CHICAGO, April 23, 2020 /PRNewswire/ -- Grainger
(NYSE: GWW) today reported results for the 2020 first quarter.
Sales of $3.0 billion in the quarter
increased 7.2% versus the 2019 first quarter. On a daily basis,
sales were up 5.5%. The first quarter had one more selling day than
the prior year period.
"During these challenging times, as an essential business,
Grainger remains more committed than ever to achieving our purpose
… to Keep the World Working. We are focused on serving our
customers well, ensuring the safety and well-being of our team
members, and maintaining a strong financial position to support us
through this crisis. By supporting customers who are saving lives
and keeping communities safe, we are demonstrating the power of our
products and solutions, deep customers relationships, and
exceptional customer experience. Our strategy matters even
more today," said DG Macpherson, Chairman and Chief Executive
Officer. "In the midst of the uncertainty, we delivered robust
top-line growth, solid profitability, and continued to produce
strong operating cash flow in the first quarter. We also bolstered
our already solid financial position, maintaining our flexibility
to continue making thoughtful investments for the future. We
intend to persevere through this crisis and I am confident that we
are well-positioned to come out stronger on the other side."
2020 First Quarter Financial Summary
($ in
millions)
|
Q1
2020
|
Q1
2019
|
Q1
Fav. (Unfav.) vs.
Prior
|
|
|
Reported
|
Adjusted1
|
Reported
|
Adjusted1
|
Reported
|
Adjusted1
|
|
Net
Sales
|
$3,001
|
$3,001
|
$2,799
|
$2,799
|
7%
|
7%
|
|
Gross
Profit
|
$1,121
|
$1,121
|
$1,095
|
$1,096
|
2%
|
2%
|
|
Operating
Earnings
|
$159
|
$343
|
$363
|
$365
|
(56)%
|
(6)%
|
|
Net
Earnings
|
$173
|
$230
|
$253
|
$255
|
(32)%
|
(9)%
|
|
Diluted
EPS
|
$3.19
|
$4.24
|
$4.48
|
$4.51
|
(29)%
|
(6)%
|
|
|
|
|
|
|
|
|
|
Gross Profit
%
|
37.4%
|
37.4%
|
39.1%
|
39.2%
|
(180) bps
|
(180) bps
|
|
Operating
Margin
|
5.3%
|
11.4%
|
13.0%
|
13.0%
|
(770) bps
|
(160) bps
|
|
Tax
Rate
|
(30.4)%
|
25.6%
|
25.4%
|
25.4%
|
5580 bps
|
(20) 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. During the quarter, the company recorded a $177 million
write-down of goodwill, intangibles and long-lived assets from the
Fabory business which was the largest contributor to the decline in
reported operating earnings.
|
Revenue
Daily sales for the quarter increased 5.5%. Sales were composed of
volume increases of approximately 7% and price and mix headwinds of
around 2%. Foreign exchange contributed a 0.2% unfavorable
impact.
Gross Profit Margin
Reported and adjusted gross profit margin for the first quarter of
2020 was 37.4%. This compares to reported and adjusted gross profit
margin in the first quarter of 2019 of 39.1% and 39.2%,
respectively. The variance was due primarily to business unit mix
impact from higher growth in our lower margin endless assortment
businesses as well as headwinds in our U.S. segment related to
customer and product mix stemming from the COVID-19 pandemic, and
challenging year-over-year timing related to pricing actions in the
first quarter of 2019.
Earnings
Reported operating earnings for the 2020 first quarter of
$159 million were down 56% versus
$363 million in the 2019 first
quarter. Reported earnings in the 2020 first quarter included
$184 million in restructuring and
non-cash impairment charges, which were primarily related to the
Fabory business in the
Netherlands. On an adjusted basis, operating earnings for
the quarter of $343 million were down
6% versus $365 million in the 2019
quarter.
Reported operating margin of 5.3% decreased 770 basis points in
the first quarter of 2020 versus the prior year quarter. Adjusted
operating margin of 11.4% in the quarter declined 160 basis points
versus the prior year quarter. The decline in operating margin was
due primarily to lower gross margin, primarily in the U.S. segment,
slightly offset by SG&A leverage.
Reported earnings per share of $3.19 in the first quarter was down 29% versus
$4.48 in the 2019 first quarter.
Adjusted earnings per share in the quarter of $4.24 decreased 6% versus $4.51 in the 2019 first quarter. The decrease in
adjusted earnings per share was due primarily to lower operating
earnings which were partially offset by lower average shares
outstanding in the current year period.
Tax Rate
For the 2020 first quarter, the company's reported tax rate was
negative 30.4% versus 25.4% in the 2019 first quarter. The lower
tax rate in the current year quarter was primarily driven by tax
benefits related to the Fabory business.
Excluding restructuring, net and impairment charges and
non-recurring income tax items in both periods, the adjusted tax
rates were 25.6% and 25.4% for the three months ended March 31, 2020 and 2019, respectively.
Cash Flow
Operating cash flow was $244 million
in the 2020 first quarter compared to $127
million in the 2019 first quarter. The increase in operating
cash flow was primarily the result of favorable working capital in
the current year period. Grainger returned $178 million to shareholders through $78 million in dividends and $100 million used to buy back approximately
336,000 shares in the first quarter of 2020. While we remain
committed to returning excess capital to shareholders over time, we
have temporarily paused our share repurchase program as we shift to
conserve capital during the pandemic.
2020 Company Guidance
Given the uncertainty around the depth and duration of this
pandemic, and the related economic response, we are suspending our
guidance for 2020. We intend to return to our normal guidance
practices when appropriate.
Webcast
Grainger will conduct a live conference call and webcast at
11:00 a.m. ET on April 23, 2020 to discuss the first 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 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 2019 sales of $11.5 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 invest.grainger.com to view information about the
company, including a supplement regarding 2020 first 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: the unknown duration and
economic, operational and financial impacts of the global outbreak
of the Coronavirus (COVID-19 pandemic) and the actions taken or
contemplated by governmental authorities or others in connection
with the pandemic on the company's businesses, its employees,
customers and suppliers, including the uncertain duration of
mandated shut-downs for our customers and suppliers, changes in our
customers' product needs, our suppliers' inability to meet
unprecedented demand for COVID-19 related products, the potential
for government action to allocate or direct products to certain
customers which may cause disruption in our relationships with
other customers, and disruption caused by business responses to
COVID-19, including working remote arrangements, which may create
increased vulnerability to cybersecurity incidents; higher product
costs or other expenses; a major loss of customers; loss or
disruption of sources of supply; increased competitive pricing
pressures; failure to develop or implement new technology
initiatives or business strategies; failure to adequately protect
intellectual property or successfully defend against infringement
claims; fluctuations or declines in the company's gross profit
percentage; 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, advertising, consumer
protection, pricing (including disaster or emergency declaration
pricing statutes), product liability, safety or compliance, or
privacy and cybersecurity matters; investigations, inquiries,
audits and changes in laws and regulations; failure to comply with
laws, regulations and standards; government contract matters;
disruption of information technology or data security systems
involving us or third parties on which we depend; 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
volatility or price declines of the company's common stock;
commodity price volatility; labor shortages; facilities disruptions
or shutdowns; higher fuel costs or disruptions in transportation
services; pandemic diseases or viral contagions; 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;
changes in credit ratings or outlook; the company's incurrence of
indebtedness 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 share and per share amounts)
|
|
|
Three Months
Ended
March 31,
|
|
2020
|
|
2019
|
Net sales
|
$
|
3,001
|
|
|
$
|
2,799
|
|
Cost of goods sold
|
1,880
|
|
|
1,704
|
|
Gross profit
|
1,121
|
|
|
1,095
|
|
Selling, general and
administrative expenses
|
962
|
|
|
732
|
|
Operating earnings
|
159
|
|
|
363
|
|
Other (income) expense:
|
|
|
|
Interest expense,
net
|
21
|
|
|
19
|
|
Other, net
|
(4)
|
|
|
(7)
|
|
Total other
expense, net
|
17
|
|
|
12
|
|
Earnings before income taxes
|
142
|
|
|
351
|
|
Income tax (benefit)
provision
|
(43)
|
|
|
89
|
|
Net earnings
|
185
|
|
|
262
|
|
Less: Net earnings
attributable to noncontrolling interest
|
12
|
|
|
9
|
|
Net earnings
attributable to W.W. Grainger, Inc.
|
$
|
173
|
|
|
$
|
253
|
|
|
|
|
|
Earnings per
share:
|
|
|
|
Basic
|
$
|
3.20
|
|
|
$
|
4.50
|
|
Diluted
|
$
|
3.19
|
|
|
$
|
4.48
|
|
Weighted average
number of shares outstanding:
|
|
|
|
Basic
|
53.6
|
|
|
55.6
|
|
Diluted
|
53.8
|
|
|
55.9
|
|
Diluted Earnings Per
Share
|
|
|
|
Net earnings as
reported
|
$
|
173
|
|
|
$
|
253
|
|
Earnings allocated to
participating securities
|
(2)
|
|
|
(3)
|
|
Net earnings
available to common shareholders
|
$
|
171
|
|
|
$
|
250
|
|
Weighted average
shares adjusted for dilutive securities
|
53.8
|
|
|
55.9
|
|
Diluted earnings per
share
|
$
|
3.19
|
|
|
$
|
4.48
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(In millions of
dollars)
|
|
|
|
(Unaudited)
|
|
|
Assets
|
March 31,
2020
|
|
December 31,
2019
|
Cash and cash
equivalents (6)
|
$
|
1,492
|
|
|
$
|
360
|
|
Accounts receivable –
net
|
1,613
|
|
|
1,425
|
|
Inventories -
net
|
1,615
|
|
|
1,655
|
|
Prepaid expenses and
other current assets
|
129
|
|
|
104
|
|
Prepaid income
taxes
|
65
|
|
|
11
|
|
Total current
assets
|
4,914
|
|
|
3,555
|
|
Property, buildings
and equipment – net
|
1,357
|
|
|
1,400
|
|
Deferred income
taxes
|
10
|
|
|
11
|
|
Goodwill
(1)
|
361
|
|
|
429
|
|
Intangibles - net
(2)
|
226
|
|
|
304
|
|
Other
assets
|
309
|
|
|
306
|
|
Total
assets
|
$
|
7,177
|
|
|
$
|
6,005
|
|
Liabilities and
Shareholders' Equity
|
|
|
|
Short-term debt
(3)
|
$
|
17
|
|
|
$
|
55
|
|
Current maturities of
long-term debt (4)
|
21
|
|
|
246
|
|
Trade accounts
payable
|
863
|
|
|
719
|
|
Accrued compensation
and benefits
|
177
|
|
|
228
|
|
Accrued contributions
to employees' profit-sharing plans (5)
|
19
|
|
|
85
|
|
Accrued
expenses
|
384
|
|
|
318
|
|
Income taxes
payable
|
19
|
|
|
27
|
|
Total current
liabilities
|
1,500
|
|
|
1,678
|
|
Long-term debt
(6)
|
3,303
|
|
|
1,914
|
|
Deferred income taxes
and tax uncertainties
|
99
|
|
|
106
|
|
Other non-current
liabilities
|
245
|
|
|
247
|
|
Shareholders' equity
(7)
|
2,030
|
|
|
2,060
|
|
Total liabilities and
shareholders' equity
|
$
|
7,177
|
|
|
$
|
6,005
|
|
|
|
(1)
|
Goodwill decreased
$68 million primarily due to a $58 million Fabory
impairment.
|
(2)
|
Intangibles - net
decreased $78 million primarily due to a $74 million Fabory
impairment
|
(3)
|
Short-term debt
decreased $38 million primarily due to the repayment of the
Company's foreign lines of credit.
|
(4)
|
Current maturities of
long-term debt decreased $225 million primarily due to the
repayment of the British pound term loan, Euro term loan and the
Canadian dollar revolving credit facility.
|
(5)
|
Accrued contributions
to employees' profit-sharing plans decreased $66 million primarily
due to the timing of annual cash contributions and the reduction of
the contribution rate in 2020.
|
(6)
|
Long-term debt
increased $1,389 million primarily due to the draw down on the
Company's revolving credit facility of $1 billion in March 2020 and
the issuance of $500 million in unsecured senior notes in February
2020, partially offset by the repayments of international
debt.
|
(7)
|
Common stock
outstanding as of March 31, 2020 was 53,467,936 compared with
53,687,528 shares at December 31, 2019, primarily due to share
repurchases.
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
|
|
|
(In millions of
dollars)
|
Three Months
Ended
March 31,
|
|
2020
|
|
2019
|
Cash flows from
operating activities:
|
|
|
|
Net
earnings
|
$
|
185
|
|
|
$
|
262
|
|
|
|
|
|
Provision for credit
losses
|
6
|
|
|
4
|
|
Deferred income taxes
and tax uncertainties
|
(7)
|
|
|
(4)
|
|
Depreciation and
amortization
|
45
|
|
|
57
|
|
Net losses (gains)
from sales of assets and business divestitures
|
3
|
|
|
(2)
|
|
Impairment of
goodwill, intangible and long-lived assets
|
177
|
|
|
—
|
|
Stock-based
compensation
|
9
|
|
|
5
|
|
Subtotal
|
233
|
|
|
60
|
|
Change in operating
assets and liabilities:
|
|
|
|
Accounts
receivable
|
(217)
|
|
|
(102)
|
|
Inventories
|
19
|
|
|
20
|
|
Prepaid expenses and
other assets
|
(26)
|
|
|
(30)
|
|
Trade accounts
payable
|
155
|
|
|
64
|
|
Accrued
liabilities
|
(36)
|
|
|
(207)
|
|
Income taxes,
net
|
(62)
|
|
|
64
|
|
Other non-current
liabilities
|
(7)
|
|
|
(4)
|
|
Subtotal
|
(174)
|
|
|
(195)
|
|
Net cash provided by
operating activities
|
244
|
|
|
127
|
|
Cash flows from
investing activities:
|
|
|
|
Additions to
property, buildings, equipment and intangibles
|
(50)
|
|
|
(60)
|
|
Proceeds from sale of
assets
|
—
|
|
|
6
|
|
Other
|
(2)
|
|
|
2
|
|
Net cash used in
investing activities
|
(52)
|
|
|
(52)
|
|
Cash flows from
financing activities:
|
|
|
|
Net (decrease)
increase in lines of credit
|
(36)
|
|
|
3
|
|
Net increase
(decrease) in long-term debt
|
1,155
|
|
|
(14)
|
|
Proceeds from stock
options exercised
|
19
|
|
|
3
|
|
Payments for employee
taxes withheld from stock awards
|
(5)
|
|
|
(3)
|
|
Purchases of treasury
stock
|
(100)
|
|
|
(135)
|
|
Cash dividends
paid
|
(78)
|
|
|
(76)
|
|
Other, net
|
—
|
|
|
1
|
|
Net cash provided by
(used in) financing activities
|
955
|
|
|
(221)
|
|
Exchange rate effect
on cash and cash equivalents
|
(15)
|
|
|
—
|
|
Net change in cash
and cash equivalents
|
1,132
|
|
|
(146)
|
|
Cash and cash
equivalents at beginning of year
|
360
|
|
|
538
|
|
Cash and cash
equivalents at end of period
|
$
|
1,492
|
|
|
$
|
392
|
|
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
March 31,
|
|
2020
|
Gross
Profit %
|
|
2019
|
Gross
Profit %
|
Gross profit
reported
|
$
|
1,121
|
|
37.4
|
%
|
|
$
|
1,095
|
|
39.1
|
%
|
Restructuring, net and impairment charges
|
—
|
|
—
|
|
|
1
|
|
0.1
|
|
Gross profit
adjusted
|
$
|
1,121
|
|
37.4
|
%
|
|
$
|
1,096
|
|
39.2
|
%
|
In
millions
|
Three Months Ended
March 31,
|
|
2020
|
Operating
Margin %
|
|
2019
|
Operating
Margin %
|
Operating earnings
reported
|
$
|
159
|
|
5.3
|
%
|
|
$
|
363
|
|
13.0
|
%
|
Restructuring, net
and impairment charges
|
184
|
|
6.1
|
|
|
2
|
|
—
|
|
Operating earnings
adjusted
|
$
|
343
|
|
11.4
|
%
|
|
$
|
365
|
|
13.0
|
%
|
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
March 31,
|
|
|
2020
|
|
2019
|
%
|
Net earnings
reported
|
$
|
173
|
|
|
$
|
253
|
|
(32)
|
%
|
Restructuring, net
and impairment charges
|
57
|
|
|
2
|
|
|
Net earnings
adjusted
|
$
|
230
|
|
|
$
|
255
|
|
(9)
|
%
|
|
|
|
|
|
Diluted earnings per
share reported
|
$
|
3.19
|
|
|
$
|
4.48
|
|
(29)
|
%
|
Pretax restructuring,
net and impairment charges
|
3.38
|
|
|
0.04
|
|
|
Tax effect
(1)
|
(2.33)
|
|
|
(0.01)
|
|
|
Total, net of
tax
|
1.05
|
|
|
0.03
|
|
|
Diluted earnings per
share adjusted
|
$
|
4.24
|
|
|
$
|
4.51
|
|
(6)
|
%
|
|
|
|
|
|
(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.The lower
tax rate effect in the current year quarter was primarily driven by
tax benefits related to the Fabory business.
|
|
Three Months
Ended
March 31,
|
|
2020
|
|
2019
|
|
Bps
impact
|
Effective tax rate
reported
|
(30.4)
|
%
|
|
25.4
|
%
|
|
(5,580)
|
|
Tax benefit related
to the Fabory business
|
61.2
|
|
|
—
|
|
|
|
Tax impact of
restructuring, net and impairment charges
|
(5.2)
|
|
|
—
|
|
|
|
Effective tax rate
adjusted
|
25.6
|
%
|
|
25.4
|
%
|
|
20
|
|
View original
content:http://www.prnewswire.com/news-releases/grainger-reports-results-for-the-2020-first-quarter-301045765.html
SOURCE W.W. Grainger, Inc.