10-QPeriod: Q3 FY2017

W.W. GRAINGER, INC. Quarterly Report for Q3 Ended Sep 30, 2017

Filed October 26, 2017For Securities:GWW

Summary

W.W. Grainger, Inc. reported its third quarter and nine-month results for the period ending September 30, 2017. For the third quarter, net sales increased by 2% to $2,636 million, while net earnings attributable to W.W. Grainger, Inc. decreased by 13% to $162 million, resulting in diluted EPS of $2.79, down 9% from the prior year. The decrease in profitability was primarily attributed to pricing actions implemented in the U.S. business, which impacted gross profit margins, and increased operating expenses. For the first nine months of 2017, net sales grew 2% to $7,792 million, but net earnings attributable to W.W. Grainger, Inc. declined by 20% to $435 million, with diluted EPS at $7.39, down 16% year-over-year. The company also narrowed its full-year 2017 sales and EPS guidance, now expecting sales growth of 1.5% to 2.5% and EPS between $10.40 and $10.90.

Financial Highlights

52 data points
Beta

Revenue

$2.64B

38.6% Gross Margin

Net Income

$162.00M

6.1% Net Margin

EPS (Diluted)

$2.79

Total Assets

$5.83B

Cash & Equivalents

$284.57M

Free Cash Flow

$288.66M

Financial Statements
Beta
Revenue$2.64B
Cost of Revenue$1.62B
Gross Profit$1.02B
SG&A Expenses$740.00M
Operating Income$277.00M
Interest Expense$23.79M
Net Income$162.00M
EPS (Basic)$2.80
EPS (Diluted)$2.79
Shares Outstanding (Basic)57.32M
Shares Outstanding (Diluted)57.52M

Key Highlights

  • 1Net sales for Q3 2017 increased 2% to $2.64 billion, driven by e-commerce growth and pricing actions in the U.S., but profitability was pressured.
  • 2Diluted EPS for Q3 2017 declined 9% to $2.79 compared to $3.05 in Q3 2016, largely due to a 13% decrease in operating earnings.
  • 3Gross profit margin for Q3 2017 decreased by 1.4 percentage points to 38.6% compared to the prior year, primarily due to pricing adjustments in the U.S. business.
  • 4Operating expenses increased 3% year-over-year in Q3 2017, driven by employee-related costs.
  • 5E-commerce sales represented 53% of total sales in Q3 2017, up from 48% in the prior year, indicating a strong shift to online channels.
  • 6The company narrowed its full-year 2017 guidance, projecting sales growth of 1.5%-2.5% and EPS of $10.40-$10.90.
  • 7The Canada segment continued to experience operating losses, though net sales saw a 5% increase in Q3, partly aided by foreign exchange.

Frequently Asked Questions

The primary drivers for the decrease in net earnings were the pricing actions implemented in the U.S. business, which negatively impacted gross profit margins, and increased operating expenses, mainly due to higher employee-related costs.

E-commerce sales showed strong growth, increasing by 12% in the third quarter of 2017 and representing 53% of total sales, up from 48% in the same period of the prior year. This growth was primarily fueled by Grainger.com and other electronic purchasing platforms in the U.S.

W.W. Grainger narrowed its full-year 2017 guidance. They now expect sales growth to be between 1.5% and 2.5%, and earnings per share to be in the range of $10.40 to $10.90.

Yes, the company continued to evaluate performance and take restructuring actions. These included consolidation of the contact center network in the U.S., branch closures in the U.S. and Canada, disposition of underperforming assets, and the wind-down of operations in Colombia. These initiatives aim to reduce costs and focus on profitability.