10-QPeriod: Q3 FY2008

W.W. GRAINGER, INC. Quarterly Report for Q3 Ended Sep 30, 2008

Filed October 30, 2008For Securities:GWW

Summary

W.W. Grainger, Inc. (GWW) reported strong financial performance for the nine months ended September 30, 2008, with net sales increasing by 9.4% to $5.26 billion and net earnings rising by 16.4% to $367.4 million, or $4.65 per diluted share. This growth was driven by a 10.9% increase in net sales for the third quarter to $1.84 billion, with all three operating segments (Grainger Branch-based, Acklands - Grainger, and Lab Safety) contributing to the top-line growth. The company's strategic initiatives, including market and product line expansion, along with price increases to offset inflation, positively impacted sales. Despite a challenging economic environment indicated by a decrease in industrial production, Grainger's diversified customer base and effective cost management contributed to improved operating earnings and margins.

Financial Highlights

32 data points
Beta

Revenue

$1.84B

40.4% Gross Margin

Net Income

$140.02M

7.6% Net Margin

EPS (Diluted)

$1.77

Cash & Equivalents

$364.42M

Free Cash Flow

$182.62M

Financial Statements
Beta
Revenue$1.84B
Cost of Revenue$1.10B
Gross Profit$742.35M
SG&A Expenses$510.89M
Operating Income$231.46M
Interest Expense$4.39M
Net Income$140.02M
EPS (Basic)$1.80
EPS (Diluted)$1.77
Shares Outstanding (Basic)75.97M
Shares Outstanding (Diluted)77.41M

Key Highlights

  • 1Net sales for the nine months ended September 30, 2008, increased by 9.4% to $5.26 billion, compared to $4.81 billion in the prior year.
  • 2Net earnings for the nine months increased by 16.4% to $367.4 million, resulting in diluted earnings per share of $4.65, up from $3.67 in the prior year.
  • 3Third-quarter net sales grew by 10.9% year-over-year to $1.84 billion, with daily sales up 9.2%.
  • 4Operating earnings for the nine months increased by 19.6% to $602.1 million, benefiting from improved gross profit margins and operating expense leverage.
  • 5The company completed several acquisitions in the first nine months of 2008, including a 49.9% interest in Asia Pacific Brands India Ltd., Highsmith Inc. by Lab Safety Supply, and Excel F.I.G. Inc. by Acklands - Grainger.
  • 6Long-term debt increased significantly due to a new $500 million term loan secured in May 2008, used to pay down short-term debt, fund share repurchases, and for general corporate purposes.
  • 7The company is actively managing its share count, with share repurchases continuing, though at a lower rate compared to the previous year, leading to a higher EPS growth than net earnings growth.

Frequently Asked Questions

For the third quarter of 2008, W.W. Grainger reported net sales of $1.84 billion, an increase of 10.9% compared to $1.66 billion in the same period of 2007. For the first nine months of 2008, net sales grew by 9.4% to $5.26 billion from $4.81 billion in the corresponding period of 2007.

Net earnings for the nine months ended September 30, 2008, were $367.4 million, a 16.4% increase from $315.7 million in the prior year. Diluted earnings per share for the nine months were $4.65, up from $3.67 in 2007. For the third quarter, net earnings rose 28.3% to $140.0 million, and diluted EPS was $1.79, a 38.8% increase from $1.29 in the prior year's quarter. This higher EPS growth is attributed to a reduction in outstanding shares.

Sales growth was driven by several factors including price increases of approximately 4% in the third quarter and 3% for the nine months to offset cost inflation, strategic initiatives such as market and product line expansion (contributing approximately 3-4 percentage points of growth), and strong performance in the government sector. Growth was also seen in the reseller and commercial sectors, while the manufacturing sector showed resilience despite a broader economic slowdown.

W.W. Grainger secured a $500 million, four-year term loan in May 2008, primarily to pay down short-term debt, fund share repurchases, and for general corporate purposes. This led to an increase in total debt as a percentage of total capitalization to 19.8% as of September 30, 2008, from 5.0% at December 31, 2007. Despite increased debt, the company maintains a strong liquidity position and adequate working capital.