Grainger (NYSE: GWW) today reported results for the second quarter 2021 with sales of $3.2 billion, up 13.1% and up 15.0% on an organic, daily, constant currency basis compared to the second quarter 2020. Both the High-Touch Solutions N.A. and Endless Assortment segments produced strong top-line growth.
“Grainger is uniquely positioned to navigate one of the most challenging supply chain environments in recent history, with labor shortages, material shortages and transportation challenges. I am proud of how the Grainger team has remained committed to our operating principles, served customers well during this period and delivered strong top-line growth,” said DG Macpherson, Chairman and Chief Executive Officer. “As more of the U.S. became vaccinated, and mask mandates were relaxed earlier than expected, demand for pandemic products stalled, resulting in further inventory adjustments and a negative impact to gross profit margin. Excluding these adjustments, our underlying gross profit margin has improved as customer demand has returned to a more normal mix. We remain confident in our ability to achieve full year financial results within our guidance range.”
2021 Second Quarter Financial Summary
|($ in millions)||Q2 2021||Q2 2020||Q2Fav. (Unfav.) vs. Prior|
|Net Earnings Attributable to W.W. Grainger, Inc.||$225||$225||$114||$204||98%||11%|
|Diluted Earnings Per Share||$4.27||$4.27||$2.10||$3.75||103%||14%|
|Gross Margin||35.0%||35.0%||35.8%||35.8%||(75) bps||(75) bps|
|Operating Margin||10.4%||10.4%||7.3%||11.1%||315 bps||(70) bps|
|Tax Rate||23.6%||23.6%||30.2%||25.8%||660 bps||220 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 second quarter of 2020, the company recorded a $109 million pretax loss from the sale of the Fabory business which was the largest contributor to the decline in reported operating earnings.|
Daily sales for the quarter increased 13.1% as compared to the second quarter of 2020 with the same number of selling days. On an organic, constant currency basis, which excludes revenues from the divested Fabory and China businesses from the prior year results, daily sales increased 15.0% as compared to the second quarter of 2020. Foreign exchange contributed a 0.9% favorable impact during the second quarter of 2021 compared to the second quarter of 2020.
In the High-Touch Solutions N.A. segment, sales were up 13.7% on a daily basis versus the prior year second quarter due primarily to a strong recovery in non-pandemic product growth. In the Endless Assortment segment, daily sales growth was up 23.0% versus the second quarter of 2020 from strong customer acquisition in both Zoro U.S. and MonotaRO.
Gross margin for the second quarter of 2021 was 35.0%, a 75 basis point decline over the prior year quarter driven by pandemic-related inventory adjustments recorded in the High-Touch Solutions N.A. segment. Early in the pandemic, the Company purchased a wide range of products to meet customer needs, but as the pandemic evolved, demand for certain pandemic products weakened and market prices lowered. During the second quarter of 2021, mask demand declined abruptly when most local and federal mask mandates were lifted in mid-May of 2021, earlier than the previously expected re-openings. This change, along with vaccine availability and general economic recovery, resulted in the Company recording inventory adjustments totaling $63 million. It does not expect any further material pandemic-related inventory adjustments. Excluding these adjustments, gross margin for the total company would have been 37.0%, up 120 basis points compared to the second quarter of 2020.
The Endless Assortment segment continued to show positive gross margin trends, expanding by 75 basis points versus the prior year second quarter and growing gross profit dollars 26% in the second quarter of 2021.
Reported operating earnings for the second quarter of 2021 of $334 million were up 62% versus the second quarter of 2020, primarily due to losses taken in the second quarter of 2020 related to the divested Fabory business. On an adjusted basis, operating earnings for the quarter were $334 million, up 6% versus the second quarter of 2020.
In the second quarter of 2021, reported operating margin of 10.4% increased 315 basis points, driven by the $109 million pretax loss recorded on the sale of Fabory in the second quarter of 2020. On an adjusted basis, operating margin decreased 70 basis points versus the second quarter of 2020 driven primarily by the decline in gross profit margin, as SG&A leverage remained nearly flat year over year.
Reported earnings per share of $4.27 in the second quarter of 2021 increased 103% versus the second quarter of 2020. Adjusted earnings per share for the quarter of $4.27 increased 14% versus the second 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.
The second quarter 2021 reported tax rate was 23.6% versus 30.2% in the second quarter of 2020; the adjusted tax rates were 23.6% and 25.8% for the second quarter of 2021 and 2020, respectively. The variance in the reported tax rates resulted from the prior year unfavorable impacts of the Fabory divestiture. Additionally, for both the reported and adjusted tax rates, the second quarter of 2021 included a larger benefit from stock-based compensation as compared to the prior year.
Net cash provided by operating activities was $269 million and $232 million for the three months ended June 30, 2021 and 2020, respectively. The increase in cash from operating activities is primarily the result of higher net earnings and favorable working capital, partially offset by the impacts from the divested Fabory business. The company also returned $203 million to shareholders through dividends and share repurchases during the quarter.
The Company is maintaining guidance ranges provided in the previous quarter. Strong sales are expected to continue while gross profit margin, operating margin and EPS will likely face pressure from the incremental inventory adjustments and macroeconomic factors. Outside of revenue, Company results are expected to trend towards the low end of the guided ranges.
|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 (EPS)||$19.00 – 20.50|
|Tax Rate||25.0 – 26.0%|
Grainger will conduct a live conference call and webcast at 11:00 a.m. ET on July 30, 2021 to discuss the second 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.
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.
Visit invest.grainger.com to view information about the company, including a supplement regarding 2021 second 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 and its variants (COVID-19), as well as the impact of actions taken or contemplated by government authorities to mitigate the spread of COVID-19 (such as mask mandates or social distancing requirements) and to promote economic stability and recovery, on the Company’s businesses, its employees, customers and suppliers, including disruption to Grainger’s operations resulting from employee illnesses, the development, availability and usage of effective treatment or vaccines, changes in customers’ product needs, raw material, inventory and labor shortages, continued strain on global supply chains and diminished transportation carrier performance, 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; 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 sustain contractual arrangements on a satisfactory basis with group purchasing organizations; 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 and marketing, consumer protection, pricing (including disaster or emergency declaration pricing statutes), product liability, compliance or safety, trade and export compliance, general commercial disputes, 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; 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.
As published on the Grainger website, first published on PRNewsWire