GWW - Earnings call transcript Q2 2024

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Operator

Greetings. Welcome to W.W. Grainger Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to Kyle Bland, Vice President of Investor Relations. you. Thank

begin. may You

Kyle Bland

to Quarter Welcome Call. Grainger's morning. Earnings Second Good

CEO; MacPherson, Merriwether, With D.G. and and CFO. me are and Chairman Dee President Senior Vice

a include today subject our some various statements to uncertainties. that are As may and risks reminder, of forward-looking comments

could that most materially the company's actual results Form SEC. filed with X-K and factors is regarding to in included information cause Additional reports the recent differ other periodic

adjusted a constant subsidiary, of daily our of also end results which was growth included morning's restructuring divestiture for to sales Industrial second This the organic on which metric materials call the within XXXX. these XXXX, million E&R focus quarter the sold sales for that normalize in at exclude currency incurred of the $XX remember we pretax will costs of Please the quarter. have

our and GAAP at Definitions their end presentation with any reconciliations the and our which tables IR in in this release, full financial this the website. other measures non-GAAP are available of earnings measures of both on found of are corresponding and

will our arrears. to GAAP, remember is a in MonotaRO was from month one followed MonotaRO. company which and share related and We that public U.S. Japanese reported Please GAAP, results in results also differs

As statements. from the disclosed MonotaRO's a result, will differ numbers public

Now, D.G. turn I'll it over to

Donald Macpherson

morning, Good joining the call. you Kyle. and Thanks, for thank

to up our transaction. customers, for As we flawless pass the on the midpoint of each XXXX, show way team providing I'm proud of continues the experience a

living the tangible for so, creating consistently outlined our are doing partner we Edge each members team trusted in day. value the a Our principles by Grainger become and customers,

simplifying purchasing space, and our are for Complicated we high-cost common in our of time examples best their the processes of One that value customers' and create customers processes. by purchasing money. our wasting is the

approvals by to in necessary maximize the and assisting Fortunately, customers benefits. well the this solution, digital up to help choosing workflows providing them setting systems and right equipped challenge solve we are training

managers their in multiyear ePro connect worked identified team nearly agreement, able customer our national process the notably EDI one processing engage help with opportunities systems, transactions hundred the Grainger. annual to channel, PO their of on of account meet customer to streamlining thousand our could helping enterprise-wide several procurement our customers' we move to who the to most negotiations platform their consolidate integration to during Together, a orders, were team Recently, internal in all a where goals, training, driving MRO and costs purchasing digital through dollars savings. them and lower improvement

with customer. These process improvements engagement this broader are part a of

levels to meet to and operations, of further We our the drive help example their drive them where team cost. is and needs them standardization, understand inventory and saving product lower time tailor our customers' one reduce also money. works This many just solutions

in delivered amidst performance. reported a up sales our remained another growth on second both currency Moving quarter with delivered tangible slow, organic on environment. solid resulting our generally for engines stable from constant positive demand of value a We and segments. quarter focused High-Touch contributions were the daily quarter X.X% X.X% results Solutions on we segment, our to yet solid another customers, Total In company or of performance. basis,

and customers business, Assortment repeat initiatives. to new rates Endless focus these on we with and paying is gaining progress increasing our purchase the make off, Within continue

as up but year. $X.XX, at operating finished the versus basis total standpoint, company EPS profitability margin versus XX.X% the points anticipated, XX was a prior down of prior From remained strong, X.X% year. quarter

share to shareholders things focused we through and customer business dividends remained XX.X% to cash operating the stay we as Overall, achieved flow perform us million the of in the $XXX quarter, ROIC of the repurchases. and healthy return continues a P&L, allowing on and to the Beyond that total well matter. Grainger's

expected, earnings as this, yen range, of largely in our is pockets further trimmed end which bit. headwinds. the we've as and XXXX With top demand playing continued guidance in U.S. the devaluation out stops Dee remain of While discuss a will

Now Dee. I'll turn to it over

Deidra Merriwether

D.G. Thank you,

X. Slide to Turning

can results basis. X.X% softness company, high-level largely second quarter the the on constant persistent organic anticipated, played a for quarter daily including the The total as despite see You currency mentioned. D.G. out demand growth

we Operating and Gross of demand number the ramp margins down flat delivered period. investment. SG&A In total, generation XX year points basis of generally prior we trends. the delevered up within over $X.XX diluted were as EPS X.X% or following seasonal XX were offset $X.XX, the period the points normal year-over-year, items basis margins year-over-year as for quarter our

growth largest volume the The segment gains. up markets on end were Moving contribution X.X% nearly the customers Results price reported a basis. in to geographies warehousing, all up results. U.S. by moderate In and contractors strong currency the constant and care daily X.X% driven sales with health well on were perform across a to basis customer all having organic or continues period. level specifically, High-Touch segment with Solutions on year-over-year

roughly quarter. captured was price in unfavorable several offset XXXX, finished XX For expensed from QX the the in in the margin of nonrecurring benefit of rebate the current the cost an basis the period. by year. rebate, we profit segment, points gross In lap lap prior quarter the unfavorable versus flat year at which When XX.X%, quarter, neutral tailwinds small was the excluding of roughly nonrecurring

SG&A period. within and basis live that quarter compensation count. in was increases in and profitability a actions points head like as and merit the marketing were it DC we activities Solutions online, business. April QX demand-generating lower growth came offset of productivity solid for continue delevered the Overall, went High-Touch variable Annual seller expense invest XX in by to and capacity

that netted U.S. price X%, points tailwinds business points all the Looking High-Touch in on Slide contributing XXX This outgrowth against approximately the with market, total. at and including and price, X. X.X% roughly our basis growth. estimate XXX our price growing nearly basis contribution outgrowth continued organically, comparing PPI. We volume in our was the the outgrowth when volume of contribution mathematical the to market price market quarter at includes quarter of MRO Solutions in Within between X.X% grew U.S.

said before, we headline we're reflect in the to measure market, currently seeing MRO and perfect space. where don't no way what in the we're and specific IP As completely the is PPI a metrics MRO cycle there

the With customer differences disconnects and happen from in product and our short-term time within gain mix, to calculation. market time noise share these cause external

market seeing in this it's current we target will achieve outlook Given year, mathematically XXXX. our the dislocation we're unlikely

both which points, this over dislocation to a current multiyear the normalize quite have suggest data However, ways, different and well we're History metric would and we will period believe that this know in us and remains several points relative on the on confidence performance over average. performing over internal including useful time. performance XXX we still our XXX that relative we external annually gives understand environment. in term, long to tracking will We're returns by to basis demand-generating our investments, outload continue market our strong the generating

enhancements Assortment a X.X% turning X.X%, in by communicate were delivery segment. constant up was the Zoro Sales daily and MonotaRO adjusts improved purchase growth and increased Now saw increase which a currency. driven XX.X% same-day XX.X% better BXB local repeat At currency achieving were customers mid-teens in customer to days up shipping BXB depreciated Zoro improved for level, quarter. date. rates, with which Endless on the by acquisition to local U.S. impact basis, core business or Japanese the was the who from service yen. of Performance aided

double continued low the unwind BXC year-over-year. digits from quarter down BXC like the including to dissipate Headlines business, but of remained in noncore and volumes started

We expect these to year BXC headwinds subside continue as the to progresses.

with all customers, yen foreign rates growth At from rate coupled with and exchange by enterprise continued On repeat to MonotaRO, reported sales were results pressures acquisition a strong these and as with basis, offset dollar. the the midsized weakness show against solid continued incremental were continues businesses. small purchase

basis segment points Zoro lower operating driven the and profitability, and decline MonotaRO X.X%. at customer ramps combined margins to deleverage headwinds was re-baselines BXC margins BXC gross with business for marketing by lower SG&A and On product volume. as like This investments the from XX on at mix declined

strong a should at forward. to for our above expectations. are better on relever normalize, business this the year and track volumes the Assortment, or finish in quarter, these Endless As by original progress to baseline Overall, we're the encouraged create going the

the the for of to outlook moving remainder updated XXXX. Now

at $XX When for reflect to continued and the $XX to the full most the call, softness EPS sales range we macroeconomic X% As are XXXX. the $XX.X of of the and updated year this X% translates Japanese continued billion grow market company an between between currency beginning range D.G. yen, of are reported mentioned deterioration including we persist estimates sales $XX.XX. of to and an end billion in between trimming and total now uncertainties daily top With constant as this, the organic expecting U.S. the

margin these on we're you this through based also slight changes and to first flowed As have see the the upon made performing outlook in half. can how we slide, tweaks

I is in leverage long-term that year growth measuring want power diligent a than we challenged note, Setting we can this time found cash aside, and the presentation. while flow increased softer to generate ranges, of guidance expenses expectations growing given continue our of to to sales and remain doing returns, on SG&A this committed and over track be slower including managing to our Supplemental share to have topline, so. in we repurchase share strongly ability appendix as invest the engines remain operating record gain.

On QX quarter we the second we relatively to sequential in expect the are the from puts operating second. and to from seasonality, to half profitability quarter. consistent anticipate perspective. of the margins takes compared relatively but There year, to we normal healthy and QX a earnings growth and move third when fourth remain as and the into some

for July performing of higher the the ability service preliminary of the basis. an drive the the sales roughly second sales up well total the basis external Of level of at results to the ramp month. our growth elevated organic daily currency started This X% note, will on few and have company a half July in if start to total The are final our confident of led year. As year. in last third we July. number finish in project-related in caused number the level, normalize to XXX points approximately impacted Altogether, comp constant strong in quarter, days by we're tough profitability this be company results you factors and engagement solid of

to With that, I'll pass back D.G. it

Donald Macpherson

Dee. Thanks,

to value of for career. our can ahead, know better having into but their our our our and of to have competitors team that meeting committed we creating XXXX, remain where second As and a customers' strong matters most, relies customers what fulfilling We on on members serve uncertainties are head focusing culture teams ability a half meaningful the number our businesses. than macroeconomic a needs

recently named millennials. will These well-rounded principles. best put to was culture Grainger emphasis Among that the purpose. our be several year, the workplace choice of built our employer other a recognized testament fulfill to recognitions to this we've I'm awards on living we Grainger of as are an for us help the continue because confident

starting of results great to the years achieving come. that to to I'm with will and stakeholders. all XXXX One that customer, those it's continue for we key principles, do And confident in for

with questions. that, for And we line will the open

Operator

question with from first Our Inc. Stephens Instructions] [Operator Moll Tommy is

Thomas Moll

do I do a the customers large. gain ahead High-Touch once factor? this larger other And midsize? versus how for midsized business, these the some the versus is midsized much is trends share the think of wanted is capability the function you my on digital How you start the runway what to question customers is the favorable on importance the for important level again, that customers? And to where of really, outgrew think

Donald Macpherson

Yes. Thanks, Tommy.

down the built and back to us we where ahead. help midsize people be think would midsized -- billion revenue. customer up point, significantly. most were million. with and in We and We're that reality customer runway assets long the believe product The and $XXX know think to of the we there's digital We, to is capabilities share information outgrowth were. $X at almost think close most -- story. I the all I got gain. We built We the one customers in growth that a we've

really, at through we're digital capabilities, doing a think And start you they their we with so look it's to buy, channel. build digital lot what and of relationships those how them when main that's customers

Thomas Moll

is slated inflation and update than I'm last realization. just quarter, price referenced talked how curious Shifting of land stickier price the still gears. actions you'll about May. for do being you in corrective D.G., expected think some for this early an cost by year? neutrality And there, end you

Donald Macpherson

at -- end little the year, price the X about we land We as neutrality expected. price by Yes. realization beginning Yes. on the year, of were in realization We the been May do price believe increases. talked actions on of of cost the the bit behind pricing we'll basically have the a

up And as year We remains are that making profit progresses. the some of notably, strong. gross

not So the ending year as we we expect. are about concerned

Operator

Our Dave Manthey Baird. next question is with from

David Manthey

up again, You comments it, X into may mentioned did you have sales I daily apologize average sort far? we there July so all can year? X mentioned Is make to this, after that? trends And running of but but read any X anything you if on in the June

Deidra Merriwether

Yes.

On noted the reported that is around remarks, rolling we July preliminarily, X%. up

that recall, north if project-related last had revenue we X% some -- July. for service would you believe us of -- outside normalize put However, project-related you we if year, for revenue service would that

Donald Macpherson

daily don't June, concerned and there's noise. -- would at differences say actually think July, would I necessarily that nothing I rates, other Dave, than that we anything, probably would We just say there's that I think look noise. the us run we aren't cause about are that, that

David Manthey

update And there on medium makes is operations international what distraction, Could sense. don't term? I million $XXX overall know targeting you the know. us I Yes, small, then international maybe other we're a other you're profitability, drag and on but talking

Deidra Merriwether

charges Yes. recall, profitability. results towards year, in is they The of if other profitability this see working Cromwell And majority exited that continue and you has business But year. Cromwell our some the the plus been profitable year to they other. last

has expect customer for the to some end quarter, we this market but an a we year had doing as with to have in of related is last business and Brexit our delayed the a And important of margin And some some like X market Now of them U.K. years profitable feel plans mix, little this outgrown well. they bit challenge couple well that we in with that that and feel is gross -- But just of us. over we other -- last challenges the business. quarters. really kind the strategic

Operator

Our is next William Blair. from Merkel Ryan with question

Ryan Merkel

I What color any Or increases? was And and you wanted the 'XX May Was that specific do that you to on the across now? pricing. go on to back board? for expect can provide September products? more

Donald Macpherson

want say shooting is to that I'd sure to follow competitively, priced what guess sure time, I we're So for we we make price/cost over and we we want X tenets, neutrality. make are that

that do will we year. think I this

this be price increases will Our year overall. modest

modest making that X aggregate, to and But be are year. May beginning adjustments be and in will the X both overall talked increases the cost. cost adjustments range at X% Our on meaningful. those September product about roughly we aren't we at expect In we that of would

Deidra Merriwether

X or X.

Ryan Merkel

it. factors that? just then that macro, caused just things the hearing outlook? second the out drove would Got And that rank any from you the D.G., back That's what lower to or point half to helpful. you And are about Okay. generally, customers the maybe you

Donald Macpherson

Yes.

of it's though, There pretty there's not we're but demand environment, certain had I that be -- automotive, just I there into case. too have other. of pockets been many details certainly, of significant those, and of year, lot is panic. sort what general have challenges pockets think It's are pockets look I won't weakness that slow. industries of are this to that significant if get continues is some a everybody you at there seeing the the what of are strength. seeing, think consistent, And pockets about

volume I now. in this roughly our We year in to down like would that, and we expect going -- be probably something thinking market, flat think came it's that be X

that's -- probably in what projections. the have we probably given change seen, So biggest that's our we've

Operator

is Levinson Research. question next from Melius Jacob with Our

Jacob Levinson

where something look to I a there loop you actually not. environment? and macro investment, or demand you accelerator dependent, up know not feedback where would tight if a really that push the sort you -- it guys is Or in of understanding But that the is On spend to will? have marketing swappier flex to

Donald Macpherson

time. run way we -- tests we spend. all And the us the at guides So to on that how marketing, look we much measure

different spending. we could how that through certain that change margin changed, that change So you in the to tests expect. that's a that expect going about environment, to give we think that's of return those general, in levels not -- none results. might I to us macro spending argue time. and We're wouldn't But And show

Jacob Levinson

cycle? you're utilization sense. in your what distribution rates understand just are maybe Okay. that well give that help where I know in And few a look pretty That you us makes then Can like investments your making, just the of network. today ago. Analyst that's the just on us been Day you maybe back at a And sense telegraphed years

Donald Macpherson

the We pandemic a probably things. think -- we network bit say. We in the I'd we and actually anything were pretty I XXXX. materials Yes. build difficult talked during is finished We're behind. get was It to -- about to busy, this -- probably

We of X year will new in by shell the year. this the receiving the in put and the is we of have Northwest, and -- that start end we next some up the bulk have remedied building building shipping warehouses, situation, we've start of

We now, going is well. that but have go that's just up Houston building land in a to as

So announced now, bulge say that probably would I X about finish capital be and those those X X then next the we year we've we biggest would those we talked expect as buildings right expected the shape changed buildings. project out probably after in that. in and and we exactly normal more be been just of has any to from a and being on capacity little we executed times that timing haven't that perspective. But bit plan better would as

Operator

Capital from with Dray RBC Deane is question next Our Markets.

Jeffrey Reive

peers quarter. I there My may organic created winning Jeff the on to stumbles if you're be know recently. opportunity an is pretty question Reive one do nice for some e-commerce this on so? Assortment Endless share first your if that of is had or Curious This growth Deane. segment,

Donald Macpherson

I us Zoro any happens wouldn't big to quite necessarily specific what market in. competitor. in tag the -- The to plays that U.S. is

is better with repeat at much also getting better to this been year. gotten think able we've I we've and what's happened get better us rates, acquisition

have to competitor. focus any better, things So I it the but X gone we wouldn't tag on

Jeffrey Reive

it. high And Got guidance, then end. the kind on the just of turning

you of devaluation. out think the weaker and called macro I kind yen

percentage of about those we of had buckets, kind to a how kind If think you should peg of it? to each

Deidra Merriwether

Can to make sure you around following I'm trying repeat I'm your question that? guidance.

Jeffrey Reive

Yes. Yes.

of then of is combination to kind just and the Is guidance yen? it's So more it kind one basically macro, macro behind was the the weaker of and you the reasons point you curious I yen percentage of trimmed if could kind give a out, called each a -- to the it devaluation. a guidance. of more also trimming into

Deidra Merriwether

Okay.

so So more macro, macro probably probably and X/X X/X yen.

Operator

from with question next Glynn Oppenheimer. Our is Christopher

Christopher Glynn

warehousing you for contract pretty XX, HTS just and about a Slide curious other else and single Just show flat, Was with balance the double-digit remarkable really of categories, there couple the across digits. and high everything up. verticals are up then

other I macro. a incongruous think a those sectors little of but bag, general bit is with seem numbers a for grab those

So you curious opine there. if could

Donald Macpherson

I for contractors, small. a pretty make that point also I'd particular, Yes. so we're mean in

So with a we start pretty small base.

that's So year read fair. in some comparisons sure that customers to be some broader positive compare now to those too I'm into to going are with last on market. can Warehousing, not just much wouldn't the I you that. that that right driving what's there's

of have the that then in-year fairly sort we're of some you are unusual that think little segments across consistently performing them. into I a impacts and

Christopher Glynn

there Could on back margins. mid-teens we of kind get is an margins? want the on the we single-digit there to BXB, get target should low to question Zoro. but the is update -- How to margins? revisit second for then to gen Clearly, well demand just path very And to going maybe path Okay.

Donald Macpherson

given fourth to -- to going think seeing. SG&A better we're was is able probably leverage say that of We point, rates consistently, last year. be on, last it would I What and the now growth from low Yes. we as end quarter was probably move we're get forward we'll get

this and will year So well. it the through as year think to half start into next of get we better back

very not improved going consistent start And we'll fast. going rise. margins terms confident into to so getting we're It's the pretty business. of It's the be to in that be

Operator

question is next Baumann Patrick Our with from JPMorgan.

Patrick Baumann

impacting the line back maybe Dee. factors growth to that And quarter, July sequential for rate. you but of about the a third end second ramp my talk the month out. and one Quick the Can you toward quarter external growth mentioned something cut the you mentioned from about

if were on wondering just you saying you could what So that. rehash

Deidra Merriwether

then the month, a is Yes. prior Well, impacts if number There were this July, we talking we was holiday in impacted was of was favor. also you're a a lot that things There in the quarter, customers little happened. weather-related there that softness. as lot about our just same a July happened you number When a well-known right? some just time. that U.S. month at not of look started the now started of of slow. didn't go our This IT because unique a outage There people really it cover the some general And around and

last really really really, is news the of for month been us. has the week measure. was good -- I'll to hard strong say the So

is that so sign. And good a

were we some impacts on basis. noted the those of go-forward So a that

am this think sequentially. the next I asking like sales, I the quarter to correct, from Sequential you're next. question

reasonably and of then just topline about. expecting other then I -- the at through relates as to perspective, the from profitability look QX sequential we to talked consistent be that you expect that some perspective, to growth revenue from number it If quarter. we're metrics QX from And our that a a fourth sequential

We we be year. and expect balance also takes relatively of and to the but remain EPS some to margins through There's profitability. there, the operating going consistent puts anticipate

Patrick Baumann

quarter? to Was -- is there Is restructuring? was kind what of quarter? of what kind more talk restructuring And terms from the did And then the of just Or was in did it just it? the it come expected missed, isolated may the in Okay. I second benefit have but you you to about the it?

Deidra Merriwether

Sure.

the have those As could long-term of share that to we sure sure for about some continue productivity A we've paying that making in that ensure gain. we're making of invest investments part to is actions. through we talked cycle that

focused entire can And so looking on drive productivity. really improvement at and our continuous is business how we

those focused So quite see the actions actions a that both happened and on onetime specific team as were members U.S. a a of voluntary incident. bit. with and We lot in internationally that

is those in continue However, are longer things, And continue gaining expenses, expect the doing term. generating -- improvement invest we that scale we our cycle in our to we generation. through focus demand on on we non-demand continuous to as and

Operator

end We over I have reached like D.G. of question-and-answer to would our session. the to for turn back the conference remarks. closing

Donald Macpherson

All feel invest joining of But said, the be build to just to a on better productivity make we It normal. busy as capabilities must right. as That's And serve driving get you many Dee -- at We're doing critical we're good day We as also that I joining. long-term in absolutely things didn't continue the reiterate we're appreciate the need because core success. focused, through are we're really where we is going to sure at. on. Thanks us. for we time focused our we customers that business. both can questions for than about those we that really competitors. to what And same I would our think

rest Thanks your call. summer, our you I for and So hope enjoy of the joining thanks.

Operator

conference. conclude will Thank you. This today's

at for lines your You thank you and your may participation. time, disconnect this

W.W. Grainger (GWW) 1 Aug 242024 Q2 Earnings call transcript