Advancing strategic initiatives while
driving continued strong results;
Company narrows
full-year 2023 guidance range
Third Quarter Highlights
- Delivered sales of $4.2
billion, up 6.7%, or 8.7% on a daily, constant currency
basis
- Generated operating earnings of $667
million, up 10.7%, with operating margin of 15.9%, up 60
basis points
- Achieved diluted EPS of $9.43,
an increase of 14.1%
- Produced $523 million in
operating cash flow and returned $287
million to Grainger shareholders through dividends and share
repurchases
- Narrowing full-year 2023 total Company guidance, including
an updated outlook for daily sales growth between 8.5% to 9.5% and
diluted EPS of $36.00 to $36.60
CHICAGO, Oct. 26, 2023 /PRNewswire/ --
Grainger (NYSE: GWW) today reported results for the third quarter
of 2023 with sales of $4.2 billion,
up 6.7%, or 8.7% on a daily, constant currency basis, and diluted
EPS of $9.43, up 14.1% compared to
the third quarter of 2022.
"The team continues to drive value for customers and serve them
well amidst a reasonably steady demand environment. By executing on
our strategy, we saw additional share gain and continued
profitability leading to another quarter of strong performance,"
said D.G. Macpherson, Chairman and CEO. "As we look to the final
quarter of 2023, we remain focused on providing a flawless
experience for customers and positioning the business for
long-term, profitable growth."
2023 Third Quarter Financial Summary
($ in millions,
except per share amounts)
|
Q3 2023
(1)
|
Q3 2022
(1)
|
Q3'23 vs.
Q3'22
|
Fav. /
(Unfav.)
|
Net
Sales
|
$4,208
|
$3,942
|
6.7 %
|
Gross
Profit
|
$1,655
|
$1,519
|
9.1 %
|
Operating
Earnings
|
$667
|
$603
|
10.7 %
|
Net Earnings
Attributable to
W.W. Grainger, Inc.
|
$476
|
$426
|
11.9 %
|
Diluted Earnings Per
Share
|
$9.43
|
$8.27
|
14.1 %
|
|
|
|
|
Gross Profit
Margin
|
39.3 %
|
38.5 %
|
80 bps
|
Operating
Margin
|
15.9 %
|
15.3 %
|
60 bps
|
Effective Tax
Rate
|
24.4 %
|
24.7 %
|
30 bps
|
|
(1) Results
are consistent on a reported and adjusted basis.
|
Revenue
Sales in the quarter, on a reported and daily basis, increased
6.7% compared to the third quarter of 2022. Adjusting for the
impact of one less selling day in the third quarter of 2023, and
excluding the unfavorable foreign exchange impact of 0.3%, sales on
a daily, constant currency basis increased 8.7% compared to
the third quarter of 2022.
In the High-Touch Solutions - N.A. segment, daily sales were up
8.7% compared to the third quarter of 2022, primarily due to solid
volume growth in all geographies. In the Endless Assortment
segment, daily sales were up 6.0%, or 9.2% on a daily,
constant currency basis, compared to the third quarter of 2022.
Revenue growth was driven by new customer acquisition across the
segment as well as enterprise customer growth at MonotaRO, which
was partially offset by declining sales to non-core, consumer-like
customers and slower overall market demand at Zoro.
Gross Profit Margin
Gross profit margin for the third quarter of 2023 was 39.3%, an
80-basis point increase compared to the third quarter of 2022. The
increase was driven by favorability in the High-Touch Solutions -
N.A. segment, which was partially offset by a slight decline in the
Endless Assortment segment.
In the High-Touch Solutions - N.A. segment, gross profit margin
expanded by 110 basis points over the third quarter of 2022 due
primarily to sustained freight and supply chain efficiencies, as
well as continued favorable product mix. In the Endless Assortment
segment, gross profit margin declined by 20 basis points from the
third quarter of 2022 as strong price realization and continued
freight efficiencies at MonotaRO were offset by unfavorable product
mix at Zoro.
Earnings
Operating earnings for the third quarter of 2023 were
$667 million, up 10.7% compared to
the third quarter of 2022. Operating margin in the quarter was
15.9%, a 60-basis point increase over the third quarter of 2022
driven by expanded gross profit margins, which were partially
offset by a decrease in SG&A leverage from continued demand
generation investments.
Diluted earnings per share of $9.43 in the third quarter of 2023, increased
14.1% compared to the third quarter of 2022.
Tax Rate
The third quarter 2023 effective tax rate was 24.4%, compared to
24.7% in the third quarter of 2022. The decrease in the effective
tax rate was primarily due to a favorable mix of foreign
earnings.
Cash Flow
During the third quarter of 2023, the Company generated
$523 million of cash flow from
operating activities, as higher net earnings were further aided by
favorable working capital. The Company invested $125 million in capital expenditures, resulting
in free cash flow of $398 million.
During the quarter, the Company returned $287 million to
Grainger shareholders through dividends and share repurchases.
Guidance
Total
Company(1)
|
Updated 2023
Guidance Range
(as of July 27,
2023)
|
Updated 2023
Guidance Range
(as of October
26, 2023)
|
Net Sales
|
$16.4 - $16.8
billion
|
$16.4 - $16.6
billion
|
Sales Growth
|
8.0% - 10.6%
|
8.0% - 9.1%
|
Daily Sales
Growth
|
8.5% - 11.0%
|
8.5% - 9.5%
|
Gross Profit
Margin
|
39.1% -
39.4%
|
39.3% -
39.4%
|
Operating
Margin
|
15.2% -
15.7%
|
15.6% -
15.7%
|
Diluted Earnings per
Share
|
$35.00 -
$36.75
|
$36.00 -
$36.60
|
Operating Cash
Flow
|
$1.70 - $1.85
billion
|
$1.8 - $1.9
billion
|
CapEx (cash
basis)
|
$450 - $525
million
|
$450 - $525
million
|
Share
Buyback
|
$750 - $850
million
|
$800 - $875
million
|
Effective Tax
Rate
|
~24.0%
|
~24.0%
|
|
|
|
Segment Operating
Margin
|
|
|
High-Touch Solutions -
N.A.
|
17.3% -
17.8%
|
17.7% -
17.8%
|
Endless
Assortment
|
7.4% - 7.8%
|
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, October 26,
2023, to discuss the third 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 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 11 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 third 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; 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; the impact of any
government shutdown; 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
September 30,
|
|
Nine Months
Ended
September 30,
|
|
2023
|
|
2022
|
|
2023
|
|
2022
|
Net sales
|
$ 4,208
|
|
$
3,942
|
|
$
12,481
|
|
$
11,426
|
Cost of goods sold
|
2,553
|
|
2,423
|
|
7,548
|
|
7,083
|
Gross profit
|
1,655
|
|
1,519
|
|
4,933
|
|
4,343
|
Selling, general and
administrative expenses
|
988
|
|
916
|
|
2,925
|
|
2,672
|
Operating earnings
|
667
|
|
603
|
|
2,008
|
|
1,671
|
Other (income) expense:
|
|
|
|
|
|
|
|
Interest expense
– net
|
22
|
|
25
|
|
70
|
|
70
|
Other – net
|
(7)
|
|
(9)
|
|
(21)
|
|
(20)
|
Total other
expense – net
|
15
|
|
16
|
|
49
|
|
50
|
Earnings before income taxes
|
652
|
|
587
|
|
1,959
|
|
1,621
|
Income tax
provision
|
159
|
|
145
|
|
468
|
|
405
|
Net earnings
|
493
|
|
442
|
|
1,491
|
|
1,216
|
Less net earnings attributable to noncontrolling
interest
|
17
|
|
16
|
|
57
|
|
53
|
Net earnings
attributable to W.W. Grainger, Inc.
|
$ 476
|
|
$ 426
|
|
$ 1,434
|
|
$ 1,163
|
|
|
|
|
|
|
|
|
Earnings per
share:
|
|
|
|
|
|
|
|
Basic
|
$ 9.47
|
|
$ 8.31
|
|
$ 28.45
|
|
$ 22.64
|
Diluted
|
$ 9.43
|
|
$ 8.27
|
|
$ 28.32
|
|
$ 22.52
|
Weighted average number
of shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
49.9
|
|
50.8
|
|
50.1
|
|
51.0
|
Diluted
|
50.1
|
|
51.1
|
|
50.3
|
|
51.3
|
W.W. Grainger,
Inc. and Subsidiaries
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In millions of
dollars)
(Unaudited)
|
|
|
As of
|
|
(Unaudited)
|
|
|
Assets
|
September 30,
2023
|
|
December 31,
2022
|
Current
assets
|
|
|
|
Cash and
cash equivalents
|
$
601
|
|
$
325
|
Accounts receivable
(less allowances for credit losses of $38
and $36, respectively)
|
2,444
|
|
2,133
|
Inventories – net
|
2,196
|
|
2,253
|
Prepaid
expenses and other current assets
|
171
|
|
266
|
Total current
assets
|
5,412
|
|
4,977
|
Property, buildings and
equipment – net
|
1,543
|
|
1,461
|
Goodwill
|
364
|
|
371
|
Intangibles –
net
|
238
|
|
232
|
Operating lease
right-of-use
|
413
|
|
367
|
Other assets
|
170
|
|
180
|
Total
assets
|
$
8,140
|
|
$
7,588
|
|
|
|
|
Liabilities and
Shareholders' Equity
|
|
|
|
Current
liabilities
|
|
|
|
Current
maturities
|
$
34
|
|
$
35
|
Trade
accounts payable
|
1,067
|
|
1,047
|
Accrued
compensation and benefits
|
297
|
|
334
|
Operating
lease liability
|
73
|
|
68
|
Accrued
expenses
|
403
|
|
474
|
Income
taxes payable
|
24
|
|
52
|
Total current
liabilities
|
1,898
|
|
2,010
|
Long-term
debt
|
2,260
|
|
2,284
|
Long-term operating
lease liability
|
361
|
|
318
|
Deferred income taxes
and tax uncertainties
|
135
|
|
121
|
Other non-current
liabilities
|
104
|
|
120
|
Shareholders'
equity
|
3,382
|
|
2,735
|
Total liabilities and
shareholders' equity
|
$
8,140
|
|
$
7,588
|
W.W. Grainger,
Inc. and Subsidiaries
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of
dollars)
(Unaudited)
|
|
|
Three Months
Ended
September
30,
|
|
Nine Months
Ended
September 30,
|
|
2023
|
|
2022
|
|
2023
|
|
2022
|
Cash flows from
operating activities:
|
|
|
|
|
|
|
|
Net
earnings
|
$
493
|
|
$
442
|
|
$
1,491
|
|
$ 1,216
|
Adjustments to
reconcile net earnings to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
Provision for credit
losses
|
6
|
|
5
|
|
15
|
|
13
|
Deferred income taxes
and tax uncertainties
|
3
|
|
5
|
|
20
|
|
20
|
Depreciation and
amortization
|
56
|
|
52
|
|
162
|
|
159
|
Net (gains) losses
from sale of assets
|
(4)
|
|
(1)
|
|
(4)
|
|
1
|
Stock-based
compensation
|
18
|
|
11
|
|
49
|
|
38
|
Change in operating
assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
(48)
|
|
(89)
|
|
(351)
|
|
(487)
|
Inventories
|
14
|
|
(104)
|
|
42
|
|
(253)
|
Prepaid expenses and
other assets
|
11
|
|
11
|
|
104
|
|
(39)
|
Trade accounts
payable
|
(92)
|
|
(2)
|
|
55
|
|
261
|
Accrued
liabilities
|
71
|
|
59
|
|
(106)
|
|
51
|
Income taxes –
net
|
(6)
|
|
(2)
|
|
(34)
|
|
8
|
Other non-current
liabilities
|
1
|
|
(7)
|
|
(16)
|
|
(15)
|
Net cash provided by
operating activities
|
523
|
|
380
|
|
1,427
|
|
973
|
Cash flows from
investing activities:
|
|
|
|
|
|
|
|
Capital
expenditures
|
(125)
|
|
(45)
|
|
(318)
|
|
(208)
|
Proceeds from sale of
assets
|
9
|
|
5
|
|
11
|
|
7
|
Other – net
|
—
|
|
—
|
|
—
|
|
(11)
|
Net cash used in
investing activities
|
(116)
|
|
(40)
|
|
(307)
|
|
(212)
|
Cash flows from
financing activities:
|
|
|
|
|
|
|
|
Proceeds from
debt
|
1
|
|
1
|
|
7
|
|
1
|
Payments of
debt
|
(19)
|
|
—
|
|
(37)
|
|
—
|
Proceeds from stock
options exercised
|
1
|
|
6
|
|
29
|
|
21
|
Payments for employee
taxes withheld from stock
awards
|
(3)
|
|
(3)
|
|
(32)
|
|
(22)
|
Purchases of treasury
stock
|
(193)
|
|
(184)
|
|
(506)
|
|
(383)
|
Cash dividends
paid
|
(106)
|
|
(102)
|
|
(300)
|
|
(285)
|
Other – net
|
1
|
|
2
|
|
—
|
|
—
|
Net cash used in
financing activities
|
(318)
|
|
(280)
|
|
(839)
|
|
(668)
|
Exchange rate effect on
cash and cash equivalents
|
(3)
|
|
(7)
|
|
(5)
|
|
(19)
|
Net change in cash and
cash equivalents
|
86
|
|
53
|
|
276
|
|
74
|
Cash and cash
equivalents at beginning of period
|
515
|
|
262
|
|
325
|
|
241
|
Cash and cash
equivalents at end of period
|
$
601
|
|
$
315
|
|
$
601
|
|
$ 315
|
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 September 30, 2023
(percent change
compared to prior year period)
(unaudited)
|
|
|
Q3
2023
|
|
Total
Company
|
High-Touch
Solutions
North America
|
Endless
Assortment
|
Reported
sales
|
6.7 %
|
7.0 %
|
4.3 %
|
Day impact
|
1.7
|
1.7
|
1.7
|
Daily
sales(1)
|
8.4 %
|
8.7 %
|
6.0 %
|
Foreign
exchange(2)
|
(0.3) %
|
0.2 %
|
(3.2) %
|
Daily, constant
currency sales
|
8.7 %
|
8.5 %
|
9.2 %
|
|
(1) Based on U.S. selling days, there
were 63 and 64 selling days in Q3 2023 and Q3 2022,
respectively.
|
(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 September 30, 2023
(in millions of
dollars)
(unaudited)
|
|
|
Q3
2023
|
Cash flows provided by
operating activities
|
$
523
|
Capital
expenditures
|
(125)
|
Free cash
flow
|
$
398
|
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-third-quarter-2023-301967885.html
SOURCE W.W. Grainger, Inc.