Quarterly highlights - Sales of $1.6 billion, down 14 percent - Net
earnings of $145 million, including a one-time, non-cash $47
million pre-tax gain, up 3 percent - EPS of $1.88 including the
$0.37 gain, up 6 percent - Operating cash flow of $275 million -
Pretax ROIC of 25.2 percent* Visit www.grainger.com/investor to
access a podcast with Grainger's supplemental commentary. CHICAGO,
Oct. 14 /PRNewswire-FirstCall/ -- Grainger (NYSE:GWW) today
reported third quarter sales of $1.6 billion, which were down 14
percent versus third quarter 2008. Net earnings for the quarter
increased 3 percent to $145 million versus $140 million in 2008.
Earnings per share increased by 6 percent to $1.88 versus $1.77**
for the third quarter of 2008. The 2009 third quarter included a
one-time $47 million pre-tax or $0.37 per share gain from the
step-up of its investment in MonotaRO Co. Ltd., after Grainger
became a majority owner in September. "Despite the effects of the
sluggish economy, we are pleased with our results," said Grainger
Chairman and CEO James T. Ryan. "Our execution has been solid. In
particular, our relentless focus on providing exceptional customer
service is paying off. We continue to see evidence that we are
capturing market share. Now more than ever, our customers are
depending on Grainger's product breadth, unmatched local
availability and customer service to help them cost effectively
maintain their facilities." *The GAAP financial statements are the
source for all amounts used in the Return on Invested Capital
(ROIC) calculation. ROIC is calculated using annualized operating
earnings based on year-to-date operating earnings divided by a 10
point average for net working assets. Net working assets are
working assets minus working liabilities defined as follows:
working assets equal total assets less cash equivalents (non
operating cash), deferred taxes, and investments in unconsolidated
entities, plus the LIFO reserve. Working liabilities are the sum of
trade payables, accrued compensation and benefits, accrued
contributions to employees' profit sharing plans, and accrued
expenses. ** Reported third quarter 2008 earnings per share were
$1.79, which was restated after the company adopted FSP 03-6-1 on
January 1, 2009, resulting in a 2 cent reduction in earnings per
share in the third quarters of 2008 and 2009. (See page K-41 of the
company's 2008 10-K for additional information). Ryan added, "While
daily sales remain stable, we are not yet seeing a catalyst for a
sustained economic turnaround in any of our major end markets. We
expect comparisons to improve as sales fell in the fourth quarter
last year. We will continue to focus on what we can control. With
the investments we have made, we remain in a great position as the
economy recovers." Sales for the company decreased 14 percent for
the quarter; down 14 percent in July, down 13 percent in August and
down 13 percent in September. Price contributed a positive 4
percent while volume was down 17 percent. Sales were negatively
affected by 1 percent related to foreign exchange. There were 64
selling days in the quarter, the same as the 2008 third quarter.
Operating earnings for the company were down 19 percent. The
operating earnings decrease was the result of expenses decreasing
at a slower rate than sales, partially offset by a higher gross
profit margin. Effective with the first quarter of 2009, the
company has two reportable business segments, the United States and
Canada, which represent approximately 98 percent of company sales.
This new reporting reflects the integration of Lab Safety Supply
with Grainger's U.S. branch-based business. The remaining operating
units (Mexico, India, Puerto Rico, China, and Panama) are included
in other businesses and are not considered a segment. The company
acquired Asia Pacific Brands India Private Limited in June 2009
resulting in the inclusion of the India operations in other
businesses in the third quarter. The company obtained a majority
ownership of MonotaRO in September, consolidated its balance sheet
as of the end of the third quarter and will consolidate its income
statement beginning in the fourth quarter. Upon obtaining majority
ownership, the previously held equity investment was revalued to
fair market value, based on the closing market price of MonotaRO's
stock at the time of the transaction, resulting in the one-time,
non-cash gain. United States Sales for the United States segment
decreased 14 percent in the 2009 third quarter. Sales declined by
14 percent in July, August and September. As a result of
integrating Lab Safety Supply with the Grainger Industrial Supply
business starting late in 2008, the company had said that it
expected to deliver $70-$100 million in incremental revenue and
$20-$30 million in cost savings. To date, the project has generated
$24 million of the additional revenue and $15 million of the
savings, with the company on track to deliver within the range of
the projected sales and cost benefits by mid-2010. Sales declined
in all customer end-markets in the United States. Grainger
continues to add more products to its offering that will result in
having almost 300,000 products in the 2010 catalog. Product line
expansion contributed $251 million in sales for the third quarter
versus $196 million in the third quarter 2008. Operating earnings
for the quarter were down 15 percent in the United States. The
operating earnings decrease was the result of operating expenses
decreasing at a slower rate than sales, partially offset by a
higher gross profit margin. Payroll-related expenses were down due
to lower headcount, reduced commissions and no bonus accruals.
Around one third of the decrease in operating expenses is expected
to be permanent. Gross profit margins were up due to sales price
increases exceeding product cost inflation and a $10 million
reduction in the LIFO inventory reserve due to lower inflation on
inventory purchases and lower inventory levels than previously
estimated. Canada Sales for the Acklands-Grainger business in the
quarter were down 13 percent versus the 2008 third quarter. In
local currency, sales were down 8 percent. Sales in local currency
declined 10 percent in July, 5 percent in August and 9 percent in
September. The Canadian economy remained weak, particularly the
forestry and natural gas industries. Growth in the oil and
utilities sectors remained favorable in the quarter. Operating
earnings decreased 41 percent for the 2009 third quarter (38
percent in local currency), primarily due to the sales decline and
a 260 basis point decline in gross margin. The decline in gross
margin was primarily the result of higher product costs due to
unfavorable foreign exchange rates and an increase in the mix of
lower margin business, particularly large customers. Other
businesses Sales for the other businesses, which include Mexico,
India, Puerto Rico, China, and Panama, were up 11 percent versus
prior year. The sales increase was due primarily to the acquisition
of the business in India in June 2009, along with contributions
from China and Panama. Mexico represents approximately 50 percent
of sales within this group. Sales in Mexico were down 21 percent in
the quarter versus the same period in 2008 due to unfavorable
foreign exchange. In local currency, sales in Mexico increased 2
percent for the quarter. Operating losses for other businesses were
$2 million for the quarter compared to $3 million a year ago. Other
The third quarter 2009 tax rate benefited from the expiration of a
statute related to a prior tax year. Excluding the effect of this
one time benefit, the effective tax rate for the 2009 third quarter
was 39.1 percent, compared to 38.8 percent in the 2008 third
quarter. The increase in the 2009 effective rate is due to lower
earnings in non-U.S. tax jurisdictions with lower tax rates, as
well as higher estimates of U.S. state income tax rates. Cash flow
Operating cash flow was $275 million versus $217 million in the
third quarter of 2008. Capital expenditures were $36 million in the
third quarter compared to $32 million a year ago. Grainger did not
repurchase any shares of stock in the quarter. Dividends paid in
the third quarter were approximately $35 million. For the nine
months ended September 30, 2009 sales of $4.6 billion were down 13
percent, 12 percent on a daily basis, versus the nine months ended
September 30, 2008. Net earnings decreased 9 percent to $333
million versus $367 million in 2008. Earnings per share for the
nine months ended September 30, 2009 declined 6 percent to $4.34
versus $4.60 for 2008. The effect of adopting FSP-03-6-1 was a five
cents per share reduction for the first nine months of both years.
The nine months of 2009 included a $0.37 per share gain from the
MonotaRO transaction in September. Year to date operating cash flow
was $508 million verses $335 million in 2008. W.W. Grainger, Inc.
with 2008 sales of $6.9 billion is the leading broad line supplier
of facilities maintenance products serving businesses and
institutions in United States, Canada, Japan, Mexico, India, China
and Panama. Through a highly integrated network including more than
600 branches, 18 distribution centers and multiple Web sites,
Grainger's employees help customers get the job done. Visit
http://www.grainger.com/investor to view information about the
company, including a history of daily sales by segment and a
podcast regarding third quarter 2009 results. Forward-Looking
Statements This document contains forward-looking statements under
the federal securities law. The forward-looking statements relate
to the company's expected future financial results and business
plans, strategies and objectives are not historical facts. They are
generally identified by qualifiers such as "capturing market
share", "continue", "continues", "expect", "expected", "on track",
"projected", "range", "remain in a great position" or similar
expressions. There are risks and uncertainties the outcome of which
could cause the company's results to differ materially from what is
projected. The forward-looking statements should be read in
conjunction with the company's most recent annual report, as well
as the company's Form 10-K and other reports filed with the
Securities & Exchange Commission, containing a discussion of
the company's business and various factors that may affect it.
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (In thousands,
except for per share amounts) Three Months Ended Nine Months Ended
September 30, September 30, ----------------------
---------------------- 2009 2008 2009 2008 ---------- ----------
---------- ---------- Net sales $1,589,665 $1,839,475 $4,588,176
$5,257,377 Cost of merchandise sold 929,720 1,097,127 2,673,848
3,129,218 ---------- ---------- ---------- ---------- Gross profit
659,945 742,348 1,914,328 2,128,159 Warehousing, marketing and
administrative expenses 473,225 510,891 1,414,465 1,526,044
---------- ---------- ---------- ---------- Operating earnings
186,720 231,457 499,863 602,115 Other income and (expense) Interest
income 374 1,602 1,048 3,642 Interest expense (2,198) (4,393)
(6,734) (9,591) Equity in net income (loss) of unconsolidated
entities 578 755 1,361 2,835 Gain (loss) on previously held equity
interest 47,420 - 47,343 - Other non-operating income 602 60 838
800 Other non-operating expense (76) (791) (205) (231) ----------
---------- ---------- ---------- Total other income and (expense)
46,700 (2,767) 43,651 (2,545) ---------- ---------- ----------
---------- Earnings before income taxes 233,420 228,690 543,514
599,570 Income taxes 88,856 88,667 210,106 232,130 ----------
---------- ---------- ---------- Net earnings $144,564 $140,023
$333,408 $367,440 ========== ========== ========== ==========
Earnings per share -Basic $1.91 $1.80 $4.41 $4.68 ==========
========== ========== ========== -Diluted $1.88 $1.77 $4.34 $4.60
========== ========== ========== ========== Average number of
shares outstanding -Basic 74,048 75,968 73,920 76,814 ==========
========== ========== ========== -Diluted 75,203 77,408 74,972
78,227 ========== ========== ========== ========== Diluted Earnings
Per Share Net Earnings as reported $144,564 $140,023 $333,408
$367,440 ========== ========== ========== ========== Less: earnings
allocated to participating securities (3,321) (3,168) (7,700)
(7,888) ---------- ---------- ---------- ---------- Net earnings
available to common shareholders $141,243 $136,855 $325,708
$359,552 Weighted average shares adjusted for dilutive securities
75,203 77,408 74,972 78,227 ========== ========== ==========
========== Diluted earnings per share $1.88 $1.77 $4.34 $4.60
========== ========== ========== ========== SEGMENT RESULTS
(Unaudited) (In thousands of dollars, except for per share amounts)
Three Months Ended Nine Months Ended September 30, September 30,
------------------------- ------------------------ 2009 2008 2009
2008 ----------- ---------- ---------- ---------- Sales United
States $1,398,576 $1,629,414 $4,061,108 $4,641,690 Canada 166,262
190,754 470,781 565,924 Other Businesses 34,901 31,307 85,334
86,379 Intersegment sales (10,074) (12,000) (29,047) (36,616)
----------- ---------- ---------- ---------- Net sales to external
customers $1,589,665 $1,839,475 $4,588,176 $5,257,377 -----------
---------- ---------- ---------- Operating earnings United States
$204,439 $241,560 $554,157 $646,414 Canada 8,361 14,168 24,055
41,856 Other Businesses (1,958) (2,729) (8,176) (8,880) Unallocated
expense (24,122) (21,542) (70,173) (77,275) ----------- ----------
---------- ---------- Operating earnings $186,720 $231,457 $499,863
$602,115 ----------- ---------- ---------- ---------- Company
operating margin 11.7% 12.6% 10.9% 11.5% ROIC* for Company 25.2%
30.5% ROIC* for United States 34.9% 40.4% ROIC* for Canada 8.6%
14.5% * See page 1 for a definition of ROIC CONDENSED CONSOLIDATED
BALANCE SHEETS (Unaudited) Preliminary (In thousands of dollars) At
September 30, ---------------------------- Assets 2009 2008 ------
---------- ----------- Cash and cash equivalents $672,035 $364,417
Accounts receivable - net (1) 638,531 721,387 Inventories (2)
851,478 961,094 Prepaid expenses and other assets 71,122 63,028
Deferred income taxes 37,516 61,395 ---------- ----------- Total
current assets 2,270,682 2,171,321 Property, buildings and
equipment - net 938,285 928,496 Deferred income taxes 97,383 72,760
Investment in unconsolidated entities (3) 3,341 23,089 Goodwill (3)
328,131 231,945 Other assets and intangibles - net 103,286 108,830
---------- ----------- Total assets $3,741,108 $3,536,441
========== =========== Liabilities and Shareholders' Equity
------------------------------------ Short-term debt $33,650
$16,431 Current maturities of long-term debt (4) 46,257 12,923
Trade accounts payable 279,660 314,445 Accrued compensation and
benefits 124,033 164,524 Accrued contributions to employees' profit
sharing plans 91,151 110,566 Accrued expenses 96,302 99,386 Income
taxes payable (1,151) 16,589 ---------- ----------- Total current
liabilities 669,902 734,864 ========== =========== Long-term debt
454,895 496,562 Deferred income taxes and tax uncertainties 34,211
23,531 Accrued employment-related benefits (5) 218,875 153,393
Shareholders' equity (6) 2,363,225 2,128,091 ---------- -----------
Total liabilities and shareholders' equity $3,741,108 $3,536,441
========== =========== (1) Accounts receivable decreased $83
million, or 11%, due a decline in sales. (2) Inventories decreased
$110 million, or 11%, due to lower purchases in response to the
decline in sales. (3) Investment in unconsolidated entities
decreased $20 million, or 86%, and goodwill increased $96 million,
or 41% primarily due to acquiring the majority ownership of
MonotaRo Co. Ltd. which was previously held as an investment in
unconsolidated entities. (4) Current maturities of long-term debt
increased $33 million, due to payments on the term loan obtained in
May 2008 that will be due within one year. (5) Accrued
employment-related benefits increased $65 million, or 43%, due to
increases in post-retirement liabilities resulting from declines in
market values of underlying plan assets and also a decrease in
assumed discount rates, driven by recent economic conditions. (6)
Common stock outstanding as of September 30, 2009 was 74,315,435
shares as compared with 76,067,844 shares at September 30, 2008.
The Company did not repurchase any shares during the 2009 third
quarter. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Preliminary (In thousands of dollars) Nine Months Ended
Sept. 30, ---------------------------- 2009 2008 --------- --------
Cash flows from operating activities: Net earnings $333,408
$367,440 Provision for losses on accounts receivable 11,165 11,867
Deferred income taxes and tax uncertainties 9,131 (18,432)
Depreciation and amortization 104,093 100,765 Stock-based
compensation 33,170 36,655 Tax benefit of stock incentive plans
1,206 1,612 Net losses (gains) on sales of property, buildings and
equipment 50 (4,760) (Income) losses from unconsolidated entities -
net (1,361) (2,835) (Gain) loss on previously held equity interest
(47,343) - Change in operating assets and liabilities: (Increase)
decrease in accounts receivable (29,257) (125,936) (Increase)
decrease in inventories 194,396 (17,360) (Increase) decrease in
prepaid expenses 32,928 645 Increase (decrease) in trade accounts
payable (33,064) 13,069 Increase (decrease) in other current
liabilities (112,810) (42,191) Increase (decrease) in current
income taxes payable (4,998) 6,466 Increase (decrease) in accrued
employment-related benefits cost 20,395 9,498 Other - net (3,241)
(1,186) --------- -------- Net cash provided by operating
activities 507,868 335,317 --------- -------- Cash flows from
investing activities: Additions to property, buildings and
equipment - net (88,152) (131,590) Net cash paid for business
acquisition - (33,995) Cash acquired, net of cash paid for business
acquisitions 10,428 - Investments in unconsolidated entities -
(6,486) Other - net 2,697 19,211 --------- -------- Net cash used
in investing activities (75,027) (152,860) --------- -------- Cash
flows from financing activities: Net (decrease) increase in
short-term debt (6,711) (85,019) Proceeds from issuance of
long-term debt - 500,000 Stock options exercised 59,940 41,103
Excess tax benefits from stock-based compensation 12,588 11,733
Purchase of treasury stock (127,696) (307,552) Cash dividends paid
(100,049) (90,384) --------- -------- Net cash (used in) provided
by financing activities (161,928) 69,881 --------- --------
Exchange rate effect on cash and cash equivalents 4,832 (1,358)
--------- -------- Net increase in cash and cash equivalents
275,745 250,980 Cash and cash equivalents at beginning of year
396,290 113,437 --------- -------- Cash and cash equivalents at end
of period $672,035 $364,417 ========= ======== DATASOURCE: W.W.
Grainger, Inc. CONTACT: Media, Jan Tratnik, Director, Corporate
Communications and Public Affairs, +1-847-535-4339, or Erin Ptacek,
Director, Corporate Brand & Reputation, +1-847-535-1543, or
Investors, Ernest Duplessis, Vice President, Investor Relations,
+1-847-535-4356, or William Chapman, Director, Investor Relations,
+1-847-535-0881, all of W.W. Grainger, Inc. Web Site:
http://www.grainger.com/
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