GRAINGER REPORTS SALES OF $7.2 BILLION AND EPS OF $6.93
FOR THE YEAR ENDED DECEMBER 31, 2010
2010 Fourth Quarter EPS of $1.83 Including $0.04 Unusual Item
2010 Highlights
| · | Sales of $7.2 billion, up 15 percent; 16 percent daily |
| · | EPS of $6.80, up 30 percent, excluding $0.13 of unusual items ($0.04 in 4Q) |
| · | Operating cash flow of $596 million |
| · | $657 million returned to shareholders in dividends & share repurchases |
| · | Pretax ROIC* of 29.8 percent versus 24.9 percent in 2009 |
CHICAGO, January 25, 2011 – Grainger (NYSE: GWW) today reported record sales, net earnings and earnings per share for the year ended December 31, 2010. Sales of $7.2 billion were up 15 percent versus $6.2 billion in 2009. Net earnings of $511 million increased 19 percent versus $430 million in 2009. Earnings per share of $6.93 increased 23 percent versus $5.62 in 2009. Two unusual non-cash items were included in 2010 earnings, a $0.28 per share benefit from changes to the company’s paid time off policy and a $0.15 per share tax expense related to the tax treatment of retiree healthcare benefits following the passage of the Patient Protection and Affordable Care Act, which resulted in a net benefit of $0.13 per share. Results for 2009 included a $0.37 pe r share gain from the MonotaRO transaction in September 2009. Excluding these unusual items from both years, net earnings increased 29 percent and earnings per share were up 30 percent in 2010 versus 2009.
*The GAAP financial statements are the source for all amounts used in the Return on Invested Capital (ROIC) calculation. ROIC is calculated using annual operating earnings divided by a 13 point average for net working assets. Net working assets are working assets minus working liabilities defined as follows: working assets equal total assets less cash equivalents (non operating cash), deferred taxes, and investments in unconsolidated entities, plus the LIFO reserve. Working liabilities are the sum of trade payables, accrued compensation and benefits, accrued contributions to employees’ profit sharing plans, and accrued expenses.
“Our record results in 2010 are a direct reflection of our dedicated team members and the extraordinary service they provided to more than 2 million businesses and institutions during the year,” said Chairman, President and Chief Executive Officer Jim Ryan. “Our relentless customer focus also paid off for our shareholders, who enjoyed one of the best years in the company’s history from a total return perspective. Throughout 2010, we continued to invest in our industry-leading position: our talent, our product breadth and availability, our e-commerce and IT platform, and our global presence. These enhancements help ensure that we’re the first choice in maintenance, repair and operating supplies (MRO) for the people who keep workplaces safe, efficient and functioning.”
Ryan added. “The recession challenged businesses and institutions to ‘do more with less’ and Grainger is in a unique position to help customers address this new reality as they seek to streamline their MRO purchasing processes and reduce costs. As a result, we are confident in our strategy and our ability to continue to gain additional market share. Our 2011 guidance remains unchanged since the November 17, 2010 analyst meeting where we forecasted sales growth of 5 to 9 percent and earnings per share of $7.15 to $7.90 for the full year 2011,” said Ryan.
For the 2010 fourth quarter, the company reported sales of $1.8 billion, an increase of 12 percent versus $1.6 billion in the 2009 quarter. Net earnings of $132 million increased 36 percent versus $97 million in 2009. Earnings per share of $1.83 increased 44 percent versus $1.27 in 2009. The 2010 fourth quarter included a $0.04 per share benefit from the change in the paid time off policy. Excluding this unusual item, net earnings increased 34 percent and earnings per share were up 41 percent in the fourth quarter of 2010 versus the 2009 quarter.
The 2010 fourth quarter had 1 less selling day than the 2009 fourth quarter; 63 days compared with 64 a year ago. Company sales for the quarter increased 12 percent, 14 percent on a daily basis, versus the 2009 quarter. Daily sales increased 11 percent in October, 14 percent in November and 16 percent in December. Oil spill-related sales contributed 2 and 3 percentage points to November and December daily sales, respectively. The 14 percent daily increase for the quarter included a 9 percentage point contribution from volume and a 2 percentage point benefit from oil spill-related sales. Price, acquisitions and foreign exchange each contributed 1 percentage point to the daily sales growth for the quarter.
Company operating earnings of $211 million increased 28 percent in the quarter versus $165 million in the fourth quarter of 2009. Excluding the benefit from the paid time off policy change, operating earnings increased 25 percent versus the prior year. The improvement in operating earnings was primarily the result of positive expense leverage from the 12 percent sales growth combined with some large expenses in the 2009 fourth quarter that did not repeat in 2010. The 2009 quarter included $9 million or $0.07 per share in asset impairment charges and $7.5 million or $0.05 per share in severance costs.
The company has two reportable business segments, the United States and Canada, which represent approximately 95 percent of total year company sales. The remaining operating units (Japan, Mexico, India, Colombia, China, Puerto Rico and Panama) are included in Other Businesses and are not considered a reportable segment.
United States
Sales for the United States segment increased 9 percent, 11 percent on a daily basis, in the 2010 fourth quarter versus the prior year. Daily sales were up 8 percent in October, up 10 percent in November and up 14 percent in December. The sales growth acceleration in the quarter was primarily the result of oil spill-related sales that contributed 1, 2 and 3 percentage points to October, November and December, respectively. The 11 percent daily sales growth for the quarter was driven primarily by 7 percent volume growth. In addition, sales of products related to the oil spill clean up contributed 2 percentage points in the quarter. Price and higher sales of seasonal products each added 1 percentage point to daily sales growth for the quarter. All customer end markets wi thin the United States posted sales growth versus the 2009 fourth quarter, led by strong increases in the reseller and manufacturing customer end markets.
Gross profit margins in the United States increased 30 basis points, primarily the result of price increases exceeding product cost increases. The improvement in gross profit margin was partially offset by negative selling mix driven by strong growth to larger customers and higher sales of non-catalog products sourced for the oil spill clean up.
Quarterly operating earnings in the United States were up 24 percent versus the prior year, and up 22 percent excluding the change in the paid time off policy. The strong growth in operating earnings was primarily driven by the 9 percent sales growth and positive expense leverage. Operating expenses increased 3 percent on a reported basis, 4 percent after excluding the benefit for the paid time off policy change. Operating expenses in the 2009 fourth quarter included both severance and asset impairment charges, that did not repeat in the 2010 fourth quarter.
Canada
Sales for the Acklands-Grainger business in Canada increased 20 percent, 15 percent in local currency, for the quarter. On a daily basis, sales were up 22 percent in U.S. dollars and 17 percent in local currency versus the 2009 fourth quarter. Strong volume growth during the quarter contributed 12 percentage points to the sales increase, while acquisitions completed during the last 12 months contributed an additional 5 percentage points. Daily sales were up 16 percent in October, up 23 percent in November and up 12 percent in December. The sales increase for the quarter in Canada was led by strong growth to customers in the heavy manufacturing, forestry, mining, and oil and gas sectors of the economy, partially offset by a decline in sales to the government.
Operating earnings in Canada decreased 32 percent in the 2010 fourth quarter and were down 35 percent in local currency. Gross profit margins in Canada were down 300 basis points due to unfavorable customer mix, related to strong sales growth to large customers, and difficult comparisons with the 2009 fourth quarter that included a large year-end inventory pick up. The operating earnings decline was also due to a 27 percent increase in operating expenses, 22 percent in local currency, driven by an increase in commissions and bonuses on higher sales and increased volume-related headcount. In addition, incremental costs for a distribution center opened in the 2010 second quarter and expenses related to acquisitions made during the last 12 months also contributed to the increase in operating expenses.
Other Businesses
Sales for the Other Businesses, which now include operations in Japan, Mexico, India, Colombia, China, Puerto Rico and Panama, were up 48 percent on a daily basis for the 2010 fourth quarter versus prior year. This strong sales increase was due to the incremental sales from the Colombian business acquired in June 2010, combined with solid revenue growth from all the other international businesses.
Operating earnings for the Other Businesses were $5 million for the 2010 fourth quarter compared to a $3 million loss a year ago. This improvement was the result of stronger operating performance for all the businesses in the group, led by Mexico and Japan.
Other
Interest expense, net of interest income, was $1.6 million versus $1.7 million in the 2009 fourth quarter. The effective tax rate was 36.6 percent and 40.6 percent in the 2010 and 2009 fourth quarters, respectively. The lower tax rate in the 2010 fourth quarter was primarily driven by tax credits and incentives in various states. The 2009 fourth quarter tax rate included the effect of a one-time tax expense resulting from tax law changes in Mexico. Excluding these items, the effective tax rate for both quarters was 39.1 percent. For the year, the effective tax rate was 39.8 percent and 39.1 percent in 2010 and 2009, respectively. In addition to the tax rate benefit in the 2010 fourth quarter, the company recognized tax expense related to the U.S. healthcare legislation passed in the 2010 first quarter.& #160; Excluding unusual items in both years, the effective tax rate was 39.1 percent in 2010 and 2009.
Cash Flow
Operating cash flow was $104 million versus $223 million in the 2009 fourth quarter. For the full year, the company generated $596 million in operating cash flow versus $732 million in 2009. The year-over-year declines in operating cash flows for the quarter and year were primarily due to increases in accounts receivable and inventory tied to the strong sales growth reported for both periods. The company used cash from operations to fund capital expenditures of $56 million in the quarter versus $53 million in the fourth quarter of 2009. Capital expenditures for the year were $128 million versus $142 million in 2009. In the 2010 fourth quarter, the company paid dividends of $38 million. Dividends paid for the full year totaled $152 million. In addition, Grainger bought back 4.6 million shares of stock in 2010, and has approximately 8.1 million shares remaining under the current repurchase authorization. In total, Grainger returned $657 million in cash to shareholders in the form of dividends and share repurchases in 2010.
W.W. Grainger, Inc. with 2010 sales of $7.2 billion is North America’s leading broad line supplier of maintenance, repair and operating products with an expanding presence in Asia and Latin America.
Visit www.grainger.com/investor to view information about the company, including a history of daily sales by segment and a podcast regarding 2010 fourth quarter results.
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 “2011 guidance”, “continue”, “forecasted”, “gain additional market share” 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, c ontaining a discussion of the company’s business and various factors that may affect it.
Contacts: | |
| Media: | Investors: |
| Jan Tratnik | Laura Brown |
Director, Corporate Communications and Public Affairs | Senior Vice President, Communications and Investor Relations |
| 847/535-4339 | 847/535-0409 |
| | |
| Erin Ptacek | William Chapman |
| Director, Corporate Brand & Reputation | Director, Investor Relations |
| 847/535-1543 | 847/535-0881 |
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(In thousands, except for per share amounts)
| | | Three Months Ended December 31, | | | Twelve Months Ended December 31, | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| Net sales | | $ | 1,826,696 | | | $ | 1,633,815 | | | $ | 7,182,158 | | | $ | 6,221,991 | |
| Cost of merchandise sold | | | 1,063,564 | | | | 949,617 | | | | 4,176,474 | | | | 3,623,465 | |
| Gross profit | | | 763,132 | | | | 684,198 | | | | 3,005,684 | | | | 2,598,526 | |
| | | | | | | | | | | | | | | | | |
| Warehousing, marketing and administrative expenses | | | 551,730 | | | | 518,837 | | | | 2,145,209 | | | | 1,933,302 | |
| Operating earnings | | | 211,402 | | | | 165,361 | | | | 860,475 | | | | 665,224 | |
| | | | | | | | | | | | | | | | | |
| Other income and (expense) | | | | | | | | | | | | | | | | |
| Interest income | | | 370 | | | | 310 | | | | 1,215 | | | | 1,358 | |
| Interest expense | | | (1,983 | ) | | | (2,032 | ) | | | (8,187 | ) | | | (8,766 | ) |
| Equity in net income (loss) of unconsolidated entities | | | 75 | | | | 136 | | | | (182 | ) | | | 1,497 | |
| Gain on previously held equity interest - net | | | – | | | | – | | | | – | | | | 47,343 | |
| Other non-operating income (expense) | | | 284 | | | | 48 | | | | 457 | | | | 681 | |
| Total other income and (expense) | | | (1,254 | ) | | | (1,538 | ) | | | (6,697 | ) | | | 42,113 | |
| | | | | | | | | | | | | | | | | |
| Earnings before income taxes | | | 210,148 | | | | 163,823 | | | | 853,778 | | | | 707,337 | |
| | | | | | | | | | | | | | | | | |
| Income taxes | | | 76,947 | | | | 66,459 | | | | 340,196 | | | | 276,565 | |
| | | | | | | | | | | | | | | | | |
| Net earnings | | | 133,201 | | | | 97,364 | | | | 513,582 | | | | 430,772 | |
| | | | | | | | | | | | | | | | | |
| Less: Net earnings attributable to noncontrolling interest | | | 991 | | | | 306 | | | | 2,717 | | | | 306 | |
| | | | | | | | | | | | | | | | | |
| Net earnings attributable to W.W. Grainger, Inc. | | $ | 132,210 | | | $ | 97,058 | | | $ | 510,865 | | | $ | 430,466 | |
| | | | | | | | | | | | | | | | | |
Earnings per share -Basic | | $ | 1.87 | | | $ | 1.29 | | | $ | 7.05 | | | $ | 5.70 | |
| -Diluted | | $ | 1.83 | | | $ | 1.27 | | | $ | 6.93 | | | $ | 5.62 | |
| | | | | | | | | | | | | | | | | |
Average number of shares outstanding -Basic | | | 69,205 | | | | 73,398 | | | | 70,837 | | | | 73,786 | |
| -Diluted | | | 70,648 | | | | 74,660 | | | | 72,139 | | | | 74,892 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Diluted Earnings Per Share | | | | | | | | | | | | | | | | |
| Net Earnings as reported | | $ | 132,210 | | | $ | 97,058 | | | $ | 510,865 | | | $ | 430,466 | |
| Less: earnings allocated to participating securities | | | (3,000 | ) | | | (2,249 | ) | | | (11,294 | ) | | | (9,947 | ) |
| Net earnings available to common shareholders | | $ | 129,210 | | | $ | 94,809 | | | $ | 499,571 | | | $ | 420,519 | |
| | | | | | | | | | | | | | | | | |
| Weighted average shares adjusted for dilutive securities | | | 70,648 | | | | 74,660 | | | | 72,139 | | | | 74,892 | |
| Diluted earnings per share | | $ | 1.83 | | | $ | 1.27 | | | $ | 6.93 | | | $ | 5.62 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
SEGMENT RESULTS (Unaudited)
(In thousands of dollars, except for per share amounts)
| | | | | | | | | | | | | |
| | | Three Months Ended December 31, | | | Twelve Months Ended December 31, | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| Sales | | | | | | | | | | | | |
| United States | | $ | 1,506,446 | | | $ | 1,384,282 | | | $ | 6,020,069 | | | $ | 5,445,390 | |
| Canada | | | 216,788 | | | | 180,385 | | | | 820,941 | | | | 651,166 | |
| Other Businesses | | | 116,279 | | | | 79,717 | | | | 389,621 | | | | 165,051 | |
| Intersegment sales | | | (12,817 | ) | | | (10,569 | ) | | | (48,473 | ) | | | (39,616 | ) |
| Net sales to external customers | | $ | 1,826,696 | | | $ | 1,633,815 | | | $ | 7,182,158 | | | $ | 6,221,991 | |
| | | | | | | | | | | | | | | | | |
| Operating earnings | | | | | | | | | | | | | | | | |
| United States | | $ | 224,777 | | | $ | 181,429 | | | $ | 920,222 | | | $ | 735,586 | |
| Canada | | | 13,302 | | | | 19,687 | | | | 46,836 | | | | 43,742 | |
| Other Businesses | | | 5,397 | | | | (3,458 | ) | | | 11,661 | | | | (11,634 | ) |
| Unallocated expense | | | (32,074 | ) | | | (32,297 | ) | | | (118,244 | ) | | | (102,470 | ) |
| Operating earnings | | $ | 211,402 | | | $ | 165,361 | | | $ | 860,475 | | | $ | 665,224 | |
| | | | | | | | | | | | | | | | | |
| Company operating margin | | | 11.6 | % | | | 10.1 | % | | | 12.0 | % | | | 10.7 | % |
| ROIC* for Company | | | | | | | | | | | 29.8 | % | | | 24.9 | % |
| ROIC* for United States | | | | | | | | | | | 42.9 | % | | | 34.8 | % |
| ROIC* for Canada | | | | | | | | | | | 10.7 | % | | | 11.5 | % |
| * See page 1 for a definition of ROIC | |
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
Preliminary
(In thousands of dollars)
| | | At December 31, |
| Assets | | 2010 | | | 2009 |
| Cash and cash equivalents (1) | | $ | 313,454 | | | $ | 459,871 | |
| Accounts receivable – net (2) | | | 762,895 | | | | 624,910 | |
| Inventories | | | 991,577 | | | | 889,679 | |
| Prepaid expenses and other assets | | | 125,518 | | | | 115,032 | |
| Deferred income taxes | | | 44,627 | | | | 42,023 | |
Total current assets | | | 2,238,071 | | | | 2,131,515 | |
| Property, buildings and equipment – net | | | 963,672 | | | | 953,271 | |
| Deferred income taxes | | | 87,244 | | | | 79,472 | |
| Investment in unconsolidated entities | | | 3,461 | | | | 3,508 | |
| Goodwill (3) | | | 387,232 | | | | 351,182 | |
| Other assets and intangibles – net (3) | | | 224,697 | | | | 207,384 | |
Total assets | | $ | 3,904,377 | | | $ | 3,726,332 | |
| | | | | | | | | |
| Liabilities and Shareholders’ Equity | | | | | | | | |
| Short-term debt | | $ | 42,769 | | | $ | 34,780 | |
| Current maturities of long-term debt | | | 31,059 | | | | 53,128 | |
| Trade accounts payable (4) | | | 344,295 | | | | 300,791 | |
| Accrued compensation and benefits | | | 169,343 | | | | 135,323 | |
| Accrued contributions to employees’ profit sharing plans | | | 145,119 | | | | 121,895 | |
| Accrued expenses | | | 130,836 | | | | 124,150 | |
| Income taxes payable | | | 5,882 | | | | 6,732 | |
Total current liabilities | | | 869,303 | | | | 776,799 | |
| Long-term debt | | | 426,262 | | | | 437,500 | |
| Deferred income taxes and tax uncertainties | | | 76,686 | | | | 62,215 | |
| Accrued employment-related benefits | | | 244,455 | | | | 222,619 | |
| Shareholders' equity (5) | | | 2,287,671 | | | | 2,227,199 | |
Total liabilities and shareholders’ equity | | $ | 3,904,377 | | | $ | 3,726,332 | |
| (1) | Cash and cash equivalents decreased $146 million, or 32%, due primarily to cash paid for acquisitions, share repurchases and dividends during the past 12 months. |
| (2) | Accounts receivable increased $138 million, or 22%, due primarily to higher sales. |
| (3) | Goodwill and other assets and intangibles increased $53 million, or 10%, due to acquisitions. |
| (4) | Trade accounts payable increased $44 million, or 14%, due primarily to higher inventory purchases driven by higher sales volumes. |
| (5) | Common stock outstanding as of December 31, 2010 was 69,377,802 shares as compared with 72,276,516 shares at December 31, 2009. |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Preliminary
(In thousands of dollars)
| | | Twelve Months Ended Dec. 31, | |
| | | 2010 | | | 2009 | |
| Cash flows from operating activities: | | | | | | |
Net earnings | | $ | 513,582 | | | $ | 430,772 | |
Provision for losses on accounts receivable | | | 6,718 | | | | 10,748 | |
Deferred income taxes and tax uncertainties | | | (5,553 | ) | | | 21,683 | |
Depreciation and amortization | | | 149,678 | | | | 147,531 | |
(Gain) on previously held interests | | | – | | | | (47,343 | ) |
Stock-based compensation | | | 47,221 | | | | 40,407 | |
Change in operating assets and liabilities – net of business acquisitions | | | | | | | | |
Accounts receivable | | | (127,790 | ) | | | 2,794 | |
Inventories | | | (80,545 | ) | | | 175,286 | |
Prepaid expenses and other assets | | | (8,806 | ) | | | (11,180 | ) |
Trade accounts payable | | | 36,219 | | | | (16,736 | ) |
Other current liabilities | | | 49,576 | | | | (52,944 | ) |
Current income taxes payable | | | (1,503 | ) | | | 2,472 | |
Accrued employment-related benefits cost | | | 18,128 | | | | 22,080 | |
Other – net | | | (480 | ) | | | 6,826 | |
Net cash provided by operating activities | | | 596,445 | | | | 732,396 | |
| Cash flows from investing activities: | | | | | | | | |
Additions to property, buildings and equipment – net | | | (120,616 | ) | | | (140,730 | ) |
Net cash paid for business acquisitions, and other investments | | | (48,543 | ) | | | (121,833 | ) |
Net cash used in investing activities | | | (169,159 | ) | | | (262,563 | ) |
| Cash flows from financing activities: | | | | | | | | |
Net increase in short-term debt | | | 5,498 | | | | 2,542 | |
Net decrease in long-term debt | | | (39,122 | ) | | | (18,856 | ) |
Stock options exercised | | | 86,528 | | | | 91,165 | |
Excess tax benefits from stock-based compensation | | | 25,650 | | | | 19,030 | |
Purchase of treasury stock | | | (504,803 | ) | | | (372,727 | ) |
Cash dividends paid | | | (152,338 | ) | | | (134,684 | ) |
Net cash (used in) financing activities | | | (578,587 | ) | | | (413,530 | ) |
| Exchange rate effect on cash and cash equivalents | | | 4,884 | | | | 7,278 | |
| Net (decrease) increase in cash and cash equivalents | | | (146,417 | ) | | | 63,581 | |
| Cash and cash equivalents at beginning of year | | | 459,871 | | | | 396,290 | |
| Cash and cash equivalents at end of period | | $ | 313,454 | | | $ | 459,871 | |
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