10-QPeriod: Q3 FY2019

W.W. GRAINGER, INC. Quarterly Report for Q3 Ended Sep 30, 2019

Filed October 23, 2019For Securities:GWW

Summary

W.W. Grainger, Inc. reported solid financial results for the third quarter of 2019, demonstrating a notable recovery in profitability compared to the prior year period. Net sales saw a modest increase of 4%, driven by volume gains in the U.S. and its "endless assortment" businesses, though partially offset by weaker performance in Canada and the UK. The most significant investor takeaway is the substantial improvement in operating and net earnings. Operating earnings surged by 78% year-over-year, while net earnings attributable to W.W. Grainger, Inc. more than doubled. This enhanced profitability was largely due to a significant reduction in Selling, General, and Administrative (SG&A) expenses, particularly when adjusting for prior-year restructuring and impairment charges, coupled with a strong recovery in the U.S. segment's operating performance. The company's focus on market share gains through its MRO solutions strategy and efforts to improve customer service appear to be paying off. Looking ahead, Grainger continues to navigate a mixed economic environment with slowing indicators in both the U.S. and Canada. However, the company's strategic focus on its core U.S. business, coupled with the growth of its "endless assortment" segments, positions it to manage these external factors. Investors should monitor the company's ability to maintain its pricing strategies and control costs to sustain this improved profitability trajectory.

Financial Highlights

52 data points
Beta

Revenue

$2.95B

37.3% Gross Margin

Net Income

$233.00M

7.9% Net Margin

EPS (Diluted)

$4.25

Total Assets

$5.92B

Cash & Equivalents

$286.00M

Free Cash Flow

$264.00M

Financial Statements
Beta
Revenue$2.95B
Cost of Revenue$1.85B
Gross Profit$1.10B
SG&A Expenses$761.00M
Operating Income$338.00M
Interest Expense$21.00M
Net Income$233.00M
EPS (Basic)$4.27
EPS (Diluted)$4.25
Shares Outstanding (Basic)54.10M
Shares Outstanding (Diluted)54.40M

Key Highlights

  • 1Net sales increased by 4% to $2.95 billion for the third quarter of 2019 compared to the prior year, driven by volume growth.
  • 2Operating earnings significantly increased by 78% to $338 million, indicating strong operational leverage and recovery.
  • 3Net earnings attributable to W.W. Grainger, Inc. more than doubled, rising 123% to $233 million.
  • 4Diluted earnings per share saw a substantial increase of 134% to $4.25.
  • 5Selling, General, and Administrative (SG&A) expenses decreased by 14% to $761 million, reflecting cost management efforts and the absence of significant prior-year charges.
  • 6The U.S. segment continued to be the primary driver of growth, with net sales up 4% and operating earnings increasing by 5%.
  • 7The company repurchased 725,915 shares during the quarter under its announced share repurchase program.

Frequently Asked Questions

The significant increase in profitability was driven by a combination of factors including a 4% increase in net sales, primarily from volume growth in the U.S. and 'endless assortment' businesses. Crucially, Selling, General, and Administrative (SG&A) expenses decreased by 14% year-over-year, largely due to the absence of significant restructuring and impairment charges seen in the prior year. This operational efficiency, coupled with strong performance in the U.S. segment, led to a substantial rise in operating and net earnings.

The U.S. segment showed robust performance, with net sales increasing by 4% and operating earnings growing by 5%. The 'Other businesses,' particularly the 'endless assortment' segments like Zoro and MonotaRO, also demonstrated strong growth in net sales (11%). However, the Canada segment experienced a decline in net sales of 14% due to market share losses and customer disruption from footprint reductions. The UK business (Cromwell) also contributed to lower sales.

Grainger acknowledges a mixed business environment with slowing economic indicators in the U.S. and Canada. The company's strategy remains focused on growing market share in the U.S. by offering advantaged MRO solutions, differentiated sales and services, and unparalleled customer service. The continued growth of its 'endless assortment' businesses also provides a positive outlook. Investors should watch how the company navigates trade tensions, global growth slowdowns, and maintains its pricing and cost management strategies.

During the third quarter of 2019, W.W. Grainger, Inc. actively engaged in its share repurchase program, buying back 725,915 shares. This activity was part of a publicly announced plan authorized by the Board of Directors. This indicates a commitment to returning capital to shareholders and managing share count.