Focused execution driving continued strong
results;
Company raises midpoint of full year 2023
guidance
Second Quarter Highlights
- Delivered sales of $4.2
billion, up 9.0%, or 10.1% on a daily, constant currency
basis
- Generated operating earnings of $661
million, up 23.5%, with operating margin of 15.8%, up
190-basis points
- Achieved diluted EPS of $9.28,
an increase of 29.1%
- Produced $450 million in
operating cash flow and returned $265
million to Grainger shareholders through dividends and share
repurchases
- Announced plans to open a new 500,000-square-foot
distribution center in Oregon in
2025
- Raising midpoint of full year 2023 total Company revenue and
EPS guidance ranges, including daily sales growth of 8.5% to 11%
and diluted EPS of $35.00 to
$36.75 per share
CHICAGO, July 27,
2023 /PRNewswire/ -- Grainger (NYSE: GWW) today
reported results for the second quarter of 2023 with sales of
$4.2 billion, up 9.0%, or 10.1% on a
daily, constant currency basis, and diluted EPS of $9.28, up 29.1% compared to the second quarter of
2022.
"The team delivered another strong quarter of performance, as
overall demand remains reasonably steady, and we show up well with
our customers. Across the business, we continue to invest in our
team members and operations, including the recent announcement of
our new Northwest Distribution Center, all while producing great
results at the top and bottom line," said D.G. Macpherson, Chairman
and CEO. "Given the success of the first half, we are raising the
midpoint of our revenue and EPS ranges and expect to continue
driving strong execution in the back half of 2023."
2023 Second Quarter Financial Summary
($ in millions,
except per share amounts)
|
Q2 2023
(1)
|
Q2 2022
(1)
|
Q2'23 vs.
Q1'22
|
Fav. /
(Unfav.)
|
Net
Sales
|
$4,182
|
$3,837
|
9.0 %
|
Gross
Profit
|
$1,644
|
$1,441
|
14.0 %
|
Operating
Earnings
|
$661
|
$534
|
23.5 %
|
Net Earnings
Attributable to W.W. Grainger, Inc.
|
$470
|
$371
|
26.5 %
|
Diluted Earnings Per
Share
|
$9.28
|
$7.19
|
29.1 %
|
|
|
|
|
Gross Profit
Margin
|
39.3 %
|
37.6 %
|
170 bps
|
Operating
Margin
|
15.8 %
|
13.9 %
|
190 bps
|
Effective Tax
Rate
|
24.0 %
|
24.8 %
|
80 bps
|
(1)
Results are consistent on a reported and adjusted
basis.
|
Revenue
Sales in the quarter, on a reported and daily basis, increased
9.0% compared to the second quarter of 2022. Excluding the
unfavorable foreign exchange impact of 1.1%, sales on a daily,
constant currency basis increased 10.1% compared to the second
quarter of 2022.
In the High-Touch Solutions - N.A. segment, daily sales were up
9.9% compared to the second quarter of 2022, primarily due to
continued price realization and solid volume growth. In the Endless
Assortment segment, daily sales were up 4.5% or 10.1% on
a daily, constant currency basis compared to the second quarter of
2022. Revenue growth was driven by new customer acquisition across
the segment as well as enterprise customer growth at MonotaRO.
Gross Profit Margin
Gross profit margin for the second quarter of 2023 was 39.3%, a
170-basis point increase compared to the second quarter of 2022.
The increase was driven by favorability in both segments.
In the High-Touch Solutions - N.A. segment, gross profit margin
expanded by 200-basis points over the second quarter of 2022
primarily due to sustained freight and supply chain efficiencies,
as well as continued favorable product mix. In the Endless
Assortment segment, gross profit margin expanded by 50-basis points
over the second quarter of 2022 driven by strong price realization
and continued freight efficiencies at MonotaRO, offsetting
unfavorable product mix at Zoro.
Earnings
Operating earnings for the second quarter of 2023 were
$661 million, up 23.5% compared to
the second quarter of 2022. Operating margin in the quarter was
15.8%, a 190-basis point increase over the second quarter of 2022
driven by expanded gross profit margins in both segments and
further aided by SG&A leverage in the High-Touch Solutions -
N.A. segment.
Diluted earnings per share of $9.28 in the second quarter of 2023, increased
29.1% compared to the second quarter of 2022 due primarily to the
strong operating performance.
Tax Rate
The second quarter 2023 effective tax rate was 24.0%, compared
to 24.8% in the second quarter of 2022. The decrease in the
effective tax rate was primarily due to increased stock
compensation tax benefit.
Cash Flow
During the second quarter of 2023, the Company generated
$450 million of cash flow from
operating activities, as net earnings were partially offset by a
higher accounts receivable balance and tax payments in the period.
The Company invested $95 million in
capital expenditures, resulting in free cash flow of $355 million. During the quarter, the Company
returned $265 million to Grainger shareholders through
dividends and share repurchases.
Guidance
Total
Company(1)
|
Previous 2023
Guidance Range
(as of April 27,
2023)
|
Updated 2023
Guidance Range
(as of July 27,
2023)
|
Net Sales
|
$16.2 - $16.8
billion
|
$16.4 - $16.8
billion
|
Sales Growth
|
6.6% - 10.6%
|
8.0% - 10.6%
|
Daily Sales
Growth
|
7.0% - 11.0%
|
8.5% - 11.0%
|
Gross Profit
Margin
|
39.1% -
39.4%
|
39.1% -
39.4%
|
Operating
Margin
|
15.2% -
15.7%
|
15.2% -
15.7%
|
Diluted Earnings per
Share
|
$34.25 -
$36.75
|
$35.00 -
$36.75
|
Operating Cash
Flow
|
$1.6 - $1.8
billion
|
$1.70 - $1.85
billion
|
CapEx (cash
basis)
|
$450 - $525
million
|
$450 - $525
million
|
Share
Buyback
|
$650 - $800
million
|
$750 - $850
million
|
Effective Tax
Rate
|
~24.0%
|
~24.0%
|
|
|
|
Segment Operating
Margin
|
|
|
High-Touch Solutions -
N.A.
|
17.3% -
17.8%
|
17.3% -
17.8%
|
Endless
Assortment
|
7.9% - 8.3%
|
7.4% - 7.8%
|
|
|
(1)
|
Guidance provided is on
an adjusted basis. Daily sales growth adjusted for the impact of
one fewer selling day in 2023 compared to 2022. The Company does
not reconcile forward-looking non-GAAP financial measures. For
further details see the supplemental information of this
release.
|
Webcast
The Company will conduct a live conference call and webcast at
11:00 a.m. ET on Thursday, July 27,
2023 to discuss the second quarter results. The webcast will be
hosted by D.G. 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.
About Grainger
W.W. Grainger, Inc., with 2022 sales of $15.2 billion, is a leading broad line
distributor with operations primarily in North America, Japan and the United
Kingdom. Grainger achieves its purpose, We Keep the World
Working®, by serving more than 4.5 million customers worldwide with
innovative technology and deep customer relationships. The Company
operates two business models. In the High-Touch Solutions - N.A.
segment, Grainger offers more than 2 million maintenance, repair
and operating (MRO) products and several services, such as
technical support and inventory management. In the Endless
Assortment segment, Zoro.com offers customers access to more than
12 million items, and MonotaRO.com provides more than 20 million
items. For more information, visit invest.grainger.com.
Visit invest.grainger.com to view information about the
Company, including a supplement regarding 2023 second quarter
results. Additional Company information can be found on the
Grainger Investor Relations website which includes the Company
Snapshot and ESG 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:
inflation, higher product costs or other expenses, including
operational and administrative expenses; the impact of
macroeconomic pressures and geopolitical trends, changes and
events, including the impact of Russia's invasion of Ukraine on the global economy, tensions across
the Taiwan Straits and in overall relations with China, and the ramifications of these and
other events; a major loss of customers; loss or disruption of
sources of supply; changes in customer or product mix; increased
competitive pricing pressures; changes in third party practices
regarding digital advertising; failure to enter into or sustain
contractual arrangements on a satisfactory basis with group
purchasing organizations; failure to develop, manage or implement
new technology initiatives or business strategies, including with
respect to the Company's eCommerce platforms; failure to adequately
protect intellectual property or successfully defend against
infringement claims; fluctuations or declines in the Company's
gross profit margin; 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, regulations related to
advertising, marketing and the Internet, 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, including new or stricter environmental
laws or regulations; government contract matters; disruption or
breaches 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; outbreaks of pandemic
disease or viral contagions such as the COVID-19 pandemic; natural
or human induced disasters, extreme weather and other catastrophes
or conditions; effects of climate change; failure to execute on our
efforts and programs related to environmental, social and
governance matters; competition for, or failure to attract, retain,
train, motivate and develop executives and 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 or failure to comply with restrictions
and obligations under its debt agreements and instruments and other
factors identified in the Company's 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. The preceding list is not intended to
be an exhaustive list of all of the factors that could impact the
Company's forward-looking statements. Given these risks and
uncertainties, you are cautioned not to place undue reliance on the
Company's forward-looking statements and the Company undertakes no
obligation to update or revise any of its forward-looking
statements, whether as a result of new information, future events
or otherwise, except as required by law.
W.W. Grainger,
Inc. and Subsidiaries
CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS
(In millions of
dollars, except for share and per share amounts)
(Unaudited)
|
|
|
Three Months
Ended
June
30,
|
|
Six Months
Ended
June
30,
|
|
2023
|
|
2022
|
|
2023
|
|
2022
|
Net sales
|
$ 4,182
|
|
$
3,837
|
|
$ 8,273
|
|
$ 7,484
|
Cost of goods sold
|
2,538
|
|
2,396
|
|
4,995
|
|
4,660
|
Gross profit
|
1,644
|
|
1,441
|
|
3,278
|
|
2,824
|
Selling, general and
administrative expenses
|
983
|
|
907
|
|
1,937
|
|
1,756
|
Operating earnings
|
661
|
|
534
|
|
1,341
|
|
1,068
|
Other (income) expense:
|
|
|
|
|
|
|
|
Interest expense
– net
|
24
|
|
22
|
|
48
|
|
45
|
Other – net
|
(8)
|
|
(5)
|
|
(14)
|
|
(11)
|
Total other
expense – net
|
16
|
|
17
|
|
34
|
|
34
|
Earnings before income taxes
|
645
|
|
517
|
|
1,307
|
|
1,034
|
Income tax
provision
|
155
|
|
128
|
|
309
|
|
260
|
Net earnings
|
490
|
|
389
|
|
998
|
|
774
|
Less net earnings attributable to noncontrolling
interest
|
20
|
|
18
|
|
40
|
|
37
|
Net earnings
attributable to W.W. Grainger, Inc.
|
$ 470
|
|
$ 371
|
|
$
958
|
|
$ 737
|
|
|
|
|
|
|
|
|
Earnings per
share:
|
|
|
|
|
|
|
|
Basic
|
$ 9.32
|
|
$ 7.22
|
|
$ 18.98
|
|
$ 14.33
|
Diluted
|
$ 9.28
|
|
$ 7.19
|
|
$ 18.89
|
|
$ 14.26
|
Weighted average number
of shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
50.1
|
|
51.0
|
|
50.2
|
|
51.1
|
Diluted
|
50.3
|
|
51.3
|
|
50.4
|
|
51.4
|
W.W. Grainger, Inc.
and Subsidiaries
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In millions of
dollars)
(Unaudited)
|
|
|
As of
|
|
(Unaudited)
|
|
|
Assets
|
June 30,
2023
|
|
December 31,
2022
|
Current
assets
|
|
|
|
Cash and
cash equivalents
|
$
515
|
|
$
325
|
Accounts receivable
(less allowances for credit losses of $37 and $36,
respectively)
|
2,418
|
|
2,133
|
Inventories – net
|
2,223
|
|
2,253
|
Prepaid
expenses and other current assets
|
187
|
|
266
|
Total current
assets
|
5,343
|
|
4,977
|
Property, buildings and
equipment – net
|
1,485
|
|
1,461
|
Goodwill
|
368
|
|
371
|
Intangibles –
net
|
237
|
|
232
|
Operating lease
right-of-use
|
428
|
|
367
|
Other assets
|
170
|
|
180
|
Total
assets
|
$
8,031
|
|
$
7,588
|
|
|
|
|
Liabilities and
Shareholders' Equity
|
|
|
|
Current
liabilities
|
|
|
|
Current
maturities
|
$
33
|
|
$
35
|
Trade
accounts payable
|
1,158
|
|
1,047
|
Accrued
compensation and benefits
|
254
|
|
334
|
Operating
lease liability
|
74
|
|
68
|
Accrued
expenses
|
368
|
|
474
|
Income
taxes payable
|
33
|
|
52
|
Total current
liabilities
|
1,920
|
|
2,010
|
Long-term
debt
|
2,275
|
|
2,284
|
Long-term operating
lease liability
|
375
|
|
318
|
Deferred income taxes
and tax uncertainties
|
131
|
|
121
|
Other non-current
liabilities
|
103
|
|
120
|
Shareholders'
equity
|
3,227
|
|
2,735
|
Total liabilities and
shareholders' equity
|
$
8,031
|
|
$
7,588
|
W.W. Grainger,
Inc. and Subsidiaries
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of
dollars)
(Unaudited)
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2023
|
|
2022
|
|
2023
|
|
2022
|
Cash flows from
operating activities:
|
|
|
|
|
|
|
|
Net
earnings
|
$
490
|
|
$
389
|
|
$
998
|
|
$ 774
|
Adjustments to
reconcile net earnings to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Provision
for credit losses
|
5
|
|
4
|
|
9
|
|
8
|
Deferred
income taxes and tax uncertainties
|
7
|
|
8
|
|
17
|
|
15
|
Depreciation and amortization
|
55
|
|
55
|
|
106
|
|
107
|
Net
losses from sale of assets
|
—
|
|
2
|
|
—
|
|
2
|
Stock-based compensation
|
19
|
|
18
|
|
31
|
|
27
|
Change in operating
assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
(141)
|
|
(135)
|
|
(303)
|
|
(398)
|
Inventories
|
24
|
|
(84)
|
|
28
|
|
(149)
|
Prepaid
expenses and other assets
|
19
|
|
(11)
|
|
93
|
|
(50)
|
Trade accounts
payable
|
94
|
|
35
|
|
147
|
|
263
|
Accrued
liabilities
|
21
|
|
45
|
|
(177)
|
|
(8)
|
Income taxes –
net
|
(130)
|
|
(76)
|
|
(28)
|
|
10
|
Other
non-current liabilities
|
(13)
|
|
—
|
|
(17)
|
|
(8)
|
Net cash
provided by operating activities
|
450
|
|
250
|
|
904
|
|
593
|
Cash flows from
investing activities:
|
|
|
|
|
|
|
|
Capital
expenditures
|
(95)
|
|
(106)
|
|
(193)
|
|
(163)
|
Proceeds from sale of
assets
|
—
|
|
2
|
|
2
|
|
2
|
Other – net
|
—
|
|
(11)
|
|
—
|
|
(11)
|
Net
cash used in investing activities
|
(95)
|
|
(115)
|
|
(191)
|
|
(172)
|
Cash flows from
financing activities:
|
|
|
|
|
|
|
|
Proceeds from
debt
|
—
|
|
—
|
|
6
|
|
—
|
Payments of
debt
|
—
|
|
—
|
|
(18)
|
|
—
|
Proceeds from stock
options exercised
|
5
|
|
9
|
|
28
|
|
15
|
Payments for employee
taxes withheld from stock awards
|
(26)
|
|
(17)
|
|
(29)
|
|
(19)
|
Purchases of treasury
stock
|
(171)
|
|
(120)
|
|
(313)
|
|
(199)
|
Cash dividends
paid
|
(107)
|
|
(99)
|
|
(194)
|
|
(183)
|
Other – net
|
2
|
|
(2)
|
|
(1)
|
|
(2)
|
Net
cash used in financing activities
|
(297)
|
|
(229)
|
|
(521)
|
|
(388)
|
Exchange rate effect on
cash and cash equivalents
|
(4)
|
|
(8)
|
|
(2)
|
|
(12)
|
Net change in cash and
cash equivalents
|
54
|
|
(102)
|
|
190
|
|
21
|
Cash
and cash equivalents at beginning of period
|
461
|
|
364
|
|
325
|
|
241
|
Cash
and cash equivalents at end of period
|
$
515
|
|
$
262
|
|
$
515
|
|
$ 262
|
SUPPLEMENTAL INFORMATION - RECONCILIATION OF
GAAP TO NON-GAAP
FINANCIAL MEASURES (Unaudited)
The Company supplements the reporting of financial information
determined under U.S. generally accepted accounting principles
(GAAP) with the non-GAAP financial measures as defined below. The
Company believes these non-GAAP financial measures provide
meaningful information to assist investors in understanding
financial results and assessing prospects for future performance as
they provide a better baseline for analyzing the ongoing
performance of its business by excluding items that may not be
indicative of core operating results.
Adjusted gross profit, adjusted SG&A, adjusted operating
earnings, adjusted net earnings, adjusted diluted EPS
Exclude certain non-recurring items, like restructuring charges,
asset impairments, business divestitures and other non-recurring,
infrequent or unusual gains and losses (together referred to as
"non-GAAP adjustments"), from the Company's most directly
comparable reported U.S. GAAP figures (reported gross profit,
SG&A, operating earnings, net earnings and EPS).
Free cash flow (FCF)
Calculated using total cash provided by operating activities less
capital expenditures. The Company believes the presentation of FCF
allows investors to evaluate the capacity of the Company's
operations to generate free cash flow.
Daily sales
Refers to net sales for the period divided by the number of U.S.
selling days for the period.
Daily, constant currency sales
Refers to the daily sales adjusted for changes in foreign
exchange.
Daily, constant currency sales in local days
Refers to the daily sales adjusted for changes in foreign exchange
and local selling days for the business unit.
Foreign exchange impact
Calculated by dividing current period local currency daily sales by
current period average exchange rate and subtracting the current
period local currency daily sales divided by the prior period
average exchange rate.
U.S. selling days:
2022: Q1-64, Q2-64, Q3-64, Q4-63, FY-255
2023: Q1-64, Q2-64, Q3-63, Q4-63, FY-254
2024: Q1-64, Q2-64, Q3-64, Q4-64, FY-256
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, a reconciliation of the most directly
comparable forward-looking GAAP measures is not provided.
The reconciliation provided below reconciles GAAP financial
measures to the non-GAAP financial measures used in this release:
daily sales; daily, constant currency sales; and free cash
flow.
Sales growth for the
three months ended June 30, 2023
(percent change
compared to prior year period)
(unaudited)
|
|
|
Q2
2023
|
|
Total
Company
|
High-Touch
Solutions
North
America
|
Endless
Assortment
|
Reported
sales
|
9.0 %
|
9.9 %
|
4.5 %
|
Day impact
|
—
|
—
|
—
|
Daily
sales(1)
|
9.0 %
|
9.9 %
|
4.5 %
|
Foreign
exchange(2)
|
(1.1) %
|
(0.1) %
|
(5.6) %
|
Daily, constant
currency sales
|
10.1 %
|
10.0 %
|
10.1 %
|
|
|
(1)
|
Based on U.S. selling
days, there were 64 selling days in Q2 2023 and Q2 2022.
|
(2)
|
Foreign exchange impact
is calculated by dividing current period local currency daily sales
by current period average exchange rate and subtracting the current
period local currency daily sales divided by the prior period
average exchange rate.
|
Free cash flow (FCF)
for the three months ended June 30, 2023
(in millions of
dollars)
(unaudited)
|
|
|
Q2
2023
|
Cash flows provided by
operating activities
|
$
450
|
Capital
expenditures
|
(95)
|
Free cash
flow
|
$
355
|
Basis of presentation
The Company has a controlling ownership interest in MonotaRO,
which is part of our Endless Assortment segment. MonotaRO's results
are fully consolidated, reflected in U.S. GAAP, and reported
one-month in arrears. Results will differ from MonotaRO's
externally reported financials which follow Japanese GAAP.
View original
content:https://www.prnewswire.com/news-releases/grainger-reports-results-for-the-second-quarter-2023-301886856.html
SOURCE W.W. Grainger, Inc.