Grainger — No. 2 on Industrial Distribution's Big 50 List — reported its 2017 third quarter financials on Tuesday, led by a modest year-over-year (YoY) sales increase and a continued profit increase as the company provided an update on the results of its recent strategic pricing initiatives, which it initially announced in November of 2016 and then accelerated after Q1 of this year.
Grainger had Q3 total sales of $2.64 billion, nearly identical to Q2. Sales were up 1.5 percent year-over-year, with daily sales up near 3 percent. The company said the daily sales increase was driven by an 8 percentage point gain from volume, partially offset by declines of 4 points from price and 1 point from the divestment of its Techni-Tool specialty business in July. Hurricane-related sales contributed a 1-point sales gain, while season sales contributed a 1-point decline.
Grainger reported a total Q3 profit of $162 million, down 12.8 percent YoY. Profit decreased 10 percent in Q2 and 6.4 percent in Q1. Operating profit of $281.2 million was down 15.9 percent. The company attributed the declines to its pricing actions.
The company's Q3 sales and profit figures exceeded Wall Street expectations.
U.S. sales accounted for 76.5 percent of Grainger's total Q3 business — essentially identical to Q2. Sales of $2.02 billion were down 0.6 percent YoY, with daily sales up approximately 1 percent. Daily sales had a 7 percentage point gain from volume, partially offset by a 5-point impact from pricing and 1-point from the Techni-Tool divestiture. Q3 U.S. operating profit declined 12.9 percent, while operating margin declined 220 basis points to 15 percent.
By customer size in Q3:
- Large customers had 5 percent daily volume growth in Q3 — up from 4 percent growth in Q2 and 3 percent growth in Q1
- Medium customers had 15 percent daily volume growth in Q3 — up from 3 percent in Q2 and a 7 percent decline in Q1
"Our U.S. business had strong volume in the quarter driven by our strategic pricing initiatives and an improving demand environment," Grainger chairman and CEO D.G. Macpherson said. "We saw a solid response from digital marketing activities that began in mid-August, particularly from our mid-sized customers."
Q3 U.S. sales by customer end market were as follows:
- Natural resources: up in high-single digits
- Reseller: up in high-single digits
- Retail: up in low-single digits
- Heavy Manufacturing: up in low-single digits
- Commercial: up in low-single digits
- Government: up in low-single digits
- Light Manufacturing: down in low-single digits
- Contractor: down in mid-single digits
Canada sales accounted for 7.1 percent of Grainger's total Q3 business. Sales of $188 million increased 5.0 percent YoY and were nearly identical to Q2. Daily sales were up approximately 7 percent, and up 2 percent in local currency. A Q3 operating loss of $10 million followed a $27.7 million loss in Q2. Q3 operating margin increased by 70 base points to -5.3 percent.
Other sales accounted for 20.3 percent of Grainger's total Q3 business. Sales of $537 million increased 11.4 percent YoY, and daily increased approximately 13 percent — helped by a 15 percentage point gain from price and volume. Operating profit of $27 million increased 8 percent YoY, with operating margin down 20 points to 5.0 percent.
"Our single-channel online businesses continued their strong sales growth and improved profitability," Macpherson said. "Our Canadian business continues to be challenged as we execute our turnaround strategy."
Total company Q3 daily sales growth was 3 percent. Here's how Grainger's total and U.S. daily sales growth have looked by month over the past 12 months:
|Month||Total Daily Sales Growth||U.S. Daily Sales Growth|
Grainger ended Q3 (Sept. 30) with 555 branches worldwide — down 43 from Q2. Forty of those closures were in Canada, where the company now has 109 branches. Grainger's U.S. branch count is at 286 — identical to Q2. Grainger closed two Columbia branches in Q3 and one Fabory branch. The company didn't open any branches worldwide in Q3. It ended the quarter with 33 distribution centers — identical to Q2. It has 18 DCs in the U.S., five in Canada and 10 more worldwide.