Grainger reported its 2020 second quarter financial results on Thursday, showing that continued strong sales of pandemic-related products wasn't enough to offset weakness in other product categories — an expected trend among industrial supply earnings in this latest reporting period.
The MRO products distribution giant posted Q2 sales of $2.84 billion, down 1.8 percent year-over-year (YoY), following a 7.2 percent jump in Q1 that had $3.0 billion in sales. Q2 daily sales declined 1.9 percent. Grainger said the revenue decline was driven by volume decreases that included unfavorable product mix from higher levels of pandemic-related sales and lower levels of non-pandemic products.
The Lake Forest, IL-based company's Q2 earnings presentation showed that pandemic-related daily sales were up 62 percent YoY in April, up 86 percent in May and up 67 percent in June. Conversely, non-pandemic sales were down 21 percent in April, down 17 percent in May and down 13 percent in June. This trend continued in recent weeks, with July 1-July 20 pandemic-related daily sales up 66 percent YoY and non-pandemic sales down 11 percent.
"During the second quarter, Grainger performed well. We gained significant share in a down market, fueled by elevated levels of pandemic product sales and improving trends in non-pandemic product sales throughout the quarter," Grainger chairman and CEO DG Macpherson said int he company's earnings release."
Earnings-wise, Grainger posted a Q2 gross profit of $1.02 billion with gross profit margin of 35.8 percent, down from 38.7 percent a year earlier. Operating profit of $205 million and operating margin of 7.3 percent compared with $380 million and 13.1 percent a year earlier, with the large discrepancy owing to a $109 million pretax loss from the sale of the Grainger's Fabory business during the quarter. Accounting for that, Grainger's adjusted Q2 operating profit of $315 million was down 16.4 percent YoY. Total reported profit of $114 million sunk 56.2 percent YoY, with adjusted net profit of $204 million down 20.9 percent.
"On the cost side, we achieved significant leverage and generated over $75 million of sequential cost reductions contributing to strong operating cash flow and allowing continued investment in the business," Macpherson added.
Grainger's Q2 US sales of $2.17 billion (76.4 percent of total) decreased 2.4 percent YoY, following a 7.4 percent increase in Q1, while Q2 gross profit fell 10.1 percent and operating profit of $318 million fell 16.7 percent. The company said a 310-base point drop in gross profit margin was driven by pandemic headwinds that included unfavorable product & customer mix and an increase in alternative sourcing transactions and related freight costs, along with tariff-related cost inflation.