10-QPeriod: Q2 FY2011

W.W. GRAINGER, INC. Quarterly Report for Q2 Ended Jun 30, 2011

Filed July 28, 2011For Securities:GWW

Summary

W.W. Grainger, Inc. (GWW) reported strong financial performance for the second quarter and first half of 2011, demonstrating robust sales growth and improved profitability. Net sales increased by 12.3% to $2,003.0 million for the quarter and 12.5% to $3,886.6 million for the six months ended June 30, 2011, driven by increased volume and strategic pricing, with notable strength in heavy and light manufacturing sectors. Profitability significantly improved, with net earnings attributable to W.W. Grainger, Inc. up 31.6% to $169.9 million for the quarter and 43.6% to $327.8 million for the six months. This was supported by expanding gross profit margins and controlled operating expense growth, despite investments in growth initiatives. Diluted EPS also saw substantial gains, rising to $2.34 for the quarter and $4.52 for the six months. The company also raised its full-year guidance for sales and earnings, reflecting confidence in continued positive trends.

Financial Highlights

50 data points
Beta

Revenue

$2.00B

43.1% Gross Margin

Net Income

$169.88M

8.5% Net Margin

EPS (Diluted)

$2.34

Total Assets

$4.20B

Cash & Equivalents

$465.70M

Free Cash Flow

$139.26M

Financial Statements
Beta
Revenue$2.00B
Cost of Revenue$1.14B
Gross Profit$862.39M
SG&A Expenses$597.11M
Operating Income$265.28M
Interest Expense$1.98M
Net Income$169.88M
EPS (Basic)$2.39
EPS (Diluted)$2.34
Shares Outstanding (Basic)69.61M
Shares Outstanding (Diluted)71.12M

Key Highlights

  • 1Significant increase in Net Sales: Q2 2011 sales grew 12.3% year-over-year to $2.003 billion, and YTD sales increased 12.5% to $3.887 billion.
  • 2Robust Earnings Growth: Net earnings attributable to W.W. Grainger, Inc. surged 31.6% in Q2 and 43.6% YTD, reaching $169.9 million and $327.8 million respectively.
  • 3Improved Profitability: Gross profit margins expanded by 1.2 percentage points in Q2 and 1.5 percentage points YTD, driven by price increases exceeding product costs.
  • 4Strong Performance in Key Segments: The United States segment saw a 9% increase in Q2 sales, while the Canada segment experienced a significant 24% growth.
  • 5Raised Full-Year Guidance: The company increased its 2011 sales growth forecast to 9-10% and EPS guidance to $8.40-$8.70.
  • 6Healthy Cash Flow from Operations: Net cash provided by operating activities increased to $309.5 million for the six months ended June 30, 2011, up from $286.3 million in the prior year.
  • 7Reduced Share Repurchases: Cash used in financing activities decreased substantially due to lower treasury stock repurchases compared to the prior year.

Frequently Asked Questions

The increase in net sales of 12.3% to $2,003.0 million was primarily driven by a combination of factors: an 8% increase in sales volume, a 2% increase from pricing, and a 1% increase from business acquisitions. This growth was partially offset by a 1% decrease related to the prior year's sales of products used for the Gulf of Mexico oil spill cleanup.

Profitability saw significant improvement. For the second quarter, net earnings attributable to W.W. Grainger, Inc. increased by 31.6% to $169.9 million, and diluted EPS rose to $2.34. For the first six months, net earnings increased by 43.6% to $327.8 million, with diluted EPS reaching $4.52. This improvement was due to higher gross profit margins and effective management of operating expenses.

W.W. Grainger raised its full-year 2011 guidance. Sales growth is now projected to be between 9% and 10%, and earnings per share are expected to range from $8.40 to $8.70. The company anticipates gross profit margins to remain stable in the third and fourth quarters, with slight price erosion expected. Operating expenses are projected to increase due to investments in growth initiatives and the opening of a new distribution center.

The company 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, investigations by the USPS Office of Inspector General concerning pricing compliance under specific contracts are ongoing. While the company believes it has complied with its contracts and these matters are not expected to have a material adverse effect on its financial position, an unfavorable resolution could result in significant payments. Due to the uncertainties, an estimate of possible loss cannot be determined.