Grainger Not Satisfied With 2014 Results

Grainger reported a 6 percent increase in sales for the 2014 fiscal year, compared to the same period in 2013. The distributor posted sales of $10.0 billion in 2014 versus $9.4 billion during the prior year. Reported net earnings of $802 million increased 1 percent versus $797 million in 2013, while reported earnings per share of $11.45 increased 3 percent versus $11.13 during the same period. According to a company press release, unfavorable foreign exchange represented a $0.07 reduction to earnings per share. 

“This was a challenging year, and we were not satisfied with our overall 2014 performance,” said Jim Ryan, president and CEO, in the release. “As we committed to a year ago, we addressed several smaller underperforming businesses and believe we have positioned the company for better results going forward.”

“There were, however, several bright spots in 2014, including the United States segment, which continued to perform very well, gaining share with large customers,” Ryan continued. “We were also pleased with the single channel online model businesses in Japan, the United States and Europe, which continued their rapid growth.”

Grainger expects 3 to 7 percent sales growth from 5 to 9 percent and $12.60 to $13.60 earnings per share from $12.90 to $13.80. This is an update to the company’s previous guidance, which was issued on November 12, 2014. According to the company, this change reflects the current foreign currency translation effect on reported financial results due to the further weakening of the Canadian and Japanese currencies since the company first issued guidance for 2015, as well as the deteriorating macroeconomic environment in Canada.    

For the full year, Grainger generated $960 million in operating cash flow versus $986 million in 2013. Gross capital expenditures for the year were $387 million versus $272 million in 2013, driven primarily by investments to expand the distribution center network in North America. Grainger bought back approximately 2.1 million shares of stock for $525 million in 2014 and has 8.5 million shares remaining under the current repurchase authorization. Dividends paid in 2014 totaled $291 million. For the year, Grainger returned $816 million in cash to shareholders in the form of dividends and share repurchases. 

Grainger’s sales for the 2014 fourth quarter of $2.5 billion increased 6 percent versus $2.4 billion in the 2013 fourth quarter. Reported net earnings of $149 million declined 5 percent versus $157 million in 2013, and reported fourth quarter earnings per share of $2.14 decreased 3 percent versus $2.20. According to the company, unfavorable foreign exchange represented a $0.02 reduction to earnings per share.
By Business Segment
Grainger has two reportable business segments, the United States and Canada, which represented approximately 88 percent of company sales for the quarter. The remaining operating units located primarily in Asia, Europe, and Latin America are included in “other businesses” and are not reportable segments.  

Sales in the United States segment increased 6 percent in the 2014 fourth quarter versus the prior year. According to Grainger, the 6 percent sales growth was driven by 6 percentage points from volume, 1 percentage point from price and 1 percentage point from sales of Ebola-related safety products, partially offset by a 1 percentage point negative variance from the extra month of E&R sales in the fourth quarter of 2013 and a 1 percentage point negative variance from the divestiture of several Specialty Brands on December 31, 2013. 

Operating earnings for the United States segment increased 16 percent in the quarter driven by the 6 percent sales growth, positive expense leverage and higher gross profit margins. Gross profit margins for the quarter increased 10 basis points driven by price increases exceeding cost increases, partially offset by faster growth with lower margin customers. Operating expenses, including $1 million in incremental growth-related spending, grew more slowly than sales primarily driven by productivity initiatives. 

In Canada, sales in the 2014 fourth quarter at Acklands-Grainger increased 3 percent in U.S. dollars, 11 percent in local currency. The 11 percent sales increase consisted of 7 percentage points from the acquisition of WFS Enterprises, Inc. on September 2, 2014, and 4 percentage points increase from volume. The 4 percent volume growth in Canada was led by higher sales to customers in the government and utilities end markets.

Sales for Grainger’s other businesses increased 13 percent for the 2014 fourth quarter versus the prior year. This performance consisted of 21 percentage points of growth from volume and price, partially offset by an 8 percentage point decline from unfavorable foreign exchange. Sales growth for the distributor’s other businesses was driven by MonotaRO in Japan and Zoro in the United States and Mexico, and was partially offset by lower sales from Fabory in Europe.  

“Longer term, we remain optimistic about our opportunities in the large and fragmented MRO market,” Ryan concluded, in the company press release. “We are committed to our strategy to grow and gain share, and we will continue to invest to create long-term competitive advantage. In the near term, we remain cautious given the low inflationary environment in the United States, economic headwinds internationally and growing pressure from weaker currencies in Canada and Japan.”

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