How did the Gempler's acquisition impact the company's financial results?

The acquisition of Gempler's on April 14, 2003, contributed to a 6% increase in net sales for the Lab Safety segment in the third quarter of 2003, reaching $79.2 million. However, the segment's operating earnings decreased by 19% year-over-year, primarily due to higher operating expenses related to catalog media and integration costs associated with the acquisition.

What factors are influencing the company's sales performance?

W.W. Grainger's sales performance is being affected by a general weakness in the North American economies. Specifically, cooler-than-normal weather impacted seasonal product sales in the United States. These headwinds were partially offset by incremental sales from Hurricane Isabel and increased sales at Lab Safety due to the Gempler's acquisition. The company also notes a 13% increase in sales through its grainger.com website, indicating the growing importance of e-commerce.

How does the change in accounting for vendor advertising allowances affect the financial statements?

Effective in the third quarter of 2003, W.W. Grainger began reclassifying vendor advertising allowances from operating expenses to cost of goods sold, in line with EITF Issue 02-16. For the third quarter, this resulted in a $5.3 million reduction in cost of goods sold, which improved the gross profit margin. The company expects this reclassification to total $7-10 million for the full year 2003 and will restate prior periods for comparability when reporting full-year 2003 results.

What is the company's financial position regarding liquidity and debt?

The company maintains a strong liquidity position, with cash and cash equivalents increasing to $293.6 million at September 30, 2003, from $208.5 million at December 31, 2002. The debt-to-capitalization ratio remained low and stable at approximately 7.4% as of September 30, 2003. Working capital also saw a significant increase of $129.5 million for the first nine months of the year.

GWW 10-Q Quarterly Report Q3 FY2003 — Revenue, Net Income, EPS

Summary

W.W. Grainger, Inc. reported relatively flat net sales for the third quarter and first nine months of 2003 compared to the prior year, with total net sales for the third quarter reaching $1.2007 billion. This performance was influenced by a generally weak North American economy, cooler weather impacting seasonal product sales, and partially offset by incremental sales from Hurricane Isabel and contributions from the Gempler's acquisition. The company experienced a slight decrease in net earnings for the third quarter to $56.8 million, down from $59.9 million in the prior year, primarily due to lower operating earnings across its segments, though partially mitigated by a lower effective income tax rate. Operationally, the Branch-based Distribution segment saw stable net sales but a slight dip in operating earnings, influenced by increased operating expenses and a favorable shift in gross profit margin driven by accounting changes and pricing actions. The Lab Safety segment, boosted by the Gempler's acquisition, showed increased net sales but a decline in operating earnings due to higher operating expenses. The Integrated Supply segment experienced a decrease in both net sales and operating earnings. For the first nine months, net earnings saw an 11% increase, benefiting from the absence of a prior-year accounting charge and gains from investment sales.

Key Highlights

1Net sales for the third quarter of 2003 were $1.2007 billion, essentially flat compared to $1.2034 billion in the same period of 2002.
2Net earnings for the third quarter decreased by 5% to $56.8 million ($0.62 diluted EPS) from $59.9 million ($0.64 diluted EPS) in the prior year.
3The Gempler's acquisition on April 14, 2003, contributed to a 6% increase in Lab Safety segment net sales for the quarter, though segment operating earnings declined.
4Sales processed through grainger.com increased by 13% in the third quarter of 2003 to $125 million, indicating a growing shift towards online channels.
5The company reported a decrease in operating earnings across all three segments (Branch-based Distribution, Lab Safety, and Integrated Supply) for the third quarter of 2003.
6For the first nine months of 2003, net earnings increased by 11% to $165.2 million, aided by the absence of a significant prior-year accounting charge related to SFAS 142 ($23.9 million after-tax).
7Cash and cash equivalents increased significantly from $208.5 million at December 31, 2002, to $293.6 million at September 30, 2003.

W.W. GRAINGER, INC. Quarterly Report for Q3 Ended Sep 30, 2003

Summary

Key Highlights

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