10-QPeriod: Q1 FY2010

W.W. GRAINGER, INC. Quarterly Report for Q1 Ended Mar 31, 2010

Filed April 29, 2010For Securities:GWW

Summary

W.W. Grainger, Inc. (GWW) reported strong top-line growth for the first quarter of 2010, with net sales increasing 14.1% to $1.67 billion compared to the same period in 2009. This growth was driven by a combination of increased volume, strategic acquisitions, and favorable foreign exchange rates, indicating a positive response to the improving economic environment, particularly in the manufacturing and government sectors. Despite a slight decrease in gross profit margin due to higher sales from lower-margin international businesses and large customers, operating earnings saw a healthy 14.9% increase, signaling effective cost management. Net earnings grew by 2.9% to $99.2 million, translating to a diluted EPS of $1.31, an increase from $1.25 in the prior year. The company also announced a 17% increase in its quarterly dividend, reflecting management's confidence in its financial performance and outlook. However, investors should note the ongoing government investigations into pricing compliance, which, while not expected to be material, could result in significant payments.

Financial Highlights

49 data points
Beta

Revenue

$1.67B

42.2% Gross Margin

Net Income

$99.17M

5.9% Net Margin

EPS (Diluted)

$1.31

Total Assets

$3.81B

Cash & Equivalents

$548.47M

Free Cash Flow

$99.37M

Financial Statements
Beta
Revenue$1.67B
Cost of Revenue$966.61M
Gross Profit$705.74M
SG&A Expenses$522.86M
Operating Income$182.88M
Interest Expense$2.03M
Net Income$99.17M
EPS (Basic)$1.34
EPS (Diluted)$1.31
Shares Outstanding (Basic)72.58M
Shares Outstanding (Diluted)73.85M

Key Highlights

  • 1Net sales increased by a robust 14.1% to $1.67 billion for the first quarter of 2010, compared to $1.47 billion in Q1 2009, reflecting economic recovery and strategic growth.
  • 2Diluted Earnings Per Share (EPS) rose to $1.31 from $1.25 in the prior year, indicating improved profitability on a per-share basis.
  • 3Operating earnings grew by 14.9% to $182.9 million, outperforming sales growth, suggesting good operational leverage and cost control.
  • 4The company declared a quarterly dividend of $0.54 per share, a 17% increase from the previous quarter, signaling confidence in future performance and a commitment to returning capital to shareholders.
  • 5Inventory levels decreased by 4.5% to $852.5 million from $889.7 million sequentially, suggesting improved inventory management.
  • 6Cash and cash equivalents increased significantly by 19.3% to $548.5 million from $459.9 million sequentially, strengthening the company's liquidity position.
  • 7The company is facing ongoing investigations by the DOJ and USPS regarding pricing compliance with government contracts, which could lead to significant payments if resolutions are unfavorable.

Frequently Asked Questions

The primary driver of W.W. Grainger's sales growth in Q1 2010 was a combination of increased volume (approximately 6 percentage points), business acquisitions (approximately 5 percentage points), and favorable foreign exchange rates (approximately 3 percentage points). This was supported by an overall improvement in the economy and specific growth in customer sectors like heavy and light manufacturing.

The gross profit margin decreased by 0.8 percentage points to 42.2% in Q1 2010 compared to the same period in 2009. This decline was primarily attributed to faster sales growth from lower-margin international businesses and an increase in sales to large customers, which typically carry lower margins. Management expects these trends to continue.

Net cash provided by operating activities significantly improved, reaching $113.2 million in Q1 2010, up from $42.5 million in Q1 2009, indicating stronger operational cash generation. The company's cash and cash equivalents increased to $548.5 million, enhancing liquidity. Furthermore, the debt-to-capitalization ratio remained healthy at 18.0% as of March 31, 2010, suggesting a solid financial structure.

Yes, W.W. Grainger is involved in ongoing discussions with the Department of Justice (DOJ) regarding its contract with the U.S. General Services Administration (GSA) concerning pricing provisions and disclosure obligations. Additionally, the company has received subpoenas from the U.S. Postal Service (USPS) related to pricing compliance under other contracts. While the company believes it has complied with the contracts and that these matters are not expected to have a material adverse effect on its financial position, an unfavorable resolution could result in significant payments.