10-QPeriod: Q1 FY2002

W.W. GRAINGER, INC. Quarterly Report for Q1 Ended Mar 31, 2002

Filed May 13, 2002For Securities:GWW

Summary

W.W. Grainger, Inc. reported a net sales decrease of 8% to $1.125 billion for the first quarter of 2002 compared to the prior year's $1.219 billion. This decline was attributed to the weak North American economy and one less selling day. Despite lower sales, net earnings increased by 39% to $58.5 million, largely due to improved operating earnings and a significant increase in other income, which included a $7.3 million gain on the sale of investment securities. The company also benefited from the absence of previous year's nonrecurring charges related to digital business restructuring. Key operational shifts include the discontinuation of the Digital segment's Material Logic operations and the recapitalization of the automotive after-market division in Canada into a joint venture, which is expected to reduce AGI's sales but have no material impact on net earnings. The company is also adapting to new accounting standards, notably SFAS No. 142, which eliminates goodwill amortization, positively impacting reported earnings, although the impact was nominal in this quarter's restatement. Overall, the company demonstrated resilience in profitability despite economic headwinds, driven by operational efficiencies and strategic financial gains.

Key Highlights

  • 1Net sales decreased by 8% to $1.125 billion in Q1 2002 compared to Q1 2001, primarily due to a weak economy and fewer selling days.
  • 2Net earnings increased by a robust 39% to $58.5 million, or $0.61 per diluted share, compared to $42.2 million, or $0.45 per diluted share, in the prior year.
  • 3Operating earnings improved by 7% to $89.96 million, driven by the elimination of losses from the discontinued Digital segment and improved performance in Grainger Integrated Supply.
  • 4Other income significantly increased to $8.78 million from an expense of $8.88 million, boosted by a $7.3 million gain from the sale of investment securities.
  • 5The company adopted SFAS No. 142, ceasing amortization of goodwill, which had a nominal positive impact on reported earnings after restatement.
  • 6Grainger completed a joint venture in Canada for its automotive after-market division, expected to reduce sales for that subsidiary but have no material impact on overall net earnings.
  • 7Cash and cash equivalents increased significantly to $221.6 million from $168.8 million at the end of the previous year, reflecting strong cash flow generation.

Frequently Asked Questions

Net sales decreased by 8% due to a combination of factors, including the continuing weakness in the North American economy and the impact of having one less selling day compared to the first quarter of 2001. On a daily basis, net sales decreased by 6%.

Net earnings increased by 39% primarily due to a 7% increase in operating earnings, driven by the elimination of losses from the discontinued Digital segment and improved performance in the Grainger Integrated Supply segment. Additionally, 'Other income' significantly improved, largely due to a $7.3 million gain on the sale of investment securities and reduced interest expenses.

SFAS No. 142 requires companies to stop amortizing goodwill. For W.W. Grainger, this means goodwill is now tested annually for impairment rather than amortized over time. While this change became effective January 1, 2002, its impact on reported net earnings for this specific quarter was minimal, as the restatement showed only a marginal increase in adjusted earnings per share.

The company discontinued the Material Logic operations within its Digital segment, with FindMRO being integrated into the Branch-based Distribution Businesses. In Canada, Acklands-Grainger (AGI) formed a joint venture with Uni-Select Inc. to combine their automotive after-market divisions. This joint venture is expected to reduce AGI's sales but is not anticipated to have a material impact on net earnings.