EX-99.1 2 gww8kex991q22013.htm EXHIBIT 99.1 GWW 8K EX99.1 Q2 2013

 
GRAINGER REPORTS RECORD RESULTS FOR THE 2013 SECOND QUARTER
Narrows 2013 Sales and EPS Guidance


Quarterly Highlights
•
Sales of $2.4 billion, up 6 percent
•
Operating earnings of $350 million, up 11 percent
•
EPS of $3.03, up 15 percent
•
Operating cash flow of $210 million, up 59 percent

CHICAGO, July 17, 2013 - Grainger (NYSE: GWW) today reported record results for the 2013 second quarter ended June 30, 2013. Sales of $2.4 billion increased 6 percent versus $2.2 billion in the second quarter of 2012. There were 64 selling days in the quarter, the same as in 2012. Net earnings for the quarter increased 14 percent to $218 million versus $191 million in 2012. Earnings per share of $3.03 increased 15 percent versus $2.63 in 2012.

“Our solid performance reflects the continued focus, dedication and hard work of our Grainger team,” said Chairman, President and Chief Executive Officer Jim Ryan. “We will continue to invest in helping our customers be successful by adding more products, sales people, inventory management solutions and eCommerce capabilities to further our leading position in the MRO industry,” Ryan added.

Ryan continued, “Given our strong execution and the additional perspective provided by our first half performance, we are able to further refine our expectations for 2013 sales and earnings per share.” The company now expects 2013 sales growth of 5 to 8 percent and earnings per share of $11.40 to $12.00. The company's previous 2013 guidance issued on April 16, 2013, was sales growth of 5 to 9 percent and earnings per share of $11.30 to $12.00.









1

Company
Sales in the 2013 second quarter increased 6 percent consisting of 4 percentage points from volume, 2 percentage points from price and 1 percentage point from acquisitions, partially offset by a 1 percentage point decline attributable to unfavorable foreign exchange.

The company's gross profit margin increased 0.5 percentage point to 44.0 percent versus 43.5 percent in the 2012 second quarter, primarily driven by Canada and the Other Businesses. Company operating expenses in the quarter increased 5 percent driven primarily by payroll and benefits and included an incremental $37 million in spending to fund the company's growth programs.

Company operating earnings of $350 million for the 2013 second quarter increased 11 percent versus the prior year. The increase in operating earnings was driven by higher sales, improved gross profit margins and positive expense leverage.

Grainger has two reportable business segments, the United States and Canada, which represented approximately 89 percent of company sales for the quarter. The remaining operating units located primarily in Asia, Europe and Latin America are included in Other Businesses and are not reportable segments.

United States
Sales for the United States segment increased 7 percent in the 2013 second quarter versus the prior year. The 7 percent sales growth was driven by 4 percentage points from volume, 2 percentage points from price and 1 percentage point from acquisitions. The sales increase for the quarter in the United States was led by solid growth in the light and heavy manufacturing, natural resources, commercial and contractor end markets.

Operating earnings for the United States segment increased 9 percent in the quarter driven by the 7 percent sales growth and positive expense leverage. Gross profit margins for the quarter were essentially flat versus the prior year. The company was able to increase prices above product cost inflation however this was offset by unfavorable selling mix driven by stronger sales to larger customers.




2

Canada
Sales in the 2013 second quarter in Canada increased 3 percent versus the prior year. The 3 percent sales growth consisted of 2 percentage points from volume, 2 percentage points from favorable timing of the Easter holiday and 1 percentage point from sales of flood-related products, partially offset by a 2 percentage point decline from unfavorable foreign exchange.  In local currency, sales increased 5 percent. The sales increase for the quarter in Canada was led by solid growth to customers in the construction, forestry and light manufacturing end markets.

Operating earnings in Canada increased 11 percent in the 2013 second quarter, up 13 percent in local currency. The improvement in operating performance was primarily driven by higher sales and a 1.4 percentage point improvement in gross profit margins. The gross profit margin improvement was due to cost savings from freight consolidation, higher supplier rebates and favorable mix. Approximately half of the improvement is expected to continue into future periods.

Other Businesses
Sales for the Other Businesses, which includes operations primarily in Asia, Europe and Latin America, increased 5 percent for the 2013 second quarter versus the prior year. The sales growth consisted of 9 percentage points from volume and price and 2 percentage points from acquisitions, partially offset by a 6 percentage point decline from unfavorable foreign exchange. The sales increase was primarily due to strong revenue growth in Mexico and the timing of the Brazil acquisition in the second quarter of 2012. In local currency, sales for the business in Japan grew in the high teens, however this was offset by unfavorable foreign exchange.

Operating earnings for the Other Businesses were $13 million in the 2013 second quarter versus $11 million in the 2012 second quarter. Improved performance for the quarter versus the prior year's quarter was primarily driven by earnings growth in the businesses in Japan and Europe.







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Other
Interest expense, net of interest income, was $2.4 million in the 2013 second quarter versus $2.3 million in the 2012 second quarter. The tax rate in the quarter was 36.5 percent versus 37.9 percent in the 2012 quarter. The 2013 second quarter tax rate reflected a benefit from a resolution of foreign tax matters in the current period. Excluding this benefit, the effective tax rate for the quarter was 37.3 percent.  The company continues to project an effective tax rate for the year 2013 of 37.3 to 37.7 percent.

Cash Flow
Operating cash flow was $210 million in the 2013 second quarter versus $132 million in the 2012 second quarter. Cash flow in the 2013 quarter benefitted from higher earnings and lower inventory purchases versus the prior year. The company used cash from operations to fund capital expenditures of $40 million in the quarter versus $56 million in the second quarter of 2012. In the 2013 second quarter, Grainger returned $200 million to shareholders through $67 million in dividends and $133 million to buy back 521,000 shares of stock. As of June 30, 2013, the company had 4.5 million shares remaining on its share repurchase authorization.

Year-to-Date
For the six months ended June 30, 2013, sales of $4.7 billion increased 5 percent versus $4.4 billion in the six months ended June 30, 2012. There were 127 selling days in the first six months of 2013, one less than in 2012. On a daily basis, sales for the first six months of 2013 increased 6 percent. Net earnings increased 14 percent to $429 million versus $378 million in the first half of 2012. Earnings per share for the six months increased 15 percent to $5.97 versus $5.20 for 2012.

W.W. Grainger, Inc., with 2012 sales of $9 billion, is North America's leading broad line supplier of maintenance, repair and operating products, with expanding global operations.








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Visit www.grainger.com/investor to view information about the company, including a history of daily sales by segment and a podcast regarding 2013 second quarter results. The Grainger website also includes more information on Grainger's proven growth drivers, including product line expansion, sales force expansion, eCommerce, inventory services and international expansion.



Forward-Looking Statements
This document contains forward-looking statements under the federal securities law. Forward-looking statements relate to the company's expected future financial results and business plans, strategies and objectives and are not historical facts. They are generally identified by qualifiers such as “will continue to invest”, “further refine our expectations for 2013 sales and earnings per share”, “expects 2013 sales growth”, “2013 guidance”, “expected to continue”, “continues to project an effective tax rate” or similar expressions. There are risks and uncertainties, the outcome of which could cause the company's results to differ materially from what is projected. The forward-looking statements should be read in conjunction with the company's most recent annual report, as well as the company's Form 10-K, Form 10-Q and other reports filed with the Securities & Exchange Commission, containing a discussion of the company's business and various factors that may affect it.



Contacts:
Media:
 
Investors:
 
Joseph Micucci
 
Laura Brown
 
Director, Media Relations
SVP, Communications & Investor Relations
O: 847-535-0879
 
O: 847-535-0409
 
M: 847-830-5328
 
M: 847-804-1383
 
 
 
 
 
Grainger Media Relations Hotline
William Chapman
 
847-535-5678
 
Sr. Director, Investor Relations

 
O: 847-535-0881
 

 
M: 847-456-8647
 
 
 
 
 
 
 
Casey Darby
 
 
 
Sr. Manager, Investor Relations
 
 
O: 847-535-0099
 

 
M: 847-964-3281
 

5

CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(In thousands, except for per share amounts)


 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Net sales
$
2,381,561

 
$
2,249,275

 
$
4,661,996

 
$
4,442,720

Cost of merchandise sold
1,334,577

 
1,270,932

 
2,583,276

 
2,490,045

Gross profit
1,046,984

 
978,343

 
2,078,720

 
1,952,675

 
 
 


 
 
 
 
Warehousing, marketing and administrative expense
696,912

 
664,343

 
1,385,344

 
1,334,314

Operating earnings
350,072

 
314,000

 
693,376

 
618,361

 
 
 
 
 
 
 
 
Other income and (expense)
 
 
 
 
 
 
 
Interest income
796

 
602

 
1,694

 
1,197

Interest expense
(3,201
)
 
(2,910
)
 
(6,367
)
 
(5,967
)
Other non-operating income
(147
)
 
(963
)
 
741

 
(349
)
Total other expense
(2,552
)
 
(3,271
)
 
(3,932
)
 
(5,119
)
 
 
 
 
 
 
 
 
Earnings before income taxes
347,520

 
310,729

 
689,444

 
613,242

 
 
 
 
 
 
 
 
Income taxes
126,767

 
117,628

 
254,164

 
230,683

 
 
 
 
 
 
 
 
Net earnings
220,753

 
193,101

 
435,280

 
382,559

 
 
 
 
 
 
 
 
Net earnings attributable to noncontrolling interest
3,093

 
2,397

 
5,782

 
4,339

 
 
 
 
 
 
 
 
Net earnings attributable to W.W. Grainger, Inc.
$
217,660

 
$
190,704

 
$
429,498

 
$
378,220

 
 
 
 
 
 
 
 
Earnings per share
  -Basic
$
3.08

 
$
2.68

 
$
6.07

 
$
5.30

  -Diluted
$
3.03

 
$
2.63

 
$
5.97

 
$
5.20

Average number of shares outstanding
  -Basic
69,665

 
69,937

 
69,614

 
70,034

  -Diluted
70,801

 
71,308

 
70,788

 
71,481

 
 
 
 
 
 
 
 
Diluted Earnings Per Share
 
 
 
 
 
 
 
Net earnings as reported
$
217,660

 
$
190,704

 
$
429,498

 
$
378,220

Earnings allocated to participating securities
(3,055
)
 
(3,451
)
 
(6,642
)
 
(6,747
)
Net earnings available to common shareholders
$
214,605

 
$
187,253

 
$
422,856

 
$
371,473

Weighted average shares adjusted for dilutive securities
70,801

 
71,308

 
70,788

 
71,481

Diluted earnings per share
$
3.03

 
$
2.63

 
$
5.97

 
$
5.20


6

SEGMENT RESULTS (Unaudited)
(In thousands of dollars)



 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Sales
 
 
 
 
 
 
 
United States
$
1,863,112

 
$
1,742,101

 
$
3,637,650

 
$
3,442,810

Canada
288,645

 
279,617

 
571,786

 
552,500

Other Businesses
261,282

 
249,131

 
509,156

 
488,087

Intersegment sales
(31,478
)
 
(21,574
)
 
(56,596
)
 
(40,677
)
Net sales to external customers
$
2,381,561

 
$
2,249,275

 
$
4,661,996

 
$
4,442,720

 
 
 
 
 
 
 
 
Operating earnings
 
 
 
 
 
 
 
United States
$
338,884

 
$
310,683

 
$
669,772

 
$
609,647

Canada
37,299

 
33,555

 
70,155

 
63,255

Other Businesses
12,799

 
11,244

 
21,050

 
21,959

Unallocated expense
(38,910
)
 
(41,482
)
 
(67,601
)
 
(76,500
)
Operating earnings
$
350,072

 
$
314,000

 
$
693,376

 
$
618,361

 
 
 
 
 
 
 
 
Company operating margin
14.7
%
 
14.0
%
 
14.9
%
 
13.9
%
ROIC* for Company
 
 
 
 
34.6
%
 
31.9
%
ROIC* for United States
 
 
 
 
51.4
%
 
49.3
%
ROIC* for Canada
 
 
 
 
23.7
%
 
23.0
%
 
 
 
 
 
 
 
 


*The GAAP financial statements are the source for all amounts used in the Return on Invested Capital (ROIC) calculation.  ROIC is calculated using operating earnings divided by net working assets (a 3-point average for the year-to-date). Net working assets are working assets minus working liabilities defined as follows: working assets equal total assets less cash equivalents (3-point average of $351.1 million), deferred taxes, and investments in unconsolidated entities, plus the LIFO reserve (3-point average of $381.3 million).  Working liabilities are the sum of trade payables, accrued compensation and benefits, accrued contributions to employees' profit sharing plans, and accrued expenses.


7

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
Preliminary
(In thousands of dollars)

 
 
Assets
June 30, 2013
 
December 31, 2012
Cash and cash equivalents
$
488,741

 
$
452,063

Accounts receivable – net
1,075,592

 
940,020

Inventories - net
1,221,888

 
1,301,935

Prepaid expenses and other assets (1)
119,673

 
150,655

Deferred income taxes
56,290

 
55,967

Total current assets
2,962,184

 
2,900,640

Property, buildings and equipment – net
1,118,750

 
1,144,573

Deferred income taxes
53,414

 
51,536

Goodwill
513,545

 
543,670

Other assets and intangibles – net
382,242

 
374,179

Total assets
$
5,030,135


$
5,014,598

Liabilities and Shareholders’ Equity
 
 
 
Short-term debt
$
70,007

 
$
79,071

Current maturities of long-term debt
25,502

 
18,525

Trade accounts payable
452,179

 
428,782

Accrued compensation and benefits
157,259

 
165,450

Accrued contributions to employees’ profit sharing plans (2)
90,152

 
170,434

Accrued expenses
182,682

 
204,800

Income taxes payable
9,104

 
12,941

Total current liabilities
986,885

 
1,080,003

Long-term debt
452,449

 
467,048

Deferred income taxes and tax uncertainties
118,326

 
119,280

Employment-related and other non-current liabilities
230,280

 
230,901

Shareholders' equity (3)
3,242,195

 
3,117,366

Total liabilities and shareholders’ equity
$
5,030,135

 
$
5,014,598


(1
)
Prepaid expenses and other assets decreased $31 million driven by lower prepaid income taxes from the timing of tax payments.
(2
)
Accrued contributions to employees' profit sharing plans decreased $80 million primarily due to the annual cash contributions to the profit sharing plan.
(3
)
Common stock outstanding as of June 30, 2013 was 69,497,219 shares as compared with 69,478,495 shares at December 31, 2012.


8

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Preliminary
(In thousands of dollars)

 
Six Months Ended June 30,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net earnings
$
435,280

 
$
382,559

Provision for losses on accounts receivable
3,783

 
4,428

Deferred income taxes and tax uncertainties
(1,074
)
 
(3,874
)
Depreciation and amortization
80,813

 
73,442

Stock-based compensation
31,372

 
30,573

Change in operating assets and liabilities – net of business
acquisitions
 
 
 
Accounts receivable
(155,887
)
 
(128,648
)
Inventories
57,771

 
4,918

Prepaid expenses and other assets
31,369

 
39,907

Trade accounts payable
31,472

 
(6,751
)
Other current liabilities
(128,468
)
 
(145,965
)
Current income taxes payable
(2,648
)
 
(11,407
)
Employment-related and other non-current liabilities
8,088

 
1,886

Other – net
(5,048
)
 
(2,848
)
Net cash provided by operating activities
386,823

 
238,220

Cash flows from investing activities:
 
 
 
Additions to property, buildings and equipment
(83,175
)
 
(96,378
)
Proceeds from sale of property, buildings and equipment
2,528

 
3,950

Net cash paid for business acquisitions
(8,234
)
 
(24,336
)
Other – net
100

 
63

Net cash used in investing activities
(88,781
)
 
(116,701
)
Cash flows from financing activities:
 
 
 
Net (decrease) increase in short-term debt
(9,024
)
 
4,010

Net (decrease) increase in long-term debt
(4,845
)
 
29,417

Proceeds from stock options exercised
48,142

 
39,060

Excess tax benefits from stock-based compensation
41,690

 
35,502

Purchase of treasury stock
(202,400
)
 
(210,981
)
Cash dividends paid
(123,549
)
 
(105,361
)
Net cash used in financing activities
(249,986
)
 
(208,353
)
Exchange rate effect on cash and cash equivalents
(11,378
)
 
1,089

Net change in cash and cash equivalents
36,678

 
(85,745
)
Cash and cash equivalents at beginning of year
452,063

 
335,491

Cash and cash equivalents at end of period
$
488,741

 
$
249,746


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