Chicago, IL - Grainger reported results for the 2013 first quarter ended March 31, 2013. Sales of $2.3 billion increased 4 percent versus $2.2 billion in the first quarter of 2012. There were 63 selling days in the quarter, one less than in 2012. On a daily basis, sales for the first quarter 2013 increased 6 percent. Net earnings for the quarter increased 13 percent to $212 million versus $188 million in 2012. Earnings per share of $2.94 increased 14 percent versus $2.57 in 2012.
"We are encouraged by the solid start to the year, despite facing difficult comparisons with 2012," said Chairman, President and Chief Executive Officer Jim Ryan. "Our continued strong performance puts us in a position to further accelerate our growth spending to extend our lead in the MRO industry. Over the balance of the year, we will invest in eCommerce, our sales force, our distribution center network and our enterprise systems that will provide value to our customers and help us gain additional market share longer term," Ryan added. The company had previously forecasted $135 million in incremental growth-related expenses in 2013, and is now targeting $160 million for the full year 2013.
Ryan concluded, "We are raising the low end of our 2013 sales and earnings guidance to reflect our strong performance in the quarter, while increasing growth investments for the year with the majority of returns occurring after 2013." The company now expects 2013 sales growth of 5 to 9 percent and earnings per share of $11.30 to $12.00. The company's previous 2013 guidance issued on January 24, 2013, was sales growth of 3 to 9 percent and earnings per share of $10.85 to $12.00.
Company
Sales increased 4 percent in the 2013 first quarter reflecting 1 less selling day versus the 2012 first quarter. Sales increased 6 percent on a daily basis and consisted of 3 percentage points from volume, 2 percentage points from price, 1 percentage point from acquisitions and 1 percentage point from higher sales of seasonal products, partially offset by a 1 percentage point reduction from foreign exchange. Daily sales increased 8 percent in January, 6 percent in February and 3 percent in March. Sales in March 2013 were affected by the timing of the Easter Holiday, which reduced daily sales growth by 2 percentage points and also reduced sales growth for the company's reportable business segments. In addition, uncertainty in the United States surrounding sequestration contributed to a decline in sales to the government end market, which represented 15 percent of sales for the U.S. segment.
The company's gross profit margin increased 0.8 percentage points to 45.2 percent versus 44.4 percent in the 2012 first quarter, primarily driven by the United States segment. Company operating expenses in the quarter increased 3 percent including an incremental $22 million in spending to fund the company's growth programs.
Company operating earnings of $343 million for the 2013 first quarter increased 13 percent versus the prior year. The increase in operating earnings was driven by higher sales, improved gross profit margins and operating expenses, which grew at a slower rate than sales.
Grainger has two reportable business segments, the United States and Canada, which represented approximately 89 percent of company sales for the quarter. The remaining operating units located primarily in Asia, Europe, and Latin America are included in Other Businesses and are not reportable segments.
United States
Sales for the United States segment increased 4 percent, 6 percent on a daily basis in the 2013 first quarter versus the prior year. The 6 percent daily sales growth was driven by 3 percentage points from price, 2 percentage points from volume and 1 percentage point from acquisitions. Daily sales increased 7 percent in January, 7 percent in February and 4 percent in March. The sales increase for the quarter in the United States was led by solid growth in the light and heavy manufacturing, natural resources, commercial and contractor end markets.
Operating earnings for the United States segment increased 11 percent in the quarter driven by the 4 percent sales growth, higher gross profit margins and positive expense leverage. Gross profit margins for the quarter increased 0.8 percentage points driven by price inflation exceeding product cost inflation and strong growth of private label products, partially offset by negative selling mix.
Canada
Sales in the 2013 first quarter at Acklands-Grainger increased 4 percent, 5 percent on a daily basis. The 5 percent daily sales growth consisted of 8 percentage points from volume, partially offset by a 2 percentage point decline from the timing of the Easter Holiday and 1 percentage point decline from foreign exchange. In local currency, sales increased 5 percent, 6 percent on a daily basis. Daily sales in local currency increased 8 percent in January, 8 percent in February and 3 percent in March. The sales increase for the quarter in Canada was led by strong growth to customers in the construction, commercial, forestry, oil and gas and light manufacturing end markets.
Operating earnings in Canada increased 11 percent in the 2013 first quarter, in both U.S. dollars and local currency. The improvement in operating performance was primarily driven by higher sales and positive expense leverage. Gross profit margins were essentially flat versus the prior year.
Other Businesses
Sales for the Other Businesses, which includes operations primarily in Asia, Europe and Latin America, increased 4 percent, 5 percent on a daily basis, for the 2013 first quarter versus the prior year. The daily sales growth consisted of 6 percentage points from volume and price and 4 percentage points from acquisitions, partially offset by a 5 percentage point decline from unfavorable foreign exchange. The sales increase was primarily due to strong revenue growth in Japan and incremental sales from the business in Brazil acquired in April 2012.
Operating earnings for the Other Businesses were $8 million in the 2013 first quarter versus $11 million in the 2012 first quarter. The decline in earnings performance for the quarter versus the prior year was driven by operating losses in Brazil, coupled with lower earnings in some of the smaller businesses in Asia and Latin America. The earnings decline was partially offset by strong earnings growth in Japan and operating earnings growth in Europe related to lower expenses from restructuring actions taken in the 2012 fourth quarter.
Other
Interest expense, net of interest income, was $2.3 million in the 2013 first quarter versus $2.5 million in the 2012 first quarter. The effective tax rate in the quarter was 37.3 percent versus 37.4 percent in the 2012 quarter. The company is currently projecting an effective tax rate of 37.3 to 37.7 percent for the year 2013.
Cash Flow
Operating cash flow was $176 million in the 2013 first quarter versus $106 million in the 2012 first quarter. Cash flow in the 2013 quarter benefited from higher earnings, lower inventory purchases and a lower management incentive payout versus the prior year. The company used cash from operations to fund capital expenditures of $43 million in the quarter versus $41 million in the first quarter of 2012. In the 2013 first quarter, Grainger returned $127 million to shareholders through $57 million in dividends and $70 million to buy back 315,000 shares of stock. As of March 31, 2013, the company had 5.0 million shares remaining on its share repurchase authorization.
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