Grainger Reports Results For The 2019 Second Quarter

CHICAGO, July 24, 2019 — Grainger (NYSE: GWW) today reported results for the 2019 second quarter. Sales of $2.9 billion in the quarter increased 1 percent versus the 2018 second quarter. On a constant currency basis, sales were up 2 percent.


“We continued to demonstrate our ability to generate profitable growth in the second quarter of 2019. Despite slower than expected global economic growth and our significant investment in the endless assortment model, we drove strong operating results and cash flow,” said DG Macpherson, Chairman and Chief Executive Officer. “We gained share in the first half of the year at a modest pace, and we remain confident in our ability to accelerate our growth versus the market for the remainder of the year as our top line initiatives continue to take hold. We are reiterating our 2019 total company guidance ranges for gross profit margin, operating margin and earnings per share. We are lowering our estimate for market growth from 1 to 4 percent to -1 to 2 percent and lowering our revenue guidance from 4 to 8.5 percent growth to 2 to 5 percent growth due to the weaker demand environment and performance at AGI and Cromwell.”

2019 Second Quarter Financial Summary
($ in millions)Q2 2019Q2 2018Q2 v. Prior
ReportedAdjusted1ReportedAdjusted1ReportedAdjusted1
Net Sales$2,893$2,893$2,861$2,8611%1%
Gross Profit$1,121$1,121$1,111$1,1121%1%
Operating Earnings$380$377$344$35911%5%
Net Earnings$260$258$237$24910%4%
Diluted EPS$4.67$4.64$4.16$4.3712%6%
Gross Profit Margin38.7%38.7%38.8%38.9%-10 bps-15 bps
Operating Margin13.1%13.0%12.0%12.6%110 bps50 bps
Tax Rate25.6%25.5%23.4%23.3%220 bps220 bps
(1)Results exclude restructuring and income tax items as shown in the supplemental information of this release. Reconciliations of the adjusted measures reflected in this table to the most directly comparable GAAP measures are provided in the supplemental information of this release. 2019 reported results included restructuring primarily in Canada resulting in a $3 million net benefit to operating earnings and a negative $0.03 impact to EPS.

Revenue 
Sales for the quarter increased 1 percent. On a constant currency basis, sales increased 2 percent. Sales were primarily composed of a 1.5 percentage point increase in volume and a 0.5 percentage point increase from price.

Gross Profit Margin 
Reported gross profit margin for the second quarter was 38.7 percent versus 38.8 percent in the 2018 second quarter. Adjusted gross profit margin of 38.7 percent in the quarter decreased 15 basis points versus the prior year quarter.

Earnings 
Reported operating earnings for the 2019 second quarter of $380 million were up 11 percent versus $344 million in the 2018 second quarter. On an adjusted basis, operating earnings for the quarter of $377 million were up 5 percent versus $359 million in the 2018 quarter.

Reported operating margin of 13.1 percent increased 110 basis points in the second quarter of 2019 versus the prior year quarter. Adjusted operating margin of 13.0 percent in the quarter increased 50 basis points versus the prior year quarter. The increase in operating margin was due primarily to favorable gross profit margin in the U.S., and lower selling, general and administrative expenses in the U.S., at the corporate level and at AGI.

Reported earnings per share of $4.67 in the second quarter were up 12 percent versus $4.16 in the 2018 second quarter. Adjusted earnings per share in the quarter of $4.64 increased 6 percent versus $4.37 in the 2018 second quarter. The improvement in both reported and adjusted earnings per share was due primarily to operating earnings growth and lower average shares outstanding.

Tax Rate 
For the 2019 second quarter, the company’s reported tax rate was 25.6 percent versus 23.4 percent in the 2018 second quarter. The increase was driven by lower tax benefits from stock-based compensation and the absence of clean-energy tax benefits from investments which concluded in 2018.  

Cash Flow 
Operating cash flow was $323 million in the 2019 second quarter compared to $248 million in the 2018 second quarter. The 30 percent increase in operating cash flow was primarily the result of higher net income and favorable changes in working capital, partially offset by higher income tax payments when compared to the prior year quarter. The company used the cash generated during the quarter to invest in the business and return cash to shareholders through share repurchases and dividends. Grainger returned $352 million to shareholders through $87 million in dividends and $265 million used to buy back approximately 970,000 shares in the second quarter of 2019.

2019 Updated Company Guidance:
The company is providing the following updated 2019 guidance at the total Company level:
 Total Company2019 Guidance Range
Market Growth (nominal)-1.0% to 2.0%*
Net Sales2.0% to 5.0% growth*
Gross Profit Margin38.1% to 38.7%
Operating Margin12.2% to 13.0%
Earnings per Share$17.10 to $18.70
*Updated as of July 24, 2019
In the U.S., Business Investment and Exports are two major indicators of MRO spending. Per the Global Insight July 2019 forecast, Business Inventory is forecast to improve while Business Investment, Industrial Production, Exports and GDP are forecast to soften, as a result of slowing global growth, trade tensions and associated uncertainty, diminishing support from fiscal stimulus and a decline in the pace of inventory accumulation. Per the Global Insight June 2019 forecast, Canada’s Business Investment, Exports, Industrial Production and GDP are expected to slow due to a reduction in spending, delayed investments and weakness in oil prices and slowing global oil demand.

Webcast 
Grainger will conduct a live conference call and webcast at 11:00 a.m. ET on July 24, 2019, to discuss the second quarter. The webcast will be hosted by DG Macpherson, Chairman and CEO, and Tom Okray, Senior Vice President and CFO, and can be accessed at www.invest.grainger.com. For those unable to participate in the live event, a webcast replay will be available for 90 days at www.invest.grainger.com.

About Grainger 
W.W. Grainger, Inc., with 2018 sales of $11.2 billion, is North America’s leading broad line supplier of maintenance, repair and operating products (MRO), with operations also in Europe, Asia and Latin America.

Visit www.invest.grainger.com  to view information about the company, including a supplement regarding 2019 second quarter results. The Grainger Investor Relations  website also includes company information in the company Fact Book  and Corporate Social Responsibility report .

Safe Harbor Statement 
All statements in this communication, other than those relating to historical facts, are “forward-looking statements.” Forward-looking statements can generally be identified by their use of terms such as “anticipate,” “estimate,” “believe,” “expect,” “could,” “forecast,” “may,” “intend,” “plan,” “predict,” “project” “will” or “would” and similar terms and phrases, including references to assumptions. Forward-looking statements are not guarantees of future performance and are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from such statements. Forward-looking statements include, but are not limited to, statements about future strategic plans and future financial and operating results. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, among others: higher product costs or other expenses; a major loss of customers; loss or disruption of source of supply; increased competitive pricing pressures; failure to develop or implement new technology initiatives; the implementation, timing and results of our strategic pricing initiatives; the outcome of pending and future litigation or governmental or regulatory proceedings, including with respect to wage and hour, anti-bribery and corruption, environmental, advertising, privacy and cybersecurity matters; investigations, inquiries, audits and changes in laws and regulations; disruption of information technology or data security systems; general industry, economic, market or political conditions; general global economic conditions; currency exchange rate fluctuations; market volatility; commodity price volatility; labor shortages; facilities disruptions or shutdowns; higher fuel costs or disruptions in transportation services; natural and other catastrophes; unanticipated and/or extreme weather conditions; loss of key members of management; our ability to operate, integrate and leverage acquired businesses; changes in effective tax rates; our common stock, including volatility in our stock price; and other factors which can be found in our filings with the Securities and Exchange Commission, including our most recent periodic reports filed on Form 10-K and Form 10-Q, which are available on our Investor Relations website. Forward-looking statements are given only as of the date of this communication and we disclaim any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.

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