10-Q/APeriod: Q3 FY2008

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

Filed November 7, 2008For Securities:GWW

Summary

W.W. Grainger, Inc. (GWW) reported a strong third quarter for 2008, with net sales increasing by 10.9% year-over-year to $1.84 billion. This growth was driven by broad-based increases across all three business segments: Grainger Branch-based, Acklands - Grainger, and Lab Safety Supply. The company demonstrated effective cost management, with operating expenses growing slower than sales, leading to a significant 32.8% increase in operating earnings. Diluted earnings per share rose by 38.8% to $1.79, boosted by strong operational performance and a reduced share count due to ongoing share repurchases. Despite a challenging economic environment with declining industrial production, Grainger's strategic initiatives, including market and product line expansion, continued to drive sales growth. The company also benefited from price increases aimed at offsetting cost inflation. While the company faces a potential legal issue with the Department of Justice regarding a government contract, management believes it has complied with the contract in all material respects and does not expect a material adverse effect on its financial position. Overall, the report indicates a resilient business performance with solid top-line growth and improved profitability.

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 third quarter of 2008 increased by 10.9% to $1,839.5 million compared to the same period in 2007.
  • 2Operating earnings saw a substantial increase of 32.8% to $231.5 million in Q3 2008.
  • 3Diluted earnings per share grew by 38.8% to $1.79 in Q3 2008, exceeding net earnings growth due to fewer outstanding shares.
  • 4Gross profit margin improved by 0.6 percentage points in Q3 2008, driven by positive inflation recovery.
  • 5The company made strategic acquisitions, including Highsmith Inc. by Lab Safety Supply and Excel F.I.G. Inc. by Acklands - Grainger.
  • 6Grainger continues its market expansion program, targeting completion of several phases in 2008.
  • 7The company had $364.4 million in cash and cash equivalents at the end of Q3 2008, a significant increase from $113.4 million at the beginning of the year.

Frequently Asked Questions

In the third quarter of 2008, W.W. Grainger reported a 10.9% increase in net sales to $1.84 billion, a 32.8% increase in operating earnings to $231.5 million, and a 28.3% increase in net earnings to $140.0 million. Diluted earnings per share rose by 38.8% to $1.79.

Sales growth was driven by increases in all three segments: Grainger Branch-based, Acklands - Grainger, and Lab Safety Supply. This growth was supported by strategic initiatives like market and product line expansion, price increases to offset inflation, and strong performance in sectors such as government and resellers. Acquisitions also contributed to growth.

Discussions with the DOJ regarding the company's contract with the General Services Administration (GSA) are ongoing. The DOJ's letter suggested potential non-compliance with disclosure obligations and pricing provisions, which could lead to claims for treble damages and penalties. While the company believes it has complied in all material respects, an unfavorable resolution could result in material payments, though it is not expected to have a material adverse effect on the company's financial position.

The company's cash and cash equivalents increased significantly from $113.4 million at the beginning of the year to $364.4 million at the end of the third quarter of 2008. This was primarily due to net cash provided by operating activities of $335.3 million and net cash provided by financing activities of $69.9 million, which included proceeds from long-term debt, partially offset by share repurchases and dividend payments.