CHICAGO — Grainger today reported results for the full year and fourth quarter 2020. For the full year, sales of $11.8 billion increased 2.7%, up 3.5% on an organic, daily, constant currency basis compared to the prior year. Sales of $2.9 billion in the fourth quarter 2020 increased 3.3%, up 5.6% on an organic, daily, constant currency basis versus the fourth quarter 2019. Top-line growth was driven by substantial share gains in the U.S. segment and continued strong growth in the endless assortment businesses.
“2020 was a year filled with challenges and uncertainty. I’m proud of how the Grainger team made quick, prudent decisions to best serve our customers, keep our employees safe, and remain in a strong financial position. In both the full-year and fourth quarter 2020, despite the challenges of the pandemic, we delivered solid top-line growth by gaining significant share in the U.S. and delivering impressive growth in our endless assortment businesses. In addition, we managed SG&A spending below the prior year while continuing to generate significant operating cash flow,” said DG Macpherson, Chairman and Chief Executive Officer. “In 2020, we demonstrated our ability to deliver in tough economic times and expect business performance will improve sequentially as the virus subsides throughout the year. We remain confident in our strategy and excited about 2021 and beyond.”
Revenue
For the full year 2020, total company sales increased 2.7% versus the full year 2019. Excluding revenues from the divested Fabory and China businesses from the prior year results, and removing the impact from foreign currency translation, daily sales increased 3.5% versus the prior year.
For the fourth quarter 2020, total company sales increased 3.3% versus the prior year. Daily sales increased 5.6% on an organic, constant currency basis reflecting the adjustments noted above. Sales increases were fueled by share gains in the U.S. segment and significant growth in the endless assortment businesses which more than offset declines in the Canada segment.
Gross Profit Margin
For the full year 2020, reported and adjusted gross profit margin was 35.9%, down 235 basis points, versus the full year 2019 gross profit margin of 38.3%. The lower gross profit margin was primarily driven by pandemic-related headwinds and tariff-fueled cost inflation in the U.S. Segment, as well as business unit mix impacts from higher growth in our lower-margin endless assortment businesses.
Reported and adjusted gross profit margin for the fourth quarter was 34.9% compared to 38.0% in 2019 driven primarily by pandemic-related impacts in our U.S. segment.
Earnings
Full year
For the full year 2020, reported operating earnings of $1.0 billion were down 19% versus $1.3 billion in 2019, due primarily to charges in the first half 2020 related to the divested Fabory business. These Fabory charges also impacted reported operating margin which decreased 235 basis points to 8.6% and reported earnings per share of $12.82, down 16% versus $15.32 in 2019.
On an adjusted basis, which excludes the Fabory charges, as well as other prior year restructuring items, operating earnings for 2020 were $1.3 billion, down 4% versus $1.4 billion in 2019. Adjusted operating margin of 11.2% decreased 80 basis points versus the prior year reflecting gross profit headwinds due to pandemic-related impacts and cost inflation in the U.S. Segment, as well as business unit mix. This was partially offset by operating expense leverage resulting from disciplined cost control across all businesses. Adjusted earnings per share of $16.18 decreased 6% versus $17.29 in 2019. The decrease in adjusted earnings per share was due primarily to lower operating earnings.
Fourth quarter
Reported operating earnings for the fourth quarter 2020 of $275 million were up 52% versus $181 million in 2019 as the company lapped a prior year write-down of intangible assets at the Cromwell business. Reported operating margin of 9.4% was up 300 basis points versus the prior year with reported earnings per share of $3.12 in the fourth quarter up 66% versus the fourth quarter 2019.
On an adjusted basis, operating earnings for the quarter of $295 million were down 3.8% versus $307 million in the 2019 quarter. Adjusted operating margin of 10.0% declined 75 basis points versus the prior year due primarily to lower pandemic-related gross profit margins in the quarter, partially offset by operating expense leverage. Adjusted earnings per share of $3.66 decreased 6% versus $3.88 in 2019 due primarily to lower operating earnings in the quarter.
Tax Rate
On a reported basis, the company’s full year 2020 tax rate was 20.3% versus 26.0% in 2019. For the fourth quarter 2020, the reported tax rate was 28.3% compared to 31.7% in 2019. The lower tax rates in both periods were primarily driven by tax benefits related to the divested Fabory business.
Excluding net restructuring, impairment charges and non-recurring income tax items, the adjusted tax rate for the full year 2020 was 25.3% versus 24.8% in 2019. The company’s adjusted tax rate for the fourth quarter 2020 was 23.0% versus 23.7% in the fourth quarter 2019.
Cash Flow
For the full year 2020, the company generated operating cash flow of $1.1 billion, an increase of 8% versus 2019 as lower net earnings and increased investments in working capital were more than offset by lower variable compensation and tax payments. The company used the cash generated during the year to invest in the business and return cash to shareholders through share repurchases and dividends. In 2020, capital expenditures were $197 million. Grainger returned $939 million to shareholders through $338 million in dividends and $601 million used to buy back approximately 1.5 million shares in 2020.
Operating cash flow for the quarter was $336 million versus $272 million in the fourth quarter 2019, an increase of 24% compared to the same period last year. The majority of this increase was driven by the timing of inventory purchases.
2021 Company Guidance and Re-segmentation plan
Given the continued uncertainty surrounding the pandemic and subsequent path of economic recovery, the company will not be providing 2021 guidance at this time. Effective with reporting for periods beginning January 1, 2021, the Company will change its reportable segments to High-Touch North America and Endless Assortment. More details will be shared in the Q4 2020 earnings call and on a call scheduled on March 9, 2021.
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