Chicago, IL - Grainger today reported record results for the 2013 second quarter ended June 30, 2013. Sales of $2.4 billion increased 6 percent versus $2.2 billion in the second quarter of 2012. There were 64 selling days in the quarter, the same as in 2012. Net earnings for the quarter increased 14 percent to $218 million versus $191 million in 2012. Earnings per share of $3.03 increased 15 percent versus $2.63 in 2012.
"Our solid performance reflects the continued focus, dedication and hard work of our Grainger team," said Chairman, President and Chief Executive Officer Jim Ryan. "We will continue to invest in helping our customers be successful by adding more products, sales people, inventory management solutions and eCommerce capabilities to further our leading position in the MRO industry," Ryan added.
Ryan continued, "Given our strong execution and the additional perspective provided by our first half performance, we are able to further refine our expectations for 2013 sales and earnings per share." The company now expects 2013 sales growth of 5 to 8 percent and earnings per share of $11.40 to $12.00. The company's previous 2013 guidance issued on April 16, 2013, was sales growth of 5 to 9 percent and earnings per share of $11.30 to $12.00.
Company
Sales in the 2013 second quarter increased 6 percent consisting of 4 percentage points from volume, 2 percentage points from price and 1 percentage point from acquisitions, partially offset by a 1 percentage point decline attributable to unfavorable foreign exchange.
The company's gross profit margin increased 0.5 percentage point to 44.0 percent versus 43.5 percent in the 2012 second quarter, primarily driven by Canada and the Other Businesses. Company operating expenses in the quarter increased 5 percent driven primarily by payroll and benefits and included an incremental $37 million in spending to fund the company's growth programs.
Company operating earnings of $350 million for the 2013 second quarter increased 11 percent versus the prior year. The increase in operating earnings was driven by higher sales, improved gross profit margins and positive expense leverage.
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 7 percent in the 2013 second quarter versus the prior year. The 7 percent sales growth was driven by 4 percentage points from volume, 2 percentage points from price and 1 percentage point from acquisitions. 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 9 percent in the quarter driven by the 7 percent sales growth and positive expense leverage. Gross profit margins for the quarter were essentially flat versus the prior year. The company was able to increase prices above product cost inflation however this was offset by unfavorable selling mix driven by stronger sales to larger customers.
Canada
Sales in the 2013 second quarter in Canada increased 3 percent versus the prior year. The 3 percent sales growth consisted of 2 percentage points from volume, 2 percentage points from favorable timing of the Easter holiday and 1 percentage point from sales of flood-related products, partially offset by a 2 percentage point decline from unfavorable foreign exchange. In local currency, sales increased 5 percent. The sales increase for the quarter in Canada was led by solid growth to customers in the construction, forestry and light manufacturing end markets.
Operating earnings in Canada increased 11 percent in the 2013 second quarter, up 13 percent in local currency. The improvement in operating performance was primarily driven by higher sales and a 1.4 percentage point improvement in gross profit margins. The gross profit margin improvement was due to cost savings from freight consolidation, higher supplier rebates and favorable mix. Approximately half of the improvement is expected to continue into future periods.
Other Businesses
Sales for the Other Businesses, which includes operations primarily in Asia, Europe and Latin America, increased 5 percent for the 2013 second quarter versus the prior year. The sales growth consisted of 9 percentage points from volume and price and 2 percentage points from acquisitions, partially offset by a 6 percentage point decline from unfavorable foreign exchange. The sales increase was primarily due to strong revenue growth in Mexico and the timing of the Brazil acquisition in the second quarter of 2012. In local currency, sales for the business in Japan grew in the high teens, however this was offset by unfavorable foreign exchange.
Operating earnings for the Other Businesses were $13 million in the 2013 second quarter versus $11 million in the 2012 second quarter. Improved performance for the quarter versus the prior year's quarter was primarily driven by earnings growth in the businesses in Japan and Europe.
Other
Interest expense, net of interest income, was $2.4 million in the 2013 second quarter versus $2.3 million in the 2012 second quarter. The tax rate in the quarter was 36.5 percent versus 37.9 percent in the 2012 quarter. The 2013 second quarter tax rate reflected a benefit from a resolution of foreign tax matters in the current period. Excluding this benefit, the effective tax rate for the quarter was 37.3 percent. The company continues to project an effective tax rate for the year 2013 of 37.3 to 37.7 percent.
Cash Flow
Operating cash flow was $210 million in the 2013 second quarter versus $132 million in the 2012 second quarter. Cash flow in the 2013 quarter benefitted from higher earnings and lower inventory purchases versus the prior year. The company used cash from operations to fund capital expenditures of $40 million in the quarter versus $56 million in the second quarter of 2012. In the 2013 second quarter, Grainger returned $200 million to shareholders through $67 million in dividends and $133 million to buy back 521,000 shares of stock. As of June 30, 2013, the company had 4.5 million shares remaining on its share repurchase authorization.
Year-to-Date
For the six months ended June 30, 2013, sales of $4.7 billion increased 5 percent versus $4.4 billion in the six months ended June 30, 2012. There were 127 selling days in the first six months of 2013, one less than in 2012. On a daily basis, sales for the first six months of 2013 increased 6 percent. Net earnings increased 14 percent to $429 million versus $378 million in the first half of 2012. Earnings per share for the six months increased 15 percent to $5.97 versus $5.20 for 2012.
