Distributors

Grainger’s First Quarter Sales Up, Suspends Guidance

GraingerCHICAGO — Grainger today reported results for the 2020 first quarter. Sales of $3.0 billion in the quarter increased 7.2% versus the 2019 first quarter. On a daily basis, sales were up 5.5%. The first quarter had one more selling day than the prior year period.

“During these challenging times, as an essential business, Grainger remains more committed than ever to achieving our purpose … to Keep the World Working. We are focused on serving our customers well, ensuring the safety and well-being of our team members, and maintaining a strong financial position to support us through this crisis. By supporting customers who are saving lives and keeping communities safe, we are demonstrating the power of our products and solutions, deep customers relationships, and exceptional customer experience. Our strategy matters even more today,” said DG Macpherson, Chairman and Chief Executive Officer. “In the midst of the uncertainty, we delivered robust top-line growth, solid profitability, and continued to produce strong operating cash flow in the first quarter. We also bolstered our already solid financial position, maintaining our flexibility to continue making thoughtful investments for the future. We intend to persevere through this crisis and I am confident that we are well-positioned to come out stronger on the other side.”

2020 First Quarter Financial Summary

($ in millions) Q1 2020 Q1 2019 Q1

Fav. (Unfav.) vs. Prior

Reported Adjusted1 Reported Adjusted1 Reported Adjusted1
Net Sales $3,001 $3,001 $2,799 $2,799 7% 7%
Gross Profit $1,121 $1,121 $1,095 $1,096 2% 2%
Operating Earnings $159 $343 $363 $365 (56)% (6)%
Net Earnings $173 $230 $253 $255 (32)% (9)%
Diluted EPS $3.19 $4.24 $4.48 $4.51 (29)% (6)%
Gross Profit % 37.4% 37.4% 39.1% 39.2% (180) bps (180) bps
Operating Margin 5.3% 11.4% 13.0% 13.0% (770) bps (160) bps
Tax Rate (30.4)% 25.6% 25.4% 25.4% 5580 bps (20) 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. During the quarter, the company recorded a $177 million write-down of goodwill, intangibles and long-lived assets from the Fabory business which was the largest contributor to the decline in reported operating earnings.


Revenue

Daily sales for the quarter increased 5.5%. Sales were composed of volume increases of approximately 7% and price and mix headwinds of around 2%. Foreign exchange contributed a 0.2% unfavorable impact.

Gross Profit Margin
Reported and adjusted gross profit margin for the first quarter of 2020 was 37.4%. This compares to reported and adjusted gross profit margin in the first quarter of 2019 of 39.1% and 39.2%, respectively. The variance was due primarily to business unit mix impact from higher growth in our lower margin endless assortment businesses as well as headwinds in our U.S. segment related to customer and product mix stemming from the COVID-19 pandemic, and challenging year-over-year timing related to pricing actions in the first quarter of 2019.

Earnings
Reported operating earnings for the 2020 first quarter of $159 million were down 56% versus $363 million in the 2019 first quarter. Reported earnings in the 2020 first quarter included $184 million in restructuring and non-cash impairment charges, which were primarily related to the Fabory business in the Netherlands. On an adjusted basis, operating earnings for the quarter of $343 million were down 6% versus $365 million in the 2019 quarter.

Reported operating margin of 5.3% decreased 770 basis points in the first quarter of 2020 versus the prior year quarter. Adjusted operating margin of 11.4% in the quarter declined 160 basis points versus the prior year quarter. The decline in operating margin was due primarily to lower gross margin, primarily in the U.S. segment, slightly offset by SG&A leverage.

Reported earnings per share of $3.19 in the first quarter was down 29% versus $4.48 in the 2019 first quarter. Adjusted earnings per share in the quarter of $4.24 decreased 6% versus $4.51 in the 2019 first quarter. The decrease in adjusted earnings per share was due primarily to lower operating earnings which were partially offset by lower average shares outstanding in the current year period.

Tax Rate
For the 2020 first quarter, the company’s reported tax rate was negative 30.4% versus 25.4% in the 2019 first quarter. The lower tax rate in the current year quarter was primarily driven by tax benefits related to the Fabory business.

Excluding restructuring, net and impairment charges and non-recurring income tax items in both periods, the adjusted tax rates were 25.6% and 25.4% for the three months ended March 31, 2020 and 2019, respectively.

Cash Flow
Operating cash flow was $244 million in the 2020 first quarter compared to $127 million in the 2019 first quarter. The increase in operating cash flow was primarily the result of favorable working capital in the current year period. Grainger returned $178 million to shareholders through $78 million in dividends and $100 million used to buy back approximately 336,000 shares in the first quarter of 2020. While we remain committed to returning excess capital to shareholders over time, we have temporarily paused our share repurchase program as we shift to conserve capital during the pandemic.

2020 Company Guidance
Given the uncertainty around the depth and duration of this pandemic, and the related economic response, we are suspending our guidance for 2020. We intend to return to our normal guidance practices when appropriate.

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