Grainger reports Q2 net earnings of US$371M, up 65% year-over-year; net sales add 19.6% to US$3.84B from strong price realization and volume growth across all geographies in high-touch solutions segment, new customer acquisition in endless assortment unit

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CHICAGO , July 29, 2022 (press release) –

Solid execution of strategic growth initiatives drives continued strong results; Company raises full year 2022 guidance

Second Quarter Highlights

  • Delivered sales of $3.8 billion, up 19.6%, compared to the second quarter of 2021; up 22.0% on a daily, constant currency basis
  • Expanded gross margin by 255 bps compared to the second quarter of 2021
  • Generated operating earnings of $534 million, up 60.0%, resulting in EPS of $7.19, an increase of 68.4% versus the second quarter of 2021
  • Returned $219 million to shareholders through dividends and share repurchases
  • Published 11th Environmental, Social and Governance report highlighting Grainger's focus on driving sustainable supply chain operations and furthering diversity, equity and inclusion
  • Increases full year 2022 guidance, including updated total Company daily sales growth of 14.5% - 16.5%, driving EPS range of $27.25 - $28.75 

Grainger (NYSE: GWW) today reported results for the second quarter of 2022 with sales of $3.8 billion, up 19.6%, or 22.0% on a daily, constant currency basis compared to the second quarter 2021, driven by strong performance in both segments. 

"Our second quarter results reflect the team's continued commitment to serving customers extraordinarily well in this strong demand environment," said DG Macpherson, Chairman and CEO. "Our execution on our strategic initiatives is driving sustained growth and share gain across the business. After another quarter that exceeded expectations, we are increasing our 2022 outlook and remain well-positioned to deliver an exceptionally strong year."

2022 Second Quarter Financial Summary

($ in millions)

Q2 2022 (1)

Q2 2021 (1)

Q2

Fav. (Unfav.) vs. Prior

Net Sales

$3,837

$3,207

20 %

Gross Profit

$1,441

$1,124

28 %

Operating Earnings

$534

$334

60 %

Net Earnings Attributable to W.W. Grainger, Inc.

$371

$225

65 %

Diluted Earnings Per Share

$7.19

$4.27

68 %

       

Gross Profit Margin

37.6 %

35.0 %

255 bps

Operating Margin

13.9 %

10.4 %

350 bps

Tax Rate

24.8 %

23.6 %

(120) bps

   

(1)

Neither Q2 2022, nor Q2 2021 results contained any adjusting items, therefore separate adjusted results are not presented above.

Revenue
Sales on a reported and daily basis in the quarter increased 19.6% as compared to the second quarter of 2021. Excluding the unfavorable foreign exchange impact of 2.4%, sales on a daily, constant currency basis were up 22.0% compared to the second quarter of 2021.

In the High-Touch Solutions N.A. segment, daily sales were up 22.2% compared to the second quarter of 2021 due to both strong price realization and volume growth across all geographies.   In the Endless Assortment segment, daily sales were up 11.4%, versus the second quarter of 2021, or up 21.1% on a daily, constant currency basis, reflecting the significant impact of the depreciating Japanese yen. Segment revenue growth continues to be driven by new customer acquisition at both Zoro and MonotaRO and strong repeat and enterprise customer growth at MonotaRO. 

Gross Profit Margin
Gross profit margin for the second quarter of 2022 was 37.6%, a 255 basis point increase compared to the second quarter of 2021. The increase was driven by favorability in both segments and includes the lap of a $63 million pandemic product inventory adjustment in the prior year period within the High-Touch Solution N.A. segment. 

In the High-Touch Solutions N.A. segment, gross margin expanded by 275 basis points over the prior year second quarter primarily due to the pandemic product inventory adjustment discussed above. Absent this inventory adjustment, gross margin was up over 25 basis points, primarily due to favorable product mix. In the Endless Assortment segment, gross margin expanded by 100 basis points versus the prior year second quarter driven largely by freight efficiencies as average order value increased at both Zoro and MonotaRO.

Earnings
Operating earnings for the second quarter of 2022 of $534 million were up 60% versus the second quarter of 2021. Operating margin in the quarter of 13.9% increased 350 basis points over the second quarter of 2021 on stronger gross margins in both segments combined with 95 basis points of SG&A leverage gained on strong top-line growth. 

Earnings per share of $7.19 in the second quarter of 2022 increased 68.4% compared to the second quarter of 2021 due primarily to the strong operating performance. 

Tax Rate
The second quarter 2022 tax rate was 24.8%, compared to 23.6% in the second quarter of 2021. The increase in rate year over year was primarily driven by a smaller benefit from the vesting of stock compensation.

Cash Flow
Operating cash flow for the second quarter of 2022 was $250 million, down $19 million over the second quarter of 2021. The decrease was driven by heightened cash used by working capital as the Company used its balance sheet to support strong top-line growth. This more than offset higher net earnings in the quarter. During the quarter, the Company distributed $219 million to shareholders through dividends and share repurchases. 

Guidance
Given the strong first half of 2022, the Company is raising its 2022 full year guidance expectations.

Total Company (1)

Previous 2022 Guidance Range  
(as of April 29. 2022)

Updated 2022 Guidance Range  
(as of July 29, 2022)

Net Sales

$14.5 - $14.9 billion

$15.0 - 15.2 billion

Daily growth

11.0% - 14.0%

14.5% - 16.5%

Gross Profit Margin

36.8% - 37.3%

37.2% - 37.5%

Operating Margin

13.0% - 13.6%

13.6% - 14.0%

Earnings per Share

$25.00 - $27.00

$27.25 - $28.75

Operating Cash Flow

$1.15 - $1.35 billion

$1.25 - $1.35 billion

CapEx (cash basis)

$275 - $325 million

$300 - $325 million

Share Repurchase

$600 - $800 million

$600 - $700 million

Tax Rate

~25.0%

~25.0%

     

Segment Operating Margin

   

High-Touch Solutions N.A.

14.9% - 15.5%

15.4% - 15.8%

Endless Assortment

7.5% - 8.2%

7.7% - 8.2%

   

(1)

Guidance provided is on an adjusted basis

Webcast
The Company will conduct a live conference call and webcast at 11:00 a.m. ET on Friday, July 29, 2022 to discuss the second quarter results. The webcast will be hosted by DG Macpherson, Chairman and CEO, and Deidra Merriwether, Senior Vice President and CFO, and can be accessed at invest.grainger.com. For those unable to participate in the live event, a webcast replay will be available for 90 days at invest.grainger.com.

About Grainger
W.W. Grainger, Inc., with 2021 sales of $13.0 billion, is a leading broad line distributor with operations primarily in North America, Japan and the United Kingdom. Grainger achieves its purpose, We Keep the World Working®, by serving more than 4.5 million customers worldwide with a wide range of product categories that keep customer operations running and their people safe. The Company also delivers services and solutions, such as technical support and inventory management, to provide tangible value and save customers time and money. Grainger offers more than 2 million maintenance, repair and operating (MRO) products in its High-Touch Solutions assortment and more than 30 million products through its expanding Endless Assortment offering. For more information, visit www.grainger.com.

Visit invest.grainger.com to view information about the Company, including a supplement regarding 2022 second quarter results. Additional Company information can be found on the Grainger Investor Relations website which includes our Company Snapshot and ESG report.

Safe Harbor Statement
All statements in this communication, other than those relating to historical facts, are "forward-looking statements." Forward-looking statements can generally be identified by their use of terms such as "anticipate," "estimate," "believe," "expect," "could," "forecast," "may," "intend," "plan," "predict," "project," "will," or "would," and similar terms and phrases, including references to assumptions. Forward-looking statements are not guarantees of future performance and are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from such statements. Forward-looking statements include, but are not limited to, statements about future strategic plans and future financial and operating results. Important factors that could cause actual results to differ materially from those presented or implied in the forward-looking statements include, without limitation: the unknown duration and health, economic, operational and financial impacts of the global outbreak of the coronavirus disease 2019 and its variants (COVID-19), as well as the impact of actions taken or contemplated by government authorities to mitigate the spread of COVID-19 (such as vaccine mandates for certain federal contractors, mask mandates, social distancing or other requirements) and to promote economic stability and recovery, on the Company's businesses, its employees, customers and suppliers, including disruption to Grainger's operations resulting from employee illnesses, the development, availability and usage of effective treatment or vaccines, changes in customers' product needs, the acquisition of excess inventory leading to additional inventory carrying costs and inventory obsolescence, raw material, inventory and labor shortages, continued strain on global supply chains, and diminished transportation availability and efficiency, disruption caused by business responses to the COVID-19 pandemic, including remote working arrangements, which may create increased vulnerability to cybersecurity incidents, including breaches of information systems security, adaptions to the Company's controls and procedures required by remote working arrangements, which could impact the design or operating effectiveness of such controls or procedures, and global or regional economic downturns or recessions, which could result in a decline in demand for the Company's products; inflation, higher product costs or other expenses, including operational expenses; the impact of Russia's invasion of Ukraine on the global economy; a major loss of customers; loss or disruption of sources of supply; changes in customer or product mix; increased competitive pricing pressures; failure to enter into or sustain contractual arrangements on a satisfactory basis with group purchasing organizations; failure to develop, manage or implement new technology initiatives or business strategies; failure to adequately protect intellectual property or successfully defend against infringement claims; fluctuations or declines in the Company's gross profit margin; the Company's responses to market pressures; the outcome of pending and future litigation or governmental or regulatory proceedings, including with respect to wage and hour, anti-bribery and corruption, environmental, advertising and marketing, consumer protection, pricing (including disaster or emergency declaration pricing statutes), product liability, compliance or safety, trade and export compliance, general commercial disputes, or privacy and cybersecurity matters; investigations, inquiries, audits and changes in laws and regulations; failure to comply with laws, regulations and standards, including new or stricter environmental laws or regulations; government contract matters; disruption or breaches of information technology or data security systems involving the Company or third parties on which the Company depends; general industry, economic, market or political conditions; general global economic conditions including tariffs and trade issues and policies; currency exchange rate fluctuations; market volatility, including price and trading volume volatility or price declines of the Company's common stock; commodity price volatility; facilities disruptions or shutdowns; higher fuel costs or disruptions in transportation services; geopolitical events, including war or acts of terrorism; other pandemic diseases or viral contagions; natural or human induced disasters, extreme weather and other catastrophes or conditions; effects of climate change; competition for, or failure to attract, retain, train, motivate, and develop key employees; loss of key members of management or key employees; changes in effective tax rates; changes in credit ratings or outlook; the Company's incurrence of indebtedness and other factors that can be found in our filings with the Securities and Exchange Commission, including our most recent periodic reports filed on Form 10-K and Form 10-Q, which are available on our Investor Relations website. Forward-looking statements are given only as of the date of this communication and the Company undertakes no obligation to update or revise any of its forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)

(In millions of dollars, except for share and per share amounts)

 
               
 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2022

 

2021

 

2022

 

2021

Net sales

$       3,837

 

$     3,207

 

$     7,484

 

$     6,291

Cost of goods sold

2,396

 

2,083

 

4,660

 

4,074

Gross profit

1,441

 

1,124

 

2,824

 

2,217

Selling, general and administrative expenses

907

 

790

 

1,756

 

1,525

Operating earnings

534

 

334

 

1,068

 

692

Other (income) expense:

             

Interest expense – net

22

 

22

 

45

 

43

Other – net

(5)

 

(7)

 

(11)

 

(13)

Total other expense – net

17

 

15

 

34

 

30

Earnings before income taxes

517

 

319

 

1,034

 

662

Income tax provision

128

 

76

 

260

 

164

Net earnings

389

 

243

 

774

 

498

    Less net earnings attributable to noncontrolling interest

18

 

18

 

37

 

35

Net earnings attributable to W.W. Grainger, Inc.

$          371

 

$        225

 

$        737

 

$       463

               

Earnings per share:

             

Basic

$         7.22

 

$       4.30

 

$     14.33

 

$      8.80

Diluted

$         7.19

 

$       4.27

 

$     14.26

 

$      8.76

Weighted average number of shares outstanding:

             

Basic

51.0

 

52.2

 

51.1

 

52.2

Diluted

51.3

 

52.5

 

51.4

 

52.5

Diluted Earnings Per Share

             

Net earnings as reported

$          371

 

$        225

 

$        737

 

$       463

     Earnings allocated to participating securities

(2)

 

(2)

 

(5)

 

(4)

Net earnings available to common shareholders

$          369

 

$        223

 

$        732

 

$       459

Weighted average shares adjusted for dilutive securities

51.3

 

52.5

 

51.4

 

52.5

Diluted earnings per share

$         7.19

 

$       4.27

 

$     14.26

 

$      8.76

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions of dollars)

 
   
 

(Unaudited)

   

Assets

June 30, 2022

 

December 31, 2021

Cash and cash equivalents

$                         262

 

$                         241

Accounts receivable – net(1)

2,099

 

1,754

Inventories –  net

1,990

 

1,870

Prepaid expenses and other current assets

162

 

146

Total current assets

4,513

 

4,011

Property, buildings and equipment – net

1,438

 

1,424

Goodwill

374

 

384

Intangibles – net

227

 

238

Operating lease right-of-use

337

 

393

Other assets

160

 

142

Total assets

$                       7,049

 

$                      6,592

Liabilities and Shareholders' Equity

     

Current maturities of long-term debt

$                           17

 

$                           —

Trade accounts payable(2)

1,054

 

816

Accrued compensation and benefits

282

 

319

Operating lease liability

68

 

66

Accrued expenses

299

 

290

Income taxes payable

30

 

37

Total current liabilities

1,750

 

1,528

Long-term debt

2,309

 

2,362

Long-term operating lease liability

282

 

334

Deferred income taxes and tax uncertainties

131

 

121

Other non-current liabilities

112

 

87

Shareholders' equity(3)

2,465

 

2,160

Total liabilities and shareholders' equity

$                       7,049

 

$                      6,592

   

(1)

Increased $345 million driven by growth in sales.

(2) 

Increased $238 million primarily driven by inventory purchases to meet increased demand.

(3)

Common stock outstanding as of June 30, 2022 was 50,949,492 compared with 51,220,205 shares at December 31, 2021, primarily due to share repurchases.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In millions of dollars)

 
 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2022

 

2021

 

2022

 

2021

Cash flows from operating activities:

             

Net earnings

$             389

 

$           243

 

$         774

 

$          498

Adjustments to reconcile net earnings to net cash provided by operating activities:

             

   Provision for credit losses

4

 

4

 

8

 

8

   Deferred income taxes and tax uncertainties

8

 

3

 

15

 

(8)

   Depreciation and amortization

55

 

49

 

107

 

92

   Net (gains) losses  from sale or redemption of assets

2

 

1

 

2

 

(4)

   Stock-based compensation

18

 

17

 

27

 

25

Change in operating assets and liabilities:

             

  Accounts receivable

(135)

 

(59)

 

(398)

 

(180)

  Inventories

(84)

 

(30)

 

(149)

 

22

  Prepaid expenses and other assets

(11)

 

(3)

 

(50)

 

(8)

  Trade accounts payable

35

 

93

 

263

 

178

  Accrued liabilities

45

 

54

 

(8)

 

(7)

  Income taxes - net

(76)

 

(105)

 

10

 

(50)

  Other non-current liabilities

 

2

 

(8)

 

(3)

   Net cash provided by operating activities

250

 

269

 

593

 

563

Cash flows from investing activities:

             

Additions to property, buildings, equipment and intangibles

(106)

 

(74)

 

(163)

 

(147)

Proceeds from sale or redemption of assets

2

 

2

 

2

 

17

Other – net

(11)

 

 

(11)

 

    Net cash used in investing activities

(115)

 

(72)

 

(172)

 

(130)

Cash flows from financing activities:

             

Net (decrease) increase in long-term debt

 

(8)

 

 

(8)

Proceeds from stock options exercised

9

 

22

 

15

 

30

Payments for employee taxes withheld from stock awards

(17)

 

(26)

 

(19)

 

(28)

Purchases of treasury stock

(120)

 

(108)

 

(199)

 

(283)

Cash dividends paid and other - net

(99)

 

(95)

 

(183)

 

(176)

Other – net

(2)

 

2

 

(2)

 

2

    Net cash used in financing activities

(229)

 

(213)

 

(388)

 

(463)

Exchange rate effect on cash and cash equivalents

(8)

 

1

 

(12)

 

(8)

Net change in cash and cash equivalents

(102)

 

(15)

 

21

 

(38)

         Cash and cash equivalents at beginning of period

364

 

562

 

241

 

585

         Cash and cash equivalents at end of period

$             262

 

$           547

 

$         262

 

$          547

 

SUPPLEMENTAL INFORMATION - CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (Unaudited)

The Company supplemented the reporting of financial information determined under U.S. generally accepted accounting principles (GAAP) with the non-GAAP financial measures of daily sales and daily, constant currency sales. The Company believes that these non-GAAP measures provide meaningful information to assist shareholders in understanding financial results and assessing prospects for future performance. Management believes daily sales and daily, constant currency sales are important indicators of operations because they exclude items that may not be indicative of our core operating results, and provide a better baseline for analyzing trends in our underlying businesses. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. These adjusted financial measures should not be considered in isolation or as a substitute for reported results. These non-GAAP financial measures reflect an additional way of viewing aspects of operations that, when viewed with GAAP results, provide a more complete understanding of the business. The Company strongly encourages investors and shareholders to review Company financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.

This press release also includes certain non-GAAP forward-looking information. The Company believes that a quantitative reconciliation of such forward-looking information to the most comparable financial measure calculated and presented in accordance with GAAP cannot be made available without unreasonable efforts. A reconciliation of these non-GAAP financial measures would require the Company to predict the timing and likelihood of future restructurings, asset impairments, and other charges. Neither of these forward-looking measures, nor their probable significance, can be quantified with a reasonable degree of accuracy. Accordingly, a reconciliation of the most directly comparable forward-looking GAAP measures is not provided. 

The reconciliation provided below reconciles GAAP financial measures to the non-GAAP financial measures: daily sales and daily, constant currency sales.

 

Three Months Ended June 30,

 

Total Company

 

High-Touch
Solutions
North
America

 

Endless
Assortment

 

2022

 

2022

 

2022

Reported sales

19.6 %

 

22.2 %

 

11.4 %

Day impact

 

 

Daily sales

19.6 %

 

22.2 %

 

11.4 %

Foreign exchange1

2.4

 

0.2

 

9.7

Daily, constant currency sales

22.0 %

 

22.4 %

 

21.1 %

   

(1)

Foreign exchange is calculated by the difference of local currency sales at the current year average rate and at the prior year average rate for the period.

 

Cision View original content:https://www.prnewswire.com/news-releases/grainger-reports-results-for-the-second-quarter-2022-301595833.html

SOURCE W.W. Grainger, Inc.

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