10-QPeriod: Q2 FY2020

W.W. GRAINGER, INC. Quarterly Report for Q2 Ended Jun 30, 2020

Filed July 23, 2020For Securities:GWW

Summary

W.W. Grainger, Inc. reported a decline in net sales and net earnings for the second quarter and the first half of 2020 compared to the prior year, primarily impacted by the COVID-19 pandemic. Net sales decreased by 1.9% in Q2 2020 and increased by 2.6% in the first half of 2020. Net earnings attributable to W.W. Grainger, Inc. saw a significant drop of 56.3% in Q2 and 44.1% in the first half, largely due to the impact of the pandemic on sales volumes and product mix, as well as a notable loss from the divestiture of the Fabory business. The company experienced increased demand for pandemic-related products like PPE and safety supplies, particularly from government and healthcare sectors, which helped offset declines in other industries. However, this shift in product mix, combined with lower-margin sales from its endless assortment businesses, negatively impacted gross profit margins. The company took proactive measures to preserve liquidity, including drawing down on its credit facility and pausing share repurchases, ending the quarter with a strong cash position.

Financial Highlights

51 data points
Beta

Revenue

$2.84B

35.8% Gross Margin

Net Income

$114.00M

4.0% Net Margin

EPS (Diluted)

$2.10

Total Assets

$7.19B

Cash & Equivalents

$1.60B

Free Cash Flow

$189.00M

Financial Statements
Beta
Revenue$2.84B
Cost of Revenue$1.82B
Gross Profit$1.02B
SG&A Expenses$811.00M
Operating Income$205.00M
Net Income$114.00M
EPS (Basic)$2.11
EPS (Diluted)$2.10
Shares Outstanding (Basic)53.50M
Shares Outstanding (Diluted)53.70M

Key Highlights

  • 1Net sales for Q2 2020 decreased by 1.9% to $2.837 billion compared to $2.893 billion in Q2 2019.
  • 2Net earnings attributable to W.W. Grainger, Inc. for Q2 2020 decreased by 56.3% to $114 million ($2.10 per diluted share) compared to $260 million ($4.67 per diluted share) in Q2 2019.
  • 3The company recognized a loss of approximately $109 million related to the divestiture of its Fabory business in Europe on June 30, 2020.
  • 4Cash and cash equivalents significantly increased to $1.603 billion as of June 30, 2020, up from $360 million as of December 31, 2019, bolstered by a $1 billion drawdown from its credit facility.
  • 5Operating earnings for Q2 2020 decreased by 45.9% to $205 million, impacted by lower gross profit and higher SG&A expenses, partly due to the Fabory divestiture.
  • 6Sales in the Canada segment saw a significant decrease of 21.7% in Q2 2020, largely due to market share declines and the impact of low oil prices on the oil industry-dependent customer base.
  • 7The company maintained a strong liquidity position, ending Q2 2020 with approximately $1.9 billion in available liquidity, including $1.6 billion in cash.

Frequently Asked Questions

The COVID-19 pandemic significantly impacted Grainger's performance. While demand for pandemic-related products like PPE increased, sales to non-essential and disrupted industries declined. This shift in product mix, along with lower margins from its endless assortment businesses, adversely affected gross profit. The company also saw varied performance across its segments, with Canada experiencing significant declines due to market conditions exacerbated by the pandemic.

W.W. Grainger divested its Fabory business in Europe on June 30, 2020. This transaction resulted in a net loss of approximately $109 million, which was recorded within Selling, general and administrative expenses. This loss negatively impacted the company's reported net earnings for the quarter and the six-month period.

Grainger significantly strengthened its liquidity position. Cash and cash equivalents increased to $1.603 billion as of June 30, 2020, up from $360 million at the end of 2019. This increase was primarily due to a proactive $1 billion drawdown from its credit facility in March 2020, aimed at preserving financial flexibility amidst global market uncertainties related to the COVID-19 pandemic. The company ended the quarter with approximately $1.9 billion in available liquidity.

Inventories increased to $1.695 billion as of June 30, 2020, from $1.655 billion as of December 31, 2019. Accounts receivable remained relatively stable, increasing slightly to $1.460 billion from $1.425 billion. The increase in inventory, despite lower sales in Q2, could be attributed to shifts in demand and supply chain management during the pandemic.