CHICAGO — Grainger reported results for the 2019 first quarter. Sales of $2.8 billion in the quarter increased 3.0 percent daily versus $2.8 billion in the 2018 first quarter. On a constant currency basis, daily sales were up 4.0 percent and up 4.5 percent after normalizing for the impact of a prior year change in accounting estimate. More specifically, a small group of U.S. customers were transitioned from the cash to accrual basis of accounting as a result of their improved credit profile. The first quarter had one less selling day than the prior year period.
“In the first quarter of 2019, we continued to demonstrate our ability to drive profitable growth. While our sales performance was softer than expected, largely due to a weaker demand environment, our SG&A leverage helped drive strong earnings growth in the quarter,” said DG Macpherson, Chairman and Chief Executive Officer. “We remain confident in our ability to gain share and generate SG&A leverage in 2019. We are reiterating our 2019 total company guidance ranges, including sales growth of 4 to 8.5 percent and operating margin of 12.2 percent to 13 percent.”
|2019 First Quarter Financial Summary|
|($ in millions) except for
per share values
|Q1 2019||Q1 2018||Q1|
|Change v. Prior|
|Gross Profit %||39.1%||39.2%||39.5%||39.5%||-40 bps||-30 bps|
|Operating Margin %||13.0%||13.0%||12.1%||12.4%||90 bps||65 bps|
|Tax Rate %||25.4%||25.4%||21.6%||21.6%||380 bps||380 bps|
|(1)||Results exclude restructuring, asset impairments 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. 2019 reported results included restructuring in Canada resulting in a $2 million charge to operating earnings and a negative $0.03 impact to EPS.|
Sales for the quarter increased 1.0 percent, 3.0 percent daily. On a constant currency basis, sales increased 4.0 percent daily and 4.5 percent after normalizing for the change in accounting estimate in the prior year quarter. Sales were composed of a 3.0 percentage point increase in volume and a 1.5 percentage point increase from price.
Gross Profit Margin
Reported gross profit margin for the first quarter was 39.1 percent versus 39.5 percent in the 2018 first quarter. Adjusted gross profit margin for the quarter was 39.2 percent versus 39.5 percent in the 2018 first quarter. Adjusted gross profit margin was down 15 basis points when normalized for the timing of the company’s North American sales meeting, which took place in March 2019.
Reported operating earnings for the 2019 first quarter of $363 million were up 8 percent versus $335 million in the 2018 first quarter. On an adjusted basis, operating earnings for the quarter of $365 million were up 6 percent versus $343 million in the 2018 quarter.
Reported operating margin of 13.0 percent increased 90 basis points in the first quarter of 2019 versus the prior year quarter. Adjusted operating margin of 13.0 percent in the quarter increased 65 basis points versus the prior year quarter. Operating margin increased 80 basis points after normalizing for the timing of the North American sales meeting. The increase in operating margin was due primarily to 2018 cost take-out actions in Canada and U.S. SG&A leverage. In the U.S., first quarter 2019 incremental margin was 31 percent.
Reported earnings per share of $4.48 in the first quarter were up 10 percent versus $4.07 in the 2018 first quarter. Adjusted earnings per share in the quarter of $4.51 increased 8 percent versus $4.18 in the 2018 first quarter. The improvement in both reported and adjusted earnings per share was due primarily to operating earnings growth and lower average shares outstanding.
For the 2019 first quarter, the company’s effective tax rate was 25.4 percent versus 21.6 percent in the 2018 first quarter. The increase was primarily driven by lower tax benefits from stock-based compensation and the absence of clean-energy tax benefits for 2019 as the company concluded its investments in 2018.
Operating cash flow was $127 million in the 2019 first quarter compared to $147 million in the 2018 first quarter. The decrease in operating cash flow was primarily the result of higher payments related to employee variable compensation, partially offset by higher net earnings when compared to the prior year quarter. The company used the cash generated during the quarter to invest in the business and return cash to shareholders through share repurchases and dividends. Grainger returned $211 million to shareholders through $76 million in dividends and $135 million used to buy back approximately 457,000 shares in the first quarter of 2019.