10-QPeriod: Q1 FY2017

W.W. GRAINGER, INC. Quarterly Report for Q1 Ended Mar 31, 2017

Filed April 27, 2017For Securities:GWW

Summary

W.W. Grainger, Inc. (GWW) reported its first-quarter 2017 results, indicating a modest 1% increase in net sales to $2.54 billion, driven primarily by growth in its single-channel online businesses in the U.S. and Japan. However, profitability was impacted by strategic pricing initiatives aimed at improving market competitiveness, leading to a 2% decrease in gross profit and a 7% decline in operating earnings. Net earnings attributable to W.W. Grainger, Inc. fell by 6% to $174.7 million, resulting in diluted earnings per share of $2.93, down from $2.98 in the prior year quarter. The company is actively managing its business environment, which is influenced by various economic indicators and industry trends. Despite the near-term pressure on margins from pricing adjustments, Grainger is focused on long-term share gains and customer acquisition. The company also announced a dividend of $1.28 per share, reflecting a commitment to returning value to shareholders. Investors should note the ongoing impact of strategic pricing on profitability and the company's outlook for the full year, which was revised downwards.

Financial Highlights

52 data points
Beta

Revenue

$2.54B

40.1% Gross Margin

Net Income

$175.00M

6.9% Net Margin

EPS (Diluted)

$2.93

Total Assets

$5.78B

Cash & Equivalents

$238.80M

Free Cash Flow

$102.18M

Financial Statements
Beta
Revenue$2.54B
Cost of Revenue$1.52B
Gross Profit$1.02B
SG&A Expenses$726.00M
Operating Income$293.00M
Interest Expense$18.71M
Net Income$175.00M
EPS (Basic)$2.95
EPS (Diluted)$2.93
Shares Outstanding (Basic)58.72M
Shares Outstanding (Diluted)59.20M

Key Highlights

  • 1Net sales increased by 1% to $2.54 billion in Q1 2017 compared to Q1 2016.
  • 2Gross profit decreased by 2% to $1.02 billion, with a gross profit margin decline of 1.6 percentage points to 40.1%, primarily due to strategic pricing initiatives.
  • 3Operating earnings decreased by 7% to $295 million.
  • 4Net earnings attributable to W.W. Grainger, Inc. decreased by 6% to $174.7 million.
  • 5Diluted earnings per share were $2.93, down from $2.98 in the prior year quarter.
  • 6eCommerce sales grew significantly, representing 51% of total sales in Q1 2017, up from 45% in Q1 2016.
  • 7The company lowered its 2017 sales growth guidance to a range of 1% to 4% and its EPS guidance to $10.00-$11.30.

Frequently Asked Questions

The primary driver behind the decrease in gross profit margin is the company's strategic pricing initiatives. These actions, aimed at establishing more market-competitive prices, are expected to enable faster growth through share gain with existing and new customers, but they compress margins in the short term.

The adoption of ASU 2016-09, which recognizes excess tax benefits from stock-based awards as income tax expense instead of directly to equity, resulted in a $0.13 benefit to diluted earnings per share in Q1 2017. It also led to a reclassification of $7.6 million of excess tax benefits from financing to operating activities.

W.W. Grainger lowered its 2017 guidance on April 18, 2017. The revised outlook projects sales growth in the range of 1% to 4% and earnings per share between $10.00 and $11.30, reflecting the impact of pricing initiatives and foreign exchange.

The company maintains a debt ratio and liquidity position that provide flexibility. Total debt as a percent of total capitalization was 54.4% at March 31, 2017. Grainger has access to financing through internally generated funds and lines of credit.