Grainger Reports Results For The 2013 Third Quarter Narrows 2013 Sales and Earnings Guidance Quarterly Highlights -- Sales of $2.4 billion, up 5 percent, 4 percent daily -- Sales for the U.S. segment up 7 percent, 6 percent daily -- EPS of $2.95, up 37 percent, up 5 percent excluding 2012 reserves of $0.66 per share -- Operating cash flow of $354 million, up 5 percent PR Newswire CHICAGO, Oct. 16, 2013 CHICAGO, Oct. 16, 2013 /PRNewswire/ -- Grainger (NYSE: GWW) today reported results for the 2013 third quarter ended September 30, 2013. Sales of $2.4billion increased 5 percent versus $2.3billion in the third quarter of 2012. There were 64 selling days in the quarter, one more than in 2012. Sales on a daily basis increased 4 percent versus the 2012 third quarter. Net earnings for the third quarter increased 36 percent to $211 million versus $155 million in 2012. Earnings per share of $2.95 increased 37 percent versus $2.15 in 2012. During the 2012 third quarter, the company recorded $76 million in pre-tax reserves, or $0.66per share, consisting of a $70million reserve for a settlement in principle to resolve pricing disclosure issues relating to government contracts with the General Services Administration (GSA) and United States Postal Service (USPS) and a $6 million reserve for resolving related tax, freight and miscellaneous billing issues. Excluding the effect of the reserves in the 2012 third quarter, net earnings for the quarter increased 4 percent and earnings per share increased 5percent. "Despite a challenging environment, our U.S. business delivered solid volume growth and earnings that were in line with our expectations," said Chairman, President and Chief Executive Officer Jim Ryan. "Our businesses outside of the United States remain affected by weaker macroeconomic conditions and unfavorable foreign exchange rates," Ryan added. "We are continuing to aggressively invest for the future with $135million in incremental growth spending planned for 2013 designed to build additional scale and accelerate our market share gains. Given our commitment to our growth investments, coupled with the continuing headwinds of a softer global economy and stronger U.S. dollar, we are narrowing our guidance range for full year 2013," Ryan concluded. The company now expects 2013 sales growth of 5 to 6 percent and earnings per share of $11.45 to $11.65. The company's previous 2013 guidance issued on July 17, 2013, was sales growth of 5 to 8 percent and earnings per share of $11.40 to $12.00. Company Sales in the 2013 third quarter increased 5 percent, 4 percent on a daily basis. The 4 percent increase in daily sales in the quarter consisted of 4 percentage points from volume and 1percentage point from acquisitions, partially offset by a 1percentage point decline attributable to unfavorable foreign exchange. The company's gross profit margin increased 0.2 percentage point to 43.8 percent versus 43.6percent in the 2012 third quarter, driven by Canada and the Other Businesses. Company operating earnings of $347 million for the 2013 third quarter increased 36percent versus the prior year. Excluding the effect of the 2012 reserves, operating earnings increased 5 percent. The 5 percent increase in operating earnings was driven by higher sales and improved gross profit margins. Company operating expenses in the quarter, excluding the $76 million in reserves in the 2012 third quarter, increased 6 percent driven primarily by payroll and benefits and included an incremental $40million in spending to fund the company's growth programs. Unfavorable foreign exchange, tied primarily to the businesses in Canada and Japan, represented a $3million reduction in operating earnings. Grainger has two reportable business segments, the United States and Canada, which represented approximately 89 percent of company sales for the quarter. The remaining operating units located primarily in Asia, Europe and Latin America are included in Other Businesses and are not reportable segments. United States Sales for the United States segment increased 7 percent, 6 percent on a daily basis, in the 2013 third quarter versus the prior year. The 6 percent daily sales growth was driven by 5percentage points from volume and 1percentage point from acquisitions. The sales increase for the quarter was led by solid growth primarily to large customers in the light and heavy manufacturing, natural resources and commercial customer end markets. Quarterly operating earnings in the United States increased 39 percent versus the 2012 quarter. Excluding the 2012 reserves, operating earnings increased 6percent, primarily driven by sales growth. Gross profit margin for the quarter decreased by 0.3 percentage point versus the prior year driven by strong growth and share gain among large customers, which carry lower gross margins. In addition, the company did not implement mid-year price increases due to a lower inflationary environment in 2013, unlike the past two years. Operating expenses, excluding the 2012 reserves, increased slightly slower than sales growth and included an incremental $36million in growth-related spending. These investments are intended to drive market share gains and build additional scale. Canada Sales in the 2013 third quarter in Canada decreased 1 percent, 2 percent on a daily basis versus the prior year. Inlocal currency, sales increased 4 percent, 2 percent on a daily basis on higher volume. The sales increase for the quarter in Canada was led by solid growth to customers in the oil and gas, forestry, light manufacturing and utilities end markets. Operating earnings in Canada decreased 7 percent in the 2013 third quarter, down 3 percent in local currency. The lower operating performance was primarily the result of approximately $3.5million in incremental spending for the new IT system scheduled for implementation in late 2014. Excluding the IT investment, the business generated positive operating leverage. Gross profit margins increased 0.4 percentage point. The gross profit margin improvement was due to cost savings from freight consolidation and higher supplier rebates. Other Businesses Daily sales for the Other Businesses, which includes operations primarily in Asia, Europe and Latin America, were flat for the 2013 third quarter versus the prior year. This performance consisted of 7 percentage points of growth from volume and price, offset by a 7 percentage point decline from unfavorable foreign exchange. Operating earnings for the Other Businesses were $6 million in the 2013 third quarter versus $9million in the 2012 third quarter. The earnings decline for the quarter was primarily driven by weaker performance in Mexico, Colombia and Brazil. Strong earnings growth in Japan was essentially offset by the weakness in the Japanese yen versus the U.S. dollar. Other Interest expense, net of interest income, was $2.9 million in the 2013 third quarter versus $4.0million in the 2012 third quarter. The tax rate in the quarter was 38.0percent versus 37.1percent in the 2012 quarter. The increase was primarily due to lower earnings in foreign jurisdictions with lower tax rates.The company projects an effective tax rate for the full year 2013 of 37.4 to 37.8 percent. Cash Flow Operating cash flow was $354 million in the 2013 third quarter versus $338 million in the 2012 third quarter. Cash flow in the 2013 third quarter benefited from higher earnings and lower inventory purchases versus the prior year. The company used cash from operations to fund capital expenditures of $65million in the quarter versus $59 million in the third quarter of 2012. In the 2013 third quarter, Grainger returned $142 million to shareholders through $65million in dividends and $77 million to buy back 300,000 shares of stock. As of September30,2013, the company had 4.2 million shares remaining on its share repurchase authorization. Year-to-Date For the nine months ended September 30, 2013, sales of $7.1 billion increased 5 percent versus $6.7billion in the nine months ended September 30, 2012. Reported net earnings increased 20percent to $640 million versus $534 million in the first nine months of 2012. Reported earnings per share for the first nine months increased 21 percent to $8.92 versus $7.35 for 2012. The first nine months of 2012 included reserves of $0.66 per share. Excluding these items from 2012, net earnings for the first nine months increased 10percent and earnings per share increased 11 percent versus 2012. W.W. Grainger, Inc., with 2012 sales of $9 billion, is North America's leading broad line supplier of maintenance, repair and operating products, with expanding global operations. Visit www.grainger.com/investor to view information about the company, including a history of daily sales by segment and a podcast regarding 2013 third quarter results. The Grainger website also includes more information on Grainger's proven growth drivers, including product line expansion, sales force expansion, eCommerce, inventory services and international expansion. Forward-Looking Statements This document contains forward-looking statements under the federal securities law. Forward-looking statements relate to the company's expected future financial results and business plans, strategies and objectives and are not historical facts. They are generally identified by qualifiers such as "will continue to invest", "further refine our expectations for 2013 sales and earnings per share", "expects 2013 sales growth", "2013 guidance", "expected to continue", "continues to project an effective tax rate" or similar expressions. There are risks and uncertainties, the outcome of which could cause the company's results to differ materially from what is projected. The forward-looking statements should be read in conjunction with the company's most recent annual report, as well as the company's Form 10-K, Form 10-Q and other reports filed with the Securities & Exchange Commission, containing a discussion of the company's business and various factors that may affect it. CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (In thousands, except for per share amounts) Three Months Ended NineMonths Ended September 30, September 30, 2013 2012 2013 2012 Net sales $ 2,398,530 $ 2,281,205 $ 7,060,526 $ 6,723,925 Costofmerchandisesold 1,347,164 1,287,245 3,930,440 3,777,290 Grossprofit 1,051,366 993,960 3,130,086 2,946,635 Warehousing, marketing and 704,651 739,634 2,089,995 2,073,948 administrative expense Operatingearnings 346,715 254,326 1,040,091 872,687 Otherincomeand(expense) Interestincome 822 707 2,516 1,904 Interestexpense (3,734) (4,751) (10,102) (10,718) Other non-operating income 58 438 799 89 Totalother expense (2,854) (3,606) (6,787) (8,725) Earningsbeforeincometaxes 343,861 250,720 1,033,304 863,962 Income taxes 130,786 92,916 384,948 323,599 Netearnings 213,075 157,804 648,356 540,363 Net earnings attributable to 2,286 2,410 8,069 6,749 noncontrolling interest Netearnings attributable to W.W. $ 210,789 $ 155,394 $ 640,287 $ 533,614 Grainger, Inc. Earningspershare $ 2.99 $ 2.19 $ 9.06 $ 7.50 -Basic -Diluted $ 2.95 $ 2.15 $ 8.92 $ 7.35 Averagenumberofsharesoutstanding 69,461 69,625 69,562 69,897 -Basic -Diluted 70,547 70,961 70,707 71,306 Diluted Earnings Per Share Net earnings as reported $ 210,789 $ 155,394 $ 640,287 $ 533,614 Earnings allocated to participating (2,969) (2,748) (9,600) (9,480) securities Net earnings available to common $ 207,820 $ 152,646 $ 630,687 $ 524,134 shareholders Weighted average shares adjusted for 70,547 70,961 70,707 71,306 dilutive securities Diluted earnings per share $ 2.95 $ 2.15 $ 8.92 $ 7.35 SEGMENT RESULTS (Unaudited) (In thousands of dollars) Three Months Ended Nine Months Ended September 30, September 30, 2013 2012 2013 2012 Sales United States $ 1,904,552 $ 1,776,749 $ 5,542,202 $ 5,219,559 Canada 270,660 272,943 842,446 825,443 Other Businesses 258,442 254,817 767,598 742,904 Intersegmentsales (35,124) (23,304) (91,720) (63,981) Netsalestoexternalcustomers $ 2,398,530 $ 2,281,205 $ 7,060,526 $ 6,723,925 Operatingearnings United States $ 342,420 $ 247,054 $ 1,012,192 $ 856,701 Canada 31,798 34,247 101,953 97,502 Other Businesses 6,182 8,778 27,232 30,737 Unallocatedexpense (33,685) (35,753) (101,286) (112,253) Operatingearnings $ 346,715 $ 254,326 $ 1,040,091 $ 872,687 Company operatingmargin 14.5 % 11.2 % 14.7 % 13.0 % ROIC*forCompany 34.2 % 30.2 % ROIC*forUnited States 51.3 % 46.4 % ROIC*forCanada 22.8 % 23.4 % *The GAAP financial statements are the source for all amounts used in the Return on Invested Capital (ROIC) calculation. ROIC is calculated using operating earnings divided by net working assets (a 4-point average for the year-to-date). Net working assets are working assets minus working liabilities defined as follows: working assets equal total assets less cash equivalents (4-point average of $365.2 million), deferred taxes, and investments in unconsolidated entities, plus the LIFO reserve (4-point average of $383.2 million). Working liabilities are the sum of trade payables, accrued compensation and benefits, accrued contributions to employees' profit sharing plans, and accrued expenses. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) Preliminary (In thousands of dollars) Assets September30, 2013 December 31, 2012 Cash and cash equivalents (1) $ 539,995 $ 452,063 Accounts receivable – net 1,082,108 940,020 Inventories - net 1,256,852 1,301,935 Prepaid expenses and other assets 110,511 150,655 Deferred income taxes 59,631 55,967 Total current assets 3,049,097 2,900,640 Property, buildings and equipment – net 1,136,316 1,144,573 Deferred income taxes 58,054 51,536 Goodwill 568,954 543,670 Other assets and intangibles – net (2) 439,128 374,179 Total assets $ 5,251,549 $ 5,014,598 Liabilities and Shareholders' Equity Short-term debt $ 73,023 $ 79,071 Current maturities of long-term debt 27,501 18,525 Trade accounts payable 435,165 428,782 Accrued compensation and benefits 179,202 165,450 Accrued contributions to employees' 134,636 170,434 profit sharing plans Accrued expenses 206,927 204,800 Income taxes payable 18,038 12,941 Total current liabilities 1,074,492 1,080,003 Long-term debt 448,127 467,048 Deferred income taxes and tax 120,703 119,280 uncertainties Employment-related and other 239,088 230,901 non-current liabilities Shareholders' equity (3) 3,369,139 3,117,366 Total liabilities and shareholders' $ 5,251,549 $ 5,014,598 equity (1) Cash and cash equivalents increased $88 million primarily due to higher earnings. (2) Other assets and intangibles increased $65 million primarily due to the Techni-Tool and E&R Industrial acquisitions. (3) Common stock outstanding as of September 30, 2013 was 69,411,710 shares as compared with 69,478,495 shares at December 31, 2012. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Preliminary (In thousands of dollars) Nine Months Ended September 30, 2013 2012 Cash flows from operating activities: Net earnings $ 648,356 $ 540,363 Provision for losses on accounts receivable 5,775 6,604 Deferred income taxes and tax uncertainties (8,683) (6,315) Depreciation and amortization 126,164 113,338 Stock-based compensation 44,028 42,815 Change in operating assets and liabilities – net of business acquisitions: Accounts receivable (130,068) (131,057) Inventories 44,957 12,116 Prepaid expenses and other assets 40,290 46,648 Trade accounts payable 1,727 (39,657) Other current liabilities (46,521) (3,861) Current income taxes payable 6,243 (12,890) Employment-related and other non-current 13,955 11,478 liabilities Other – net (5,795) (3,473) Net cash provided by operating activities 740,428 576,109 Cash flows from investing activities: Additions to property, buildings and equipment (148,361) (155,163) Proceeds from sale of property, buildings and 3,654 5,035 equipment Net cash paid for business acquisitions (127,960) (24,384) Other – net (160) 440 Net cash used in investing activities (272,827) (174,072) Cash flows from financing activities: Net (decrease) in short-term debt (5,860) (44,110) Net (decrease) increase in long-term debt (14,157) 81,650 Proceeds from stock options exercised 66,512 54,266 Excess tax benefits from stock-based 53,319 44,177 compensation Purchase of treasury stock (279,619) (296,458) Cash dividends paid (188,688) (161,998) Net cash used in financing activities (368,493) (322,473) Exchange rate effect on cash and cash (11,176) 5,748 equivalents Net change in cash and cash equivalents 87,932 85,312 Cash and cash equivalents at beginning of year 452,063 335,491 Cash and cash equivalents at end of period $ 539,995 $ 420,803 SOURCE W.W. Grainger, Inc. Website: http://www.grainger.com Contact: Media: Joseph Micucci, Director, Media Relations, O: 847-535-0879, M: 847-830-5328, or Grainger Media Relations Hotline, 847-535-5678; Investors: Laura Brown, SVP, Communications & Investor Relations, O: 847-535-0409, M: 847-804-1383, William Chapman, Sr. Director, Investor Relations, O: 847-535-0881, M: 847-456-8647, or Casey Darby, Sr. Manager, Investor Relations, O: 847-535-0099, M: 847-964-3281
Grainger Reports Results For The 2013 Third Quarter
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