10-QPeriod: Q3 FY2013

W.W. GRAINGER, INC. Quarterly Report for Q3 Ended Sep 30, 2013

Filed October 31, 2013For Securities:GWW

Summary

W.W. Grainger, Inc. reported a strong third quarter and first nine months of 2013, demonstrating significant revenue and earnings growth compared to the prior year. Net sales for the third quarter increased by 5.1% to $2.4 billion, driven by a 4% daily sales increase composed of volume growth and a small contribution from acquisitions, partially offset by foreign exchange headwinds. Net earnings attributable to W.W. Grainger, Inc. surged by 35.6% to $211 million, translating to a 37% increase in diluted earnings per share to $2.95. For the nine-month period ended September 30, 2013, net sales grew by 5.0% to $7.06 billion, with net earnings attributable to the company rising by 20.0% to $640 million. Diluted earnings per share for the nine months increased by 21% to $8.92. The company's operational performance was bolstered by solid sales growth in key end markets like light manufacturing and natural resources, alongside improved gross profit margins resulting from cost savings and price increases. Management has narrowed its full-year 2013 sales and earnings per share guidance, reflecting current performance and a cautious outlook on the global economy and foreign exchange rates.

Financial Highlights

53 data points
Beta

Revenue

$2.40B

43.8% Gross Margin

Net Income

$210.79M

8.8% Net Margin

EPS (Diluted)

$2.95

Total Assets

$5.25B

Cash & Equivalents

$540.00M

Free Cash Flow

$288.42M

Financial Statements
Beta
Revenue$2.40B
Cost of Revenue$1.35B
Gross Profit$1.05B
SG&A Expenses$704.65M
Operating Income$346.71M
Interest Expense$3.73M
Net Income$210.79M
EPS (Basic)$2.99
EPS (Diluted)$2.95
Shares Outstanding (Basic)69.46M
Shares Outstanding (Diluted)70.55M

Key Highlights

  • 1Net sales for the third quarter of 2013 reached $2.4 billion, a 5.1% increase year-over-year, with daily sales up 4%.
  • 2Net earnings attributable to W.W. Grainger, Inc. for the third quarter increased significantly by 35.6% to $211 million.
  • 3Diluted earnings per share for Q3 2013 rose 37% to $2.95, compared to $2.15 in Q3 2012.
  • 4For the first nine months of 2013, net sales were $7.06 billion (up 5.0%) and net earnings attributable to W.W. Grainger, Inc. were $640 million (up 20.0%).
  • 5Gross profit margin improved in both the third quarter (0.2 percentage points) and the first nine months (0.5 percentage points) of 2013 due to cost savings and pricing.
  • 6Operating expenses decreased in Q3 2013 due to the absence of significant reserves recorded in Q3 2012, though underlying expenses increased due to growth investments.
  • 7The company narrowed its full-year 2013 sales growth guidance to 5-6% and EPS guidance to $11.45-$11.65.

Frequently Asked Questions

Revenue growth in the third quarter of 2013 was driven by a 4% increase in daily sales, primarily from higher sales volume across various customer end markets, particularly light manufacturing, natural resources, and heavy manufacturing. Business acquisitions contributed a small amount to growth, while unfavorable foreign exchange rates had a slight negative impact.

Operating expenses decreased by 5% in the third quarter of 2013. This decrease was largely due to the absence of a $76 million reserve recorded in the third quarter of 2012 related to government contract issues. Excluding this one-time item, operating expenses actually increased by 6%, primarily due to increased investments in growth initiatives such as eCommerce, sales force expansion, and infrastructure improvements.

W.W. Grainger narrowed its full-year 2013 guidance. The company now expects sales growth to be in the range of 5% to 6%, down from the previous 5% to 8% range. Earnings per share guidance was also narrowed to a range of $11.45 to $11.65, from $11.40 to $12.00. These adjustments reflect current performance and a softer global economy, as well as unfavorable foreign exchange.

Yes, on August 23, 2013, the company acquired E&R Industrial Sales, Inc. This acquisition is expected to contribute to results starting in the fourth quarter of 2013. However, the financial impact of this acquisition was considered immaterial for the third quarter results, and the purchase price allocation was not finalized.