Generates pretax ROIC of 24.8 percent*
Highlights
- Sales of $1.5 billion down 12 percent, down 10 percent on a daily basis
- Net earnings of $96 million down 16 percent
- EPS of $1.25 down 11 percent
- Repurchased 1.9 million shares
- Generated pretax ROIC of 24.8 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 first quarter sales of $1.5 billion, which were down 12 percent
versus first quarter 2008. There was one less selling day in the quarter; on
a daily basis sales were down 10 percent. Net earnings for the quarter
decreased 16 percent to $96 million versus $114 million in 2008. Earnings per
share declined by 11 percent to $1.25 versus $1.41 for first quarter 2008.
The company adopted FSP 03-6-1 during the quarter resulting in a two cent
reduction to first quarter EPS for 2008 and a one cent reduction for first
quarter 2009. (See page K-41 of the company's 2008 10-K for additional
information).
"Businesses and institutions have responded to the recession by buying
less and looking for ways to improve productivity. We are in a great position
to help our customers become more efficient by consolidating their supplier
base using our expanded product line especially in these challenging times,"
said Grainger's President and Chief Executive Officer Jim Ryan. "We are
keeping service levels high as other competitors are pulling back, as we have
the ability to selectively invest in the business in order to gain more market
share."
*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.
Ryan added, "We do not believe that we've seen the bottom to the sales
decline and expect increased pricing pressure throughout the remainder of the
year. Given our financial strength, we see an opportunity to gain more share.
We expect to incur some reductions to our margins by expanding our sales force
and implementing additional customer incentives in the second quarter. We
expect these actions to cost $25-50 million this year. We'll calibrate our
level of investment in the back half of the year based on our success."
Daily sales for the company decreased 9 percent in January, 10 percent in
February and 12 percent in March. For the quarter, sales were negatively
affected by foreign exchange, which contributed approximately 2 percentage
points to the decline. Price contributed a positive 6 percent while volume was
down 14 percent. There were 63 selling days in the quarter, one less than in
2008 first quarter.
Effective with the first quarter, the company has two reportable business
segments, the United States and Canada, which represent approximately 99
percent of company sales. This new reporting reflects the integration of Lab
Safety Supply with Grainger's U.S. branch-based business. The remaining
operating units (Mexico, China, Panama and Puerto Rico) are included in other
businesses and are not considered a segment. For a restatement of prior year
results by segment, see page 9.
As part of cost reduction plans announced in February, the company reduced
headcount by 200 employees and incurred severance expense of $5 million or 3
cents per share in the first quarter. The company is on track to meet
headcount reductions of 300-400 this year.
United States
Sales for the United States segment decreased 10 percent in the 2009 first
quarter. Daily sales declined by 9 percent in January, 9 percent in February
and 10 percent in March. There was no material effect from the sale of
seasonal products. Progress integrating the Lab Safety Supply and the U.S.
branch-based business included adding 27,000 Lab products to grainger.com and
executing on purchasing synergies. Grainger is on track to achieve the
incremental sales and cost reductions from the integration.
Daily sales by customer segment in the U.S. decreased 10 percent, with
declines in all customer end markets except government, which was flat. Heavy
manufacturing declined approximately 25 percent, with most other segments
declining in the low teens.
The company increased the number of products in the February 2009 Grainger
catalog by a net of 50,000 items to 233,000, including metalworking products
and selected additions to existing product lines. The company expects to add
more products throughout the year including the Lab Safety products currently
available on grainger.com. Product line expansion contributed $195 million in
sales for the first quarter versus $137 million in the first quarter 2008.
Operating earnings for the quarter were down 11 percent in the United
States. The operating earnings decrease was the result of lower sales,
partially offset by positive price leverage and reduced spending on payroll
and discretionary spending. Payroll-related expenses were down due to reduced
commissions, profit sharing and bonus accruals, and lower headcount.
Canada
Sales for the Acklands-Grainger business in the quarter were down 19
percent versus the 2008 first quarter. In local currency, sales were flat. On
a daily basis for the quarter, sales were down 18 percent but up 2 percent in
local currency. On a daily basis by month, sales in local currency were up 7
percent in January, up 1 percent in February and down 2 percent in March. The
Canadian economy continues to slow especially in the forestry, manufacturing,
transportation and mining industries. Sales growth has slowed though remained
positive to prior year in most provinces for the quarter, particularly among
government and oil and gas customers. Operating earnings decreased 49 percent
for the 2009 first quarter (37 percent in local currency), primarily due to
the sales decline coupled with a 140 basis point decline in gross margin. The
decline in gross profit margin was primarily due to higher costs of goods sold
due to unfavorable foreign exchange, price competition and an increase in
lower margin large customer and government sales.
Other businesses
Sales for the other businesses, which include Mexico, China, Puerto Rico
and Panama, were down 8 percent versus prior year and down 7 percent on a
daily basis. Daily sales in Mexico were down 23 percent in the quarter versus
the same period in 2008. In local currency, daily sales in Mexico increased 3
percent for the quarter and were down 4 percent in January, flat in February
and up 12 percent in March. The growth in March is primarily due to the timing
benefit from the extended Easter holiday occurring in March 2008 versus April
2009. In China, sales increased 89 percent versus a year ago. Operating
losses for other businesses were $3 million for the quarter compared to $4
million a year ago primarily due to the operations in China.
Other
There was no gain or loss on the sale of fixed assets for the quarter
compared to a gain of $1.3 million last year. Interest income was down and
interest expense was up for the quarter for a net expense increase of
approximately $1 million. The effective income tax rate was 39.2 and 38.7
percent in the 2009 and 2008 first quarters, respectively. The increase in
the effective rate is due to lower earnings reported in foreign jurisdictions
with lower tax rates, as well as current estimates of the overall U.S. state
income tax rate.
Cash flow
Operating cash flow was $42 million for the 2009 first quarter versus $13
million in the first quarter of 2008. The first quarter included the annual
contribution to the profit sharing trust (the company's retirement plan) and
the payout of the previous year's bonuses. Capital expenditures were $28
million in the first quarter compared to $36 million in the quarter a year
ago. In the quarter, Grainger paid $128 million to repurchase 1.9 million
shares of stock. Dividends paid in the first quarter were approximately $31
million.
W.W. Grainger, Inc. with 2008 sales of $6.9 billion is the leading broad
line supplier of facilities maintenance products serving businesses and
institutions in the United States, Canada, Mexico and China. 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 www.grainger.com/investor to view information about the company,
including a history of daily sales by segment and a Podcast regarding first
quarter 2009 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 "ability to selectively invest", "calibrate our level of
investment", "do not believe", "expanding", "expect", "expects", "gain more
market share", "implementing", "opportunity to gain", "on track", "position to
help" 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)
(In thousands of dollars, except for per share amounts)
Three Months Ended
March 31,
2009 2008
Net sales $1,465,248 $1,661,046
Cost of merchandise sold 835,833 981,112
Gross profit 629,415 679,934
Warehousing, marketing and administrative
expenses 470,201 494,111
Operating earnings 159,214 185,823
Other income and (expense)
Interest income 401 804
Interest expense (2,218) (1,433)
Equity in net income of unconsolidated
entities 76 737
Unclassified-net 995 569
Total other income and (expense) (746) 677
Earnings before income taxes 158,468 186,500
Income Taxes 62,090 72,262
Net earnings $96,378 $114,238
Earnings per share
-Basic $1.27 $1.44
-Diluted $1.25 $1.41
Average number of shares outstanding
-Basic 74,260,401 77,933,996
-Diluted 75,142,460 79,245,391
Segment results:
Restated
2009 2008
Sales
United States $1,308,737 $1,469,355
Canada 143,795 177,303
Other Businesses 22,532 24,545
Intersegment sales (9,816) (10,157)
Net sales to external customers $1,465,248 $1,661,046
Operating earnings
United States $173,185 $195,133
Canada 5,954 11,675
Other Businesses (2,934) (4,224)
Unallocated expense (16,991) (16,761)
Operating earnings $159,214 $185,823
Company operating margin 10.9% 11.2%
ROIC* for Company 24.8% 29.4%
ROIC* for United States 32.9% 37.7%
ROIC* for Canada 6.8% 12.5%
* See footnote on page 1 for definition of ROIC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
Preliminary
(In thousands of dollars)
At March 31,
Assets 2009 2008
Cash and cash equivalents $257,570 $117,429
Accounts receivable - net (1) 559,315 644,933
Inventories 956,565 966,326
Prepaid expenses and other assets 76,211 67,011
Deferred income taxes 54,630 58,822
Total current assets 1,904,291 1,854,521
Property, buildings and equipment - net 927,674 885,563
Deferred income taxes 105,674 61,592
Investment in unconsolidated entities 19,181 16,547
Goodwill 209,188 228,485
Other assets and intangibles - net 104,497 109,125
Total assets $3,270,505 $3,155,833
Liabilities and Shareholders' Equity
Short-term debt (2) $20,827 $329,517
Current maturities of long-term debt 29,590 4,590
Trade accounts payable (3) 254,337 339,544
Accrued compensation and benefits 146,503 164,379
Accrued expenses 82,703 84,226
Income taxes payable 36,823 71,253
Total current liabilities 570,783 993,509
Long-term debt (2) 479,895 4,895
Deferred income taxes and tax
uncertainties 33,971 21,440
Accrued employment-related benefits (4) 198,975 145,762
Shareholders' equity (5) 1,986,881 1,990,227
Total liabilities and shareholders'
equity $3,270,505 $3,155,833
(1) Accounts receivable decreased $86 million, or 13%, due to a decline in
sales.
(2) Long-term debt increased $475 million due to the term loan agreement
entered into in May 2008. A portion of the proceeds was used to pay
off short-term borrowings.
(3) Trade accounts payable decreased $85 million, or 25%, primarily due
to lower inventory purchases.
(4) Accrued employment-related benefits increased $53 million, or 37%,
due to increases in post-retirement liabilities resulting from
declines in market values of underlying plan assets and also a
decrease in assumed discount rates, driven by recent economic
conditions.
(5) Common stock outstanding as of March 31, 2009 was 73,211,484
shares as compared with 76,507,214 shares at March 31, 2008.
The Company repurchased 1.9 million shares during the 2009
first quarter.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Preliminary
(In thousands of dollars)
Three Months Ended March 31,
2009 2008
Cash flows from operating activities:
Net earnings $96,378 $114,238
Provision for losses on accounts
receivable 4,082 4,706
Deferred income taxes and tax
uncertainties (8,443) (6,370)
Depreciation and amortization:
Property, buildings and equipment 26,547 25,333
Capitalized software and other
intangibles 7,086 6,223
Stock-based compensation 9,207 8,084
Tax benefit of stock incentive plans 301 54
Net gains on sales of property, buildings
and equipment 50 (1,316)
(Income) losses from unconsolidated
entities - net (76) (737)
Change in operating assets and liabilities:
(Increase) decrease in accounts
receivable 23,310 (48,937)
(Increase) decrease in inventories 47,243 (23,619)
Decrease in prepaid income taxes 22,526 -
(Increase) in prepaid expenses (3,094) (5,355)
Increase (decrease) in trade accounts
payable (34,990) 41,468
(Decrease) in other current
liabilities (181,657) (162,485)
Increase in current income taxes
payable 35,054 60,932
Increase in accrued employment-related
benefits cost 496 1,867
Other - net (2,208) (778)
Net cash provided by operating
activities 41,812 13,308
Cash flows from investing activities:
Additions to property, buildings and
equipment - net (27,305) (31,062)
Additions to capitalized software (1,102) (2,313)
Other - net 60 19,871
Net cash used in investing
activities (28,347) (13,504)
Cash flows from financing activities:
Net increase in short-term debt 838 227,780
Stock options exercised 5,689 3,559
Excess tax benefits from stock-based
compensation 797 907
Purchase of treasury stock (127,696) (196,437)
Cash dividends paid (30,615) (28,064)
Net cash (used in) provided by
financing activities (150,987) 7,745
Exchange rate effect on cash and cash
equivalents (1,198) (3,557)
Net (decrease) increase in cash and
cash equivalents (138,720) 3,992
Cash and cash equivalents at beginning
of year 396,290 113,437
Cash and cash equivalents at end of
period $257,570 $117,429
2008 SEGMENT RESULTS RESTATED (Unaudited)
(In thousands of dollars)
Sales Q1 Q2 Six Months
United States $1,469,355 $1,542,921 $3,012,276
Canada 177,303 197,867 375,170
Other Businesses 24,545 30,527 55,072
Intersegment (10,157) (14,459) (24,616)
Net sales to
external
customers $1,661,046 $1,756,856 $3,417,902
Sales Q3 Nine Months Q4 Twelve Months
United States $1,629,414 $4,641,690 $1,416,138 $6,057,828
Canada 190,754 565,924 162,065 727,989
Other Businesses 31,307 86,379 25,353 111,732
Intersegment (12,000) (36,616) (10,901) (47,517)
Net sales to
external
customers $1,839,475 $5,257,377 $1,592,655 $6,850,032
Operating earnings Q1 Q2 Six Months
United States $195,133 $209,721 $404,854
Canada 11,675 16,013 27,688
Other Businesses (4,224) (1,927) (6,151)
Unallocated
expense (16,761) (38,972) (55,733)
Operating earnings $185,823 $184,835 $370,658
Operating earnings Q3 Nine Months Q4 Twelve Months
United States $241,560 $646,414 $193,994 $840,408
Canada 14,168 41,856 12,407 54,263
Other Businesses (2,729) (8,880) (2,947) (11,827)
Unallocated
expense (21,542) (77,275) (22,897) (100,172)
Operating earnings $231,457 $602,115 $180,557 $782,672
Twelve Months
ROIC* for Company 29.8%
ROIC* for United
States 39.5%
ROIC* for Canada 14.3%
* See footnote on page 1 for definition of ROIC.
CONTACT:
Media
Ernest Duplessis
Vice President, Business
Communications
+1-847-535-4356
Robb Kristopher
Director, Business
Communications
+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.