CHICAGO — Grainger today reported results for the third quarter of 2023 with sales of $4.2 billion, up 6.7%, or 8.7% on a daily, constant currency basis, and diluted EPS of $9.43, up 14.1% compared to the third quarter of 2022.
“The team continues to drive value for customers and serve them well amidst a reasonably steady demand environment. By executing on our strategy, we saw additional share gain and continued profitability leading to another quarter of strong performance,” said D.G. Macpherson, Chairman and CEO. “As we look to the final quarter of 2023, we remain focused on providing a flawless experience for customers and positioning the business for long-term, profitable growth.”
2023 Third Quarter Financial Summary
|
($ in millions, except per share amounts) |
Q3 2023 (1) |
Q3 2022 (1) |
Q3’23 vs. Q3’22 |
|
Fav. / (Unfav.) |
|||
|
Net Sales |
$4,208 |
$3,942 |
6.7 % |
|
Gross Profit |
$1,655 |
$1,519 |
9.1 % |
|
Operating Earnings |
$667 |
$603 |
10.7 % |
|
Net Earnings Attributable to |
$476 |
$426 |
11.9 % |
|
Diluted Earnings Per Share |
$9.43 |
$8.27 |
14.1 % |
|
Gross Profit Margin |
39.3 % |
38.5 % |
80 bps |
|
Operating Margin |
15.9 % |
15.3 % |
60 bps |
|
Effective Tax Rate |
24.4 % |
24.7 % |
30 bps |
(1) Results are consistent on a reported and adjusted basis. |
Revenue
Sales in the quarter, on a reported and daily basis, increased 6.7% compared to the third quarter of 2022. Adjusting for the impact of one less selling day in the third quarter of 2023, and excluding the unfavorable foreign exchange impact of 0.3%, sales on a daily, constant currency basis increased 8.7% compared to the third quarter of 2022.
In the High-Touch Solutions – N.A. segment, daily sales were up 8.7% compared to the third quarter of 2022, primarily due to solid volume growth in all geographies. In the Endless Assortment segment, daily sales were up 6.0%, or 9.2% on a daily, constant currency basis, compared to the third quarter of 2022. Revenue growth was driven by new customer acquisition across the segment as well as enterprise customer growth at MonotaRO, which was partially offset by declining sales to non-core, consumer-like customers and slower overall market demand at Zoro.
Gross Profit Margin
Gross profit margin for the third quarter of 2023 was 39.3%, an 80-basis point increase compared to the third quarter of 2022. The increase was driven by favorability in the High-Touch Solutions – N.A. segment, which was partially offset by a slight decline in the Endless Assortment segment.
In the High-Touch Solutions – N.A. segment, gross profit margin expanded by 110 basis points over the third quarter of 2022 due primarily to sustained freight and supply chain efficiencies, as well as continued favorable product mix. In the Endless Assortment segment, gross profit margin declined by 20 basis points from the third quarter of 2022 as strong price realization and continued freight efficiencies at MonotaRO were offset by unfavorable product mix at Zoro.
Earnings
Operating earnings for the third quarter of 2023 were $667 million, up 10.7% compared to the third quarter of 2022. Operating margin in the quarter was 15.9%, a 60-basis point increase over the third quarter of 2022 driven by expanded gross profit margins, which were partially offset by a decrease in SG&A leverage from continued demand generation investments.
Diluted earnings per share of $9.43 in the third quarter of 2023, increased 14.1% compared to the third quarter of 2022.
Tax Rate
The third quarter 2023 effective tax rate was 24.4%, compared to 24.7% in the third quarter of 2022. The decrease in the effective tax rate was primarily due to a favorable mix of foreign earnings.
Cash Flow
During the third quarter of 2023, the Company generated $523 million of cash flow from operating activities, as higher net earnings were further aided by favorable working capital. The Company invested $125 million in capital expenditures, resulting in free cash flow of $398 million. During the quarter, the Company returned $287 million to Grainger shareholders through dividends and share repurchases.
Guidance
|
Total Company(1) |
Updated 2023 Guidance Range (as of July 27, 2023) |
Updated 2023 Guidance Range (as of October 26, 2023) |
|
Net Sales |
$16.4 – $16.8 billion |
$16.4 – $16.6 billion |
|
Sales Growth |
8.0% – 10.6% |
8.0% – 9.1% |
|
Daily Sales Growth |
8.5% – 11.0% |
8.5% – 9.5% |
|
Gross Profit Margin |
39.1% – 39.4% |
39.3% – 39.4% |
|
Operating Margin |
15.2% – 15.7% |
15.6% – 15.7% |
|
Diluted Earnings per Share |
$35.00 – $36.75 |
$36.00 – $36.60 |
|
Operating Cash Flow |
$1.70 – $1.85 billion |
$1.8 – $1.9 billion |
|
CapEx (cash basis) |
$450 – $525 million |
$450 – $525 million |
|
Share Buyback |
$750 – $850 million |
$800 – $875 million |
|
Effective Tax Rate |
~24.0% |
~24.0% |
|
Segment Operating Margin |
||
|
High-Touch Solutions – N.A. |
17.3% – 17.8% |
17.7% – 17.8% |
|
Endless Assortment |
7.4% – 7.8% |
7.4% – 7.8% |
(1) Guidance provided is on an adjusted basis. Daily sales growth adjusted for the impact of one fewer selling day in 2023 compared to 2022. The Company does not reconcile forward-looking non-GAAP financial measures. For further details see the supplemental information of this release. |