10-QPeriod: Q2 FY2010

W.W. GRAINGER, INC. Quarterly Report for Q2 Ended Jun 30, 2010

Filed July 29, 2010For Securities:GWW

Summary

W.W. Grainger, Inc. (GWW) reported a strong second quarter and first half of 2010, demonstrating significant recovery and growth compared to the previous year, which was impacted by the economic downturn. Net sales for the quarter increased by 16.3% year-over-year, reaching $1.78 billion, driven by a combination of increased volume, strategic acquisitions, and favorable foreign exchange rates. This top-line growth translated into a substantial 39.6% increase in operating earnings and a similar increase in net earnings attributable to W.W. Grainger, Inc., reaching $129.1 million ($1.73 per diluted share). The company's performance reflects an improving economic environment, with industrial production showing positive trends. Grainger experienced broad-based sales increases across most customer segments, with notable strength in heavy manufacturing and reseller segments. The company also raised its full-year 2010 sales growth and earnings per share guidance, indicating management's confidence in continued positive momentum. The balance sheet remains solid, with a healthy working capital position and a manageable debt ratio, allowing for continued investment in growth initiatives and shareholder returns.

Financial Highlights

49 data points
Beta

Revenue

$1.78B

41.9% Gross Margin

Net Income

$129.08M

7.2% Net Margin

EPS (Diluted)

$1.73

Total Assets

$3.73B

Cash & Equivalents

$388.06M

Free Cash Flow

$159.97M

Financial Statements
Beta
Revenue$1.78B
Cost of Revenue$1.04B
Gross Profit$747.09M
SG&A Expenses$532.17M
Operating Income$214.91M
Interest Expense$2.22M
Net Income$129.08M
EPS (Basic)$1.76
EPS (Diluted)$1.73
Shares Outstanding (Basic)71.69M
Shares Outstanding (Diluted)72.93M

Key Highlights

  • 1Net sales for the three months ended June 30, 2010, increased by 16.3% to $1.78 billion compared to $1.53 billion in the prior year period.
  • 2Operating earnings for the quarter surged by 39.6% to $214.9 million, up from $153.9 million in Q2 2009, demonstrating strong operational leverage.
  • 3Diluted earnings per share (EPS) rose to $1.73 for the quarter, a 43.0% increase from $1.21 in the prior year, with management raising full-year EPS guidance.
  • 4Gross profit margin improved by 1.1 percentage points to 41.9%, driven by pricing initiatives, lower freight costs, and a favorable comparison to a prior year promotion.
  • 5The company raised its full-year 2010 sales growth guidance to a range of 12% to 14% and EPS guidance to $6.10-$6.40.
  • 6Net cash provided by operating activities for the six months ended June 30, 2010, increased to $286.3 million from $232.6 million in the prior year, supporting investment and shareholder returns.
  • 7The company repurchased approximately 2.3 million shares of common stock during the second quarter for $252.3 million, underscoring its commitment to returning capital to shareholders.

Frequently Asked Questions

W.W. Grainger's net sales for the second quarter of 2010 increased by 16.3% to $1.78 billion, up from $1.53 billion in the second quarter of 2009. This growth was driven by a 9% increase in volume, 5% from acquisitions, and 2% from foreign exchange, partially offset by the absence of H1N1-related product sales seen in the prior year.

The company noted that improving economic conditions, evidenced by an 8.2% increase in industrial production from June 2009 to June 2010, positively impacted sales. Grainger's sales trends historically correlate with industrial production and non-farm payrolls, both of which showed signs of recovery.

Yes, the company disclosed ongoing discussions with the Department of Justice (DOJ) regarding its contract with the General Services Administration (GSA), concerning pricing provisions and disclosure obligations. Additionally, investigations by the U.S. Postal Service (USPS) Office of Inspector General into pricing compliance under two other contracts were also ongoing. While not expected to have a material adverse effect, an unfavorable resolution could result in significant payments.

For the first six months of 2010, net cash provided by operating activities was $286.3 million. The company also repurchased approximately 2.3 million shares for $252.3 million in the second quarter. Cash dividends paid for the first six months amounted to $74.6 million, indicating a continued focus on returning capital to shareholders while funding operations and investments.