10-QPeriod: Q1 FY2011

W.W. GRAINGER, INC. Quarterly Report for Q1 Ended Mar 31, 2011

Filed April 28, 2011For Securities:GWW

Summary

W.W. Grainger, Inc. (GWW) reported a strong first quarter for 2011, with net sales increasing by 13% year-over-year to $1.88 billion, driven by a significant increase in volume and supported by price increases and modest contributions from acquisitions and foreign exchange. The company demonstrated robust operational leverage, with operating earnings jumping 44% and net earnings attributable to W.W. Grainger, Inc. soaring 59% to $157.9 million. This performance translated into a substantial 66% increase in diluted earnings per share, which reached $2.18, compared to $1.31 in the prior year period, benefiting from improved net earnings and a reduction in outstanding shares. The company also raised its full-year 2011 guidance for both sales growth (to 7-10%) and earnings per share (to $8.10-$8.60) due to the strong Q1 performance and continued economic strengthening. Management noted that while the pace of sales growth is expected to moderate in subsequent quarters compared to the exceptional Q1, the overall outlook remains positive. Investors should note the company's continued investment in growth initiatives, including sales force expansion and e-commerce enhancements, alongside planned infrastructure upgrades.

Financial Highlights

48 data points
Beta

Revenue

$1.88B

44.0% Gross Margin

Net Income

$157.93M

8.4% Net Margin

EPS (Diluted)

$2.18

Total Assets

$3.93B

Cash & Equivalents

$334.70M

Free Cash Flow

$85.36M

Financial Statements
Beta
Revenue$1.88B
Cost of Revenue$1.05B
Gross Profit$829.61M
SG&A Expenses$567.00M
Operating Income$262.61M
Interest Expense$1.88M
Net Income$157.93M
EPS (Basic)$2.23
EPS (Diluted)$2.18
Shares Outstanding (Basic)69.40M
Shares Outstanding (Diluted)70.91M

Key Highlights

  • 1Net sales surged 13% to $1.88 billion in Q1 2011, driven by a 7% increase in volume, 2% from price, 1% from acquisitions, and 1% from foreign exchange.
  • 2Operating earnings grew an impressive 44% to $262.6 million, showcasing strong operational leverage.
  • 3Net earnings attributable to W.W. Grainger, Inc. increased 59% to $157.9 million.
  • 4Diluted earnings per share (EPS) rose 66% to $2.18, significantly outperforming the $1.31 in Q1 2010, aided by higher earnings and fewer shares outstanding.
  • 5The company raised its full-year 2011 guidance, projecting 7-10% sales growth and EPS between $8.10 and $8.60, up from previous estimates.
  • 6Gross profit margin improved to 44.0% from 42.2% in the prior year, primarily due to price increases outpacing product cost increases.
  • 7Cash flow from operations remained strong at $118.4 million, supporting investments and financing activities.

Frequently Asked Questions

The substantial increase in sales and earnings was primarily driven by an improving economic environment, which led to higher customer demand (volume growth of approximately 7%). This was complemented by price increases, modest contributions from acquisitions and favorable foreign exchange rates. The company also benefited from operational efficiencies, as operating expenses grew at a slower pace than sales, resulting in a significant expansion of operating and net earnings margins.

W.W. Grainger has raised its full-year 2011 guidance, reflecting confidence in continued economic strengthening and the robust performance seen in the first quarter. They now expect sales growth to be in the range of 7% to 10% and earnings per share to be between $8.10 and $8.60. While the pace of sales growth is anticipated to moderate in the latter part of the year compared to the exceptional first quarter, the overall outlook remains positive.

Yes, the company is involved in ongoing discussions and investigations with the Department of Justice (DOJ) and the U.S. Postal Service (USPS) regarding pricing compliance and disclosure obligations related to government contracts. While the company believes it has complied with these contracts, an unfavorable resolution could potentially result in significant payments. Currently, an estimate of possible loss cannot be determined, and the company does not expect these matters to have a material adverse effect on its financial position, though this remains a point of attention.

The company is actively repurchasing its shares, evidenced by $50.7 million spent on treasury stock purchases in the first quarter of 2011, a significant increase from the prior year. This activity, along with dividend payments of $38.3 million, indicates a commitment to returning capital to shareholders. The share repurchases also contributed to the higher earnings per share by reducing the number of outstanding shares.