Grainger Ends 2016 With Best Month In 2 years

Grainger posted flat Q4 sales while its profits were hurt by an impairment charge, while the company posted its best month for daily sales growth since November of 2014.

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Grainger — No. 3 on Industrial Distribution's 2016 Big 50 List — reported its 2016 fourth quarter financials on Wednesday, led by a strong December for the company's U.S. and Canada sales.

Grainger posted Q4 total sales of $2.47 billion, essentially flat compared to a year earlier with a 0.3 percent decline. Operating profit of $174.2 million fell 30.8 percent year-over-year, while total profit of $60.7 million fell 58.2 percent. Restructuring costs were large part of the decline, as adjusted operating profit in Q4 was down 3 percent and total profit fell 7 percent.

The company said the adjusted operating profit declined 3 percent year-over-year driven by flat sales and lower gross profit margins, partially offset by lower expenses. Warehousing, marketing and administrative expenses increased by 8.6 percent YoY. The company also incurred a $42.3 million goodwill impairment cost for its Fabory business, acquired in 2011.

By geography in Q4:

  • U.S. sales of $1.9 billion — 76.9 percent of total — decreased 1.0 percent YoY
  • Canada sales of $181.4 million — 7.3 percent of total — decreased 10.8 percent YoY
  • Other Businesses sales of $484.5 million — 19.6 percent of total — increased 11.3 percent YoY

Q4 U.S. sales by customer end market were as follows:

  • Government up in the high single digits
  • Commercial, light manufacturing and retail up in the low single digits
  • Heavy manufacturing down in the low single digits
  • Contractor down in the mid-single digits
  • Reseller and natural resources down in the high single digits

Though Q4 sales were flat, Grainger finished the quarter — and 2016 — with its best month of the year for daily sales growth, by far. The company posted daily sales growth of 6.5 percent in December, it's best month of 2016 by a 2.2-percentage point margin (January). In fact, it was its best month for year-over-year daily sales growth since November 2014 (8.1 percent). U.S. daily sales growth of 4.3 percent was also it's best of the year. Grainger's only other two months with U.S. daily sales growth were August (+0.5 percent) and January (+0.9 percent). The big December was a strong rebound after a November that saw a 2.6 percent daily sales decline overall and in the U.S.

Grainger noted that the favorable timing of the New Year's holiday, recognized on on Jan. 2, helped contribute to the strong December. The company said the holiday timing contributed to a slower start to its January 2017 sales.

December U.S. sales by customer end market were as follows:

  • Government up in the low double digits
  • Commercial up in the high single digits
  • Heavy manufacturing and light manufacturing up in the low single digits
  • Retail flat
  • Contractor and natural resources down in the low single digits
  • Reseller down in the high single digits

Here's how Grainger's total and U.S. daily sales growth has looked by month so far in 2016:

2016 Month Total Daily Sales Growth U.S. Daily Sales Growth
December +6.5% +4.3%
November -2.6% -2.6%
October +0.2% -0.7%
September +0.1% -0.5%
August +4.0% +0.5%
July +3.3% -2.0%
June +0.1% -3.4%
May +1.2% -2.9%
April +3.6% -1.5%
March -1.1% -4.6%
February +0.6% -1.4%
January +4.3% +0.9%

"In 2016 we faced a challenging demand environment compounded by a lack of inflation, which put pressure on revenue and gross margins. In the face of this pressure, we effectively managed expenses while making moves to improve our long-term competitiveness," said Grainger CEO DG Macpherson. "Our core businesses performed in line with guidance, and we continue to be pleased with our progress on key initiatives including sales force effectiveness and the vertical alignment of the sales force in the United States, the mediumsized customer acquisition and penetration strategy in the United States and the growth of the online model globally. In 2017, we remain focused on creating value for customers, delivering an effortless customer experience and reducing costs." 

DG Macpherson, Grainger COODG Macpherson, Grainger COO

Full year

For the full year 2016, Grainger posted sales of $10.14 billion, up 1.7 percent from 2015. Operating profit of $1.12 billion was down 13.8 percent, while total profit of $605.9 million was down 21.2 percent. Much of the profit declines were due to 2016 having more than double the total other expense costs, at $100.4 million for 2016 and $49.6 million for 2015.

By geography in 2016: 

  • U.S. sales of $7.9 billion — 77.6 percent of total — declined 1.1 percent YoY
  • Canada sales of $890.5 million — 8.8 percent of total — declined 17.6 percent YoY
  • Other Businesses sales of $1.9 billion — 18.5 percent of total — increased 34.0 percent YoY

Branches/DCs

Grainger ended 2016 with 598 total branches worldwide, including 284 in the U.S. It opened two branches in Q4 — both in the U.S. — and closed 7 branches worldwide. Four of those branch closures were in its U.K.-based Cromwell business, two closures were in Netherlands-based Fabory, and the other closure was in Canada.

Grainger ended 2016 with 33 distribution centers, including 18 in the U.S. and five in Canada.

Outlook

Grainger said it expects sales growth of 2 to 6 percent in 2017.

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