Grainger Reports Results For The 2019 Fourth Quarter And Full Year

CHICAGO, Jan. 30, 2020 /PRNewswire/ -- Grainger (NYSE: GWW) today reported results for the fourth quarter and full year 2019. For the full year, sales of $11.5 billion increased 2.5 percent versus $11.2 billion in the prior year. Sales of $2.8 billion in the 2019 fourth quarter increased 3 percent versus the 2018 fourth quarter.

"In 2019, we grew sales, operating earnings and EPS despite challenging and uncertain economic conditions. Our sales growth in the U.S. outperformed the market throughout the year, and our share gain accelerated in the fourth quarter, as our growth initiatives began to take hold. At our U.S. endless assortment business, Zoro, we continued to invest in the business to ensure ongoing success. At the total company level, our strong expense control held SG&A stable and enabled our advertising, technology and Zoro investments, " said DG Macpherson, Chairman and Chief Executive Officer. "As we look to 2020, we will diligently manage expenses while continuing to invest in future growth. We are confident in our strategy and ability to execute moving forward."

2019 Financial Summary

Revenue
For the full year 2019, total company sales increased 2.5 percent versus the full year 2018, including a 0.5 percent negative impact of foreign currency exchange. On a constant currency basis, sales increased 3 percent driven by volume growth of 2.5 percent and favorable price of 0.5 percent.

For the fourth quarter 2019, total company sales increased 3.0 percent versus the prior year period driven by volume growth of 3.5 percent and unfavorable price of 0.5 percent. There was no foreign currency exchange impact in the fourth quarter.

Gross Profit Margin
For the full year 2019, reported and adjusted gross profit margin was 38.3 percent, down 50 basis points, versus the full year 2018 gross profit margin of 38.7 percent.

Reported gross profit margin for the fourth quarter was 38.0 percent, down 60 basis points,  versus the 2018 fourth quarter gross profit margin of 38.6 percent.  Adjusted gross profit margin for the quarter was 38.0 percent, down 50 basis points, versus the 2018 fourth quarter gross profit margin of 38.5 percent. The lower gross profit margin was primarily driven by product and customer mix in the U.S. Segment and total company business unit mix driven by faster growth with the lower margin endless assortment businesses.

Earnings
For the full year 2019, reported operating earnings of $1.3 billion were up 9 percent versus $1.2 billion in 2018. On an adjusted basis, operating earnings for 2019 were $1.4 billion, up 3 percent versus $1.3 billion in 2018. Reported operating margin of 11.0 percent increased 70 basis points versus the prior year. Adjusted operating margin of 12.1 percent increased 10 basis points versus the prior year due primarily to operating expense leverage. Reported earnings per share of $15.32 were up 12 percent versus $13.73 in 2018. Adjusted earnings per share of $17.29 increased 4 percent versus $16.70 in 2018. The increase in adjusted earnings per share was due primarily to higher operating earnings, partially offset by a higher tax rate.

Reported operating earnings for the 2019 fourth quarter of $181 million were down 37 percent versus $290 million in the 2018 fourth quarter. During the quarter, the company recorded a $120 million write-down of substantially all of the remaining intangible assets of the Cromwell business which was the primary driver of the decline in reported operating earnings. On an adjusted basis, operating earnings for the quarter of $307 million were down 1 percent versus $310 million in the 2018 quarter. Reported operating margin of 6.4 percent declined 410 basis points versus the prior year. Adjusted operating margin of 10.8 percent declined 40 basis points versus the prior year due primarily to lower gross profit margin in the quarter. Reported earnings per share of $1.88 in the fourth quarter were down 49 percent versus $3.68 in the 2018 quarter.  Adjusted earnings per share in the quarter of $3.88 decreased 2 percent versus $3.96 in the 2018 fourth quarter. The decline in adjusted earnings per share was due primarily to a higher tax rate in the quarter.

Tax Rate
For the full year 2019, the company's reported tax rate was 26.0 percent versus 23.9 percent in 2018. The adjusted tax rate for the full year was 24.8 percent versus 21.7 percent in 2018.

For the fourth quarter 2019, the company's reported tax rate was 31.7 percent versus 21.5 percent in the 2018 fourth quarter. The company's adjusted tax rate for the fourth quarter 2019 was 23.7 percent versus 21.6 percent in the fourth quarter 2018.

The 2019 tax rates for the quarter and full year contained no tax benefit from the clean energy investments which were concluded in 2018. For the full year, the 2019 tax rates also contained a lower benefit from stock-based compensation than the prior year. In addition, the company recorded a valuation allowance to reduce the future tax benefits from Cromwell, increasing the reported tax rate for the quarter.

Cash Flow
For the full year 2019, the company generated operating cash flow of $1,042 million. This represents a minor year over year decrease primarily related to employee variable compensation payments, partially offset by favorable net income and changes in working capital. The company used the cash generated during the year to invest in the business and return cash to shareholders through share repurchases and dividends. In 2019, capital expenditures were $221 million. Grainger returned $1,028 million to shareholders through $328 million in dividends and $700 million used to buy back 2.4 million shares in 2019.

Operating cash flow for the quarter was $272 million versus $314 million in the 2018 fourth quarter, a decrease of 13 percent compared to the same period last year. The majority of this decline was driven by lower net income and working capital timing.

2020 Company Guidance:
The company is providing the following 2020 guidance:

Webcast
Grainger will conduct a live conference call and webcast at 11:00 a.m. Eastern Standard Time on Jan. 30, 2020, to discuss the fourth quarter. The webcast will be hosted by DG Macpherson and Tom Okray, Senior Vice President and Chief Financial Officer and can be accessed at www.grainger.com/investor. For those unable to participate in the live event, a webcast replay will be available for 90 days at www.invest.grainger.com.

About Grainger
W.W. Grainger, Inc., with 2019 sales of $11.5 billion, is North America's leading broad line supplier of maintenance, repair and operating products (MRO), with operations also in Europe, Asia and Latin America.

Visit www.invest.grainger.com to view information about the company, including a supplement regarding 2019 fourth quarter results. Additional company information can be found on the Grainger Investor Relations website which includes our Fact Book and Corporate Social 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 in the forward-looking statements include, among others: higher product costs or other expenses; a major loss of customers; loss or disruption of source of supply; increased competitive pricing pressures; failure to develop or implement new technology initiatives; the implementation, timing and results of our strategic pricing initiatives; 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, privacy and cybersecurity matters; investigations, inquiries, audits and changes in laws and regulations; failure to comply with laws, regulations and standards; disruption of information technology or data security systems involving us or third parties on which we depend; general industry, economic, market or political conditions; general global economic conditions, including tariffs and trade issues and policies; currency exchange rate fluctuations; market volatility; commodity price volatility; labor shortages; facilities disruptions or shutdowns; higher fuel costs or disruptions in transportation services; pandemic diseases and natural and other catastrophes; unanticipated and/or extreme weather conditions; loss of key members of management; our ability to operate, integrate and leverage acquired businesses; changes in effective tax rates; our common stock, including volatility in our stock price; and other factors which 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.

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 adjusted gross profit, adjusted gross profit margin, adjusted operating earnings, adjusted operating margin, adjusted net earnings, adjusted tax rate, adjusted diluted earnings per share and sales in constant currency. Adjusted measures exclude items that may not be indicative of core operating results. 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 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 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, the most directly comparable forward-looking GAAP measures are not provided.

The reconciliations provided below reconcile GAAP financial measures to the non-GAAP financial measures: , 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:

SOURCE W.W. Grainger, Inc.

Related Links

http://www.grainger.com