10-QPeriod: Q1 FY2018

W.W. GRAINGER, INC. Quarterly Report for Q1 Ended Mar 31, 2018

Filed April 27, 2018For Securities:GWW

Summary

W.W. Grainger, Inc. reported a strong first quarter for 2018, demonstrating significant year-over-year growth in sales and net earnings. Net sales increased by 9% to $2.77 billion, primarily driven by volume growth in the U.S. market and continued expansion of its online businesses. The company also saw a substantial 32% increase in net earnings attributable to W.W. Grainger, Inc., reaching $231.5 million, supported by higher operating earnings and a lower effective tax rate due to the Tax Cuts and Jobs Act. Key operational improvements include a 14% increase in operating earnings, reflecting effective cost management and revenue growth. The company's strategic pricing initiatives and market share gains in the U.S. are paying off, while its single-channel online businesses are experiencing robust growth. Grainger has also raised its full-year 2018 guidance for both sales and earnings per share, signaling confidence in its continued performance. Despite some challenges in the Canadian market, the overall financial health and strategic execution appear strong.

Financial Highlights

52 data points
Beta

Revenue

$2.77B

39.5% Gross Margin

Net Income

$232.00M

8.4% Net Margin

EPS (Diluted)

$4.07

Total Assets

$5.90B

Cash & Equivalents

$302.00M

Free Cash Flow

$98.00M

Financial Statements
Beta
Revenue$2.77B
Cost of Revenue$1.67B
Gross Profit$1.09B
SG&A Expenses$757.00M
Operating Income$335.00M
Interest Expense$25.00M
Net Income$232.00M
EPS (Basic)$4.09
EPS (Diluted)$4.07
Shares Outstanding (Basic)56.06M
Shares Outstanding (Diluted)56.40M

Key Highlights

  • 1Net sales increased by 9% year-over-year to $2.77 billion in Q1 2018, driven by strong volume growth in the U.S. and double-digit growth in online channels.
  • 2Net earnings attributable to W.W. Grainger, Inc. surged by 32% to $231.5 million.
  • 3Operating earnings increased by 14% to $334.8 million, demonstrating effective cost control and sales leverage.
  • 4The company raised its full-year 2018 sales growth guidance to 5-8% and EPS guidance to $14.30-$15.30.
  • 5eCommerce sales grew by 18% and represented 53% of total sales, highlighting the increasing importance of digital platforms.
  • 6The effective tax rate decreased significantly to 21.6% from 32.4% in the prior year, largely due to the Tax Cuts and Jobs Act.
  • 7The U.S. segment remains the primary growth driver, with sales up 8% and operating earnings up 15%.

Frequently Asked Questions

The primary driver of the 9% increase in net sales was strong volume growth in the U.S. business, attributed to market share gains and an improved demand environment. Additionally, the company experienced continued double-digit growth in its single-channel online businesses in the U.S. and Japan, along with improved sales in Europe and Latin America. These positive trends were partially offset by lower sales in the Canada business.

The Tax Cuts and Jobs Act significantly reduced W.W. Grainger's effective tax rate to 21.6% for the first quarter of 2018, compared to 32.4% in the prior year. This reduction in tax expense contributed to the substantial increase in net earnings. The company noted it had not completed the analysis for all tax effects of the Act by the reporting date but had recorded estimates at year-end 2017 related to deferred tax balances and the transition tax.

W.W. Grainger has raised its full-year 2018 guidance, now expecting sales growth of 5% to 8% (up from 3% to 7%) and earnings per share between $14.30 and $15.30 (up from $12.95 to $14.15). This optimistic outlook reflects the strong performance in the first quarter, particularly the better-than-expected volume growth in the U.S. and improved gross profit.

The U.S. segment is the main growth engine, with net sales up 8% and operating earnings up 15%. The 'Other businesses' segment, which includes single-channel online operations like Zoro and MonotaRO, saw an 18% increase in net sales and improved operating earnings. The Canada segment experienced a slight 2% decrease in net sales, primarily due to volume declines, although pricing and foreign exchange movements provided some offset. Operating losses in Canada improved compared to the prior year.