10-QPeriod: Q2 FY2021

W.W. GRAINGER, INC. Quarterly Report for Q2 Ended Jun 30, 2021

Filed July 30, 2021For Securities:GWW

Summary

W.W. Grainger, Inc. (GWW) reported a strong second quarter and first half of 2021, demonstrating significant recovery and growth compared to the challenging period of 2020. Net sales for the second quarter increased by 13.1% to $3.21 billion, driven by volume in both the High-Touch Solutions N.A. and Endless Assortment segments. Net earnings attributable to W.W. Grainger, Inc. more than doubled to $225 million, or $4.27 per diluted share. For the first six months, net sales grew 7.8% to $6.29 billion, with net earnings attributable to the company rising 61.5% to $463 million, or $8.76 per diluted share. The company successfully navigated the lingering effects of the COVID-19 pandemic, with non-pandemic related sales showing robust growth as the economy reopened, while pandemic-related product sales tapered off. This shift contributed to a slight decrease in gross profit margin due to lower-margin pandemic product sales in the prior year and inventory adjustments on pandemic-related products. However, operational efficiencies and strategic divestitures, such as the Fabory and China businesses in 2020, helped improve operating earnings and overall financial performance. The company's financial position remains strong, with ample liquidity and ongoing return of capital to shareholders through dividends and share repurchases.

Financial Highlights

51 data points
Beta

Revenue

$3.21B

35.0% Gross Margin

Net Income

$225.00M

7.0% Net Margin

EPS (Diluted)

$4.27

Total Assets

$6.46B

Cash & Equivalents

$547.00M

Free Cash Flow

$195.00M

Financial Statements
Beta
Revenue$3.21B
Cost of Revenue$2.08B
Gross Profit$1.12B
SG&A Expenses$790.00M
Operating Income$334.00M
Net Income$225.00M
EPS (Basic)$4.30
EPS (Diluted)$4.27
Shares Outstanding (Basic)52.20M
Shares Outstanding (Diluted)52.50M

Key Highlights

  • 1Net sales for Q2 2021 surged 13.1% to $3.21 billion, and for the six months increased 7.8% to $6.29 billion, indicating a strong rebound.
  • 2Net earnings attributable to W.W. Grainger, Inc. saw substantial growth, nearly doubling to $225 million in Q2 and increasing 61.5% to $463 million for the first half of 2021.
  • 3Diluted EPS reached $4.27 for Q2 and $8.76 for the six months, reflecting improved profitability.
  • 4Operating earnings for Q2 jumped 62.3% to $334 million, and for the six months increased 89.8% to $692 million, demonstrating operational leverage.
  • 5The High-Touch Solutions N.A. segment continues to be the largest contributor to revenue, with strong performance driven by increased volume and a shift back to non-pandemic product sales.
  • 6The Endless Assortment segment showed impressive growth, with net sales up 23.0% in Q2 and 24.2% for the six months, driven by strong customer acquisition.
  • 7The company maintained a healthy liquidity position with approximately $1.8 billion in available liquidity as of June 30, 2021, and continued to return capital to shareholders through share repurchases and dividends.

Frequently Asked Questions

The primary driver for the substantial increase in net sales and earnings is the strong rebound in economic activity and a shift in product mix as the COVID-19 pandemic's impact lessened. Non-pandemic related product sales grew significantly as industries reopened, while demand for pandemic-specific products, which generally have lower margins, began to taper off. This recovery in core business demand, coupled with operational improvements and the benefits from prior year divestitures, fueled the robust financial performance.

The divestitures of businesses like Fabory and China in 2020 have had a significant impact, particularly on year-over-year comparisons. While these actions reduced overall sales figures in the 'Other' segment, they also eliminated operational losses and restructuring charges that weighed down results in 2020. This strategic streamlining has contributed to improved operating earnings and net earnings for the current period, providing a cleaner base for assessing ongoing business performance.

The gross profit margin saw a slight decrease year-over-year, primarily due to inventory adjustments on certain pandemic-related products and the mix shifting back towards more normalized product sales, which include lower-margin pandemic items from prior periods. While the shift away from higher-margin pandemic products could pressure margins, the company's focus on volume growth, operational efficiencies, and potentially favorable pricing actions in its core MRO business are expected to mitigate these effects. Management is monitoring this closely, but the overall trend suggests a return to pre-pandemic margin profiles.

W.W. Grainger maintains a solid financial position. As of June 30, 2021, the company reported approximately $1.8 billion in available liquidity and cash and cash equivalents of $547 million. The debt-to-capitalization ratio remains stable and investment-grade. The company expects to fund its ongoing investments and return cash to shareholders through operating cash flows and existing liquidity. They also retain access to capital markets for additional flexibility if needed.