Grainger Q4 Profit Down, Cuts 2015 Outlook

Citing weakening Canadian and Japanese currencies and broader economic softness in Canada, the company lowered its 2015 outlook after a disappointing Q4.

Grainger, No. 3 on Industrial Distribution's 2014 Big 50 List, released its 2014 fourth quarter and year-end financial information on Monday, highlighted by a Q4 earnings decrease and a lowered 2015 outlook.

For the year, the company reported 2014 sales of $10.0 billion, an increase of 6 percent over the $9.4 billion it earned in 2013. Its net earnings of $802 million increased 1 percent over 2013. Grainger generated $960 million in operating cash flow, down from $986 million in 2013. Gross capital expenditures were $387 million, up from 2013's $272 million, driven primarily by investments to expand the distribution center network in North America.

"This was a challenging year, and we were not satisfied with our overall 2014 performance. As we committed to a year ago, we addressed several smaller underperforming businesses and believe we have positioned the company for better results going forward," said Chairman, President and Chief Executive Officer Jim Ryan in a statement. "There were, however, several bright spots in 2014, including the United States segment, which continued to perform very well, gaining share with large customers. We were also pleased with the single channel online model businesses in Japan, the United States and Europe, which continued their rapid growth."

In the 2014 fourth quarter, Grainger sales of $2.5 billion increased 6 percent year-over-year from 2013's $2.4 billion. Net earnings, however, declined 5 percent to $149 million. Operating earnings increased 4 percent YOY.

Q4 United States sales increased 6 percent YOY, while operated earnings in the segment increased 16 percent. Sales were boosted in part by Ebola safety products.

Canada sales in Q4 at Acklands-Grainger increased 3 percent, driven by the acquisition of WFS Enterprises on Sept. 2, 2014. Operating earnings in Canada declined 27 percent YOY.

Sales for Grainger's Other Business segment increased 13 percent in Q4, but posted a $51 million operating loss.

The company updated its 2015 guidance and now expects 3 to 7 percent sales growth, down from the 5 to 9 percent growth in the guidance it released Nov. 12, 2014. The company said the change reflects the current foreign currency translation effect on reported financial results due to the further weakening of the Canadian and Japanese currencies, as well as the deteriorating macroeconomic environment in Canada.

"Longer term, we remain optimistic about our opportunities in the large and fragmented MRO market," Ryan said. "We are committed to our strategy to grow and gain share, and we will continue to invest to create long-term competitive advantage. In the near term, we remain cautious given the low inflationary environment in the United States, economic headwinds internationally and growing pressure from weaker currencies in Canada and Japan."