10-QPeriod: Q3 FY2020

W.W. GRAINGER, INC. Quarterly Report for Q3 Ended Sep 30, 2020

Filed October 22, 2020For Securities:GWW

Summary

W.W. Grainger, Inc. (GWW) reported solid top-line growth in its third quarter ending September 30, 2020, with net sales increasing by 2.4% year-over-year to $3.02 billion. This growth was primarily driven by sales of pandemic-related products, particularly in the U.S. segment, which saw a 3.1% increase in net sales. However, the company experienced a 2.2% decrease in gross profit, with a 1.7 percentage point decline in gross profit margin, largely due to the lower margins associated with pandemic-related products and a less favorable business unit mix. Operating earnings saw a significant 12.4% increase, driven by a reduction in Selling, General, and Administrative (SG&A) expenses, which fell by 8.7% as the company implemented cost control measures. Despite the mixed performance in gross profit, the company demonstrated strong operational efficiency and maintained a healthy liquidity position with $859 million in cash. The report also highlights the impact of divestitures, particularly the Fabory business, and the ongoing strategic focus on core MRO distribution in key markets.

Financial Highlights

51 data points
Beta

Revenue

$3.02B

35.6% Gross Margin

Net Income

$240.00M

8.0% Net Margin

EPS (Diluted)

$4.41

Total Assets

$6.58B

Cash & Equivalents

$859.00M

Free Cash Flow

$252.00M

Financial Statements
Beta
Revenue$3.02B
Cost of Revenue$1.94B
Gross Profit$1.07B
SG&A Expenses$694.00M
Operating Income$380.00M
Net Income$240.00M
EPS (Basic)$4.43
EPS (Diluted)$4.41
Shares Outstanding (Basic)53.60M
Shares Outstanding (Diluted)53.90M

Key Highlights

  • 1Net sales increased by 2.4% to $3.02 billion in Q3 2020, driven by pandemic-related product sales.
  • 2Gross profit decreased by 2.2% to $1.07 billion, with a 1.7 percentage point decline in gross profit margin to 35.6%.
  • 3Selling, General, and Administrative (SG&A) expenses decreased by 8.7% to $694 million, reflecting cost control efforts.
  • 4Operating earnings increased by 12.4% to $380 million, benefiting from reduced SG&A.
  • 5Net earnings attributable to W.W. Grainger, Inc. increased by 3.0% to $240 million ($4.41 diluted EPS).
  • 6The company maintained a strong liquidity position with $859 million in cash and cash equivalents as of September 30, 2020.
  • 7Divestitures of Fabory and China businesses were completed in the first nine months of 2020.

Frequently Asked Questions

The COVID-19 pandemic positively impacted net sales due to increased demand for pandemic-related products like PPE and safety items, particularly in the U.S. segment. However, this also led to lower gross profit margins due to the lower-margin nature of these products and an unfavorable business unit mix. Non-pandemic related product sales and sales to non-essential industries were negatively affected.

W.W. Grainger divested its Fabory business in Europe and its China business during the first nine months of 2020 to focus on its core MRO distribution strategy in key markets. These divestitures resulted in a net loss of approximately $109 million and a gain of $5 million, impacting SG&A expenses and overall reported earnings for the period.

The company successfully reduced its Selling, General, and Administrative (SG&A) expenses by 8.7% year-over-year. This reduction was achieved through cost control actions in high-touch businesses, operational efficiencies, and decreases in travel and employee-related expenses. These savings helped offset the decline in gross profit and contributed to the increase in operating earnings.

W.W. Grainger maintained a strong financial position, ending the quarter with $859 million in cash and cash equivalents, an increase from the prior year. This was partly due to operational cash flows, delayed capital investments, and a pause in share repurchases. The company reported approximately $2.1 billion in available liquidity, indicating sufficient resources to meet its obligations.