Grainger Cuts Outlook Again, Though Q2 Profit Rises

Despite U.S. sales posting a modest year-over-year increase and a solid profit gain, the company lowered its full-year outlook for a second straight quarter.

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Coming off announcing a cyberattack that occurred on June 2, Grainger reported its 2015 second quarter financials on Friday for the period ended June 30.

Grainger – No. 3 on Industrial Distribution's 2014 Big 50 List – reported Q2 sales of $2.5 billion, a 1 percent year-over-year increase over last year. Profit for the quarter increased 7 percent YOY to $221 million. Though it was a gain compared to Q1's 2.6 percent YOY profit decrease (to $211 million), the company lowered its 2015 outlook, as it did after Q1.

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Grainger President and CEO Jim Ryan said the company now expects 0 to 2 percent sales growth for the year. That range is down from when the company previously lowered its outlook to 1 to 4 percent sales growth in its Q1 earnings report.

"While this continues to be a difficult economic environment, we are focusing on the things we can control," Ryan said. "Despite continued softness in sales and gross profit margins from a tough industrial economy, we continue to invest for the long term while driving significant productivity to fund growth and infrastructure investments and reduce overall margin pressure."

Ryan also said Grainger has issued a $1 billion blond placement and lowered its tax rate through improved tax planning stragegies.

Grainger's 1 percent YOY Q2 sales increase included 1 percentage point from acquisitions and a 3-point reduction from foreign exchange. Excluding those two factors, organic sales increased 3 percent, driven by 4 percentage points from volume and offset by a 1 point decline in price.

Read more: Takeaways from Grainger Show 2015

Grainger said its gross profit margin for the quarter declined 0.5 percentage points YOY to 42.6 percent, due primarily to faster growth with lower gross margin customers, lower supplier rebates tied to lower-than-expected volume and price deflation versus cost inflation driven by foreign exchange. Operating expenses for the company declined 3 percent driven by lower payroll and benefits.

Company operating earnings of $357 million for the 2015 second quarter increased 5 percent versus the prior year.

United States

Grainger's U.S. sales increased 2 percent year-over-year, driven by 2 percentage points from volume and 1-point from increases sales to its Zoro online business channel, offset by a 1 point decline in price. Sales growth to customers in the Commercial, Government, Light Manufacturing and Retail customer end markets contributed to the sales increase in the quarter.

Canada

Sales for Acklands-Grainger (AGI) declined 9 percent in U.S. dollars in the second quarter of 2015 but grew 2 percent in local currency. The 2 percent sales increase consisted of 8 percentage points from WFS Enterprises, Inc. acquired in September 2014, and 4 percentage points from price, offset by a 10-point decline in volume. AGI had lower sales to the Oil and Gas, Construction, Commercial, Retail, Heavy Manufacturing, Forestry and Transportation customer end markets, which were partially offset by growth to customers in the Light Manufacturing, Mining, Government and Utilities customer end markets. Grainger said its Canada business continues to be affected by weak oil and gas prices and lower commodity prices. Sales in the province of Alberta, which represents more than a third of the company's business in Canada, were down 18 percent in local currency YOY.

Other Businesses

Grainger's sales for the Other Businesses increased 7 percent, consisting of 21 percentage points of growth from volume and price, offset by a 14-point decline from foreign exchange. Local currency sales growth in the Other Businesses was driven by Zoro U.S., Japan, and Mexico. 

Operating earnings for the Other Businesses were $15 million in the 2015 second quarter, which included $2 million of restructuring charges.

Year-to-Date

For the six months ended June 30, Grainger's sales of $5.0 billion is a 1 percent increase over the $4.9 billion in the six months ended June 30, 2014. There were 127 selling days in both periods. Profit increased 2 percent to $432 million YOY.

Related: Grainger Names New Chief Operating Officer

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