How did the legal settlement affect the company's financial performance?

The company settled a 'qui tam' legal action for $6 million, which was recognized as an operating expense in the second quarter. While this reduced reported operating earnings by that amount, management stated that discussions regarding other aspects of the GSA contract are ongoing, and they believe they have complied with the contract in all material respects, not expecting a material adverse effect on the company's financial position.

What is the company's outlook or strategy in light of the economic environment described?

Despite economic concerns, Grainger's sales continue to correlate with industrial production and employment growth. The company is focused on strategic initiatives such as market expansion and product line expansion, which are expected to drive continued incremental sales growth for several more years. They also plan to complete their U.S. market expansion program in 2008.

How is the company managing its cash and debt?

The company's cash flow from operations is the primary source for funding growth. In the first half of 2008, they utilized $500 million in long-term borrowings to fund share repurchases and general corporate purposes, which increased their total debt-to-capitalization ratio. They maintained a debt ratio and liquidity position that provides flexibility for working capital and long-term needs.

GWW 10-Q Quarterly Report Q2 FY2008 — Revenue, Net Income, EPS

Q: What was the primary driver of revenue growth in the second quarter of 2008?

The primary driver of revenue growth was a combination of core business performance across the Grainger Branch-based and Acklands-Grainger segments, strategic initiatives like market and product line expansion, and favorable pricing actions to offset inflation. Growth was particularly strong in the government sector, as well as the light manufacturing and commercial sectors.

Summary

W.W. Grainger, Inc. (GWW) reported solid performance in the second quarter and first half of 2008, demonstrating revenue growth driven by its core operations and strategic initiatives despite a challenging economic environment. Net sales for the second quarter increased by 9.7% year-over-year, reaching $1.76 billion, and for the first six months, sales grew by 8.6% to $3.42 billion. This growth was supported by improvements in the government, light manufacturing, and commercial sectors, with strategic initiatives like market and product line expansion contributing significantly. The company also benefited from favorable foreign exchange rates and price increases to offset inflation. Profitability saw a healthy increase, with operating earnings for the second quarter up 11.0% and for the first half up 12.6%. Diluted earnings per share also showed strong growth, increasing by 18.2% in the second quarter and 20.2% in the first half, partly due to a reduced share count from ongoing share repurchase programs. The company addressed a significant legal matter, settling a "qui tam" action for $6 million, which was recorded as an operating expense in the second quarter. While discussions regarding other aspects of the GSA contract are ongoing, management believes it has complied with the contract in all material respects and does not expect a material adverse effect on its financial position.

Financial Highlights

30 data points

Beta

Revenue

$1.76B

0.4% Gross Margin

Net Income

$113.18M

0.1% Net Margin

EPS (Diluted)

$1.42

Cash & Equivalents

$258.23M

Free Cash Flow

$21.11M

Financial Statements

Beta

Revenue	$1.76B
Cost of Revenue	$1.05B
Gross Profit	$705.88M
SG&A Expenses	$521.04M
Operating Income	$184.84M
Interest Expense	$3.77M
Net Income	$113.18M
EPS (Basic)	$1.44
EPS (Diluted)	$1.42
Shares Outstanding (Basic)	76.54M
Shares Outstanding (Diluted)	78.03M

Key Highlights

1Net sales increased by 9.7% to $1.76 billion in Q2 2008 and by 8.6% to $3.42 billion for the first six months of 2008.
2Operating earnings grew by 11.0% in Q2 and 12.6% in the first half, indicating strong operational performance.
3Diluted EPS increased by 18.2% in Q2 and 20.2% in the first half, outpacing net earnings growth due to share repurchases.
4The company settled a 'qui tam' legal action for $6 million in Q2, which impacted operating expenses but did not involve an admission of violations.
5Strategic initiatives, including market expansion and product line expansion, contributed approximately 5% to sales growth in Q2 and 4% in the first half.
6Acklands - Grainger, the Canadian segment, showed robust sales growth of 24.2% in Q2 and 24.5% in the first half.
7The company continued its share repurchase program, buying back 938,100 shares in Q2, contributing to a lower weighted average share count.

W.W. GRAINGER, INC. Quarterly Report for Q2 Ended Jun 30, 2008

Summary

Financial Highlights

Key Highlights

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