10-QPeriod: Q2 FY2018

W.W. GRAINGER, INC. Quarterly Report for Q2 Ended Jun 30, 2018

Filed July 26, 2018For Securities:GWW

Summary

W.W. Grainger, Inc. reported a strong second quarter and first half of 2018, demonstrating significant year-over-year growth in net sales and net earnings attributable to W.W. Grainger, Inc. Net sales increased by 9% for the quarter and 9% for the first six months, driven by volume increases and market share gains, particularly in the U.S. The company also saw continued double-digit growth in its single-channel businesses and improved international sales. Operating earnings showed a substantial increase of 50% for the quarter and 30% for the half-year, reflecting higher sales and improved SG&A expense leverage. Profitability significantly improved, with net earnings attributable to W.W. Grainger, Inc. up 142% for the quarter and 72% for the half-year. This improvement was supported by stronger gross profit, lower selling, general, and administrative expenses (when adjusted for restructuring costs), and a lower effective tax rate, partly due to the Tax Cuts and Jobs Act. The company also raised its full-year 2018 sales and earnings per share guidance, indicating confidence in its ongoing strategies and business outlook.

Financial Highlights

52 data points
Beta

Revenue

$2.86B

38.8% Gross Margin

Net Income

$237.00M

8.3% Net Margin

EPS (Diluted)

$4.16

Total Assets

$5.90B

Cash & Equivalents

$313.00M

Free Cash Flow

$194.00M

Financial Statements
Beta
Revenue$2.86B
Cost of Revenue$1.75B
Gross Profit$1.11B
SG&A Expenses$767.00M
Operating Income$344.00M
Interest Expense$23.00M
Net Income$237.00M
EPS (Basic)$4.19
EPS (Diluted)$4.16
Shares Outstanding (Basic)56.11M
Shares Outstanding (Diluted)56.55M

Key Highlights

  • 1Net sales increased by 9% to $2.86 billion for the three months ended June 30, 2018, and by 9% to $5.63 billion for the six months ended June 30, 2018, compared to the prior year periods.
  • 2Net earnings attributable to W.W. Grainger, Inc. saw substantial growth, increasing by 142% to $237 million for the quarter and by 72% to $469 million for the first six months.
  • 3Operating earnings increased by 50% to $344 million for the quarter and by 30% to $679 million for the first six months, demonstrating improved operational efficiency.
  • 4The U.S. segment remains the primary driver of growth, with net sales up 9% for the quarter and 8% for the first six months, supported by market share gains and improved demand.
  • 5eCommerce sales continued to be a strong performer, growing 18% year-over-year for both the quarter and the first six months, representing 54% and 53% of total sales, respectively.
  • 6The company raised its full-year 2018 guidance for sales growth (5.5% to 8.5%) and earnings per share ($15.05 to $16.05).
  • 7The effective tax rate decreased significantly to 23.4% for the quarter and 22.5% for the first six months due to the Tax Cuts and Jobs Act and excess tax benefits from stock-based awards.

Frequently Asked Questions

Revenue growth was primarily driven by volume increases, especially in the U.S. business, due to market share gains and an improved demand environment. Continued double-digit growth in the single-channel businesses (like Zoro) and improved sales in international operations also contributed significantly. eCommerce sales also showed robust growth, increasing by 18%.

The company continued its restructuring actions, primarily aimed at reducing costs in the U.S. and focusing on profitability in Canada and other businesses. While restructuring costs were incurred, the reported results, especially operating earnings and net earnings, are presented both on a GAAP basis and on an adjusted basis that excludes these restructuring costs. The adjusted figures show a more favorable trend, indicating underlying operational improvements.

W.W. Grainger raised its full-year 2018 guidance, now expecting sales growth between 5.5% and 8.5% and earnings per share in the range of $15.05 to $16.05. This updated guidance reflects the company's confidence in its strategic initiatives and expected market conditions.

The Tax Cuts and Jobs Act (Tax Act) enacted in late 2017 has positively impacted the company's earnings. The effective tax rate decreased notably in the reported periods (to 23.4% for the quarter and 22.5% for the first six months) compared to the prior year. This reduction in the tax rate has directly contributed to the significant increase in net earnings.