Distributors

Grainger Shows Strong Revenue Growth in 2Q 2021

GraingerCHICAGO — Grainger today reported results for the second quarter 2021 with sales of $3.2 billion, up 13.1% and up 15.0% on an organic, daily, constant currency basis compared to the second quarter 2020. Both the High-Touch Solutions N.A. and Endless Assortment segments produced strong top-line growth.

“Grainger is uniquely positioned to navigate one of the most challenging supply chain environments in recent history, with labor shortages, material shortages and transportation challenges. I am proud of how the Grainger team has remained committed to our operating principles, served customers well during this period and delivered strong top-line growth,” said DG Macpherson, Chairman and Chief Executive Officer. “As more of the U.S. became vaccinated, and mask mandates were relaxed earlier than expected, demand for pandemic products stalled, resulting in further inventory adjustments and a negative impact to gross profit margin. Excluding these adjustments, our underlying gross profit margin has improved as customer demand has returned to a more normal mix. We remain confident in our ability to achieve full year financial results within our guidance range.”

Revenue

Daily sales for the quarter increased 13.1% as compared to the second quarter of 2020 with the same number of selling days. On an organic, constant currency basis, which excludes revenues from the divested Fabory and China businesses from the prior year results, daily sales increased 15.0% as compared to the second quarter of 2020. Foreign exchange contributed a 0.9% favorable impact during the second quarter of 2021 compared to the second quarter of 2020.

In the High-Touch Solutions N.A. segment, sales were up 13.7% on a daily basis versus the prior year second quarter due primarily to a strong recovery in non-pandemic product growth. In the Endless Assortment segment, daily sales growth was up 23.0% versus the second quarter of 2020 from strong customer acquisition in both Zoro U.S. and MonotaRO.

Gross Margin

Gross margin for the second quarter of 2021 was 35.0%, a 75 basis point decline over the prior year quarter driven by pandemic-related inventory adjustments recorded in the High-Touch Solutions N.A. segment. Early in the pandemic, the Company purchased a wide range of products to meet customer needs, but as the pandemic evolved, demand for certain pandemic products weakened and market prices lowered. During the second quarter of 2021, mask demand declined abruptly when most local and federal mask mandates were lifted in mid-May of 2021, earlier than the previously expected re-openings. This change, along with vaccine availability and general economic recovery, resulted in the Company recording inventory adjustments totaling $63 million. It does not expect any further material pandemic-related inventory adjustments. Excluding these adjustments, gross margin for the total company would have been 37.0%, up 120 basis points compared to the second quarter of 2020.

The Endless Assortment segment continued to show positive gross margin trends, expanding by 75 basis points versus the prior year second quarter and growing gross profit dollars 26% in the second quarter of 2021.

Earnings

Reported operating earnings for the second quarter of 2021 of $334 million were up 62% versus the second quarter of 2020, primarily due to losses taken in the second quarter of 2020 related to the divested Fabory business. On an adjusted basis, operating earnings for the quarter were $334 million, up 6% versus the second quarter of 2020.

In the second quarter of 2021, reported operating margin of 10.4% increased 315 basis points, driven by the $109 million pretax loss recorded on the sale of Fabory in the second quarter of 2020. On an adjusted basis, operating margin decreased 70 basis points versus the second quarter of 2020 driven primarily by the decline in gross profit margin, as SG&A leverage remained nearly flat year over year.

Reported earnings per share of $4.27 in the second quarter of 2021 increased 103% versus the second quarter of 2020. Adjusted earnings per share for the quarter of $4.27 increased 14% versus the second quarter of 2020. The increase in earnings per share was due primarily to higher operating earnings and lower average shares outstanding in the current period.

Tax Rate

The second quarter 2021 reported tax rate was 23.6% versus 30.2% in the second quarter of 2020; the adjusted tax rates were 23.6% and 25.8% for the second quarter of 2021 and 2020, respectively. The variance in the reported tax rates resulted from the prior year unfavorable impacts of the Fabory divestiture. Additionally, for both the reported and adjusted tax rates, the second quarter of 2021 included a larger benefit from stock-based compensation as compared to the prior year.

Cash Flow

Net cash provided by operating activities was $269 million and $232 million for the three months ended June 30, 2021 and 2020, respectively. The increase in cash from operating activities is primarily the result of higher net earnings and favorable working capital, partially offset by the impacts from the divested Fabory business. The company also returned $203 million to shareholders through dividends and share repurchases during the quarter.

Guidance

The Company is maintaining guidance ranges provided in the previous quarter. Strong sales are expected to continue while gross profit margin, operating margin and EPS will likely face pressure from the incremental inventory adjustments and macroeconomic factors. Outside of revenue, Company results are expected to trend towards the low end of the guided ranges.

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