

292,501






Company operating margin

12.1

%


11.5

%

ROIC* for Company

28.2

%


24.4

%

ROIC* for United States

47.4

%


39.6

%

ROIC* for Canada

(16.0)

%


(12.3)

%





*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 2-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 (2-point average of $103.2 million), deferred taxes, and investments in unconsolidated entities, plus the LIFO reserve (2-point average of $382.4 million).  Working liabilities are the sum of trade payables, accrued compensation and benefits, accrued contributions to employees' profit sharing plans, and accrued expenses.


(1) Unallocated expense includes a) the redemption of a $4 million intercompany loan for tax efficiency purposes that is offset in Other Businesses, with no impact to total company operating earnings, and b) executive retirement related costs.


 

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

Preliminary

(In thousands of dollars)



Assets

March 31, 2018


December 31, 2017

Cash and cash equivalents

$

302,015



$

326,876


Accounts receivable – net

1,428,233



1,325,186


Inventories

1,434,609



1,429,199


Prepaid expenses and other assets

142,305



124,728


Total current assets

3,307,162



3,205,989


Property, buildings and equipment – net

1,370,071



1,391,967


Deferred income taxes

33,300



22,362


Goodwill

549,418



543,903


Intangibles - net

570,134



569,115


Other assets

72,726



70,918


Total assets

$

5,902,811



$

5,804,254


Liabilities and Shareholders' Equity




Short-term debt (1)

$

137,643



$

55,603


Current maturities of long-term debt

30,279



38,709


Trade accounts payable

748,372



731,582


Accrued compensation and benefits

181,055



254,560


Accrued contributions to employees' profit sharing plans (2)

29,890



92,682


Accrued expenses

324,319



313,766


Income taxes payable

52,774



19,759


Total current liabilities

1,504,332



1,506,661


Long-term debt

2,244,406



2,248,036


Deferred income taxes and tax uncertainties

121,767



111,710


Employment-related and other non-current liabilities

106,400



110,114


Shareholders' equity (3)

1,925,906



1,827,733


Total liabilities and shareholders' equity

$

5,902,811



$

5,804,254




(1)

Short-term debt increased $82 million primarily due to an increase in commercial paper of $90 million.

(2)

Accrued contributions to employees' profit sharing plans decreased $63 million primarily due to the annual cash contributions to the profit sharing plan.

(3)

Common stock outstanding as of March 31, 2018 was 56,017,200 compared with 56,328,863 shares at December 31, 2017, primarily due to share repurchases.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Preliminary

(In thousands of dollars)



Three Months Ended March 31,


2018


2017

Cash flows from operating activities:




Net earnings

$

240,785



$

182,853


Provision for losses on accounts receivable

3,552



3,918


Deferred income taxes and tax uncertainties

(1,660)



(7,632)


Depreciation and amortization

63,931



62,249


Gains from sales of assets, net of write-offs

(5,714)



(10,966)


Stock-based compensation

11,652



6,757


Losses from equity method investment

11,497



8,374


Change in operating assets and liabilities:




Accounts receivable

(94,221)



(95,419)


Inventories

3,136



27,826


Prepaid expenses and other assets

(32,951)



(27,457)


Trade accounts payable

13,244



18,051


Other current liabilities

(102,664)



(64,171)


Current income taxes payable, net

43,844



74,741


Accrued employment-related benefits cost

(6,950)



1,520


Other – net

(596)



302


Net cash provided by operating activities

146,885



180,946


Cash flows from investing activities:




Additions to property, buildings and equipment

(49,149)



(78,768)


Proceeds from sales of assets

25,987



48,306


Equity method investment

(8,115)



(7,067)


Net cash used in investing activities

(31,277)



(37,529)


Cash flows from financing activities:




Net increase in commercial paper

89,904



34,946


Borrowings under lines of credit

10,185



9,883


Payments against lines of credit

(19,923)



(9,167)


Net payments of long-term debt

(25,185)



(2,318)


Proceeds from stock options exercised

59,003



26,345


Payments for employee taxes withheld from stock awards

(14,878)



(11,625)


Purchase of treasury stock

(172,917)



(159,146)


Cash dividends paid

(72,254)



(72,118)


Net cash used in financing activities

(146,065)



(183,200)


Exchange rate effect on cash and cash equivalents

5,596



4,438


Net change in cash and cash equivalents

(24,861)



(35,345)


Cash and cash equivalents at beginning of year

326,876



274,146


Cash and cash equivalents at end of period

$

302,015



$

238,801


 

SUPPLEMENTAL INFORMATION - CONSOLIDATED STATEMENTS OF EARNINGS
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (Unaudited)
(In thousands of dollars)

The company supplemented the reporting of financial information determined under U.S. generally accepted accounting principles (GAAP) with certain non-GAAP financial measures, which the company refers to as "adjusted" measures, including adjusted operating earnings, adjusted segment operating earnings, adjusted net earnings and adjusted diluted earnings per share.  Adjusted measures exclude items that may not be indicative of core operating results.  The company believes that these non-GAAP measures provide meaningful information to assist shareholders in understanding financial results and assessing prospects for future performance.  Management believes adjusted operating earnings, adjusted segment operating earnings, adjusted net earnings and adjusted diluted earnings per share are important indicators of operations because they exclude items that may not be indicative of our core operating results, and provide a better baseline for analyzing trends in our underlying businesses.  Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names.  These adjusted financial measures should not be considered in isolation or as a substitute for reported results.  These non-GAAP financial measures reflect an additional way of viewing aspects of operations that, when viewed with GAAP results, provide a more complete understanding of the business.  The company strongly encourages investors and shareholders to review company financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.

The reconciliations provided below reconcile the non-GAAP financial measures adjusted operating earnings, adjusted segment operating earnings, adjusted net earnings and adjusted diluted earnings per share with GAAP financial measures:


Three Months Ended  March 31,



2018


2017

%

Operating earnings reported

$

334,830



$

292,501


14

%

Restructuring (United States)

3,101



3,066



Branch gains (United States)

(7,528)



(9,388)



Restructuring (Canada)

10,920



1,087



Restructuring (Other Businesses)

1,175





Restructuring (Unallocated expense)

370





Subtotal

8,038



(5,235)



Operating earnings adjusted

$

342,868



$

287,266


19

%

 

SUPPLEMENTAL INFORMATION - CONSOLIDATED STATEMENTS OF EARNINGS

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (Unaudited)

(In thousands of dollars)



Three Months Ended March 31,



2018


2017

%

Segment operating earnings adjusted





United States

352,077



303,320



Canada

(9,237)



(15,642)



Other Businesses

37,597



31,507



Unallocated expense

(37,569)



(31,919)



Segment operating earnings adjusted

$

342,868



$

287,266


19

%






Company operating margin adjusted

12.4

%


11.3

%


ROIC* for Company

28.9

%


24.0

%


ROIC* for United States

46.8

%


38.8

%


ROIC* for Canada

(7.3)

%


(11.5)

%












*Adjusted ROIC is calculated as defined on page 7, excluding the items adjusting operating earnings as noted above.

 


Three Months Ended March 31,



2018


2017

%

Net earnings reported

$

231,535



$

174,744


32

%

Restructuring (United States)

2,365



1,919



Branch gains (United States)

(5,741)



(5,878)



Restructuring (Canada)

8,330



803



Restructuring (Other Businesses)

950





Restructuring (Unallocated expense)

282





Subtotal

6,186



(3,156)



Net earnings adjusted

$

237,721



$

171,588


39

%






Diluted earnings per share reported

$

4.07



$

2.93


39

%

Pretax adjustments:





Restructuring (United Sates)

0.05



0.05



Branch gains (United States)

(0.13)



(0.16)



Restructuring (Canada)

0.19



0.02



Restructuring (Other Businesses)

0.02





Restructuring (Unallocated expense)

0.01





Total pretax adjustments

0.14



(0.09)



Tax effect (1)

(0.03)



0.04



Total, net of tax

0.11



(0.05)



Diluted earnings per share adjusted

$

4.18



$

2.88


45

%






 (1) The tax impact of adjustments is calculated based on the income tax rate in each applicable jurisdiction, subject to deductibility limitations and the company's ability to realize the associated tax benefits.

 

Cision View original content:http://www.prnewswire.com/news-releases/grainger-reports-results-for-the-2018-first-quarter-300632615.html

SOURCE W.W. Grainger, Inc.

Media: Joseph Micucci, Senior Director, External Affairs, O: 847-535-0879, M: 847-830-5328 or Grainger Media Relations Hotline, 847-535-5678 or Investors: Laura Brown, SVP, Communications & Investor Relations, O: 847-535-0409, M: 847-804-1383 or Irene Holman, Senior Director, Investor Relations, O: 847-535-0809, M: 847-217-8679 or Michael Ferreter, Senior Manager, Investor Relations, O: 847-535-1439, M: 847-271-6357


Stock Quote

GWW (Common Stock)
ExchangeNYSE (US Dollar)
Price$310.56
Change (%) Stock is Up 4.45 (1.45%)
Volume604,260
Data as of 11/16/18 4:02 p.m. ET
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