10-QPeriod: Q1 FY2003

W.W. GRAINGER, INC. Quarterly Report for Q1 Ended Mar 31, 2003

Filed May 13, 2003For Securities:GWW

Summary

W.W. Grainger, Inc. reported a modest 1% increase in net sales for the first quarter of 2003, reaching $1.139 billion, compared to $1.125 billion in the prior year. This growth was primarily driven by the Branch-based Distribution segment, with notable strength in government and national account sales in the US, and an 11% increase in Canada, partly due to favorable currency exchange rates. E-commerce sales through grainger.com also saw a significant 21% jump. However, the Lab Safety segment experienced a 2% decline in sales, reflecting weakness in the manufacturing sector. Net earnings showed a substantial 52% increase, rising to $52.4 million from $34.5 million in the same period last year. This significant increase was largely due to the absence of a substantial $23.9 million cumulative effect of an accounting change recorded in the prior year, as well as gains on investment securities. Excluding these one-time items, net earnings were relatively flat year-over-year. Operating earnings increased by a modest 2% to $91.4 million. The company maintained a strong liquidity position with a healthy current ratio and conservative debt levels.

Key Highlights

  • 1Net sales increased by 1% to $1.139 billion, indicating resilience in a challenging economic environment.
  • 2E-commerce sales via grainger.com grew by 21% to $115 million, highlighting the growing importance of digital channels.
  • 3Net earnings surged by 52% to $52.4 million, though this was significantly influenced by the prior year's accounting charges and investment gains.
  • 4Operating earnings saw a modest 2% increase to $91.4 million, driven by improved performance in distribution businesses.
  • 5The Branch-based Distribution segment, which is the largest contributor, showed solid growth, particularly in government and national accounts, and international markets (Canada).
  • 6Lab Safety segment experienced a 2% sales decline, reflecting continued economic softness impacting manufacturing clients.
  • 7The company maintained a conservative balance sheet with a debt-to-capitalization ratio of 7.4% and a strong current ratio of 2.6.

Frequently Asked Questions

The substantial 52% increase in net earnings to $52.4 million was primarily due to the absence of a $23.9 million after-tax cumulative effect of an accounting change and $4.5 million in after-tax gains on investment securities that were recognized in the first quarter of 2002. Excluding these items, net earnings were relatively flat year-over-year.

Sales processed through the grainger.com website showed strong performance, increasing by 21% to $115 million in the first quarter of 2003 compared to $95 million in the same period of 2002. This indicates a positive customer shift towards online purchasing.

The company exhibits a strong financial health and liquidity. Its current ratio stood at a healthy 2.6 as of March 31, 2003. Total debt as a percentage of total capitalization was conservative at 7.4%, indicating a low reliance on debt financing and providing financial flexibility.

Yes, in the prior year (2002), the company adopted SFAS No. 142, 'Goodwill and Other Intangible Assets,' which resulted in a non-cash goodwill impairment charge of $23.9 million after-tax related to its Canadian subsidiary. The current period (Q1 2003) did not have such significant one-time charges, contributing to the reported net earnings increase.