Industrial Distribution

Jack Keough

Grainger continues on right growth path
January 25, 2008

Not too many years ago, there were skeptics who questioned whether W.W. Grainger, the behemoth MRO supplier of products in the United States, was on the right path for growth.

Not any more. Grainger reported record sales and earnings for 2007 today and looks forward to another strong year in 2008.

In the past few years, the company has invested substantially in its infrastructure, including a Voice Over Internet Protocol (VOIP) phone system, a massive product line expansion, a 70 percent increase in the number of sales representatives, a substantial market expansion and improvement of its ordering and shipping capabilities. Those efforts have paid off.

Here are some statistics from their earnings statement released today:

• Sales hit a record $6.4 billion in 2007, up 9 percent over 2006.
• Earnings per share were $4.94, up 17 percent.
• Operating cash flow was $470 million.
• Sales in Canada continue to be very strong

Those are pretty impressive figures, to say the least.

The strong growth is due to a number of factors, including market expansion and product line expansion programs, according to the company. The market expansion program contributed $402 million in sales in 2007. Particularly strong were the Atlanta, Denver, Seattle, Houston, St. Louis and Tampa markets. In the first three cities, daily sales increased 19 percent.

In the past quarter, the company opened three new full-service branches and two will-call express locations in the United States and closed two full-service branches. As part of the market expansion in Mexico, the company opened three new branches.

The market expansion initiative has resulted in some new branches, some relocated branches and, in some cases, branch closings.

Company executives say its market-by-market evaluation originally focused on the 25 top markets. The company now expects that program will extend far beyond those 25, as Grainger continues to evaluate its services in specific areas.

W.W. Grainger also added 90,000 products in 2006 and 2007 to supplement its plumbing, fastener, material handling and security product lines. Product line expansion contributed approximately 3 percentage points to the quarterly growth for the branch-based segment; products added over the past two years delivered $349 million in sales during 2007.

Daily sales in Mexico were up 20 percent in the fourth quarter versus the same period in 2006. Sales benefited from the market expansion program, including seven new branches opened in 2007.

Sales were particularly strong in Canada. Daily sales for the fourth quarter were up 23 percent versus the 2006 comparable quarter. The company benefited from strong sales to oil, mining and government customers, which offset weaker sales to forestry, natural gas and manufacturing customers. The company closed one branch in Canada during 2007, ending the year with 153 branches.

In the past few years, the company has undertaken a number of steps to increase customer service. The company has substantially increased the number of salespeople within Grainger in the past five years, thereby reducing the number of their accounts and allowing them to spend more time with the customer.  

Despite the slumping economy, Grainger executives expect 2008 earnings per share of $5.65 to $6, in line with their forecast just three months ago. During the last quarter, the company eliminated 125 positions in the information technology sector, resulting in a severance charge of $4.5 million—but that action should benefit the company by $12 million this year.

Posted by Jack Keough on January 25, 2008 | Comments (1)