Grainger Reports Results For The 2019 Second Quarter
CHICAGO, July 24, 2019 /PRNewswire/ -- Grainger (NYSE: GWW) today reported results for the 2019 second quarter. Sales of $2.9 billion in the quarter increased 1 percent versus the 2018 second quarter. On a constant currency basis, sales were up 2 percent.
"We continued to demonstrate our ability to generate profitable growth in the second quarter of 2019. Despite slower than expected global economic growth and our significant investment in the endless assortment model, we drove strong operating results and cash flow," said DG Macpherson, Chairman and Chief Executive Officer. "We gained share in the first half of the year at a modest pace, and we remain confident in our ability to accelerate our growth versus the market for the remainder of the year as our top line initiatives continue to take hold. We are reiterating our 2019 total company guidance ranges for gross profit margin, operating margin and earnings per share. We are lowering our estimate for market growth from 1 to 4 percent to -1 to 2 percent and lowering our revenue guidance from 4 to 8.5 percent growth to 2 to 5 percent growth due to the weaker demand environment and performance at AGI and Cromwell."
2019 Second Quarter Financial Summary
---
($ in
millions) Q2 2019 Q2 2018 Q2 v. Prior
---
Reported Adjusted(1) Reported Adjusted(1) Reported Adjusted(1)
---
Net Sales $2,893 $2,893 $2,861 $2,861 1% 1%
---
Gross Profit $1,121 $1,121 $1,111 $1,112 1% 1%
---
Operating
Earnings $380 $377 $344 $359 11% 5%
---
Net Earnings $260 $258 $237 $249 10% 4%
---
Diluted EPS $4.67 $4.64 $4.16 $4.37 12% 6%
---
Gross Profit
Margin 38.7% 38.7% 38.8% 38.9%
-10 bps
-15 bps
---
Operating
Margin 13.1% 13.0% 12.0% 12.6%
110 bps
50 bps
---
Tax Rate 25.6% 25.5% 23.4% 23.3%
220 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. 2019
reported results included
restructuring primarily in Canada
resulting in a $3 million net
benefit to operating earnings and a
negative $0.03 impact to EPS.
Revenue
Sales for the quarter increased 1 percent. On a constant currency basis, sales increased 2 percent. Sales were primarily composed of a 1.5 percentage point increase in volume and a 0.5 percentage point increase from price.
Gross Profit Margin
Reported gross profit margin for the second quarter was 38.7 percent versus 38.8 percent in the 2018 second quarter. Adjusted gross profit margin of 38.7 percent in the quarter decreased 15 basis points versus the prior year quarter.
Earnings
Reported operating earnings for the 2019 second quarter of $380 million were up 11 percent versus $344 million in the 2018 second quarter. On an adjusted basis, operating earnings for the quarter of $377 million were up 5 percent versus $359 million in the 2018 quarter.
Reported operating margin of 13.1 percent increased 110 basis points in the second quarter of 2019 versus the prior year quarter. Adjusted operating margin of 13.0 percent in the quarter increased 50 basis points versus the prior year quarter. The increase in operating margin was due primarily to favorable gross profit margin in the U.S., and lower selling, general and administrative expenses in the U.S., at the corporate level and at AGI.
Reported earnings per share of $4.67 in the second quarter were up 12 percent versus $4.16 in the 2018 second quarter. Adjusted earnings per share in the quarter of $4.64 increased 6 percent versus $4.37 in the 2018 second quarter. The improvement in both reported and adjusted earnings per share was due primarily to operating earnings growth and lower average shares outstanding.
Tax Rate
For the 2019 second quarter, the company's reported tax rate was 25.6 percent versus 23.4 percent in the 2018 second quarter. The increase was driven by lower tax benefits from stock-based compensation and the absence of clean-energy tax benefits from investments which concluded in 2018.
Cash Flow
Operating cash flow was $323 million in the 2019 second quarter compared to $248 million in the 2018 second quarter. The 30 percent increase in operating cash flow was primarily the result of higher net income and favorable changes in working capital, partially offset by higher income tax payments when compared to the prior year quarter. The company used the cash generated during the quarter to invest in the business and return cash to shareholders through share repurchases and dividends. Grainger returned $352 million to shareholders through $87 million in dividends and $265 million used to buy back approximately 970,000 shares in the second quarter of 2019.
2019 Updated
Company
Guidance:
---
The company is providing the following updated 2019 guidance at the
total Company level:
Total Company
2019 Guidance Range
--- ---
Market Growth
(nominal)?
-1.0% to 2.0%*
--- ---
Net Sales
2.0% to 5.0% growth*
--- ---
Gross Profit
Margin 38.1% to 38.7%
--- ---
Operating Margin 12.2% to 13.0%
--- ---
Earnings per
Share
$17.10 to $18.70
--- ---
*Updated as of July 24, 2019
?
In the
U.S., Business Investment and
Exports are two major indicators of
MRO spending. Per the Global Insight
July 2019 forecast, Business
Inventory is forecast to improve
while Business Investment,
Industrial Production, Exports and
GDP are forecast to soften, as a
result of slowing global growth,
trade tensions and associated
uncertainty, diminishing support
from fiscal stimulus and a decline
in the pace of inventory
accumulation. Per the Global Insight
June 2019 forecast, Canada's
Business Investment, Exports,
Industrial Production and GDP are
expected to slow due to a reduction
in spending, delayed investments and
weakness in oil prices and slowing
global oil demand.
Webcast
Grainger will conduct a live conference call and webcast at 11:00 a.m. ET on July 24, 2019, to discuss the second quarter. The webcast will be hosted by DG Macpherson, Chairman and CEO, and Tom Okray, Senior Vice President and CFO, and can be accessed at www.invest.grainger.com. For those unable to participate in the live event, a webcast replay will be available for 90 days at www.invest.grainger.com.
About Grainger
W.W. Grainger, Inc., with 2018 sales of $11.2 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 www.invest.grainger.com to view information about the company, including a supplement regarding 2019 second quarter results. The Grainger Investor Relations website also includes company information in the company 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: higher product costs or other expenses; a major loss of customers; loss or disruption of source of supply; increased competitive pricing pressures; failure to develop or implement new technology initiatives; the implementation, timing and results of our strategic pricing initiatives; 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, privacy and cybersecurity matters; investigations, inquiries, audits and changes in laws and regulations; disruption of information technology or data security systems; general industry, economic, market or political conditions; general global economic conditions; currency exchange rate fluctuations; market volatility; commodity price volatility; labor shortages; facilities disruptions or shutdowns; higher fuel costs or disruptions in transportation services; 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; our common stock, including volatility in our stock price; 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.
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(In millions of dollars, except for per share amounts)
Three Months Ended Six Months Ended
June 30,
June 30,
2019 2018 2019 2018
---
Net sales $
2,893 $
2,861 $
5,692 $
5,627
Cost of goods sold 1,772 1,750 3,476 3,424
Gross profit 1,121 1,111 2,216 2,203
Selling, general and administrative expenses 741 767 1,473 1,524
Operating earnings 380 344 743 679
Other income (expense):
Interest income 1 2 3 2
Interest expense (22) (23) (43) (48)
Other, net 7 1 14 (2)
Total other expense (14) (20) (26) (48)
Earnings before income taxes 366 324 717 631
Income taxes 94 76 183 142
Net earnings 272 248 534 489
Less: Net earnings attributable to noncontrolling interest 12 11 21 20
Net earnings attributable to W.W. Grainger, Inc. $
260 $
237 $
513 $
469
Earnings per share:
Basic $
4.69 $
4.19 $
9.19 $
8.29
Diluted $
4.67 $
4.16 $
9.14 $
8.23
Weighted average number of shares outstanding:
Basic 55.1 56.1 55.4 56.1
Diluted 55.4 56.6 55.7 56.5
Diluted Earnings Per Share
---
Net earnings as reported $
260 $
237 $
513 $
469
Earnings allocated to participating securities (2) (2) (4) (4)
Net earnings available to common shareholders $
258 $
235 $
509 $
465
Weighted average shares adjusted for dilutive securities 55.4 56.6 55.7 56.5
Diluted earnings per share $
4.67 $
4.16 $
9.14 $
8.23
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions of dollars)
(Unaudited)
Assets June 30, 2019 December 31,
2018
--- ---
Cash and cash equivalents $
315 $
538
Accounts receivable - net 1,503 1,385
Inventories - net 1,535 1,541
Prepaid expenses and other
assets 92 83
Prepaid income taxes 11 10
Total current assets 3,456 3,557
Property, buildings and
equipment - net 1,380 1,352
Deferred income taxes 13 12
Goodwill 429 424
Intangibles - net 437 460
Other assets (1) 277 68
Total assets $
5,992 $
5,873
Liabilities and Shareholders' Equity
---
Short-term debt $
51 $
49
Current maturities of long-
term debt 81 81
Trade accounts payable 780 678
Accrued compensation and
benefits 183 262
Accrued contributions to
employees' profit-sharing
plans (2) 46 133
Accrued expenses (1) 288 269
Income taxes payable 23 29
Total current liabilities 1,452 1,501
Long-term debt 2,080 2,090
Deferred income taxes and tax
uncertainties 115 103
Other non-current liabilities
(1) 231 86
Shareholders' equity (3) 2,114 2,093
Total liabilities and
shareholders' equity $
5,992 $
5,873
(1) Other assets increased $200
million, Accrued expenses
increased $52 million and Other
non-current liabilities
increased $150 million due to the
adoption of Accounting Standards
Update (ASU) 2016-02, Leases.
(2) Accrued contributions to
employees' profit-sharing plans
decreased $87 million primarily
due to the annual cash
contributions.
(3) Common stock outstanding as of
June 30, 2019 was 54,571,141
compared with 55,862,360 shares
at December 31, 2018, primarily
due to share repurchases.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions of dollars) Three Months Ended Six Months Ended
June 30,
June 30,
2019 2018 2019 2018
---
Cash flows from operating activities:
Net earnings $
272 $
248 $
534 $
489
Provision for losses on accounts
receivable 2 6 4
Deferred income taxes and tax
uncertainties 16 5 12 3
Depreciation and amortization 56 64 113 128
Net gains from sales of assets, net
of write-offs (3) (8) (5) (14)
Stock-based compensation 18 16 23 28
Losses from equity method
investment 4 15
Subtotal 89 81 149 164
Change in operating assets and liabilities:
Accounts receivable (16) (54) (118) (148)
Inventories (8) (48) 12 (45)
Prepaid expenses and other assets 8 8 (22) (25)
Trade accounts payable 36 (8) 100 5
Accrued liabilities 20 43 (187) (60)
Income taxes payable, net (71) (16) (7) 28
Other non-current liabilities (7) (6) (11) (13)
Subtotal (38) (81) (233) (258)
Net cash provided by operating
activities 323 248 450 395
Cash flows from investing activities:
Additions to property, buildings
and equipment and intangibles (47) (54) (107) (103)
Proceeds from sales of assets 8 17 14 43
Equity method proceeds (investment) (6) 2 (14)
Net cash used in investing
activities (39) (43) (91) (74)
Cash flows from financing activities:
Net increase in commercial paper (90)
Net increase (decrease) in lines of
credit 10 3
Net decrease in long-term debt (20) (11) (34) (36)
Proceeds from stock options
exercised 13 28 16 87
Payments for employee taxes
withheld from stock awards (7) (14) (10) (29)
Purchase of treasury stock (265) (28) (400) (201)
Cash dividends paid (87) (83) (163) (155)
Other, net 1 3 2 3
Net cash used in financing
activities (365) (185) (586) (331)
Exchange rate effect on cash and
cash equivalents 4 (9) 4 (4)
Net change in cash and cash
equivalents (77) 11 (223) (14)
Cash and cash equivalents at
beginning of period 392 302 538 327
Cash and cash equivalents at end of
period $
315 $
313 $
315 $
313
SUPPLEMENTAL INFORMATION - CONSOLIDATED STATEMENTS OF EARNINGS
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (Unaudited)
(In millions of dollars, except for per share amounts)
The company supplemented the reporting of financial information determined under U.S. generally accepted accounting principles (GAAP) with certain non-GAAP financial measures, which the company refers to as "adjusted" measures, including net sales in constant currency, adjusted gross profit, adjusted gross profit margin, adjusted operating earnings, adjusted operating margin, adjusted net earnings, adjusted tax rate and adjusted diluted earnings per share. Adjusted measures exclude items that may not be indicative of core operating results. The company believes that these non-GAAP measures provide meaningful information to assist shareholders in understanding financial results and assessing prospects for future performance. Management believes net sales in constant currency, adjusted gross profit, adjusted gross profit margin, adjusted operating earnings, adjusted operating margin, adjusted net earnings, adjusted tax rate and adjusted diluted earnings per share are important indicators of operations because they exclude items that may not be indicative of our core operating results, and provide a better baseline for analyzing trends in our underlying businesses. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. These adjusted financial measures should not be considered in isolation or as a substitute for reported results. These non-GAAP financial measures reflect an additional way of viewing aspects of operations that, when viewed with GAAP results, provide a more complete understanding of the business. The company strongly encourages investors and shareholders to review company financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.
This press release also includes certain non-GAAP forward-looking information. The company believes that a quantitative reconciliation of such forward-looking information to the most comparable financial measure calculated and presented in accordance with GAAP cannot be made available without unreasonable efforts. A reconciliation of these non-GAAP financial measures would require the company to predict the timing and likelihood of future restructurings, asset impairments, and other charges. Neither of these forward-looking measures, nor their probable significance, can be quantified with a reasonable degree of accuracy. Accordingly, the most directly comparable forward-looking GAAP measures are not provided.
The reconciliations provided below reconcile GAAP financial measures to the non-GAAP financial measures: net sales in constant currency, adjusted gross profit, adjusted gross profit margin, adjusted operating earnings, adjusted operating margin, adjusted net earnings, adjusted tax rate and adjusted diluted earnings per share:
Three Months Ended June 30, 2019
Net sales increase over
prior year quarter 1%
Foreign exchange 1
Net sales increase over
prior year quarter in
constant currency 2%
In millions
Three Months Ended June 30,
Six Months Ended June 30,
2019 Gross 2018 Gross 2019 Gross 2018 Gross
Profit % Profit % Profit % Profit %
Gross profit reported $
1,121 38.7 $
1,111 38.8 $
2,216 38.9 $
2,203 39.1
% % % %
Restructuring, net 1 0.1 1 1 0.1
Gross profit adjusted $
1,121 38.7 $
1,112 38.9 $
2,217 38.9 $
2,204 39.2
% % % %
SUPPLEMENTAL INFORMATION - CONSOLIDATED STATEMENTS OF EARNINGS
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (Unaudited)
(In millions of dollars, except for per share amounts)
In millions
Three Months Ended June 30,
Six Months Ended June 30,
2019 Operating 2018 Operating 2019 Operating 2018 Operating
Margin % Margin % Margin % Margin %
---
Operating earnings $
380 13.1 $
344 12.0 $
743 13.1 $
679 12.1
reported
% % % %
Restructuring, net (3) (0.1) 15 0.6 (1) (0.1) 23 0.4
Operating earnings $
377 13.0 $
359 12.6 $
742 13.0 $
702 12.5
adjusted
% % % %
===
In millions Three Months Ended Six Months Ended
June 30, June 30,
2019 2018 2019 2018
%
%
Net earnings reported $
260 $
237 10 $
513 $
469 9
% %
Restructuring, net (2) 12 18
Net earnings adjusted $
258 $
249 4 $
513 $
487 5
% %
Diluted earnings per share $
4.67 $
4.16 12 $
9.14 $
8.23 11
reported
% %
Pretax restructuring, net (0.05) 0.27 (0.01) 0.41
Tax effect (1) 0.02 (0.06) 0.01 (0.09)
Total, net of tax (0.03) 0.21 0.32
Diluted earnings per share $
4.64 $
4.37 6 $
9.14 $
8.55 7
adjusted
% %
(1) The tax impact of
adjustments is calculated
based on the income tax rate
in each applicable
jurisdiction, subject to
deductibility limitations and
the company's ability to
realize the associated tax
benefits.
Three Months Ended
Six Months Ended
June 30,
June 30,
2019 2018 Bps impact 2019 2018 Bps impact
Tax rate reported 25.6 23.4 220 25.5 22.5
% % % % 300
Restructuring, net (0.1) (0.1)
Tax rate adjusted 25.5 23.3 220 25.5 22.5
% % % % 300
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SOURCE W.W. Grainger, Inc.
