CHICAGO, Oct. 22, 2020 — Grainger (NYSE: GWW) today reported results for the third quarter 2020 with sales of $3.0 billion, up 2.4% and up 4.6% on an organic daily basis compared to the third quarter 2019 driven by significant share gains in the U.S. segment and strong growth in the endless assortment businesses.
“I am extremely proud of the Grainger team for delivering strong results in both our U.S. high-touch and endless assortment businesses, as we continued to support new and existing customers, while prioritizing team member safety,” said DG Macpherson, Chairman and Chief Executive Officer. “In the third quarter, we captured significant market share by delivering on our core growth initiatives. We also continued to prudently manage our costs and saw sequential margin improvement as non-pandemic volume improved in the quarter. These strong results and stabilizing trends show the value that Grainger brings to customers every day.”
Daily sales for the quarter increased 2.4% as compared to the 2019 third quarter. Organic daily sales, which exclude revenues from the divested Fabory and China businesses from the prior year results, increased 4.6% as compared to the 2019 third quarter. These sales increases were fueled by share gains in the U.S. segment and significant growth in the endless assortment businesses which more than offset declines in the Canada segment.
U.S. Segment sales were up 3.1%, outgrowing the U.S. MRO market which declined an estimated 5% to 6%. This increase was driven largely by higher volume of pandemic-related products, partially offset by year-over-year decreases in non-pandemic product sales. The declines in non-pandemic product sales continued to moderate, while growth in pandemic product sales remained elevated, but began to ease from the levels experienced earlier in the year.
There was no material impact from foreign exchange rates during the 2020 third quarter and the third quarter of 2019 and 2020 had the same number of selling days.
Gross Profit Margin
Reported and adjusted gross profit margin for the third quarter of 2020 was 35.6%. This compares to reported and adjusted gross profit margin in the third quarter of 2019 of 37.3%. The unfavorable variance was driven by pandemic-related mix headwinds, particularly noticeable in our U.S. segment, and the continued business unit mix impact from the faster growth in our lower-margin endless assortment businesses.
Reported operating earnings for the 2020 third quarter of $380 million were up 12% versus $338 million in the 2019 third quarter. On an adjusted basis, operating earnings for the quarter of $374 million were up 10% versus $339 million in the 2019 third quarter.
Reported operating margin of 12.6% increased 110 basis points in the third quarter of 2020 versus the prior year third quarter. Adjusted operating margin of 12.4% in this quarter increased 90 basis points versus the prior year third quarter. The increase in adjusted operating margin was due primarily to 260 basis points of SG&A leverage achieved in the third quarter due to cost reduction actions in our high-touch solutions model and leverage gains within our endless assortment businesses.
Reported earnings per share of $4.41 in the third quarter of 2020 were up 4% versus $4.25 in the 2019 third quarter. Adjusted earnings per share in this quarter of $4.52 increased 6% versus $4.26 in the 2019 third quarter. The increase in earnings per share was due primarily to higher operating earnings and lower average shares outstanding in the current period, partially offset by a higher tax rate.
Third quarter 2020 reported tax rate was 29.3% versus 24.2% in the 2019 third quarter. The difference was primarily related to the divestiture of the Fabory business. Excluding net restructuring and non-recurring income tax items, the adjusted tax rates were 26.5% and 24.2% for the three months ended September 30, 2020 and September 30, 2019, respectively.
Operating cash flow was $311 million in the 2020 third quarter compared to $320 million in the 2019 third quarter. The decrease in operating cash flow was primarily driven by investments in working capital, primarily inventory, enabling us to better serve our customers. These investments more than offset higher net earnings. During the third quarter of 2020, Grainger announced a dividend increase, marking its 49th consecutive annual increase, and returned $82 million in the form of dividends to shareholders. The company fully repaid its revolving credit facility in the third quarter and intends to restart its share repurchase program in the fourth quarter of 2020.
Grainger will conduct a live conference call and webcast at 11:00 a.m. ET on October 22, 2020 to discuss the third 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 (MRO) products, with operations primarily in North America, Japan and Europe.
Visit invest.grainger.com to view information about the company, including a supplement regarding 2020 third 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 presented or implied in the forward- looking statements include, without limitation: the unknown duration and the health, economic, operational and financial impacts of the global outbreak of the coronavirus disease 2019 (“COVID-19”) as well as the impact of actions taken or contemplated by governmental authorities or others in connection with the COVID-19 pandemic, in each case, on the company’s businesses, its employees, customers and suppliers, including disruption to our 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, 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, including financial reporting processes, required by working remote arrangements, 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; 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 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 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 and other catastrophes; unanticipated and/or extreme weather conditions; loss of key members of management; the company’s 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 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.
From Grainger, courtesy of /PRNewswire/