Distributors

Grainger 2Q Earnings, Revenue Beat Expectations

GraingerCHICAGO — Grainger today reported results for the 2020 second quarter including sales of $2.8 billion in the quarter driven by significant share gains in the U.S. segment. We estimate the MRO market declined between 14% and 15% in the U.S.

“We remain grounded in our priorities of serving our customers well, helping our customers and team members focus on safety and well-being, and maintaining a strong financial position even in times like these,” said DG Macpherson, Chairman and Chief Executive Officer. “During the second quarter, Grainger performed well. We gained significant share in a down market, fueled by elevated levels of pandemic product sales and improving trends in non-pandemic product sales throughout the quarter. On the cost side, we achieved significant leverage and generated over $75 million of sequential cost reductions contributing to strong operating cash flow and allowing continued investment in the business. The work our team members are doing resonates with our customers and communities and positions Grainger to support our customers and deliver results even in this uncertain time.”

(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 this quarter, the company recorded a $109 million pretax loss from the sale of the Fabory business which was the largest contributor to the decline in reported operating earnings.

Revenue
Daily sales for the quarter decreased 1.9% as compared to the 2019 second quarter. The sales decline was driven by volume decreases including unfavorable product mix from heightened levels of pandemic-related sales, as well as decreased volume of non-pandemic products. Foreign exchange had a very small, negative impact of 10 basis points in the quarter. The second quarter of 2019 and 2020 had the same number of selling days.

Gross Profit Margin
Reported and adjusted gross profit margin for the second quarter of 2020 was 35.8%. This compares to reported and adjusted gross profit margin in the second quarter of 2019 of 38.7%. The unfavorable variance continues to be driven primarily by pandemic-related impacts, including product mix and heightened freight expense, that were particularly noticeable in our U.S. segment. The continued business unit mix impact from the faster growth in our lower-margin endless assortment businesses also contributed to the variance.

Earnings
Reported operating earnings for the 2020 second quarter of $205 million were down 46% versus $380 million in the 2019 second quarter. On an adjusted basis, operating earnings for the quarter of $315 million were down 16% versus $377 million in the 2019 second quarter. During the second quarter, the company recorded a $109 million pretax loss from the sale of the Fabory business, which was the largest contributor to the difference between reported and adjusted operating earnings.

Reported operating margin of 7.3% decreased 590 basis points in the second quarter of 2020 versus the prior year second quarter. Adjusted operating margin of 11.1% in this quarter declined 190 basis points versus the prior year second quarter. The decline in adjusted operating margin was due primarily to lower adjusted gross margin, offset in part by 100 basis points of SG&A leverage.

Reported earnings per share of $2.10 in the second quarter of 2020 was down 55% versus $4.67 in the 2019 second quarter. Adjusted earnings per share in this quarter of $3.75 decreased 19% versus $4.64 in the 2019 second 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 period.

Tax Rate
For the 2020 second quarter, the company’s reported tax rate was 30.2% versus 25.6% in the 2019 second quarter. The difference was primarily related to the impairment and subsequent divestiture of the Fabory business.

Excluding net restructuring, impairment charges and non-recurring income tax items, the adjusted tax rates were 25.8% and 25.5% for the three months ended June 30, 2020 and June 30, 2019, respectively.

Cash Flow
Operating cash flow was $232 million in the 2020 second quarter compared to $323 million in the 2019 second quarter. The decrease in operating cash flow was primarily driven by lower net income and significant investments in working capital, primarily inventory, enabling us to better serve our customers. This was partially offset by the timing of our annual income tax payment. During the second quarter of 2020, Grainger returned $86 million in the form of dividends to shareholders. While we remain committed to returning excess capital to shareholders over time, our share repurchase program remained paused throughout the second quarter of 2020.

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