Grainger Posts 3% Sales Growth In Q3, Narrows Guidance

Grainger posted another small decline in the U.S. and sizable drop in Canada, while U.K.-based Cromwell continues to strongly boost its 'other business' segment.

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Grainger — No. 3 on Industrial Distribution's 2016 Big 50 List — reported its 2016 third quarter financials on Tuesday, highlighted by modest year-over-year sales growth while the company lowered its full year outlook.

Grainger reported sales of $2.6 billion for Q3, an increase of 3 percent versus $2.5 billion in the third quarter of 2015. The sales performance included a 2 percentage point contribution from Cromwell Group, acquired last September, and a 1 percentage point contribution from foreign exchange. 

Excluding acquisitions and foreign exchange, organic sales were flat, consisting of a 1 percentage point contribution from sales of seasonal products offset by a 1 percentage point reduction in price.

Grainger said it has narrowed its full year 2016 sales guidance of 1.5 to 2.5 percent and earnings per share of $11.40 to $11.70. The company's previous 2016 guidance in July included sales growth of 1 to 4 percent and earnings per share of $11.20 to $12.20.

The company's U.S. business sales decreased 1 percent year-over-year to $2.03 billion, while Canadian business sales declined 15.9 percent to $179.3 million. Other businesses sales grew 35.9 percent to $481.93 million.

“We continue to operate in a challenging economic environment," Grainger CEO DG Macpherson said in a statement. "The third quarter results were within our expectations. I'm pleased with our ability to continue to effectively manage costs in this low growth environment while still investing in our future success." 

Macpherson added, "During the quarter, we continued to see strong revenue and earnings growth in our single channel online businesses, and we started operations in our new 1.3 million square foot distribution center in New Jersey. We expect fourth quarter demand to remain challenged, and as a result, we have narrowed our guidance and lowered the midpoint for the full year.” 

Operating earnings for the U.S. segment declined 5 percent in the quarter, driven by lower sales and lower gross profit margins, partially offset by lower operating expenses.

Third quarter 2016 sales for Acklands-Grainger in Canada declined 16 percent in U.S. dollars and local currency, consisting of 15 percentage points from lower volume and a 1 percentage point decline in price. Daily sales in the province of Alberta, which currently represents about 30 percent of the company's business in Canada, were down 22 percent versus the prior year, while daily sales for all other provinces were down 12 percent in the quarter.

The Canadian segment posted a $15 million operating loss in the 2016 third quarter versus operating earnings of $4 million in the prior year, driven primarily by the sales decline and a lower gross profit margin, partially offset by lower operating expenses.

Sales for the the company’s Other Businesses increased 36 percent for the 2016 third quarter versus the prior year, consisting of 16 percentage points from Cromwell, 15 percentage points from volume and price and a 5 percentage point benefit from foreign exchange. Strong performance for the Other Businesses was driven by 38 percent sales growth for the single channel online businesses.

Operating earnings for the Other Businesses of $25 million in the 2016 third quarter were up 74 percent versus $14 million the prior year. This performance was driven by strong operating results from Zoro in the U.S., MonotaRO in Japan and the business in Mexico. Cromwell's business also contributed to the earnings growth in the quarter.  

Other income and expense was a net expense of $29 million in the 2016 third quarter versus a net expense of $21 million in the 2015 third quarter. This increase was primarily due to additional interest expense from the $400 million of debt issued in May 2016 used to buy back stock and higher losses from the company's clean energy investments.

For the nine months ended Sept. 30, sales of $7.7 billion increased 2 percent versus $7.5 billion in the nine months ended Sept. 30, 2015.  

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