Company adjusts 2007 EPS forecast to reflect strong first quarter
Highlights
- Sales up 9 percent
- Net earnings up 18 percent
- EPS up 26 percent
- Repurchased 1.2 million shares
- Generated pretax ROIC of 28.8 percent*
Visit http://www.grainger.com/investor to access a Podcast describing
Grainger's performance in more detail.
CHICAGO, April 16 /PRNewswire-FirstCall/ -- Grainger (NYSE: GWW) today
reported record first quarter sales and earnings for the quarter ended March
31, 2007. Sales of $1.5 billion were up 9 percent versus first quarter 2006.
Net earnings for the quarter increased 18 percent to $102 million as compared
to $86 million in 2006. Earnings per share grew 26 percent to $1.17, a
quarterly record, as compared with $0.93 for the 2006 first quarter.
"We're executing well on our strategy and our investments in growth are
paying off," said Grainger's Chairman and Chief Executive Officer Richard L.
Keyser. "With this strong start to the year, we are raising the bottom end of
our previous guidance by 10 cents. We now expect 2007 earnings per share to
be in the range of $4.70 to $4.85."
Keyser added, "We continue to gain share in this fragmented industry by
serving our existing customers well and leveraging our supply chain, branch
network and sales resources to find and serve new customers. We expect to
earn more business by helping customers get the job done."
Daily sales increased 8 percent in January, 10 percent in February and 9
percent in March. The company's sales were positively affected by 1
percentage point due to strong sales of seasonal products and negatively
affected by 1 percentage point as the company continues to unwind low margin
contracts for automotive and integrated supply customers.
Grainger Branch-based segment
Sales in this segment, which includes branch-based businesses in the
United States, Mexico and China, increased 10 percent in the 2007 first
quarter. Daily sales in this segment grew by 9 percent in January, 11 percent
in February and 11 percent in March.
For the quarter, sales growth in the segment was reduced by approximately
2 percentage points due to the continued wind-down of low margin contracts
with integrated-supply and automotive customers. As the remaining contracts
are exited throughout the year, the company expects the wind-down to
negatively affect sales by 1 percentage point for the full year 2007.
During the quarter, the company opened two new full service branches in
the United States, bringing the total number of branches in the segment to
440:
First Quarter 2007 Branch Summary
12/31/06 Opened Closed 3/31/07
United States
Branch 408 2 410
Will Call Express 20 20
Mexico 8 8
China
Branch 1 1
Will Call Express 1 1
Total 438 2 0 440
Sales in the United States increased 10 percent, with growth coming from
all customer end-markets. The strongest sales growth came from government
customers followed by commercial markets. Another 1 percentage point of
growth came from sales of seasonal products related to the cold weather
experienced across much of the country during the quarter.
The market expansion program contributed approximately 2 percentage points
to the segment's sales growth and was profitable. Results for market
expansion were:
1Q'07 3/31/07
Sales Percent
Phase Increase Complete
1 Atlanta, Denver, Seattle 14% 100%
2 Four markets in Southern California 6% 95%
3 Houston, St. Louis, Tampa 16% 95%
4 Baltimore, Cincinnati, Kansas City, Miami,
Philadelphia, Washington, D.C. 11% 90%
Work on Phase 5 (Dallas, Detroit, New York City and Phoenix) and Phase 6
(Chicago, Minneapolis, Pittsburgh and San Francisco) continued during the
quarter, but neither reached 50 percent completion.
Additions to the product line made in 2006 and 2007 contributed
approximately 3 percentage points to the growth in the segment. The U.S.
branch-based business added approximately 25,000 new products in the most
recently issued catalog; these were primarily in the plumbing, fastener,
material handling and security product lines. The company expects to add more
products throughout the year.
Sales in Mexico were up 20 percent in the quarter versus the same period
in 2006. In local currency, sales rose 24 percent. Sales benefited from
strong growth in the northeast and south central regions of the country as
well as the addition of branches in Chihuahua and Santa Catarina in 2006.
In China, the company added more sales people to drive sales growth in
2007. Sales for this start-up business were less than $1 million for the
quarter.
Operating earnings for the quarter were up 21 percent in the Grainger
Branch-based segment, the result of positive operating leverage from the 10
percent sales growth and a 0.6 percentage point increase in gross profit
margins. The improvement in gross profit margins was primarily attributable to
positive inflation recovery, while operating expenses grew at a slower rate
than sales.
Acklands-Grainger Branch-based segment
Sales for the quarter were up 2 percent versus the 2006 first quarter, up
4 percent in local currency, largely due to tough comparisons. On a daily
basis, sales in local currency were up 5 percent in January, 3 percent in
February and 4 percent in March. Sales were stronger in the oil and gas
sector partially offset by weakness in mining, forestry and manufacturing
industries.
During the quarter, Acklands closed one branch, ending the quarter at 154
branches:
First Quarter 2007 Branch Summary
12/31/06 Opened Closed 3/31/07
Canada 155 (1) 154
Operating earnings increased 131 percent for the 2007 first quarter, the
result of improved gross profit margins and lower operating expenses. This
improvement in operating performance is consistent with the company's
expectations.
Lab Safety Supply (LSS)
Sales for the first quarter of 2007 were up 5 percent versus the 2006
first quarter. Daily sales were up 7 percent in January, 6 percent in February
and 3 percent in March. Sales from three acquisitions made during 2006 --
Rand Materials Handling Equipment in January 2006 and Professional Inspection
Equipment and Construction Book Express in November 2006 -- contributed 6
percentage points to the sales growth.
Operating earnings declined $0.6 million or 4 percent for the 2007 first
quarter. Gross profit margins declined 0.9 percentage point, primarily the
result of customer and product mix, and operating expenses, which grew faster
than sales. Higher media and information technology costs were the primary
drivers of the operating expense increase.
Other
The gain on sales of fixed assets in the 2007 first quarter, which
included the sale of real estate related to the market expansion program,
totaled $1.3 million. There were no comparable sales in the first quarter of
2006.
The effective income tax rate was 38.6 percent in the 2007 and 2006 first
quarters. Excluding the effect of equity in unconsolidated entities, which is
recorded net of tax, the effective tax rate for the 2007 quarter was 38.5
percent versus 38.9 percent in the 2006 quarter.
Cash flow
Operating cash flow was $73 million for the 2007 first quarter. The
company used cash from operations to fund growth initiatives. Capital
expenditures were $36 million in the first quarter compared to $30 million in
the first quarter of 2006. In the quarter, Grainger repurchased 1.2 million
shares of stock for a total of $89 million. Approximately 6.6 million shares
remain under the current repurchase authorization. Dividends paid in the
first quarter were $25 million.
W.W. Grainger, Inc. (NYSE: GWW), with 2006 sales of $5.9 billion, is a
leading broad-line supplier of facilities maintenance products serving
businesses and institutions in Canada, China, Mexico and the United States.
Through a highly integrated network including nearly 600 branches, 18
distribution centers and multiple Web sites, Grainger's employees help
customers get the job done, saving them time and money by having the right
products to keep their facilities running. Visit
http://www.grainger.com/investor to view information about the company,
including a history of daily sales by segment and a Podcast regarding first
quarter 2007 results.
Forward-Looking Statements
This document contains forward-looking statements under the federal
securities laws. The 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 "forecast," "range," "guidance," "expect," "expects,"
"expectations," "continues to unwind," "percent complete," 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 and other
reports filed with the Securities & Exchange Commission, containing a
discussion of the company's business and of various factors that may affect
it.
*The GAAP financial statements are the source for all amounts used in the
Return on Invested Capital (ROIC) calculation. ROIC is calculated using
annualized operating earnings based on year-to-date operating earnings divided
by a 4 point average for net working assets. Net working assets are working
assets minus working liabilities defined as follows: working assets equal
total assets less cash equivalents (non operating cash), deferred taxes, and
investments in unconsolidated entities, plus the LIFO reserve. Working
liabilities are the sum of trade payables, accrued compensation and benefits,
accrued contributions to employees' profit sharing plans, and accrued
expenses.
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
Three Months Ended
March 31,
($ in thousands except
for per share data)
2007 2006
Net sales $ 1,546,658 $ 1,419,117
Cost of merchandise sold 914,570 848,790
Gross profit 632,088 570,327
Warehousing, marketing and
administrative expenses 469,503 435,910
Operating earnings 162,585 134,417
Other income and (expense)
Interest income 4,022 5,359
Interest expense (577) (493)
Equity in income (loss) of
unconsolidated entities (342) 1,207
Unclassified-net 33 (123)
Total other income and (expense) 3,136 5,950
Earnings before income taxes 165,721 140,367
Income taxes 63,934 54,134
Net earnings $ 101,787 $ 86,233
Earnings per share
-Basic $ 1.21 $ 0.96
-Diluted $ 1.17 $ 0.93
Average number of shares outstanding
-Basic 83,979,114 89,637,735
-Diluted 86,758,949 92,484,701
Segment results:
2007 2006
Sales
Grainger branch-based $ 1,296,382 $ 1,177,141
Acklands-Grainger 142,050 139,022
Lab Safety Supply 109,100 103,879
Intersegment sales (874) (925)
Net sales to external customers $ 1,546,658 $ 1,419,117
Operating earnings
Grainger branch-based $ 160,236 $ 132,852
Acklands-Grainger 8,948 3,878
Lab Safety Supply 14,610 15,227
Unallocated expense (21,209) (17,540)
Operating earnings $ 162,585 $ 134,417
Company operating margin 10.5% 9.5%
ROIC* for Grainger branch-based 36.4% 32.3%
ROIC* for Acklands-Grainger 11.4% 4.8%
ROIC* for Lab Safety Supply 32.0% 38.2%
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
Preliminary
At March 31,
($ in thousands)
2007 2006
Assets
Cash and Cash Equivalents $ 325,472 $ 493,883
Accounts Receivable - net (1) 611,126 569,600
Inventories 815,891 805,591
Other Current Assets 116,742 136,719
Total Current Assets 1,869,231 2,005,793
Property, Buildings and Equipment - net (2) 802,373 775,820
Investments in Unconsolidated Entities (3) 8,228 30,158
All Other Assets (4) 393,224 337,561
Total Assets $ 3,073,056 $ 3,149,332
Liabilities And Shareholders' Equity
Current Maturities of Long-Term Debt $ 4,590 $ 4,590
Trade Accounts Payable 378,432 357,875
Other Current Liabilities 307,824 304,893
Total Current Liabilities 690,846 667,358
Long-Term Debt 4,895 4,895
All Other Liabilities (5) 163,860 124,056
Shareholders' Equity (6) 2,213,455 2,353,023
Total Liabilities and $ 3,073,056 $ 3,149,332
Shareholders' Equity
(1) Accounts receivable-net increased by $42 million, or 7%, primarily
due to higher sales.
(2) Depreciation and amortization of property, buildings, and equipment
amounted to $24 million for the 2007 first quarter and $23 million
for the 2006 first quarter.
(3) Investment in unconsolidated entities decreased $22 million, due to
the sale of Acklands-Grainger's interest in the USI-AGI Prairies
joint venture in the second quarter of 2006.
(4) Other assets increased $56 million, or 16%, due primarily to an
increase in deferred taxes and increased intangibles related to the
acquisitions.
(5) All other liabilities increased $40 million, or 32%, due primarily to
postretirement health care benefits as a result of the adoption of
SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and
Other Postretirement Plans" during the fourth quarter of 2006.
(6) Common stock outstanding as of March 31, 2007 was 83,560,089 shares
as compared with 89,769,312 shares at March 31, 2006. The Company
repurchased 1.2 million shares during the 2007 first quarter.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Preliminary
Three Months Ended
March 31,
($ in thousands)
2007 2006
Cash Flows from Operating Activities:
Net Earnings $ 101,787 $ 86,233
Depreciation and Amortization 29,923 27,117
(Income) Loss in Unconsolidated
Entities 341 (1,207)
(Increase) Decrease in Accounts
Receivable - net (46,013) (52,205)
(Increase) Decrease in Inventories 12,342 (14,256)
(Increase) Decrease in Prepaid Expenses (7,733) (4,411)
Increase (Decrease) in Trade
Accounts Payable 44,004 36,424
Increase (Decrease) in Other
Current Liabilities (120,450) (112,565)
Other - net 58,885 61,746
Net Cash Provided by Operating Activities 73,086 26,876
Cash Flows from Investing Activities:
Additions to Property, Buildings and
Equipment - net (32,246) (28,632)
Additions for Capitalized Software (727) (1,536)
Other - net 12,389 (18,385)
Net Cash Used in Investing Activities (20,584) (48,553)
Cash Flows from Financing Activities:
Cash Dividends Paid (24,519) (21,591)
Purchase of Treasury Stock (89,371) (35,851)
Other - net 38,061 28,067
Net Cash Used in Financing Activities (75,829) (29,375)
Exchange Rate Effect on Cash and Cash
Equivalents 328 41
Net (Decrease) in Cash and Cash
Equivalents from beginning of year $ (22,999) $ (51,011)
CONTACT:
William D. Chapman
Director, Investor Relations
+1-847-535-0881
william.chapman@grainger.com
Ernest Duplessis
Director,
Market Communications
+1-847-535-0879
ernest.duplessis@grainger.com
Both of
W.W. Grainger, Inc.