Grainger Reports Results For The Second Quarter 2021

CHICAGO, July 30, 2021 /PRNewswire/ —

Second Quarter Highlights

  • Delivered sales of $3.2 billion, up 13.1%, compared to the second quarter of 2020; up 15.0% on an organic, daily, constant currency basis
  • Generated $269 million in operating cash flow and returned $203 million to shareholders through dividends and share repurchases
  • Earned 2021 Great Place to Work® Certification™

/PRNewswire/ — Grainger (NYSE: GWW) today reported results for the second quarter 2021 with sales of $3.2 billion, up 13.1% and up 15.0% on an organic, daily, constant currency basis compared to the second quarter 2020. Both the High-Touch Solutions N.A. and Endless Assortment segments produced strong top-line growth.

“Grainger is uniquely positioned to navigate one of the most challenging supply chain environments in recent history, with labor shortages, material shortages and transportation challenges. I am proud of how the Grainger team has remained committed to our operating principles, served customers well during this period and delivered strong top-line growth,” said DG Macpherson, Chairman and Chief Executive Officer. “As more of the U.S. became vaccinated, and mask mandates were relaxed earlier than expected, demand for pandemic products stalled, resulting in further inventory adjustments and a negative impact to gross profit margin. Excluding these adjustments, our underlying gross profit margin has improved as customer demand has returned to a more normal mix. We remain confident in our ability to achieve full year financial results within our guidance range.”

2021 Second Quarter Financial Summary

($ in millions)

Q2 2021

Q2 2020

Q2

Fav. (Unfav.) vs. Prior


Reported

Adjusted1

Reported

Adjusted1

Reported

Adjusted1

Net Sales

$3,207

$3,207

$2,837

$2,837

13%

13%

Gross Profit

$1,124

$1,124

$1,016

$1,016

11%

11%

Operating Earnings

$334

$334

$205

$315

62%

6%

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

$225

$225

$114

$204

98%

11%

Diluted Earnings Per Share

$4.27

$4.27

$2.10

$3.75

103%

14%








Gross Margin

35.0%

35.0%

35.8%

35.8%

(75) bps

(75) bps

Operating Margin

10.4%

10.4%

7.3%

11.1%

315 bps

(70) bps

Tax Rate

23.6%

23.6%

30.2%

25.8%

660 bps

220 bps

1)

Results exclude restructuring and income tax items as shown in the supplemental information of this release. Reconciliations of the adjusted measures reflected in this table to the most directly comparable GAAP measures are provided in the supplemental information of this release. During the second quarter of 2020, the company recorded a $109 million pretax loss from the sale of the Fabory business which was the largest contributor to the decline in reported operating earnings.

Revenue

Daily sales for the quarter increased 13.1% as compared to the second quarter of 2020 with the same number of selling days. On an organic, constant currency basis, which excludes revenues from the divested Fabory and China businesses from the prior year results, daily sales increased 15.0% as compared to the second quarter of 2020. Foreign exchange contributed a 0.9% favorable impact during the second quarter of 2021 compared to the second quarter of 2020.

In the High-Touch Solutions N.A. segment, sales were up 13.7% on a daily basis versus the prior year second quarter due primarily to a strong recovery in non-pandemic product growth. In the Endless Assortment segment, daily sales growth was up 23.0% versus the second quarter of 2020 from strong customer acquisition in both Zoro U.S. and MonotaRO.     

Gross Margin

Gross margin for the second quarter of 2021 was 35.0%, a 75 basis point decline over the prior year quarter driven by pandemic-related inventory adjustments recorded in the High-Touch Solutions N.A. segment. Early in the pandemic, the Company purchased a wide range of products to meet customer needs, but as the pandemic evolved, demand for certain pandemic products weakened and market prices lowered. During the second quarter of 2021, mask demand declined abruptly when most local and federal mask mandates were lifted in mid-May of 2021, earlier than the previously expected re-openings. This change, along with vaccine availability and general economic recovery, resulted in the Company recording inventory adjustments totaling $63 million. It does not expect any further material pandemic-related inventory adjustments. Excluding these adjustments, gross margin for the total company would have been 37.0%, up 120 basis points compared to the second quarter of 2020.

The Endless Assortment segment continued to show positive gross margin trends, expanding by 75 basis points versus the prior year second quarter and growing gross profit dollars 26% in the second quarter of 2021. 

Earnings

Reported operating earnings for the second quarter of 2021 of $334 million were up 62% versus the second quarter of 2020, primarily due to losses taken in the second quarter of 2020 related to the divested Fabory business. On an adjusted basis, operating earnings for the quarter were $334 million, up 6% versus the second quarter of 2020.

In the second quarter of 2021, reported operating margin of 10.4% increased 315 basis points, driven by the $109 million pretax loss recorded on the sale of Fabory in the second quarter of 2020. On an adjusted basis, operating margin decreased 70 basis points versus the second quarter of 2020 driven primarily by the decline in gross profit margin, as SG&A leverage remained nearly flat year over year.

Reported earnings per share of $4.27 in the second quarter of 2021 increased 103% versus the second quarter of 2020. Adjusted earnings per share for the quarter of $4.27 increased 14% versus the second quarter of 2020. The increase in earnings per share was due primarily to higher operating earnings and lower average shares outstanding in the current period.

Tax Rate

The second quarter 2021 reported tax rate was 23.6% versus 30.2% in the second quarter of 2020; the adjusted tax rates were 23.6% and 25.8% for the second quarter of 2021 and 2020, respectively. The variance in the reported tax rates resulted from the prior year unfavorable impacts of the Fabory divestiture. Additionally, for both the reported and adjusted tax rates, the second quarter of 2021 included a larger benefit from stock-based compensation as compared to the prior year.

Cash Flow

Net cash provided by operating activities was $269 million and $232 million for the three months ended June 30, 2021 and 2020, respectively. The increase in cash from operating activities is primarily the result of higher net earnings and favorable working capital, partially offset by the impacts from the divested Fabory business. The company also returned $203 million to shareholders through dividends and share repurchases during the quarter.

Guidance

The Company is maintaining guidance ranges provided in the previous quarter. Strong sales are expected to continue while gross profit margin, operating margin and EPS will likely face pressure from the incremental inventory adjustments and macroeconomic factors. Outside of revenue, Company results are expected to trend towards the low end of the guided ranges.

Total Company

2021 Guidance Range

Net Sales

$12.7 – 13.0 billion

Daily growth

8.5 – 11.0%

Organic, daily growth

10.0 – 12.5%

Gross Profit Margin

36.1 – 36.6%

Operating Margin

11.8 – 12.4%

Earnings per Share (EPS)

$19.00 – 20.50

Tax Rate

25.0 – 26.0%

Webcast

Grainger will conduct a live conference call and webcast at 11:00 a.m. ET on July 30, 2021 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 2020 sales of $11.8 billion, is North America’s leading broad line supplier of maintenance, repair and operating (MRO) products, with operations primarily in North America (N.A.), Japan and the United Kingdom.

Visit invest.grainger.com to view information about the company, including a supplement regarding 2021 second quarter results. Additional company information can be found on the Grainger Investor Relations website which includes our Fact Book and Corporate Responsibility 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 mask mandates or social distancing 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, raw material, inventory and labor shortages, continued strain on global supply chains and diminished transportation carrier performance, disruption caused by business responses to the COVID-19 pandemic, including working remote 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 working remote arrangements, including financial reporting processes, 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; higher product costs or other expenses; a major loss of customers; loss or disruption of sources of supply; changes in customer or product mix; increased competitive pricing pressures; failure to sustain contractual arrangements on a satisfactory basis with group purchasing organizations; failure to develop 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 percentage; 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; government contract matters; disruption 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; other pandemic diseases or viral contagions; natural or human induced disasters, extreme weather and other catastrophes or conditions; failure to attract, retain, train, motivate, develop and transition 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 we disclaim any obligation to update or revise any forward-looking statement, 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,


2021


2020


2021


2020

Net sales

$

3,207



$

2,837



$

6,291



$

5,838


Cost of goods sold

2,083



1,821



4,074



3,701


Gross profit

1,124



1,016



2,217



2,137


Selling, general and administrative expenses

790



811



1,525



1,773


Operating earnings

334



205



692



364


Other (income) expense:








Interest expense, net

22



28



43



49


Other, net

(7)



(7)



(13)



(11)


Total other expense, net

15



21



30



38


Earnings before income taxes

319



184



662



326


Income tax provision

76



55



164



12


Net earnings

243



129



498



314


Less: Net earnings attributable to noncontrolling 
     interest

18



15



35



27


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

$

225



$

114



$

463



$

287










Earnings per share:








Basic

$

4.30



$

2.11



$

8.80



$

5.31


Diluted

$

4.27



$

2.10



$

8.76



$

5.29


Weighted average number of shares outstanding:








Basic

52.2



53.5



52.2



53.6


Diluted

52.5



53.7



52.5



53.8


Diluted Earnings Per Share








Net earnings as reported

$

225



$

114



$

463



$

287


Earnings allocated to participating securities

(2)



(1)



(4)



(3)


Net earnings available to common shareholders

$

223



$

113



$

459



$

284


Weighted average shares adjusted for dilutive securities

52.5



53.7



52.5



53.8


Diluted earnings per share

$

4.27



$

2.10



$

8.76



$

5.29


CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions of dollars)




(Unaudited)



Assets

June 30, 2021


December 31, 2020

Cash and cash equivalents

$

547



$

585


Accounts receivable – net

1,634



1,474


Inventories –  net

1,707



1,733


Prepaid expenses and other current assets

169



127


Total current assets

4,057



3,919


Property, buildings and equipment – net

1,436



1,395


Goodwill

390



391


Intangibles –  net

232



228


Other assets

347



362


Total assets

$

6,462



$

6,295


Liabilities and Shareholders’ Equity




Current maturities of long-term debt

$



$

8


Trade accounts payable(1)

954



779


Accrued compensation and benefits

285



307


Accrued expenses

321



305


Income taxes payable

29



42


Total current liabilities

1,589



1,441


Long-term debt – less current maturities

2,375



2,389


Deferred income taxes and tax uncertainties

88



110


Other non-current liabilities

269



262


Shareholders’ equity(2)

2,141



2,093


Total liabilities and shareholders’ equity

$

6,462



$

6,295



(1) Trade accounts payable increased $175 million primarily driven by inventory purchases related to return-to-work items.

(2) Common stock outstanding as of June 30, 2021 was 52,074,363 compared with 52,524,391 shares at December 31, 2020, 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,


2021


2020


2021


2020

Cash flows from operating activities:








Net earnings

$

243



$

129



$

498



$

314


Provision for credit losses

4



8



8



14


Deferred income taxes and tax uncertainties

3



7



(8)




Depreciation and amortization

49



50



92



95


Impairment of goodwill, intangible and long-lived
assets







177


Net losses (gains) from sale or redemption of
assets
and business divestitures

1



107



(4)



110


Stock-based compensation

17



17



25



26


Subtotal

74



189



113



422


Change in operating assets and liabilities:








Accounts receivable

(59)



104



(180)



(113)


Inventories

(30)



(163)



22



(144)


Prepaid expenses and other assets

(3)



(11)



(8)



(37)


Trade accounts payable

93



(76)



178



79


Accrued liabilities

54



4



(7)



(32)


Income taxes, net

(105)



44



(50)



(18)


Other non-current liabilities

2



12



(3)



5


Subtotal

(48)



(86)



(48)



(260)


Net cash provided by operating activities

269



232



563



476


Cash flows from investing activities:








Additions to property, buildings, equipment and
intangibles

(74)



(43)



(147)



(93)


Proceeds from sale or redemption of assets and
business divestitures

2



13



17



13


Other – net







(2)


Net cash used in investing activities

(72)



(30)



(130)



(82)


Cash flows from financing activities:








Net decrease in lines of credit



(2)





(38)


Net (decrease) increase in long-term debt

(8)



(2)



(8)



1,153


Proceeds from stock options exercised

22



9



30



28


Payments for employee taxes withheld from stock
awards

(26)



(9)



(28)



(14)


Purchases of treasury stock

(108)



(1)



(283)



(101)


Cash dividends paid

(95)



(86)



(176)



(164)


Other – net

2





2




Net cash (used in) provided by financing activities

(213)



(91)



(463)



864


Exchange rate effect on cash and cash equivalents

1





(8)



(15)


Net change in cash and cash equivalents

(15)



111



(38)



1,243


Cash and cash equivalents at beginning of period

562



1,492



585



360


Cash and cash equivalents at end of period

$

547



$

1,603



$

547



$

1,603


SUPPLEMENTAL INFORMATION – CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (Unaudited)
(In millions of dollars, except for per share amounts)

The company supplemented the reporting of financial information determined under U.S. generally accepted accounting principles (GAAP) with certain non-GAAP financial measures, which the company refers to as “adjusted” measures, including sales on an organic daily basis and constant currency basis, adjusted gross profit, adjusted gross margin, adjusted operating earnings, adjusted operating margin, adjusted net earnings, adjusted tax rate and adjusted diluted earnings per share. 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 sales on an organic daily basis and constant currency basis, adjusted gross profit, adjusted gross margin, adjusted operating earnings, adjusted operating margin, adjusted net earnings, adjusted tax rate and adjusted diluted earnings per share 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 reconciliations provided below reconcile GAAP financial measures to the non-GAAP financial measures: sales on an organic daily basis and constant currency basis, adjusted gross profit, adjusted gross profit margin, adjusted operating earnings, adjusted operating margin, adjusted net earnings, adjusted tax rate and adjusted diluted earnings per share:


Three Months Ended June 30,


Six Months Ended June 30,


2021


2020


2021


2020

Reported sales

13.1

%


(1.9)

%


7.8

%


2.6

%

Day impact





0.8



(0.8)


Daily sales

13.1

%


(1.9)

%


8.6



1.8


Business divestitures ¹

2.8





2.7




Organic daily sales

15.9

%


(1.9)

%


11.3

%


1.8

%

Foreign exchange

(0.9)



0.1



(1.0)

%


0.1

%

Organic daily, constant
currency

15.0

%


(1.8)

%


10.3

%


1.9

%


¹ Represents the results of the Fabory business (divested on June 30, 2020) and the Grainger China business (divested on August 21, 2020).

In millions

Three Months Ended June 30,


Six Months Ended June 30,


2021

Gross
Margin


2020

Gross
Margin


2021

Gross
Margin


2020

Gross
Margin

Gross profit reported

$

1,124


35.0

%


$

1,016


35.8

%


$

2,217


35.2

%


$

2,137


36.6

%

Gross profit adjusted

$

1,124


35.0

%


$

1,016


35.8

%


$

2,217


35.2

%


$

2,137


36.6

%

SUPPLEMENTAL INFORMATION – CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (Unaudited)
(In millions of dollars, except for per share amounts)





Three Months Ended June 30,


Six Months Ended June 30,


2021


2020


Bps
Impact


2021


2020


Bps
Impact

Gross margin reported

35.0

%


35.8

%


(75)



35.2

%


36.6

%


(135)


Pandemic-related inventory
adjustments

2.0







1.9






Gross margin excluding
pandemic-related inventory
adjustments

37.0

%


35.8

%


120



37.1

%


36.6

%


50


In millions

Three Months Ended June 30,


Six Months Ended June 30,


2021

Operating
Margin


2020

Operating
Margin


2021

Operating
Margin


2020

Operating
Margin

Operating earnings reported

$

334


10.4

%


$

205


7.3

%


$

692


11.0

%


$

364


6.2

%

Restructuring, net,
impairment charges and
business divestiture




110


3.8






294


5.1


Operating earnings adjusted

$

334


10.4

%


$

315


11.1

%


$

692


11.0

%


$

658


11.3

%

In millions

Three Months Ended
June 30,



Six Months Ended
June 30,



2021


2020

%


2021


2020

%

Net earnings reported

$

225



$

114


98

%


$

463



$

287


62

%

Restructuring, net, impairment
charges and business divestiture



90






147



Net earnings adjusted

$

225



$

204


11

%


$

463



$

434


7

%











Diluted earnings per share reported

$

4.27



$

2.10


103

%


$

8.76



$

5.29


66

%

Pretax restructuring, net, impairment
charges and business divestiture



2.03






5.42



  Tax effect ¹



(0.38)






(2.71)



Total, net of tax



1.65






2.71



Diluted earnings per share adjusted

$

4.27



$

3.75


14

%


$

8.76



$

8.00


10

%


¹ The tax impact of adjustments is calculated based on the income tax rate in each applicable jurisdiction, subject to deductibility limitations and the company’s ability to realize the associated tax benefits. The tax effect in the prior year quarter was primarily related to the divested Fabory business (divested June 30, 2020).

 

 

SUPPLEMENTAL INFORMATION – CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (Unaudited)
(In millions of dollars, except for per share amounts)




Three Months Ended June 30,


Six Months Ended June 30,


2021


2020


Bps impact


2021


2020


Bps impact

Effective tax rate reported

23.6

%


30.2

%


(660)



24.7

%


3.9

%


2,080


Tax benefit related to the Fabory
business



(4.4)







21.8



Tax impact of restructuring, net,
impairment charges and business
divestiture












Effective tax rate adjusted

23.6

%


25.8

%


(220)



24.7

%


25.7

%


(100)


SOURCE W.W. Grainger, Inc.

Related Links

http://www.grainger.com

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