MRO products giant Grainger reported its 2021 second quarter financial results on Friday, showing that the industrial distribution sector's biggest market mover saw continued solid year-over-year gains in both sales and profit despite unfavorable margin impacts tied to pandemic-related inventory adjustments.
Lake Forest, IL-based Grainger posted total Q2 sales of $3.21 billion, up 13.0 percent year-over-year and up from $3.08 billion in Q1. Organic sales — which exclude the company's recently-divested Fabory and China businesses — were even better at a 15 percent year-over-year gain and far above the 5.6 percent increase seen in Q1.
Grainger's daily sales improved 13.7 percent year-over-year in its High-touch Solutions North America segment, largely due to strong recovery in non-pandemic products, while the distributor's Endless Assortment segment saw a 23.0 percent increase in daily sales on strong customer acquisition in both Zoro U.S. and MonotaRO.
Grainger's Q2 gross margin was 35.0 percent, down 75 basis points from a year earlier (35.5 percent in Q1), which the company said was driven by pandemic-related inventory adjustments in its High-Touch N.A. segment:
"Early in the pandemic, the company purchased a wide range of products to meet customer needs, but as the pandemic evolved, demand for certain pandemic products weakened and market prices lowered," the company noted in its Q2 earnings release. "During the second quarter of 2021, mask demand declined abruptly when most local and federal mask mandates were lifted in mid-May of 2021, earlier than the previously expected re-openings. This change, along with vaccine availability and general economic recovery, resulted in the company recording inventory adjustments totaling $63 million. It does not expect any further material pandemic-related inventory adjustments."
Excluding those adjustments, Grainger's gross margin would have been 37.0 percent, up 120 basis points year-over-year.
Grainger's Q2 operating profit was $334 million, up 62 percent year-over-year, primarily driven by Q2 2020's Fabory divestment. Adjusted operating profit, also $334 million, was up 6 percent year-over-year. Q2 operating margin of 10.4 percent jumped 315 basis points year-over-year, while adjusted operating margin dipped 70 basis points.
Grainger's total Q2 net profit was $225 million, nearly double the $114 million of a year earlier and trailed Q1's $238 million.
Looking forward, Grainger is now expecting full-year 2021 sales of $12.7 to $13.0 billion on daily sales growth of 8.5 to 11.0 percent and organic growth of 10.0 to 12.5 percent — unchanged from its Q1 report. The company expects full-year gross margin of 36.1 to 36.6 percent on operating margin of 11.8 to 12.4 percent.
Mike Hockett/Industrial DistributionHigh-touch Solutions - U.S.
Grainger's full-year 2020 High-Touch Solutions U.S. segment were up 2.6 percent, and Q2 2021 far outperformed that at 12 percent growth — up 16 percent in April; up 8 percent in May and up 13 percent in June (+12 percent vs. 2019) — and the company estimates July growth will be approximately 7 percent (+11 percent vs. 2019).
Whereas Grainger's 2020 pandemic-related sales were up 54 percent from 2019, those sales were down 28 percent year-over-year in Q2 — down 22 percent in April, down 35 percent in May and down 26 percent in June — and the company estimates they will be down 28 percent in July.
Meanwhile, while Grainger's non-pandemic sales were down 8 percent for the full year 2020, they were up 31 percent year-over-year in Q2 — up 34 percent in April, up 31 percent in May and up 27 percent in June — and the company estimates July sales will be up approximately 22 percent (+7 percent vs. 2019).
Grainger expects to end 2021 with gross margin rates in its High-Touch Solutions - U.S. segment that will be as high or higher than the 40.2 percent rate it had in Q1 2020.
Within Grainger's Endless Assortment segment, daily sales improved 19.0 percent year-over-year at MonotaRO, where gross profit improved 25 basis points to 26.4 percent and operating margin dipped 15 points to 12.0 percent. At Zoro U.S., daily sales jumped 32.6 percent, gross profit improved 95 points to 31.5 percent and operating margin jumped 320 points to 4.4 percent.
Grainger's Endless Assortment registered users has increased 21.4 percent since Q2 2020 to 12,149 at the end of June, with a nearly even split between MonotaRO users (6,161) and Zoro U.S. users (5,989). The company said Zoro is on pace to achieve 8 million total SKUs by the end of the year (7.5M currently), and it's targeting 10 million by 2024.
By end market, Grainger's Q2 sales performance was as follows:
- Commercial (hospitality, restaurants, business services): up high-thirties
- Heavy manufacturing: up high-twenties
- Contractor: up high-teens
- Natural resources: up high-teens
- Transportation: up mid-teens
- Retail (including e-commerce): up mid-teens
- Wholesale: up mid-teens
- Light manufacturing: up high-single digits
- Government: down low-single digits
- Healthcare: down high-twenties