Grainger Third Quarter Sales Up 7 Percent

The company says strong volume growth and positive operating leverage in the U.S. business were the primary drivers of its results.

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CHICAGO — Grainger (NYSE: GWW), No. 3 on Industrial Distribution's 2014 Big 50 List, on Thursday reported results for the 2014 third quarter ended Sept. 30. Sales of $2.6 billion increased 7 percent versus $2.4 billion in the 2013 third quarter. There were 64 selling days in the quarter, the same as in 2013. Net earnings for the third quarter increased 9 percent to $230 million versus $211 million in 2013. Earnings per share of $3.30 increased 12 percent versus $2.95 in 2013.

"We were pleased with the overall performance of the business in the quarter," said Chairman, President and Chief Executive Officer Jim Ryan. "Strong volume growth and positive operating leverage in the U.S. business were the primary drivers of our results. We were encouraged by better top line growth in Canada this quarter, but margins remain under pressure due to currency and additional investments. Outside of North America, we were disappointed with the performance of several multichannel businesses and are committed to improving or exiting those operations."

Sales in the 2014 third quarter increased 7 percent consisting of 2 percentage points from acquisitions, net of dispositions, and a 1 percentage point reduction from unfavorable foreign exchange. Excluding acquisitions and foreign exchange, organic sales increased 6 percent driven by 6 percentage points from volume and 1 percentage point from price, partially offset by a 1 percentage point decline from lower sales of seasonal products.     

Company operating earnings increased 11 percent to $386 million for the 2014 third quarter versus $347 million in the prior year. The increase was driven by the 7 percent sales increase and positive expense leverage, partially offset by lower gross profit margins.      

Grainger has two reportable business segments, the United States and Canada, which represented approximately 88 percent of company sales for the quarter. The remaining operating units are located primarily inAsia, Europe and Latin America and are included in Other Businesses and are not reportable segments. Results for the company's single channel businesses in Japan, the United States and Europe are also included in Other Businesses.  

Sales for the U.S. segment increased 7 percent in the 2014 third quarter versus the prior year. Results for the quarter included 2 percentage points from acquisitions, net of dispositions. Excluding acquisitions, organic sales increased 5 percent driven by 6 percentage points from volume, partially offset by 1 percentage point from lower sales of seasonal products. Sales growth to customers in the Heavy and Light Manufacturing, Commercial, Retail and Natural Resources customer end markets contributed to the sales increase. 

Canada: Sales in the 2014 third quarter in Canada increased 3 percent versus the prior year, 8 percent in local currency. The 8 percent increase in local currency consisted of 5 percentage points from volume, 2 percentage points from acquisitions and 1 percentage point from price. The sales increase for the quarter was led by solid growth to customers in the Commercial, Transportation, Oil and Gas, Government, and Heavy and Light Manufacturing end markets. 

Operating earnings in Canada declined 14 percent in the 2014 third quarter, down 10 percent in local currency. The lower operating performance was primarily the result of a lower gross profit margin and negative expense leverage. The gross profit margin in Canada declined 1.5 percentage points versus the prior year primarily due to unfavorable foreign exchange from products sourced from the United States, lower supplier rebates and higher freight costs. The increase in operating expenses was primarily driven by higher payroll, occupancy costs and incremental costs from the acquisition of WFS Enterprises, Inc. on September 2.

Other Businesses: Sales for the Other Businesses increased 16 percent for the 2014 third quarter versus the prior year. This performance consisted of 18 percentage points of growth from volume and price, partially offset by a 2 percentage points decline from unfavorable foreign exchange. The sales increase was primarily driven by the single channel businesses, MonotaRO in Japan and Zoro in the United States, and from the business in Mexico. 

Operating earnings for the Other Businesses were $5 million in the 2014 third quarter versus $6 million in the 2013 third quarter. The earnings decline for the quarter versus the prior year was primarily driven by incremental expenses associated with the start-up of the single channel business in Europe and continued soft performance from the multichannel business in Europe (Fabory). This decline was partially offset by improved performance inMexico and continued strong results from the single channel models in Japan and United States and narrowing of losses in China. 

Year-to-Date: For the nine months ended September 30, 2014, sales of $7.5 billion increased 6 percent versus $7.1 billion in the nine months ended September 30, 2013. There were 191 selling days in the first nine months of 2014, the same number of selling days as 2013. Reported net earnings increased 2 percent to $653 million versus $640 million in the first nine months of 2013. Reported earnings per share for the first nine months increased 4 percent to $9.30 versus $8.92 for 2013. The year 2014 includes the $10 million after-tax, or $0.15 per share, charge related to the transition of the employee retirement plan in Europe.    

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