10-KPeriod: FY2004

W.W. GRAINGER, INC. Annual Report, Year Ended Dec 31, 2004

Filed February 28, 2005For Securities:GWW

Summary

W.W. Grainger, Inc. (GWW) reported strong performance for the fiscal year ended December 31, 2004, with net sales increasing by 8.2% to $5,049.8 million and net earnings growing by 26.4% to $286.9 million. This growth was driven by an improving economic environment in the United States, particularly in the manufacturing and commercial sectors, coupled with the company's strategic initiatives. The company benefited from the completion of its logistics network upgrade, which enhanced product availability, and the ongoing market expansion program designed to strengthen its presence in key metropolitan areas. Grainger also saw significant growth in its online sales channel, grainger.com, which increased by 27.7%. The company maintained a solid financial position with strong operating cash flows and a low debt ratio, enabling continued investment in growth initiatives and shareholder returns through dividends and share repurchases.

Key Highlights

  • 1Net sales grew 8.2% to $5,049.8 million, driven by economic recovery and strategic initiatives.
  • 2Net earnings increased significantly by 26.4% to $286.9 million, with diluted EPS rising to $3.13.
  • 3Online sales via grainger.com saw robust growth of 27.7%, reaching $611.3 million.
  • 4Gross profit margin improved to 37.8% due to cost reduction programs and pricing strategies.
  • 5Operating expenses increased by 12.5%, reflecting investments in market expansion, IT, and performance-based compensation.
  • 6The company is actively investing in its market expansion program and IT enhancements, with capital expenditures planned between $150-$180 million for 2005.
  • 7Integrated Supply segment is being merged into the Branch-based Distribution segment effective January 1, 2005.

Frequently Asked Questions

The primary drivers of sales growth in 2004 were the strengthening of the U.S. economy, particularly in the manufacturing and commercial sectors, the successful completion of the logistics network upgrade improving product availability, and the ongoing market expansion program. Growth in online sales through grainger.com also significantly contributed.

Operating expenses increased by 12.5% in 2004. This rise was primarily due to higher variable compensation and benefits linked to improved company performance, as well as incremental costs associated with the market expansion program and information technology initiatives. However, productivity gains from the redesigned logistics network partially offset these increases.

W.W. Grainger anticipates capital expenditures to be in the range of $150 to $180 million for 2005. These investments will primarily focus on the continued market expansion program, information technology enhancements, and Canadian branch programs. The company expects to fund these expenditures through its strong operating cash flows.

Effective January 1, 2005, the Integrated Supply business will no longer offer on-site integrated purchasing and tool crib management services. It will be merged into the Industrial Supply division within the Branch-based Distribution segment, and will no longer be reported as a separate segment. Existing contracts will be fulfilled but not renewed.