CHICAGO, April 23, 2020 — Grainger (NYSE: GWW) today reported results for the 2020 first quarter. Sales of $3.0 billion in the quarter increased 7.2% versus the 2019 first quarter. On a daily basis, sales were up 5.5%. The first quarter had one more selling day than the prior year period.
“During these challenging times, as an essential business, Grainger remains more committed than ever to achieving our purpose … to Keep the World Working. We are focused on serving our customers well, ensuring the safety and well-being of our team members, and maintaining a strong financial position to support us through this crisis. By supporting customers who are saving lives and keeping communities safe, we are demonstrating the power of our products and solutions, deep customers relationships, and exceptional customer experience. Our strategy matters even more today,” said DG Macpherson, Chairman and Chief Executive Officer. “In the midst of the uncertainty, we delivered robust top-line growth, solid profitability, and continued to produce strong operating cash flow in the first quarter. We also bolstered our already solid financial position, maintaining our flexibility to continue making thoughtful investments for the future. We intend to persevere through this crisis and I am confident that we are well-positioned to come out stronger on the other side.”
Daily sales for the quarter increased 5.5%. Sales were composed of volume increases of approximately 7% and price and mix headwinds of around 2%. Foreign exchange contributed a 0.2% unfavorable impact.
Gross Profit Margin
Reported and adjusted gross profit margin for the first quarter of 2020 was 37.4%. This compares to reported and adjusted gross profit margin in the first quarter of 2019 of 39.1% and 39.2%, respectively. The variance was due primarily to business unit mix impact from higher growth in our lower margin endless assortment businesses as well as headwinds in our U.S. segment related to customer and product mix stemming from the COVID-19 pandemic, and challenging year-over-year timing related to pricing actions in the first quarter of 2019.
Reported operating earnings for the 2020 first quarter of $159 million were down 56% versus $363 million in the 2019 first quarter. Reported earnings in the 2020 first quarter included $184 million in restructuring and non-cash impairment charges, which were primarily related to the Fabory business in the Netherlands. On an adjusted basis, operating earnings for the quarter of $343 million were down 6% versus $365 million in the 2019 quarter.
Reported operating margin of 5.3% decreased 770 basis points in the first quarter of 2020 versus the prior year quarter. Adjusted operating margin of 11.4% in the quarter declined 160 basis points versus the prior year quarter. The decline in operating margin was due primarily to lower gross margin, primarily in the U.S. segment, slightly offset by SG&A leverage.
Reported earnings per share of $3.19 in the first quarter was down 29% versus $4.48 in the 2019 first quarter. Adjusted earnings per share in the quarter of $4.24 decreased 6% versus $4.51 in the 2019 first quarter. The decrease in adjusted earnings per share was due primarily to lower operating earnings which were partially offset by lower average shares outstanding in the current year period.
For the 2020 first quarter, the company’s reported tax rate was negative 30.4% versus 25.4% in the 2019 first quarter. The lower tax rate in the current year quarter was primarily driven by tax benefits related to the Fabory business.
Excluding restructuring, net and impairment charges and non-recurring income tax items in both periods, the adjusted tax rates were 25.6% and 25.4% for the three months ended March 31, 2020 and 2019, respectively.
Operating cash flow was $244 million in the 2020 first quarter compared to $127 million in the 2019 first quarter. The increase in operating cash flow was primarily the result of favorable working capital in the current year period. Grainger returned $178 million to shareholders through $78 million in dividends and $100 million used to buy back approximately 336,000 shares in the first quarter of 2020. While we remain committed to returning excess capital to shareholders over time, we have temporarily paused our share repurchase program as we shift to conserve capital during the pandemic.
2020 Company Guidance
Given the uncertainty around the depth and duration of this pandemic, and the related economic response, we are suspending our guidance for 2020. We intend to return to our normal guidance practices when appropriate.
Grainger will conduct a live conference call and webcast at 11:00 a.m. ET on April 23, 2020 to discuss the first quarter results. The webcast will be hosted by DG Macpherson, Chairman and CEO, and Tom Okray, Senior Vice President and CFO, and can be accessed at invest.grainger.com. For those unable to participate in the live event, a webcast replay will be available for 90 days at invest.grainger.com.
W.W. Grainger, Inc., with 2019 sales of $11.5 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 invest.grainger.com to view information about the company, including a supplement regarding 2020 first quarter results. Additional company information can be found on the Grainger Investor Relations website which includes our 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: the unknown duration and economic, operational and financial impacts of the global outbreak of the Coronavirus (COVID-19 pandemic) and the actions taken or contemplated by governmental authorities or others in connection with the pandemic on the company’s businesses, its employees, customers and suppliers, including the uncertain duration of mandated shut-downs for our customers and suppliers, changes in our customers’ product needs, our suppliers’ inability to meet unprecedented demand for COVID-19 related products, the potential for government action to allocate or direct products to certain customers which may cause disruption in our relationships with other customers, and disruption caused by business responses to COVID-19, including working remote arrangements, which may create increased vulnerability to cybersecurity incidents; higher product costs or other expenses; a major loss of customers; loss or disruption of sources of supply; increased competitive pricing pressures; failure to develop or implement new technology initiatives or business strategies; failure to adequately protect intellectual property or successfully defend against infringement claims; fluctuations or declines in the company’s gross profit percentage; the company’s responses to market pressures; 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, consumer protection, pricing (including disaster or emergency declaration pricing statutes), product liability, safety or compliance, or privacy and cybersecurity matters; investigations, inquiries, audits and changes in laws and regulations; failure to comply with laws, regulations and standards; government contract matters; disruption of information technology or data security systems involving us or third parties on which we depend; general industry, economic, market or political conditions; general global economic conditions including tariffs and trade issues and policies; currency exchange rate fluctuations; market volatility, including volatility or price declines of the company’s common stock; commodity price volatility; labor shortages; facilities disruptions or shutdowns; higher fuel costs or disruptions in transportation services; pandemic diseases or viral contagions; 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; changes in credit ratings or outlook; the company’s incurrence of indebtedness 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.