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Grainger Reports Results For The 2015 First Quarter
Revises 2015 Guidance
Quarterly Summary
- Sales of $2.4 billion, up 2 percent
- Operating earnings of $351 million, down 1 percent
- EPS of $3.07, flat to prior year
- Adjusted EPS of $3.10, up 1 percent excluding $0.03 per share restructuring costs
- Repurchased 634,000 shares

CHICAGO, April 16, 2015 /PRNewswire/ -- Grainger (NYSE: GWW) today reported results for the 2015 first quarter ended March 31, 2015.  Sales of $2.4 billion increased 2 percent versus $2.4 billion in the first quarter of 2014.  There were 63 selling days in the 2015 first quarter, the same number as the 2014 first quarter.  Net earnings for the quarter declined 3 percent to $211 million versus $217 million in 2014.  Earnings per share of $3.07 were flat versus 2014. 

"This was a challenging quarter.  Our results were affected by continued headwinds from the strong U.S. dollar and weakness in the oil and gas sector in North America.  We remain encouraged by the growth achieved with large customers in our U.S. multichannel business and the customer acquisition strategy that is fueling our single channel online businesses," said Chairman, President and Chief Executive Officer Jim Ryan.  Ryan added, "Given the opportunity for share gain and the solid progress we are making with our productivity initiatives, we continued to invest in growth and infrastructure programs. This included the addition of 80 sales representatives, more inventory management installations and expanding our supply chain." 

"Earlier today, we announced plans to permanently change our capital structure by taking on debt and buying back $3 billion in stock over the next three years.  This change reflects our confidence in the business and our strategy," Ryan concluded.  The company is expected to buy back an incremental $1 billion of stock in 2015, beyond the $400 million previously announced.  The incremental share repurchases in 2015 are expected to be accretive to 2015 earnings in the range of $0.08 to $0.12 per share.  The company also plans to add approximately 400 new sales representatives in 2015, double the original number announced in late 2014.  To reflect these changes and the expectation of slower macroeconomic growth, Grainger updated its 2015 guidance.  The company now expects 1 to 4 percent sales growth and earnings per share of $12.25 to $12.95.  The company's previous 2015 guidance, issued on January 26, 2015, included 3 to 7 percent sales growth and earnings per share of $12.60 to $13.60.  

Company
Sales increased 2 percent in the 2015 first quarter versus the prior year.  Results for the quarter included a 1 percentage point increase from acquisitions and a 3 percentage points reduction from foreign exchange.  Excluding acquisitions and foreign exchange, organic sales increased 4 percent driven exclusively by volume growth.

Company operating earnings of $351 million for the 2015 first quarter declined 1 percent versus the 2014 quarter.  This decrease was driven by lower gross profit margins in Canada and the Other Businesses as well as negative expense leverage in Canada.  Operating expenses for the company increased 3 percent including $33 million in incremental growth and infrastructure spending during the quarter.  

The company has two reportable business segments, the United States and Canada, which represented approximately 88 percent of company sales for the quarter.  The remaining operating units located primarily in Asia, Europe, and Latin America and the single channel online businesses are included in Other Businesses and are not reportable segments. 

United States
Sales for the U.S. segment increased 4 percent in the 2015 first quarter versus the prior year driven by 2 percentage points from volume, 1 percentage point from sales of Ebola related safety products and 1 percentage point from increased sales to Zoro, the single channel online business in the United States.  Sales to customers in the Commercial, Light Manufacturing, Retail, Government and Heavy Manufacturing customer end markets contributed to the sales increase in the quarter. 

Operating earnings for the U.S. segment increased 4 percent in the quarter driven by the 4 percent sales growth and positive expense leverage, partially offset by lower gross profit margins.  Gross profit margins for the quarter declined 0.4 percentage point primarily driven by higher sales to Zoro, reflecting the lower transfer price used to account for these intersegment sales.  Excluding sales to Zoro, gross profit margins were essentially flat versus the prior year. The positive expense leverage in the quarter was driven by productivity from indirect purchasing programs, improved profitability from KeepStock installations and continued leverage of the U.S. branch network which offset incremental growth and infrastructure spending of $22 million.

Canada
First quarter 2015 sales for Acklands-Grainger decreased 8 percent in U.S. dollars but were up 3 percent in local currency.  The 3 percent sales increase in local currency consisted of 7 percentage points from WFS Enterprises, Inc. (WFS) acquired on September 2, 2014, and 2 percentage points from price.  This growth was partially offset by a 5 percentage points decline in volume and a 1 percentage point decline from lower sales of seasonal products.  The 5 percent decline in volume was driven by lower sales to the Oil and Gas, Construction, Reseller, Commercial, Retail and Heavy Manufacturing customer end markets, partially offset by growth to customers in the Utilities, Light Manufacturing, Transportation, Forestry, Mining and Government customer end markets.  The business in Canada continues to be affected by weak oil and gas prices and lower commodity prices.  Sales in the province of Alberta, which represents slightly more than a third of the company's business in Canada, were down in the mid-teens in local currency versus the prior year.  Sales growth for all provinces except Alberta and British Columbia was positive in local currency versus the prior year.

Operating earnings in Canada declined 56 percent in the 2015 first quarter, primarily driven by the 8 percent sales decline, a lower gross profit margin and negative expense leverage.  The gross profit margin in Canada declined 0.7 percentage point versus the prior year.  Excluding WFS, gross profit margins were flat versus the prior year, with price increases and higher freight revenue offsetting unfavorable foreign exchange from products sourced from the United States. Operating expenses increased 3 percent consisting of incremental costs from WFS, higher ongoing and one-time costs related to the relocation to the new Toronto distribution center and incremental spending for the SAP implementation in Canada.

Other Businesses
Sales for the Other Businesses increased 8 percent, 21 percent in local currency, for the 2015 first quarter versus the prior year. This performance consisted of 21 percentage points of growth from volume and price, partially offset by a 13 percentage points decline from foreign exchange.  Local currency sales growth in the Other Businesses was driven by the single channel online businesses in the United States and Japan, and the multichannel business in Mexico. 

Operating earnings for the Other Businesses were $10 million in the 2015 first quarter versus $8 million in the prior year.  This performance included strong results from Zoro U.S. and the business in Japan, along with reduced losses in China.  The increase was partially offset by startup costs for the single channel online business in Europe.  In addition, costs associated with the previously announced shutdown of the business in Brazil and planned restructuring expenses for Fabory in Europe offset earnings in the first quarter and are expected to continue into the second half of 2015.  The charges related to Brazil and Fabory resulted in a reduction to earnings per share of approximately $0.02 and $0.01 in the quarter, respectively, and are excluded from company guidance.  For the full year, planned shutdown costs for Brazil and restructuring costs for Fabory are estimated to be approximately $0.09 and $0.04 per share, respectively.

Other
Other income and expense was a net expense of $4 million in the 2015 first quarter versus $3 million in the 2014 first quarter.  For the quarter, the effective tax rate in 2015 was 38.4 percent versus 37.7 percent in 2014.  The increase was primarily due to more earnings in the United States versus other jurisdictions with lower tax rates.  The company is currently projecting an effective tax rate of 37.7 to 38.8 percent for the year 2015.

Cash Flow
Operating cash flow was $156 million in the 2015 first quarter versus $168 million in the 2014 first quarter.  The company used the cash generated during the quarter, along with cash on hand, to invest in the business and return cash to shareholders through share repurchase and dividends.  Capital expenditures were $99 million in the 2015 first quarter versus $66 million in the first quarter of 2014.  In the 2015 first quarter, Grainger returned $223 million to shareholders through $73 million in dividends and $150 million to buy back 634,000 shares of stock. 

About Grainger
W.W. Grainger, Inc., with 2014 sales of $10 billion, is North America's leading broad line supplier of maintenance, repair and operating products, with operations also in Asia, Europe and Latin America.

Visit www.grainger.com/investor to view information about the company, including a history of sales by segment and a podcast regarding 2015 first quarter results. The Grainger website also includes more information on Grainger's proven growth drivers, including product line expansion, sales force expansion, eCommerce and inventory services.

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 "plan(s)", "earnings per share guidance", "sales guidance", "currently projecting", "working on extending", "to better position" 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 March 31,


2015


2014

Net sales

$

2,439,661



$

2,385,627


Cost of merchandise sold

1,345,918



1,309,656


Gross profit

1,093,743



1,075,971


Warehousing, marketing and administrative expense

742,496



721,632


  Operating earnings

351,247



354,339


Other income and (expense)




Interest income

192



640


Interest expense

(1,636)



(2,863)


Other non-operating income

(2,164)



(503)


Total other expense

(3,608)



(2,726)


Earnings before income taxes

347,639



351,613


Income taxes

133,493



132,558


Net earnings

214,146



219,055


Net earnings attributable to noncontrolling interest

3,131



2,402


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

$

211,015



$

216,653


Earnings per share

  -Basic

$

3.11



$

3.11


  -Diluted

$

3.07



$

3.07


Average number of shares outstanding

  -Basic

67,230



68,700


  -Diluted

67,982



69,677






Diluted Earnings Per Share




Net earnings as reported

$

211,015



$

216,653


Earnings allocated to participating securities

(2,213)



(2,919)


Net earnings available to common shareholders

$

208,802



$

213,734


Weighted average shares adjusted for dilutive securities

67,982



69,677


Diluted earnings per share

$

3.07



$

3.07



 

SEGMENT RESULTS (Unaudited)

(In thousands of dollars)



Three Months Ended March 31,


2015


2014

Sales




United States

$

1,971,455



$

1,897,311


Canada

234,530



254,297


Other Businesses

297,800



274,906


Intersegment sales

(64,124)



(40,887)


Net sales to external customers

$

2,439,661



$

2,385,627






Operating earnings




United States

$

366,089



$

353,687


Canada

9,387



21,296


Other Businesses

9,526



8,475


Unallocated expense

(33,755)



(29,119)


Operating earnings

$

351,247



$

354,339






Company operating margin

14.4

%


14.9

%

ROIC* for Company

32.6

%


33.8

%

ROIC* for United States

49.3

%


51.0

%

ROIC* for Canada

5.7

%


14.2

%





 

*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 $96.3 million), deferred taxes, and investments in unconsolidated entities, plus the LIFO reserve (2-point average of $389.5 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

March 31, 2015


December 31, 2014

Cash and cash equivalents

$

243,427



$

226,644


Accounts receivable – net

1,198,153



1,172,924


Inventories – net

1,328,395



1,356,396


Prepaid expenses and other assets

114,775



150,198


Deferred income taxes

61,891



61,387


Total current assets

2,946,641



2,967,549


Property, buildings and equipment – net

1,306,962



1,324,346


Deferred income taxes

13,493



16,718


Goodwill

481,536



506,905


Other assets and intangibles – net

462,340



468,734


Total assets

$

5,210,972



$

5,284,252


Liabilities and Shareholders' Equity




Short-term debt (1)

$

231,533



$

56,896


Current maturities of long-term debt

25,416



23,404


Trade accounts payable

513,551



554,088


Accrued compensation and benefits

163,512



191,696


Accrued contributions to employees' profit sharing plans (2)

42,596



178,076


Accrued expenses

246,145



245,300


Income taxes payable

74,792



12,256


Total current liabilities

1,297,545



1,261,716


Long-term debt

371,070



404,536


Deferred income taxes and tax uncertainties

92,141



95,455


Employment-related and other non-current liabilities

239,947



238,444


Shareholders' equity (3)

3,210,269



3,284,101


Total liabilities and shareholders' equity

$

5,210,972



$

5,284,252



(1)

Short-term debt increased $174 million due to an increase in the amount of commercial paper outstanding, issued for general working capital needs.

(2)

Accrued contributions to employees' profit sharing plans decreased $135 million primarily due to the annual cash contributions to the profit sharing plan.

(3)

Common stock outstanding as of March 31, 2015 was 66,920,726 shares as compared with 67,432,041 shares at December 31, 2014.



 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Preliminary

(In thousands of dollars)



Three Months Ended March 31,


2015


2014

Cash flows from operating activities:




Net earnings

$

214,146



$

219,055


Provision for losses on accounts receivable

2,558



2,413


Deferred income taxes and tax uncertainties

1,732



(2,671)


Depreciation and amortization

52,411



45,776


Stock-based compensation

9,161



11,262


Change in operating assets and liabilities – net of business

acquisitions and divestitures:




Accounts receivable

(50,968)



(78,676)


Inventories

(2,808)



30,608


Prepaid expenses and other assets

34,433



6,564


Trade accounts payable

(7,326)



(13,497)


Other current liabilities

(160,239)



(146,616)


Current income taxes payable

62,893



92,410


Employment-related and other non-current liabilities

2,296



1,177


Other – net

(2,080)



(287)


Net cash provided by operating activities

156,209



167,518


Cash flows from investing activities:




Additions to property, buildings and equipment

(99,489)



(65,664)


Proceeds from sales of property, buildings and equipment

7,333



462


Other – net

(48)



13,023


Net cash used in investing activities

(92,204)



(52,179)


Cash flows from financing activities:




Net increase in short-term debt

176,047



38,508


Net decrease in long-term debt

(1,860)



(5,807)


Proceeds from stock options exercised

4,883



10,170


Excess tax benefits from stock-based compensation

4,319



6,807


Purchase of treasury stock

(149,992)



(150,553)


Cash dividends paid

(73,393)



(64,682)


Net cash used in financing activities

(39,996)



(165,557)


Exchange rate effect on cash and cash equivalents

(7,226)



(4,862)


Net change in cash and cash equivalents

16,783



(55,080)


Cash and cash equivalents at beginning of year

226,644



430,644


Cash and cash equivalents at end of period

$

243,427



$

375,564



 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/grainger-reports-results-for-the-2015-first-quarter-300066599.html

SOURCE W.W. Grainger, Inc.

Media: Joseph Micucci, Director, Media Relations, 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 William Chapman, Sr. Director, Investor Relations, O: 847-535-0881, M: 847-456-8647, or Casey Darby, Sr. Manager, Investor Relations, O: 847-535-0099, M: 847-964-3281