Grainger Reports Results For The 2019 Third Quarter
CHICAGO, Oct. 23, 2019 /PRNewswire/ -- Grainger (NYSE: GWW) today reported results for the 2019 third quarter. Sales of $2.9 billion in the quarter increased 4 percent versus the 2018 third quarter. On a daily basis, sales were up 2.5 percent. The third quarter had one more selling day than the prior year period. Foreign exchange had no impact on total company sales.
"While the global demand environment continued to weaken, our U.S. and endless assortment businesses gained share as we made solid progress on our key growth initiatives and were diligent in managing expenses," said DG Macpherson, Chairman and Chief Executive Officer. "We remain confident in our ability to achieve results within our 2019 total company guidance ranges as provided in our second quarter earnings release."
2019 Third Quarter Financial Summary
($ in millions) Q3 2019 Q3 2018 Q3
---
Change v. Prior
---
Reported Adjusted(1) Reported Adjusted(1) Reported Adjusted(1)
Net Sales $2,947 $2,947 $2,831 $2,831 4% 4%
---
Gross Profit $1,099 $1,099 $1,079 $1,079 2% 2%
---
Operating Earnings $338 $339 $189 $332 78% 2%
---
Net Earnings $233 $233 $104 $240 123% -3%
---
Diluted EPS $4.25 $4.26 $1.82 $4.19 134% 2%
---
Gross Profit % 37.3% 37.3% 38.1% 38.1%
-80 bps
-80 bps
---
Operating Margin 11.4% 11.5% 6.7% 11.7%
480 bps
-20 bps
---
Tax Rate 24.2% 24.2% 32.7% 20.0%
-850 bps
420 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 negative $1 million
impact to operating earnings and a
negative $0.01 impact to EPS.
Reported results in Q3 2018
contained $139 million in non-cash
impairment charges related to the
Cromwell business in the U.K. and $4
million in restructuring charges
related to the U.S. segment and
Other Businesses.
Revenue
Daily sales for the quarter increased 2.5 percent. Sales were primarily composed of a 2.5 percentage point increase in volume. Price inflation and the impact from foreign exchange were both flat.
Gross Profit Margin
Reported and adjusted gross profit margin for the third quarter were 37.3 percent versus 38.1 percent in the 2018 third quarter due primarily to performance in the U.S. segment and Other businesses. Year to date 2019 reported and adjusted gross profit margin were 38.4 percent versus 38.8 percent in the 2018 year to date period due to performance in Other businesses.
Earnings
Reported operating earnings for the 2019 third quarter of $338 million were up 78 percent versus $189 million in the 2018 third quarter. Reported earnings in the 2018 third quarter included $143 million in restructuring and non-cash impairment charges, which were primarily related to the Cromwell business in the U.K. On an adjusted basis, operating earnings for the quarter of $339 million were up 2 percent versus $332 million in the 2018 quarter.
Reported operating margin of 11.4 percent increased 480 basis points in the third quarter of 2019 versus the prior year quarter. Adjusted operating margin of 11.5 percent in the quarter declined 20 basis points versus the prior year quarter. The decline in operating margin was due primarily to investments in Zoro. Year to date 2019 reported operating margin of 12.5 percent increased 225 basis points versus the 2018 year to date period. Year to date adjusted operating margin of 12.5 percent increased 30 basis points versus the 2018 year to date period due primarily to the U.S. segment and Canada.
Reported earnings per share of $4.25 in the third quarter was up 134 percent versus $1.82 in the 2018 third quarter. Adjusted earnings per share in the quarter of $4.26 increased 2 percent versus $4.19 in the 2018 third quarter. The improvement in adjusted earnings per share was due primarily to higher operating earnings and lower average shares outstanding, partially offset by higher taxes due to lower tax benefits from stock based compensation.
Tax Rate
For the 2019 third quarter, the company's reported tax rate was 24.2 percent versus 32.7 percent in the 2018 third quarter. The higher tax rate in the prior year quarter was driven primarily by Cromwell impairment charges, which were not tax deductible.
Excluding net restructuring and impairment charges in both periods, the adjusted tax rates were 24.2% and 20.0% for the three months ended September 30, 2019 and 2018, respectively. The increase in effective tax rate was primarily driven by lower tax benefit from stock-based compensation and the absence of the Company's clean energy tax benefits in 2019 as the Company concluded these investments in 2018.
Cash Flow
Operating cash flow was $320 million in the 2019 third quarter compared to $348 million in the 2018 third quarter. The decline in operating cash flow was primarily the result of timing related to supplier payments. 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 $279 million to shareholders through $79 million in dividends and $200 million used to buy back approximately 725,000 shares in the third quarter of 2019.
2019 Company Guidance:
The company is reiterating 2019 guidance at the total Company level. These metrics reflect the updated guidance provided in the Q2 2019 earnings release.
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
---
?
In the
U.S., Business Investment and
Exports are two major indicators of
MRO spending. Per the Global
Insight October 2019 forecast,
Business Inventory is forecast to
improve while Business Investment,
Industrial Production, Exports and
GDP are forecast to soften, as a
result of the trade tensions and
associated uncertainty around
tariff policy, slowing global
growth and a strong US dollar,
diminishing support from fiscal
stimulus and a decline in the pace
of inventory accumulation. Per the
Global Insight September 2019
forecast, Canada's Business
Investment, Exports, Industrial
Production and GDP are expected to
slow due to elevated global trade
uncertainties, a reduction in
spending, delayed investments and
slowing global oil demand.
Webcast
Grainger will conduct a live conference call and webcast at 11:00 a.m. ET on October 23, 2019 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 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 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 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.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(In millions of dollars, except for per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
---
Net sales $
2,947 $
2,831 $
8,639 $
8,458
Cost of goods sold 1,848 1,752 5,324 5,176
Gross profit 1,099 1,079 3,315 3,282
Selling, general and administrative expenses 761 890 2,234 2,414
Operating earnings 338 189 1,081 868
Other income (expense):
Interest income 1 2 4 4
Interest expense (21) (22) (64) (70)
Other, net 4 2 18
Total other expense, net (16) (18) (42) (66)
Earnings before income taxes 322 171 1,039 802
Income taxes 78 56 261 198
Net earnings 244 115 778 604
Less: Net earnings attributable to noncontrolling
interest 11 11 32 31
Net earnings attributable to W.W. Grainger, Inc. $
233 $
104 $
746 $
573
Earnings per share:
Basic $
4.27 $
1.84 $
13.46 $
10.12
Diluted $
4.25 $
1.82 $
13.40 $
10.04
Weighted average number of shares outstanding:
Basic 54.1 56.3 55.0 56.2
Diluted 54.4 56.8 55.2 56.6
Diluted Earnings Per Share
---
Net earnings as reported $
233 $
104 $
746 $
573
Earnings allocated to participating securities (2) (1) (6) (5)
Net earnings available to common shareholders $
231 $
103 $
740 $
568
Weighted average shares adjusted for dilutive
securities 54.4 56.8 55.2 56.6
Diluted earnings per share $
4.25 $
1.82 $
13.40 $
10.04
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions of dollars)
(Unaudited)
Assets September 30, 2019 December 31, 2018
--- ---
Cash and cash equivalents $
286 $
538
Accounts receivable - net 1,495 1,385
Inventories - net 1,520 1,541
Prepaid expenses and other
assets 86 83
Prepaid income taxes 9 10
Total current assets 3,396 3,557
Property, buildings and
equipment - net 1,384 1,352
Deferred income taxes 13 12
Goodwill 425 424
Intangibles - net 422 460
Other assets (1) 282 68
Total assets $
5,922 $
5,873
Liabilities and Shareholders' Equity
---
Short-term debt $
51 $
49
Current maturities of long-
term debt 219 81
Trade accounts payable 723 678
Accrued compensation and
benefits 170 262
Accrued contributions to
employees' profit-sharing
plans (2) 70 133
Accrued expenses (1) 327 269
Income taxes payable 12 29
Total current liabilities 1,572 1,501
Long-term debt 1,918 2,090
Deferred income taxes and tax
uncertainties 120 103
Other non-current liabilities
(1) 240 86
Shareholders' equity (3) 2,072 2,093
Total liabilities and
shareholders' equity $
5,922 $
5,873
(1) Other assets increased $207
million, Accrued expenses
increased $54 million and Other
non-current liabilities
increased $159 million due to
the adoption of Accounting
Standards Update (ASU) 2016-
02, Leases.
(2) Accrued contributions to
employees' profit-sharing
plans decreased $63 million
primarily due to the timing of
cash contributions to the
plans.
(3) Common stock outstanding as of
September 30, 2019 was
53,866,254 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 Nine Months
Ended September Ended September
30, 30,
2019 2018 2019 2018
---
Cash flows from operating activities:
Net earnings $
244 $
115 $
778 $
604
Provision for losses on accounts
receivable 1 3 7 7
Deferred income taxes and tax
uncertainties 7 7 19 10
Depreciation and amortization 58 64 171 192
Impairment of goodwill, intangible
and other assets 142 142
Net gains from sales of assets and
divestitures (8) (5) (22)
Stock-based compensation 9 8 32 36
Losses from equity method
investment 3 18
Subtotal 75 219 224 383
Change in operating assets and liabilities:
Accounts receivable (1) (24) (119) (172)
Inventories 6 (8) 18 (53)
Prepaid expenses and other assets 7 12 (15) (13)
Trade accounts payable (50) (1) 50 4
Accrued liabilities 50 24 (137) (36)
Income taxes, net (9) 11 (16) 39
Other non-current liabilities (2) (13) (13)
Subtotal 1 14 (232) (244)
Net cash provided by operating
activities 320 348 770 743
Cash flows from investing activities:
Additions to property, buildings,
equipment and intangibles (56) (66) (163) (169)
Proceeds from sales of assets 2 33 16 76
Equity method proceeds (investment) 2 2 (12)
Net cash used in investing
activities (54) (31) (145) (105)
Cash flows from financing activities:
Net increase (decrease) in lines of
credit 1 (4) 4 (4)
Net decrease in long-term debt (14) (53) (48) (89)
Proceeds from stock options
exercised 3 92 19 179
Payments for employee taxes
withheld from stock awards 18 (10) (11)
Purchases of treasury stock (200) (82) (600) (283)
Cash dividends paid (79) (77) (242) (232)
Other, net 2 3
Net cash used in financing
activities (289) (106) (875) (437)
Exchange rate effect on cash and
cash equivalents (6) (7) (2) (11)
Net change in cash and cash
equivalents (29) 204 (252) 190
Cash and cash equivalents at
beginning of period 315 313 538 327
Cash and cash equivalents at end of
period $
286 $
517 $
286 $
517
SUPPLEMENTAL INFORMATION - CONDENSED 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 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 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: 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:
In millions Three Months Ended September 30, Nine Months Ended September 30,
2019 Gross 2018 Gross 2019 Gross 2018 Gross
Profit % Profit % Profit % Profit %
Gross profit $
1,099 37.3 $
1,079 38.1 $
3,315 38.4 $
3,282 38.8
reported
% % % %
Restructuring, net 1 1
Gross profit $
1,099 37.3 $
1,079 38.1 $
3,316 38.4 $
3,283 38.8
adjusted
% % % %
In millions Three Months Ended September 30, Nine Months Ended September 30,
2019 Operating 2018 Operating 2019 Operating 2018 Operating
Margin % Margin % Margin % Margin %
Operating earnings $
338 11.4 $
189 6.7 $
1,081 12.5 $
868 10.3
reported
% % % %
Restructuring, net
and impairment
charges 1 0.1 143 5.0 166 1.9
Operating earnings $
339 11.5 $
332 11.7 $
1,081 12.5 $
1,034 12.2
adjusted
% % % %
SUPPLEMENTAL INFORMATION - CONDENSED 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 Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
%
%
---
Net earnings reported $
233 $
104 123 $
746 $
573 30
% %
Restructuring, net
and impairment
charges - 136 154
Net earnings adjusted $
233 $
240 (3) $
746 $
727 3
% %
Diluted earnings per $
4.25 $
1.82 134 $
13.40 $
10.04 33
share reported
% %
Pretax restructuring,
net and impairment
charges 0.01 2.48 2.90
Tax effect (1) - (0.11) (0.20)
Total, net of tax 0.01 2.37 2.70
Diluted earnings per $
4.26 $
4.19 2 $
13.40 $
12.74 5
share 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 Nine Months Ended
September 30, September 30,
2019 2018 Bps impact 2019 2018 Bps
impact
Tax rate reported 24.2 32.7 (850) 25.1 24.7
%
% % % 40
Restructuring, net
and impairment
charges (12.7) (3.0)
Tax rate adjusted 24.2 20.0 420 25.1 21.7
%
% % % 340
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SOURCE W.W. Grainger, Inc.
