Highlights
- Sales up 7 percent
- Net earnings up 12 percent
- EPS up 22 percent
- Repurchased 3.0 million shares
- Generated pretax ROIC of 29.4 percent*
Visit www.grainger.com/investor to access a Podcast describing
Grainger's performance in more detail.
CHICAGO, April 14 /PRNewswire-FirstCall/ -- Grainger (NYSE: GWW) today
reported record quarterly sales, earnings and earnings per share for the
quarter ended March 31, 2008. Sales of $1.7 billion were up 7 percent versus
first quarter 2007. Net earnings for the quarter increased 12 percent to
$114 million versus $102 million in 2007. Earnings per share grew 22 percent
to $1.43, versus $1.17 for the 2007 first quarter.
"We are off to a strong start," said Chairman and Chief Executive Officer,
Richard L. Keyser. "We are encouraged by the market share gains achieved in a
slowing economy. And because of our aggressive stock repurchase efforts in the
first quarter, we are raising our forecasted earnings per share range to $5.80
to $6.10. This compares to our previously announced range of $5.65 to $6.00."
* 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.
Daily sales increased 8 percent in January, 7 percent in February and 7
percent in March. For the quarter, sales were positively affected by foreign
exchange, which contributed approximately 1 percentage point. Sales were
negatively affected by approximately 1 percentage point due to the timing of
Easter. While the company is open for business in the United States on Good
Friday, sales volume is typically lighter than normal. The Easter holiday
fell in April of the prior year.
Grainger Branch-based segment
Sales in this segment, which includes branch-based businesses in the
United States, Mexico and China, increased 6 percent in the 2008 first
quarter. Daily sales in this segment grew by 6 percent in January, 6 percent
in February and 5 percent in March. A decline in the sales of seasonal
products resulted in about a 1 percentage point reduction in the sales growth
rate. Consistent with total company results, sales for the quarter were
negatively affected by approximately 1 percentage point due to the timing of
the Easter holiday. Market expansion and product line expansion added 3
percentage points to overall growth in the quarter, with most of the
contribution coming from product line expansion.
During the quarter, the company opened five new full service branches and
closed one in the United States, and opened one will-call express branch in
China, bringing the total number of branches in the segment to 462:
First Quarter 2008 Branch Summary
12/31/07 Opened Closed 3/31/08
United States
Branch 412 5 1 416
Will Call Express 24 24
Mexico 15 15
China
Branch 1 1
Will Call Express 5 1 6
Total 457 6 1 462
Sales in the United States increased 6 percent, with growth coming from
all customer end markets, except retail, which experienced a low single digit
decline. The strongest growth came from sales to government customers.
Sales growth in the top 25 metro markets outpaced the rest of the United
States. Results for market expansion by phase were:
1Q'08 3/31/08
Daily Sales Percent
Phase Markets Increase Complete
1 Atlanta, Denver, Seattle 11% 100%
2 Four markets in Southern California 6% 100%
3 Houston, St. Louis, Tampa 11% 100%
4 Baltimore, Cincinnati, Kansas City,
Miami, Philadelphia, Washington, D.C. 6% 100%
5 Dallas, Detroit, Greater New York,
Phoenix 7% 85%
6 Chicago, Minneapolis, Pittsburgh
and San Francisco 5% 80%
The company is on track to essentially complete phases 5 and 6 by mid-year
and expects to see continued incremental sales growth from the program for
another five years.
The U.S. branch-based business added approximately 44,000 new products in
the February 2008 catalog; these included fleet maintenance, power
transmission and selected additions to existing product lines. The new
catalog includes a total of 183,000 products. The company expects to add more
products throughout the year.
Sales in Mexico were up 17 percent in the quarter versus the same period
in 2007, negatively affected by 6 percentage points, due to the timing of the
Easter holiday. In local currency, sales increased 15 percent. While sales
benefited from the branches previously opened as part of the ongoing market
expansion program, no new branches were opened in the first quarter. The
business expects to add up to five branches in the second quarter.
In China, the company opened one new will-call express location in the
quarter. Sales for this business were $1.4 million for the quarter.
Operating earnings for the quarter were up 10 percent in the Grainger
Branch-based segment. Partially affecting this improvement were ongoing
operating losses in China and more recent operating losses in Mexico due to
market expansion. The operating earnings increase was the result of positive
operating expense leverage from the 6 percent sales growth and a
0.1 percentage point increase in gross profit margins. This operating expense
leverage was primarily attributable to payroll and other operating expenses,
which grew at a slower rate than sales.
Acklands-Grainger Branch-based segment
Sales for the quarter were up 25 percent versus the 2007 first quarter.
This includes a 2 percentage point negative impact, due to the timing of
Easter. In local currency, sales were up 7 percent. On a daily basis, sales
in local currency were up 5 percent in January, 6 percent in February and 10
percent in March. Strong sales to mining, oil and government customers were
partially offset by weakness in the forestry sector. During the quarter,
Acklands opened one branch, ending the quarter at 154 branches.
Operating earnings increased 30 percent for the 2008 first quarter,
primarily the result of the strong sales and improved gross profit margins.
Lab Safety Supply (LSS)
Sales for the first quarter of 2008 were up 3 percent versus the 2007
first quarter. Daily sales were up 5 percent in January, 3 percent in February
and 3 percent in March. Sales from the May 2007 McFeeley's acquisition
contributed 3 percentage points to the sales growth for the quarter; excluding
the acquisition, the rest of the business was essentially flat.
Operating earnings increased 1 percent for the 2008 first quarter.
Operating expenses grew faster than sales primarily due to a higher employment
benefit expense related to increased medical claims.
Other
The gain on the sales of fixed assets, which included the sale of real
estate related to the market expansion program, totaled $1.3 million in both
the first quarter of 2007 and 2008.
The effective income tax rate was 38.7 and 38.6 percent in the 2008 and
2007 first quarters, respectively. Excluding the effect of equity in net
income of unconsolidated entities, the effective tax rate for the 2008 quarter
was 38.9 percent versus 38.5 percent in the 2007 quarter.
Cash flow
Operating cash flow was $13 million for the 2008 first quarter. The
company used cash from operations along with short term debt to fund growth
initiatives and return cash to shareholders. Capital expenditures were
$36 million in the first quarter the same as the first quarter of 2007. In
the quarter, Grainger repurchased 2.6 million shares of stock for a total of
$196 million. In addition, the company completed the accelerated share
repurchase program on January 4, 2008 and received an additional 0.4 million
shares at that time. Approximately 1.7 million shares remain under the current
repurchase authorization. Dividends paid in the first quarter were
$28 million.
As reported in the company's February 8 press release, the company's
compliance with a contract with the United States General Services
Administration has been questioned by the Department of Justice and
allegations relating to pricing and Trade Agreement Act compliance have been
asserted in a civil "qui tam" action.
In March 2008, Grainger began the process of meeting with the Department
of Justice to discuss the alleged contract and Trade Agreement non-compliance
claims. The timing and outcome of this matter are uncertain and could include
a settlement or civil litigation and while this matter is not expected to have
a material adverse effect on Grainger's financial position, an unfavorable
resolution could result in material payments by Grainger. In 2007, the GSA
contract represented less than 2% of Grainger's total company sales. Grainger
continues to believe that it has complied with the GSA contract in all
material respects.
W.W. Grainger, Inc. with 2007 sales of $6.4 billion, is the leading broad
line supplier of facilities maintenance products serving businesses and
institutions in Canada, China, Mexico and the United States. Through a highly
integrated network including more than 600 branches, 18 distribution centers
and multiple Web sites, Grainger's employees help customers get the job done.
Visit http://www.grainger.com/investor to view information about the company,
including a history of daily sales by segment and a Podcast regarding first
quarter 2008 results.
Forward-Looking Statements
This document contains forward-looking statements under the federal
securities law. The forward-looking statements relate to the company's
expected future financial results and business plans, strategies and
objectives are not historical facts. They are generally identified by
qualifiers such as "continues to believe," "expected," "expects,"
"forecasted," "on track," "timing and outcome are uncertain," or similar
expressions. There are risks and uncertainties the outcome of which could
cause the company's results to differ materially from what is projected. The
forward-looking statements should be read in conjunction with the company's
most recent annual report, as well as the company's Form 10-K and other
reports filed with the Securities & Exchange Commission, containing a
discussion of the company's business and various factors that may affect it.
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
Three Months Ended
March 31,
($ in thousands except
for per share data)
2008 2007
Net sales $1,661,046 $1,546,658
Cost of merchandise sold 981,112 914,570
Gross profit 679,934 632,088
Warehousing, marketing and administrative
expenses 494,111 469,503
Operating earnings 185,823 162,585
Other income and (expense)
Interest income 804 4,022
Interest expense (1,433) (577)
Equity in net income (loss) of unconsolidated
entities 737 (342)
Unclassified-net 569 33
Total other income and (expense) 677 3,136
Earnings before income taxes 186,500 165,721
Income taxes 72,262 63,934
Net earnings $114,238 $101,787
Earnings per share
-Basic $1.47 $1.21
-Diluted $1.43 $1.17
Average number of shares outstanding
-Basic 77,933,996 83,979,114
-Diluted 80,131,555 86,758,949
Segment results:
2008 2007
Sales
Grainger branch-based $1,372,501 $1,296,382
Acklands-Grainger 177,303 142,050
Lab Safety Supply 112,835 109,100
Intersegment sales (1,593) (874)
Net sales to external customers $1,661,046 $1,546,658
Operating earnings
Grainger branch-based $175,853 $160,242
Acklands-Grainger 11,675 8,948
Lab Safety Supply 14,804 14,610
Unallocated expense (16,509) (21,215)
Operating earnings $185,823 $162,585
Operating margins 11.2% 10.5%
ROIC* for Grainger branch-based 36.0% 36.4%
ROIC* for Acklands-Grainger 12.5% 11.4%
ROIC* for Lab Safety Supply 32.3% 32.0%
* See beginning of release for a definition of ROIC
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
Preliminary
At March 31,
($ in thousands)
2008 2007
Assets
Cash and Cash Equivalents (1) $117,429 $325,472
Accounts Receivable - net (2) 644,933 611,126
Inventories (3) 966,326 815,891
Other Current Assets 125,833 116,742
Total Current Assets 1,854,521 1,869,231
Property, Buildings and Equipment - net (4) 885,563 802,373
Investments in Unconsolidated Entities 16,547 8,228
All Other Assets 399,202 393,224
Total Assets $3,155,833 $3,073,056
Liabilities And Shareholders' Equity
Short-Term Debt (5) $329,517 $-
Current Maturities of Long-Term Debt 4,590 4,590
Trade Accounts Payable 339,544 378,432
Other Current Liabilities 319,858 291,516
Total Current Liabilities 993,509 674,538
Long-Term Debt 4,895 4,895
All Other Liabilities 167,202 180,168
Shareholders' Equity (6) 1,990,227 2,213,455
Total Liabilities and Shareholders' Equity $3,155,833 $3,073,056
(1) Cash and cash equivalents decreased by $208 million, or 64%,
primarily due to share repurchases and dividend payments in addition
to the timing of annual cash payments for profit sharing and
bonuses.
(2) Accounts receivable-net increased by $34 million, or 6%, primarily
due to higher sales.
(3) Inventories increased by $150 million, or 18%, primarily due to the
product line expansion and market expansion initiatives, and to
improve customer service through better product availability.
(4) Depreciation and amortization of property, buildings, and equipment
amounted to $25 million for the 2008 first quarter and $24 million
for the 2007 first quarter.
(5) Short-term debt increased $330 million primarily to fund share
repurchases and first quarter cash requirements.
(6) Common stock outstanding as of March 31, 2008 was 76,507,214 shares
as compared with 83,560,089 shares at March 31, 2007. The Company
repurchased 3.0 million shares during the 2008 first quarter.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Preliminary
Three Months Ended
March 31,
($ in thousands)
2008 2007
Cash Flows from Operating Activities:
Net Earnings $114,238 $101,787
Depreciation and Amortization 31,556 29,923
(Income) Loss in Unconsolidated Entities (737) 342
(Increase) Decrease in Accounts Receivable
- net (44,231) (44,032)
(Increase) Decrease in Inventories (23,619) 12,342
(Increase) Decrease in Prepaid Expenses (5,355) (7,733)
Increase (Decrease) in Trade Accounts Payable 41,468 44,004
Increase (Decrease) in Other Current
Liabilities (162,485) (111,123)
Other - net 62,351 56,903
Net Cash Provided by Operating Activities 13,186 82,413
Cash Flows from Investing Activities:
Additions to Property, Buildings and Equipment
- net (31,099) (32,246)
Additions for Capitalized Software (2,275) (727)
Other - net 20,049 12,389
Net Cash Used in Investing Activities (13,325) (20,584)
Cash Flows from Financing Activities:
Increase (Decrease) in Short-Term Debt 227,780 -
Cash Dividends Paid (28,064) (24,519)
Purchase of Treasury Stock (196,437) (98,698)
Other - net 4,466 38,061
Net Cash Provided by (Used in) Financing
Activities 7,745 (85,156)
Exchange Rate Effect on Cash and Cash
Equivalents (3,614) 328
Net Increase (Decrease) in Cash and Cash
Equivalents from beginning of year $3,992 $(22,999)
CONTACT:
Media
Ernest Duplessis
Vice President, Internal & External
Communications
+1-847-535-4356
Robb Kristopher
Director, Media
Relations
+1-847-535-0879
Investors
Laura Brown
Vice President,
Investor Relations
+1-847-535-0409
Bill Chapman
Director, Investor
Relations
+1-847-535-0881
All of W.W. Grainger, Inc.