Grainger Cuts Outlook, Branches As Q3 Profit Sinks

Grainger began began the closure of 26 U.S. branches in Q3, eliminated 170 U.S. field positions, and added more than 100 sales reps.

Lake Forest, IL-based Grainger – No. 3 on Industrial Distribution's 2015 Big 50 List – reported its 2015 third quarter financials on Friday for the period ended Sept. 30.

Unlike Grainger's Q2, which had a 7 percent year-over-year profit gain, Q3 posted a 13.4 percent profit drop to $199.3 million, leading the company to lower its 2015 full year outlook. Q2's profit was $221 million. Profit attributable to the company was $192.2 million, a 16.6 percent decrease YOY.

Grainger reported a lowered outlook in its Q1 and Q2 earnings release as well.

In Q3, the company had total sales of $2.53 billion, down 1.2 percent from last year. Sales were essentially flat compared to Q2's $2.5 billion.

The third quarter included charges of $11 million, reflecting cost actions begun in the third quarter related to the announcement of 26 branch closures in the U.S. and company restructuring, primarily related to payroll. 

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"Our results reflect the challenging industrial economy in North America," said Jim Ryan, Grainger Chairman, President and CEO. "While we remain confident about our ability to gain market share, we are expecting continued revenue deceleration given recent feedback from our customers and suppliers. A number of large customers have announced layoffs, and there are indications of extended year-end holiday shutdowns. We have begun the process of aggressively adjusting our cost structure to reflect the weaker economic environment. At the same time, we are staying focused on providing industry-leading service, while making select investments that will accelerate our growth long term. These actions are especially important during an economic downturn and the subsequent recovery."

Along with the announced Q3 branch closings, Grainger also said it eliminated 170 field positions in the U.S., while in Canada, it cut 100 jobs and closed four branches since the start of June.

On the flip side, Grainger said it added more than 100 sales reps in Q3 and has added 300 so far this year "to better serve and penetrate large customers." The company also said it has created a team to focus solely on its medium-sized business.

Related: Grainger COO Talks Company Outlook, Struggles & Successes In Sept. 18 Presentation (9/18)

In its updated 2015 outlook, the company now expects sales in the range of -0.5 percent to 0.5 percent, down from its post-Q2 issued outlook of 0 to 2 percent sales growth. The new outlook includes Grainger's recent acquisition of U.K.-based Cromwell, expected to contribute 1.5 percentage points of sales growth for the last four months of 2015.

Grainger said the Q3 sales decline was driven by a 3 percentage point reduction from foreign exchange and a 2 point gain from acquisitions. Excluding those two factors, organic sales were flat, with a 1 point gain from volume and 1 point decline in price.

Grainger's Q3 U.S. sales were flat, with a 1 percentage point gain from increased sales to Zoro, its single channel online business, offset by a 1 point decline in price. The company said sales growth to customers in the commercial, light manufacturing, retail and government customer end markets were offset by lower sales to heavy manufacturing, contractor, reseller and natural resources customers.

Related: Grainger Relocating up to 60 Wisconsin Jobs (9/18)

The company's Canada sales for Acklands-Grainger declined 23 percent in U.S. dollars, and declined 8 percent in local currency. The 8 percent decrease included a 17 percentage point decline in volume, offset by a 5 point gain from price and 4 point gain from acquisitions. Grainger said lower sales to the oil and gas, construction, commercial, transportation, retail, heavy manufacturing, government and light manufacturing sectors were partially offset by growth to customers in the mining, utilities and forestry end markets. 

"The business in Canada continues to be affected by weak oil and gas prices and lower commodity prices," Grainger said in a release.

Grainger's "Other Business" segment sales increased 18 percent year-over-year in Q3, including a 22 percentage point gain from volume and price and a 12 percent gain from its acquisition of U.K.-based Cromwell, partially offset by a 16 point decline from foreign exchange.

Year-to-date, Grainger's sales in the first nine months of 2015 were $7.5 billion, essentially flat compared to last year. Year-to-date profit for 2015 decreased 4 percent to $624 million vs. 2014's $653 million in the first nine months.

 

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