10-KPeriod: FY2018

W.W. GRAINGER, INC. Annual Report, Year Ended Dec 31, 2018

Filed February 28, 2019For Securities:GWW

Summary

W.W. Grainger, Inc. (GWW) reported solid performance in its 2018 10-K filing, with net sales increasing by 8% to $11.221 billion. This growth was primarily driven by market share gains and an improved demand environment in the U.S., alongside strong double-digit growth in its endless assortment businesses (Zoro and MonotaRO). While the overall business showed an upward trend, the Canadian segment experienced a decline in net sales. The company continues to navigate a competitive MRO market by focusing on its dual strategy of high-touch, high-service for complex customer needs and an endless assortment model for less complex needs. Investment in digital platforms and supply chain infrastructure remains a key focus to meet evolving customer demands for tailored solutions and timely delivery. Despite revenue growth, the company faced challenges that impacted profitability. Gross profit margin saw a slight decrease, partly due to the adoption of a new revenue recognition standard. Significant impairment charges related to goodwill and intangible assets at the Cromwell business, along with restructuring costs in Canada, affected operating earnings. However, a lower effective tax rate following the Tax Cuts and Jobs Act and reduced other expenses contributed to a substantial 33% increase in net earnings attributable to W.W. Grainger, Inc., reaching $782 million, and a 37% rise in diluted EPS to $13.73. The company also demonstrated a strong commitment to returning capital to shareholders, with continued share repurchases and dividend payments.

Financial Highlights

53 data points
Beta

Revenue

$11.22B

38.7% Gross Margin

Net Income

$782.00M

7.0% Net Margin

EPS (Diluted)

$13.73

Total Assets

$5.87B

Cash & Equivalents

$538.00M

Free Cash Flow

$818.00M

Financial Statements
Beta
Revenue$11.22B
Cost of Revenue$6.87B
Gross Profit$4.35B
SG&A Expenses$3.19B
Operating Income$1.16B
Interest Expense$88.00M
Net Income$782.00M
EPS (Basic)$13.82
EPS (Diluted)$13.73
Shares Outstanding (Basic)56.10M
Shares Outstanding (Diluted)56.50M

Key Highlights

  • 1Net sales increased by 8% to $11.221 billion in 2018, driven by U.S. market share gains and strong performance in endless assortment businesses.
  • 2The U.S. business experienced an 8% net sales increase, attributed to market share gains and a favorable demand environment across various industries.
  • 3Endless assortment businesses (Zoro and MonotaRO) showed robust growth, contributing significantly to overall net sales increases.
  • 4Net earnings attributable to W.W. Grainger, Inc. rose by 33% to $782 million, boosted by higher operating earnings and a lower effective tax rate.
  • 5Diluted earnings per share increased by 37% to $13.73, reflecting improved profitability and a reduction in average shares outstanding.
  • 6The company incurred significant impairment charges ($139 million) related to goodwill and intangible assets at its Cromwell business in the UK.
  • 7Grainger maintained a strong cash flow from operations, providing flexibility for investments, dividends, and share repurchases.

Frequently Asked Questions

W.W. Grainger's net sales increased by 8% in 2018, primarily driven by market share gains and an improved demand environment in the U.S. business. Additionally, its endless assortment businesses, Zoro and MonotaRO, experienced strong double-digit growth, contributing significantly to the overall increase.

Despite revenue growth, Grainger's profitability was impacted by several factors. A new revenue recognition standard slightly decreased the gross profit margin. More significantly, the company recorded substantial impairment charges of $139 million related to goodwill and intangible assets at its Cromwell business in the UK. Restructuring costs, particularly in Canada, also affected operating earnings.

The TCJA, which lowered the U.S. corporate income tax rate to 21% effective January 1, 2018, had a positive impact. It contributed to a lower effective tax rate for Grainger in 2018 compared to 2017, helping to boost net earnings. The company also benefited from excess tax benefits from stock-based awards.

Grainger employs a dual strategy to compete in the large and fragmented MRO market. It utilizes a high-touch, high-service model for customers with complex needs, leveraging its supply chain infrastructure and deep customer relationships. Simultaneously, it operates an endless assortment model (Zoro in the U.S. and MonotaRO in Japan) for customers with less complex needs, focusing on broad product selection and online capabilities.