CHICAGO — Grainger today reported results for the 2019 second quarter. Sales of $2.9 billion in the quarter increased 1 percent versus the 2018 second quarter. On a constant currency basis, sales were up 2 percent.
“We continued to demonstrate our ability to generate profitable growth in the second quarter of 2019. Despite slower than expected global economic growth and our significant investment in the endless assortment model, we drove strong operating results and cash flow,” said DG Macpherson, Chairman and Chief Executive Officer. “We gained share in the first half of the year at a modest pace, and we remain confident in our ability to accelerate our growth versus the market for the remainder of the year as our top line initiatives continue to take hold. We are reiterating our 2019 total company guidance ranges for gross profit margin, operating margin and earnings per share. We are lowering our estimate for market growth from 1 to 4 percent to -1 to 2 percent and lowering our revenue guidance from 4 to 8.5 percent growth to 2 to 5 percent growth due to the weaker demand environment and performance at AGI and Cromwell.”
|
2019 Second Quarter Financial Summary |
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|
($ in millions) |
Q2 2019 |
Q2 2018 |
Q2 v. Prior |
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|
Reported |
Adjusted1 |
Reported |
Adjusted1 |
Reported |
Adjusted1 |
|
|
Net Sales |
$2,893 |
$2,893 |
$2,861 |
$2,861 |
1% |
1% |
|
Gross Profit |
$1,121 |
$1,121 |
$1,111 |
$1,112 |
1% |
1% |
|
Operating Earnings |
$380 |
$377 |
$344 |
$359 |
11% |
5% |
|
Net Earnings |
$260 |
$258 |
$237 |
$249 |
10% |
4% |
|
Diluted EPS |
$4.67 |
$4.64 |
$4.16 |
$4.37 |
12% |
6% |
|
Gross Profit Margin |
38.7% |
38.7% |
38.8% |
38.9% |
-10 bps |
-15 bps |
|
Operating Margin |
13.1% |
13.0% |
12.0% |
12.6% |
110 bps |
50 bps |
|
Tax Rate |
25.6% |
25.5% |
23.4% |
23.3% |
220 bps |
220 bps |
(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. 2019 reported results included restructuring primarily in Canada resulting in a $3 million net benefit to operating earnings and a negative $0.03 impact to EPS.
Revenue
Sales for the quarter increased 1 percent. On a constant currency basis, sales increased 2 percent. Sales were primarily composed of a 1.5 percentage point increase in volume and a 0.5 percentage point increase from price.
Gross Profit Margin
Reported gross profit margin for the second quarter was 38.7 percent versus 38.8 percent in the 2018 second quarter. Adjusted gross profit margin of 38.7 percent in the quarter decreased 15 basis points versus the prior year quarter.
Earnings
Reported operating earnings for the 2019 second quarter of $380 million were up 11 percent versus $344 million in the 2018 second quarter. On an adjusted basis, operating earnings for the quarter of $377 million were up 5 percent versus $359 million in the 2018 quarter.
Reported operating margin of 13.1 percent increased 110 basis points in the second quarter of 2019 versus the prior year quarter. Adjusted operating margin of 13.0 percent in the quarter increased 50 basis points versus the prior year quarter. The increase in operating margin was due primarily to favorable gross profit margin in the U.S., and lower selling, general and administrative expenses in the U.S., at the corporate level and at AGI.
Reported earnings per share of $4.67 in the second quarter were up 12 percent versus $4.16 in the 2018 second quarter. Adjusted earnings per share in the quarter of $4.64 increased 6 percent versus $4.37 in the 2018 second quarter. The improvement in both reported and adjusted earnings per share was due primarily to operating earnings growth and lower average shares outstanding.
Tax Rate
For the 2019 second quarter, the company’s reported tax rate was 25.6 percent versus 23.4 percent in the 2018 second quarter. The increase was driven by lower tax benefits from stock-based compensation and the absence of clean-energy tax benefits from investments which concluded in 2018.
Cash Flow
Operating cash flow was $323 million in the 2019 second quarter compared to $248 million in the 2018 second quarter. The 30 percent increase in operating cash flow was primarily the result of higher net income and favorable changes in working capital, partially offset by higher income tax payments 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 $352 million to shareholders through $87 million in dividends and $265 million used to buy back approximately 970,000 shares in the second quarter of 2019.