CHICAGO — Grainger (NYSE: GWW) today reported results for the fourth quarter and full year 2023. Sales of $4.0 billion in the fourth quarter 2023 increased 5.1%, or 5.5% on a daily, organic constant currency basis versus the fourth quarter of 2022. For the full year, sales of $16.5 billion increased 8.2%, or 9.5% on a daily, organic constant currency basis compared to the prior year.
Fourth Quarter 2023 Highlights
- Delivered sales of $4.0 billion, up 5.1%, or 5.5% on a daily, organic constant currency basis
- Achieved reported operating margin of 13.9%, down 40 basis points, or 14.6% on an adjusted basis, up 80 basis points
- Increased diluted EPS by 4.7% to $7.89 on a reported basis, or by 16.7% to $8.33 on an adjusted basis
- Announced plans to open a new 1.2 million square-foot distribution center near Houston, Texas in 2026
Full Year 2023 Highlights
- Grew sales to $16.5 billion, up 8.2%, or 9.5% on a daily, organic constant currency basis
- Realized reported operating margin of 15.6%, up 110 basis points, or 15.7% on an adjusted basis, up 130 basis points
- Increased diluted EPS by 20.5% to $36.23 on a reported basis, or by 23.6% to $36.67 on an adjusted basis
- Produced $2.0 billion in operating cash flow and returned $1.2 billion to Grainger shareholders through dividends and share repurchases
“Our strong 2023 performance was driven by the team’s focused execution against our long-term strategy in a normalizing demand market. We strengthened our advantage in both our High-Touch Solutions and Endless Assortment segments and achieved record annual sales and earnings by remaining committed to our purpose, We Keep the World Working®,” said D.G. Macpherson, Chairman and CEO. “As we look to 2024, we remain dedicated to delivering tangible value for customers, strong results for shareholders, and an engaging culture for team members.”
2023 Financial Summary
Sales
For the fourth quarter of 2023, total Company sales on a reported and daily basis increased 5.1% compared to the fourth quarter of 2022. Normalizing for the impact of foreign currency exchange and the divestiture of the Company’s subsidiary, E & R Industrial Sales, Inc., sales on a daily, organic constant currency basis were up 5.5% versus the fourth quarter of 2022.
In the High-Touch Solutions N.A. segment, sales were up 4.7% versus the fourth quarter of 2022 driven by continued volume growth across all geographies. Growth was consistent on a reported and daily, organic constant currency basis. In the Endless Assortment segment, sales were up 6.0%, or 8.2% on a daily, constant currency basis versus the fourth quarter of 2022. Growth was driven by B2B customers across the segment as well as enterprise customer growth at MonotaRO, which was partially offset by declining sales to non-core, consumer-like customers at Zoro.
For the full year 2023, total Company sales increased 8.2% versus the full year 2022. Daily sales on an organic, constant currency basis increased 9.5% versus the prior year driven by growth in both segments.
Gross Profit Margin
For the fourth quarter of 2023, total Company gross profit margin was 39.1%, down 50 basis points compared to the fourth quarter of 2022. Both segments contributed to the decline.
In the High-Touch Solutions N.A. segment, gross margin declined by 50 basis points compared to the fourth quarter of 2022 due to negative price / cost spread and year-end inventory cost adjustments, which were partially offset by sustained freight and supply chain efficiencies. In the Endless Assortment segment, gross margin declined by 60 basis points versus the fourth quarter of 2022 driven by unfavorable product mix at Zoro, which was partially offset by freight efficiencies at MonotaRO.
For the full year 2023, total Company gross profit margin was 39.4%, up 100 basis points versus the prior year. The increase in gross profit margin was primarily driven by freight and supply chain efficiencies as well as favorable product mix, which was partially offset by negative price / cost spread.
Earnings
For the fourth quarter of 2023, reported operating earnings for the total Company were $557 million, up 2.4% over the fourth quarter of 2022. Reported operating margin was 13.9%, a 40 basis point decrease compared to the fourth quarter of 2022. On an adjusted basis, which excludes any gains and losses from divestitures, operating earnings for the quarter were $583 million, up 11.5% over the fourth quarter of 2022. Adjusted operating margin was 14.6%, an 80 basis point increase over the fourth quarter of 2022. The increase in adjusted operating margin was driven by strong SG&A leverage aided by the absence of one-time costs in the prior year, which was partially offset by gross profit margin decline.
Diluted EPS for the fourth quarter of 2023 was $7.89 on a reported basis, up 4.7% versus the fourth quarter of 2022. On an adjusted basis, diluted EPS was $8.33, up 16.7% versus the fourth quarter of 2022. The increase in earnings per share was primarily due to strong operating performance in the quarter.
For the full year 2023, reported operating earnings for the total Company of $2.6 billion were up 15.8% versus the prior year, and resulted in reported operating margin of 15.6%, an increase of 110 basis points over prior year. On an adjusted basis, 2023 operating earnings of $2.6 billion were up 18.1% versus the prior year, and resulted in adjusted operating margin of 15.7%, an increase of 130 basis points compared to 2022 which includes 30 basis points of SG&A leverage.
Diluted EPS for the full year 2023 was $36.23 on a reported basis, up 20.5% versus 2022. On an adjusted basis, 2023 diluted EPS was $36.67, up 23.6% versus the prior year. The increase in earnings per share was due primarily to the strong operating performance in the year coupled with a lower share count.
Tax Rate
For the fourth quarter of 2023, the reported effective tax rate was 23.8% compared to 24.3% in the fourth quarter of 2022. On an adjusted basis, the tax rate was 23.5% compared to 25.3% in the prior year quarter. The variance for both the reported and adjusted tax rates was driven primarily by an increase in tax benefits related to stock compensation and higher income tax credits as compared to the fourth quarter of 2022.
For the full year 2023, the reported effective tax rate was 23.9% versus 24.8% in 2022. On an adjusted basis, the full year effective tax rate was 23.8% versus 25.1% in the prior year. The variance for both the reported and adjusted tax rates was primarily driven by tax benefits related to increased stock compensation as compared to 2022.
Cash Flow
During the fourth quarter, the Company generated $604 million of cash flow from operating activities as higher net earnings were further aided by favorable working capital. The Company invested $127 million in capital expenditures, resulting in free cash flow of $477 million. During the quarter, the Company returned $437 million to Grainger shareholders through dividends and share repurchases.
For the full year 2023, the Company generated $2.0 billion of cash flow from operating activities as higher net earnings were further aided by favorable working capital. As compared to 2022, operating cash flow increased $698 million, up 52.4%. The Company invested $445 million in capital expenditures, resulting in free cash flow of $1.6 billion in 2023. During the year, the Company returned $1.2 billion to Grainger shareholders through dividends and share repurchases.
2024 Company Guidance
The Company is providing the following outlook for 2024:
Grainger will conduct a live conference call and webcast at 11:00 a.m. Eastern Standard Time on Feb. 2, 2024, to discuss the fourth quarter and full-year 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.
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