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W.W. Grainger Annual Report, Year Ended Dec 31, 2020

Filing Date
Filed February 24, 2021
Period End
December 31, 2020
Security
GWW
One revenue dollarkept$0.06
In the record · 2016–202610-K1110-Q328-K92

GWW filed 11 annual reports (10-K), 32 quarterly reports (10-Q) and 92 current reports (8-K) between 2016 and 2026.

  1. Material agreement8-K · Oct ’17Oct ’17
  2. Leadership change8-K · Feb ’20Feb ’20
  3. Material agreement8-K · Aug ’22Aug ’22
  4. Leadership change8-K · Aug ’26Aug ’26

01—Abstract

Summary

Summary of the 10-K filed February 24, 2021. Cited figures are marked; the original filing is the authoritative source.

W.W.

Grainger's 2020 10-K shows a year shaped by the COVID-19 pandemic and portfolio pruning. Net sales rose 2.7% to $11.797 billiona, driven by strong pandemic-related volume (PPE and safety products) from government and healthcare customers, partly offset by declines in non-pandemic MRO demand and weakness in Canada and international high-touch businesses. However, the mix shifted toward lower-margin pandemic products and the faster-growing endless assortment businesses (Zoro and MonotaRO), so gross margin fell 2.4 points to 35.9%.

Reported operating earnings dropped 19% to $1.019 billion and diluted EPS fell to $12.82b from $15.32. Much of the decline reflects non-recurring items, including a $109 million loss on the Fabory divestiture, $177 million in impairments, and restructuring charges. Excluding these items, adjusted operating earnings fell about 4% and adjusted diluted EPS fell about 6% to $16.18.

The balance sheet and cash generation remained solid. Operating cash flow was $1.123 billion, cash rose to $585 millionc, and available liquidity was about $1.8 billion. Total debt rose to roughly $2.4 billion after a $500 million 1.85% note issuance in February 2020, and the debt-to-capitalization ratio increased to 55.6%.

Grainger continued returning capital, paying $338 milliond in dividends and repurchasing $601 million of stock. Management also announced a re-segmentation effective January 1, 2021, into High Touch – North America and Endless Assortment, which better reflects its two business models and will make future segment results more comparable.

For investors, the key questions are how quickly non-pandemic demand recovers, whether the endless assortment businesses can keep growing margins, and whether the pandemic-driven gross margin pressure reverses as expected. Management says it expects pandemic-related margin headwinds to subside as the economy recovers, but the filing also notes that these outcomes remain highly uncertain.

02—Key points

Key Highlights

  1. Net sales grew 2.7% to $11.797 billion, led by pandemic-related demand from government and healthcare customers, while non-pandemic volumes declined.
  2. Gross margin fell 2.4 points to 35.9%, reflecting lower-margin pandemic product sales and mix shift toward the endless assortment businesses (Zoro, MonotaRO).
  3. Reported operating earnings fell 19% to $1.019 billion; excluding restructuring, impairments, and divestiture charges, operating earnings fell 4% to $1.327 billion.
  4. Diluted EPS was $12.82 versus $15.32 in 2019; adjusted diluted EPS was $16.18 versus $17.29 (down 6%).
  5. Operating cash flow was $1.123 billion. Cash ended at $585 million, and liquidity was about $1.8 billion.
  6. Total debt rose to roughly $2.4 billion (debt-to-capitalization 55.6% vs. 54.3%) after a $500 million 1.85% note issuance; $601 million was spent on buybacks and $338 million on dividends.
  7. Segments will be realigned from January 1, 2021 into High Touch – North America and Endless Assortment, with restated results to be published around March 8, 2021.

03—One dollar

Follow one dollar

Of each $1.00 of revenue in FY2020, W.W. Grainger kept $0.06.

  1. Revenue$11.80B100.0%
  2. Cost of revenue−$7.56B64.1%
  3. Gross profit$4.24B35.9%
  4. Operating costs−$3.22B27.3%
  5. Operating income$1.02B8.6%
  6. Interest, other & tax−$324.0M2.7%
  7. Net income$695.0M5.9%
Computed from 10-KFY2020filed February 24, 2021Computed from this filing’s revenue, gross profit, operating income and net income · right columngrey figure: share of revenue

Where FY2020 revenue went

$11.80B
  • Cost of revenue: $7.56B, 64% of revenue
  • SG&A: $3.22B, 27% of revenue
  • Net income: $695.0M, 5.9% of revenue
  • Interest, other & tax: $324.0M, 2.7% of revenue

Kept 5.9% as net incomeNet income $695.0M · 5.9%

Full revenue history →

04—Financials

Financial Highlights

Figures from 10-KFY2020filed February 24, 2021
Revenue$11.80B35.9% Gross MarginNet Income$695.00M5.9% Net MarginEPS (Diluted)$12.82Total Assets$6.29BCash & Equivalents$585.00MFree Cash Flow$926.00M

Financial Statements

FY2020 against FY2019

Line itemFY2020FY2019Change
Revenue$11.80B$11.49B+2.7%
Cost of Revenue$7.56B$7.09B+6.6%
Gross Profit$4.24B$4.40B−3.6%
SG&A Expenses$3.22B$3.13B+2.7%
Operating Income$1.02B$1.26B−19.3%
Net Income$695.00M$849.00M−18.1%
EPS (Basic)$12.88$15.39−16.3%
EPS (Diluted)$12.82$15.32−16.3%
Shares Outstanding (Basic)53.50M54.70M−2.2%
Shares Outstanding (Diluted)53.70M54.90M−2.2%

05—Questions

Frequently Asked Questions

  1. Why did reported earnings fall so much more than sales in 2020?

    Reported operating earnings fell 19% on only a 2.7% sales increase. The main drivers were a roughly 2.4-point gross margin decline from lower-margin pandemic products and endless assortment mix, plus about $308 million of restructuring, impairment, and divestiture charges. These include a $109 million loss on the Fabory sale and $177 million of impairments. Excluding these items, operating earnings fell about 4%.

  2. Is the pandemic-driven sales boost sustainable?

    Management described pandemic-related demand for PPE and safety products as elevated and concentrated in government and healthcare customers, while non-pandemic demand declined. The company expects these margin headwinds to ease as the economy recovers and product mix normalizes, but the filing explicitly states that the duration and impact of the pandemic are highly uncertain.

  3. How healthy is Grainger's balance sheet and capital return program?

    The company remains investment grade (A3/A+) and had about $1.8 billion of liquidity at year-end 2020. Debt rose to about $2.4 billion, and the debt-to-capitalization ratio increased to 55.6%. Grainger still generated $1.1 billion of operating cash flow, funding $338 million in dividends and $601 million in share repurchases. The 2019 buyback program has about 1.5 million shares remaining.

  4. What changes to segment reporting should investors be aware of?

    Effective January 1, 2021, Grainger replaces its U.S. and Canada segments with High Touch – North America and Endless Assortment. This aligns reporting with its two business models. The company plans to publish restated 2018–2020 segment results around March 8, 2021, so prior-period comparisons will be more meaningful once those are available.

06—Continue

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