Grainger Reports Results For The First Quarter 2021
Grainger (NYSE: GWW) today reported results for the first quarter 2021 with sales of $3.1 billion, up 2.8% and up 5.9% on an organic, daily, constant currency basis compared to the first quarter 2020 driven by strong performance in both the High-Touch Solutions North America (N.A.) and Endless Assortment segments.
“The Grainger team served customers exceptionally well and delivered strong results in the first quarter as the economy continued to recover. In our High Touch Solutions (N.A.) segment, we are seeing sequential revenue improvement in nearly all end markets, recovery in non-pandemic product volume, and stabilizing gross profit margins after adjusting for non-core pandemic inventory. Our Endless Assortment segment continues to deliver over 20% top line growth and improved earnings as expected. Our strong performance in the first quarter gives us the confidence to now provide guidance for the full year,” said DG Macpherson, Chairman and Chief Executive Officer.
2021 First Quarter Financial Summary
| ($ in millions) | Q1 2021 | Q1 2020 | Q1 | |||
| Fav. (Unfav.) vs. Prior | ||||||
| Reported | Adjusted1 | Reported | Adjusted1 | Reported | Adjusted1 | |
| Net Sales | $3,084 | $3,084 | $3,001 | $3,001 | 3% | 3% |
| Gross Profit | $1,093 | $1,093 | $1,121 | $1,121 | (2)% | (2)% |
| Operating Earnings | $358 | $358 | $159 | $343 | 126% | 4% |
| Net Earnings Attributable to W.W. Grainger, Inc. | $238 | $238 | $173 | $230 | 38% | 3% |
| Diluted Earnings Per Share | $4.48 | $4.48 | $3.19 | $4.24 | 40% | 6% |
| Gross Margin | 35.5% | 35.5% | 37.4% | 37.4% | (190) bps | (190) bps |
| Operating Margin | 11.6% | 11.6% | 5.3% | 11.4% | 630 bps | 20 bps |
| Tax Rate | 25.8% | 25.8% | (30.4)% | 25.6% | (5,620) bps | (20) 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. During the first quarter of 2020, the company recorded a $177 million write-down of goodwill, intangibles and long-lived assets from the Fabory business which was the largest contributor to the lower reported operating earnings. |
Revenue
Sales for the quarter increased 2.8% as compared to the first quarter of 2020. Excluding revenues from the now divested Fabory and China businesses from the prior year results, and removing the impact from foreign currency translation, daily sales increased 5.9% as compared to the first quarter of 2020. Sales growth was fueled by both the High-Touch Solutions (N.A.) and Endless Assortment segments. In the High-Touch Solutions (N.A.) segment, despite challenging comparisons starting in mid-February with the accelerated pandemic sales of 2020, sales were up 1.8%, and 3.4% on a daily basis versus the prior year quarter. In the Endless Assortment segment, both Zoro U.S. and MonotaRO continued to drive strong customer acquisition throughout the quarter, resulting in a combined 27.4% daily sales growth compared to the first quarter of 2020.
Foreign exchange contributed a 1.1% favorable impact during the first quarter of 2021 compared to the first quarter of 2020. There were 63 sales days in the first quarter of 2021 versus 64 sales days in the first quarter of 2020.
Gross Margin
Gross margin for the first quarter of 2021 was 35.5%, a 190 basis point decline over the prior year quarter. The unfavorable variance was driven almost entirely by a pandemic-related inventory adjustment in the U.S. business on certain non-core SKUs, which are selling below cost based on current market-relevant pricing. As noted on the fourth quarter 2020 earnings call, this inventory adjustment in the first quarter of 2021 was expected and by the end of the second quarter, the company expects to sell-through these non-core pandemic products and complete any potential remaining market-driven inventory adjustments. Absent this inventory adjustment, gross margin would have been nearly flat compared to the prior year. The Endless Assortment segment expanded gross profit margin 35 basis points in the first quarter and continues to deliver incremental gross profit dollars. The significant revenue growth in this lower-margin segment had an expected, dilutive impact to total company gross profit margin of approximately 30 basis points.
Earnings
Reported operating earnings for the first quarter of 2021 of $358 million were up 126% versus the first quarter of 2020, primarily due to charges taken in the first quarter of 2020 related to the now divested Fabory business. On an adjusted basis, operating earnings for the quarter of $358 million were up 4% versus the first quarter of 2020.
In the first quarter of 2021, operating margin of 11.6% increased 630 basis points on a reported basis, 20 basis points on an adjusted basis, versus the first quarter of 2020. The increase in adjusted operating margin was driven by 210 basis points of selling, general, and administrative (SG&A) expense leverage achieved through prudent cost control in the High-Touch Solutions (N.A.) segment and strong expense leverage in Endless Assortment.
Reported earnings per share of $4.48 in the first quarter of 2021 represented an increase of 40% versus the first quarter of 2020. Adjusted earnings per share in this quarter of $4.48 increased 6% versus the first quarter of 2020. The increase in earnings per share was due primarily to higher operating earnings and lower average shares outstanding in the current period.
Tax Rate
The first quarter 2021 reported tax rate was 25.8% versus negative 30.4% in the first quarter of 2020. The difference was primarily driven by tax impacts in the first quarter of 2020 related to the now divested Fabory business. The adjusted tax rates were 25.8% and 25.6% for the three months ended March 31, 2021 and March 31, 2020, respectively.
Cash Flow
Net cash provided by operating activities was $294 million and $244 million for the three months ended March 31, 2021 and 2020, respectively. The increase in cash from operating activities is primarily the result of higher net earnings and favorable working capital, including strong accounts receivable collections, partially offset by the impacts from the now divested Fabory business. The company also returned $256 million to shareholders through dividends and share repurchases during the quarter.
During the annual shareholders’ meeting on April 28, 2021, Grainger announced a dividend increase of 6%, marking its 50th consecutive annual increase, as well as new authorization for a share repurchase program of up to 5 million shares replacing the company’s existing program.
2021 Guidance
Given continued improvements in the economy and confidence in our performance, the company is now providing the following 2021 full year guidance:
| Total Company | 2021 Guidance Range |
| Net Sales | $12.7 – 13.0 billion |
| Daily growth | 8.5 – 11.0% |
| Organic, daily growth | 10.0 – 12.5% |
| Gross Profit Margin | 36.1 – 36.6% |
| Operating Margin | 11.8 – 12.4% |
| Earnings per Share | $19.00 – 20.50 |
| Operating Cash Flow | $1.0 – 1.2 billion |
| CapEx (cash basis) | $225 – 275 million |
| Share Buyback | $600 – 700 million |
| Tax Rate | 25.0 – 26.0% |
| Segment Operating Margin | |
| High-Touch Solutions (N.A.) | 13.2 – 13.7% |
| Endless Assortment | 8.8 – 9.2% |
Webcast
Grainger will conduct a live conference call and webcast at 11:00 a.m. ET on April 30, 2021 to discuss the first quarter results. The webcast will be hosted by DG Macpherson, Chairman and CEO, and Deidra Merriwether, 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.
About Grainger
W.W. Grainger, Inc., with 2020 sales of $11.8 billion, is North America’s leading broad line supplier of maintenance, repair and operating (MRO) products, with operations primarily in North America (N.A.), Japan and the United Kingdom (U.K.).
Visit invest.grainger.com to view information about the company, including a supplement regarding 2021 first quarter results. Additional company information can be found on the Grainger Investor Relations website which includes our Fact Book and Corporate 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 presented or implied in the forward-looking statements include, without limitation: the unknown duration and health, economic, operational and financial impacts of the global outbreak of the coronavirus disease 2019 (COVID-19) as well as the duration, extent and impact of the actions taken or contemplated by governmental authorities or others in connection with the COVID-19 pandemic on the Company’s businesses, its employees, customers and suppliers, including disruption to the Company’s operations resulting from employee illnesses, the development and availability of effective treatment or vaccines, any mandated facility closures of non-essential businesses, stay in shelter health orders or other similar restrictions for customers and suppliers, changes in customers’ product needs, suppliers’ inability to meet unprecedented demand for COVID-19 related products, inventory shortages, the potential for government action to allocate or direct products to certain customers which may cause disruption in relationships with other customers, disruption caused by business responses to the COVID-19 pandemic, including working remote arrangements, which may create increased vulnerability to cybersecurity incidents, including breaches of information systems security, adaptions to the Company’s controls and procedures required by working remote arrangements, including financial reporting processes, which could impact the design or operating effectiveness of such controls or procedures, and global or regional economic downturns or recessions, which could result in a decline in demand for the Company’s products or limit the Company’s ability to access capital markets on terms that are attractive or at all; higher product costs or other expenses; a major loss of customers; loss or disruption of sources of supply; changes in customer or product mix; 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, general commercial disputes, 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 the Company or third parties on which the Company depends; 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 price and trading volume 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; other pandemic diseases or viral contagions; natural or human induced disasters, extreme weather and other catastrophes or conditions; failure to attract, retain, train, motivate, develop and transition key employees; loss of key members of management or key employees; changes in effective tax rates; changes in credit ratings or outlook; the Company’s incurrence of indebtedness and other factors that 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.
