Grainger Reports Results For The 2013 Third Quarter

             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
 
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