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Form 8-K GRAINGER W W INC For: Apr 16

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April 16, 2015 8:06 AM EDT




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 8-K

CURRENT REPORT


PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):
April 16, 2015

W.W. Grainger, Inc.
(Exact name of Registrant as Specified in its Charter)


Illinois
1-5684
36-1150280
(State or Other Jurisdiction of Incorporation)
(Commission File Number)
(I.R.S. Employer Identification No.)

100 Grainger Parkway, Lake Forest, Illinois  60045
(Address of Principal Executive Offices and Zip Code)

(847) 535-1000
(Registrant's Telephone Number, Including Area Code)

Not applicable
(Former Name or Former Address, if Changed Since Last Report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





        



Item 2.02.   Results of Operations and Financial Condition
On April 16, 2015 the registrant issued a press release announcing financial results for the quarter ended March 31, 2015. A copy is provided as Exhibit 99.1 to this report.

Item 9.01.   Financial Statements and Exhibits
(c) Exhibits (numbered in accordance with Item 601 of Regulation S-K).
 
 
Exhibit No.
Document Description
99.1
Press release announcing financial results for the quarter ended March 31, 2015

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: April 16, 2015

 
W.W. GRAINGER, INC.
 
 
 
 
 By:
/s/ R. L. Jadin
 
 
R. L. Jadin
Senior Vice President and
Chief Financial Officer



 
GRAINGER REPORTS RESULTS FOR THE 2015 FIRST QUARTER
Revises 2015 Guidance
Quarterly Summary
•
Sales of $2.4 billion, up 2 percent
•
Operating earnings of $351 million, down 1 percent
•
EPS of $3.07, flat to prior year
•
Adjusted EPS of $3.10, up 1 percent excluding $0.03 per share restructuring costs
•
Repurchased 634,000 shares

CHICAGO, April 16, 2015 - Grainger (NYSE: GWW) today reported results for the 2015 first quarter ended March 31, 2015. Sales of $2.4 billion increased 2 percent versus $2.4 billion in the first quarter of 2014. There were 63 selling days in the 2015 first quarter, the same number as the 2014 first quarter. Net earnings for the quarter declined 3 percent to $211 million versus $217 million in 2014. Earnings per share of $3.07 were flat versus 2014.

“This was a challenging quarter. Our results were affected by continued headwinds from the strong U.S. dollar and weakness in the oil and gas sector in North America. We remain encouraged by the growth achieved with large customers in our U.S. multichannel business and the customer acquisition strategy that is fueling our single channel online businesses,” said Chairman, President and Chief Executive Officer Jim Ryan. Ryan added, “Given the opportunity for share gain and the solid progress we are making with our productivity initiatives, we continued to invest in growth and infrastructure programs. This included the addition of 80 sales representatives, more inventory management installations and expanding our supply chain.”


1

“Earlier today, we announced plans to permanently change our capital structure by taking on debt and buying back $3 billion in stock over the next three years. This change reflects our confidence in the business and our strategy,” Ryan concluded. The company is expected to buy back an incremental $1 billion of stock in 2015, beyond the $400 million previously announced. The incremental share repurchases in 2015 are expected to be accretive to 2015 earnings in the range of $0.08 to $0.12 per share. The company also plans to add approximately 400 new sales representatives in 2015, double the original number announced in late 2014. To reflect these changes and the expectation of slower macroeconomic growth, Grainger updated its 2015 guidance. The company now expects 1 to 4 percent sales growth and earnings per share of $12.25 to $12.95. The company’s previous 2015 guidance, issued on January 26, 2015, included 3 to 7 percent sales growth and earnings per share of $12.60 to $13.60.

Company
Sales increased 2 percent in the 2015 first quarter versus the prior year. Results for the quarter included a 1 percentage point increase from acquisitions and a 3 percentage points reduction from foreign exchange. Excluding acquisitions and foreign exchange, organic sales increased 4 percent driven exclusively by volume growth.

Company operating earnings of $351 million for the 2015 first quarter declined 1 percent versus the 2014 quarter. This decrease was driven by lower gross profit margins in Canada and the Other Businesses as well as negative expense leverage in Canada. Operating expenses for the company increased 3 percent including $33 million in incremental growth and infrastructure spending during the quarter.

The company has two reportable business segments, the United States and Canada, which represented approximately 88 percent of company sales for the quarter. The remaining operating units located primarily in Asia, Europe, and Latin America and the single channel online businesses are included in Other Businesses and are not reportable segments.


2

United States
Sales for the U.S. segment increased 4 percent in the 2015 first quarter versus the prior year driven by 2 percentage points from volume, 1 percentage point from sales of Ebola related safety products and 1 percentage point from increased sales to Zoro, the single channel online business in the United States. Sales to customers in the Commercial, Light Manufacturing, Retail, Government and Heavy Manufacturing customer end markets contributed to the sales increase in the quarter.

Operating earnings for the U.S. segment increased 4 percent in the quarter driven by the 4 percent sales growth and positive expense leverage, partially offset by lower gross profit margins. Gross profit margins for the quarter declined 0.4 percentage point primarily driven by higher sales to Zoro, reflecting the lower transfer price used to account for these intersegment sales. Excluding sales to Zoro, gross profit margins were essentially flat versus the prior year. The positive expense leverage in the quarter was driven by productivity from indirect purchasing programs, improved profitability from KeepStock installations and continued leverage of the U.S. branch network which offset incremental growth and infrastructure spending of $22 million.

Canada
First quarter 2015 sales for Acklands-Grainger decreased 8 percent in U.S. dollars but were up 3 percent in local currency. The 3 percent sales increase in local currency consisted of 7 percentage points from WFS Enterprises, Inc. (WFS) acquired on September 2, 2014, and 2 percentage points from price. This growth was partially offset by a 5 percentage points decline in volume and a 1 percentage point decline from lower sales of seasonal products. The 5 percent decline in volume was driven by lower sales to the Oil and Gas, Construction, Reseller, Commercial, Retail and Heavy Manufacturing customer end markets, partially offset by growth to customers in the Utilities, Light Manufacturing, Transportation, Forestry, Mining and Government customer end markets. The business in Canada continues to be affected by weak oil and gas prices and lower commodity prices. Sales in the province of Alberta, which represents slightly more than a third of the company’s business in Canada, were down in the mid-teens in local currency versus the prior year. Sales growth for all provinces except Alberta and British Columbia was positive in local currency versus the prior year.


3

Operating earnings in Canada declined 56 percent in the 2015 first quarter, primarily driven by the 8 percent sales decline, a lower gross profit margin and negative expense leverage. The gross profit margin in Canada declined 0.7 percentage point versus the prior year. Excluding WFS, gross profit margins were flat versus the prior year, with price increases and higher freight revenue offsetting unfavorable foreign exchange from products sourced from the United States. Operating expenses increased 3 percent consisting of incremental costs from WFS, higher ongoing and one-time costs related to the relocation to the new Toronto distribution center and incremental spending for the SAP implementation in Canada.

Other Businesses
Sales for the Other Businesses increased 8 percent, 21 percent in local currency, for the 2015 first quarter versus the prior year. This performance consisted of 21 percentage points of growth from volume and price, partially offset by a 13 percentage points decline from foreign exchange. Local currency sales growth in the Other Businesses was driven by the single channel online businesses in the United States and Japan, and the multichannel business in Mexico.

Operating earnings for the Other Businesses were $10 million in the 2015 first quarter versus $8 million in the prior year. This performance included strong results from Zoro U.S. and the business in Japan, along with reduced losses in China. The increase was partially offset by startup costs for the single channel online business in Europe. In addition, costs associated with the previously announced shutdown of the business in Brazil and planned restructuring expenses for Fabory in Europe offset earnings in the first quarter and are expected to continue into the second half of 2015. The charges related to Brazil and Fabory resulted in a reduction to earnings per share of approximately $0.02 and $0.01 in the quarter, respectively, and are excluded from company guidance. For the full year, planned shutdown costs for Brazil and restructuring costs for Fabory are estimated to be approximately $0.09 and $0.04 per share, respectively.

Other
Other income and expense was a net expense of $4 million in the 2015 first quarter versus $3 million in the 2014 first quarter. For the quarter, the effective tax rate in 2015 was 38.4 percent versus 37.7 percent in 2014.  The increase was primarily due to more earnings in the United States versus other jurisdictions with lower tax rates. The company is currently projecting an effective tax rate of 37.7 to 38.8 percent for the year 2015.

4

Cash Flow
Operating cash flow was $156 million in the 2015 first quarter versus $168 million in the 2014 first quarter. The company used the cash generated during the quarter, along with cash on hand, to invest in the business and return cash to shareholders through share repurchase and dividends. Capital expenditures were $99 million in the 2015 first quarter versus $66 million in the first quarter of 2014. In the 2015 first quarter, Grainger returned $223 million to shareholders through $73 million in dividends and $150 million to buy back 634,000 shares of stock.

About Grainger
W.W. Grainger, Inc., with 2014 sales of $10 billion, is North America’s leading broad line supplier of maintenance, repair and operating products, with operations also in Asia, Europe and Latin America.

Visit www.grainger.com/investor to view information about the company, including a history of sales by segment and a podcast regarding 2015 first quarter results. The Grainger website also includes more information on Grainger’s proven growth drivers, including product line expansion, sales force expansion, eCommerce and inventory services.


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 “plan(s)”, “earnings per share guidance”, “sales guidance”, “currently projecting”, “working on extending”, “to better position” 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.”



5

Contacts:
Media:
 
Investors:
 
Joseph Micucci
 
Laura Brown
 
Director, Media Relations
SVP, Communications & Investor Relations
O: 847-535-0879
 
O: 847-535-0409
 
M: 847-830-5328
 
M: 847-804-1383
 
 
 
 
 
Grainger Media Relations Hotline
William Chapman
 
847-535-5678
 
Sr. Director, Investor Relations
 
 
O: 847-535-0881
 
 
 
M: 847-456-8647
 
 
 
 
 
 
 
Casey Darby
 
 
 
Sr. Manager, Investor Relations
 
 
O: 847-535-0099
 
 
 
M: 847-964-3281
 
 
 
 
 

6

CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(In thousands, except for per share amounts)


 
Three Months Ended March 31,
 
2015
 
2014
Net sales
$
2,439,661

 
$
2,385,627

Cost of merchandise sold
1,345,918

 
1,309,656

Gross profit
1,093,743

 
1,075,971

 
 
 


Warehousing, marketing and administrative expense
742,496

 
721,632

Operating earnings
351,247

 
354,339

 
 
 
 
Other income and (expense)
 
 
 
Interest income
192

 
640

Interest expense
(1,636
)
 
(2,863
)
Other non-operating income
(2,164
)
 
(503
)
Total other expense
(3,608
)
 
(2,726
)
 
 
 
 
Earnings before income taxes
347,639

 
351,613

 
 
 
 
Income taxes
133,493

 
132,558

 
 
 
 
Net earnings
214,146

 
219,055

 
 
 
 
Net earnings attributable to noncontrolling interest
3,131

 
2,402

 
 
 
 
Net earnings attributable to W.W. Grainger, Inc.
$
211,015

 
$
216,653

 
 
 
 
Earnings per share
  -Basic
$
3.11

 
$
3.11

  -Diluted
$
3.07

 
$
3.07

Average number of shares outstanding
  -Basic
67,230

 
68,700

  -Diluted
67,982

 
69,677

 
 
 
 
Diluted Earnings Per Share
 
 
 
Net earnings as reported
$
211,015

 
$
216,653

Earnings allocated to participating securities
(2,213
)
 
(2,919
)
Net earnings available to common shareholders
$
208,802

 
$
213,734

Weighted average shares adjusted for dilutive securities
67,982

 
69,677

Diluted earnings per share
$
3.07

 
$
3.07


7

SEGMENT RESULTS (Unaudited)
(In thousands of dollars)



 
Three Months Ended March 31,
 
2015
 
2014
Sales
 
 
 
United States
$
1,971,455

 
$
1,897,311

Canada
234,530

 
254,297

Other Businesses
297,800

 
274,906

Intersegment sales
(64,124
)
 
(40,887
)
Net sales to external customers
$
2,439,661

 
$
2,385,627

 
 
 
 
Operating earnings
 
 
 
United States
$
366,089

 
$
353,687

Canada
9,387

 
21,296

Other Businesses
9,526

 
8,475

Unallocated expense
(33,755
)
 
(29,119
)
Operating earnings
$
351,247

 
$
354,339

 
 
 
 
Company operating margin
14.4
%
 
14.9
%
ROIC* for Company
32.6
%
 
33.8
%
ROIC* for United States
49.3
%
 
51.0
%
ROIC* for Canada
5.7
%
 
14.2
%
 
 
 
 


*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 2-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 (2-point average of $96.3 million), deferred taxes, and investments in unconsolidated entities, plus the LIFO reserve (2-point average of $389.5 million).  Working liabilities are the sum of trade payables, accrued compensation and benefits, accrued contributions to employees' profit sharing plans, and accrued expenses.


8

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
Preliminary
(In thousands of dollars)

 
 
Assets
March 31, 2015
 
December 31, 2014
Cash and cash equivalents
$
243,427

 
$
226,644

Accounts receivable – net
1,198,153

 
1,172,924

Inventories - net
1,328,395

 
1,356,396

Prepaid expenses and other assets
114,775

 
150,198

Deferred income taxes
61,891

 
61,387

Total current assets
2,946,641

 
2,967,549

Property, buildings and equipment – net
1,306,962

 
1,324,346

Deferred income taxes
13,493

 
16,718

Goodwill
481,536

 
506,905

Other assets and intangibles – net
462,340

 
468,734

Total assets
$
5,210,972


$
5,284,252

Liabilities and Shareholders’ Equity
 
 
 
Short-term debt (1)
$
231,533

 
$
56,896

Current maturities of long-term debt
25,416

 
23,404

Trade accounts payable
513,551

 
554,088

Accrued compensation and benefits
163,512

 
191,696

Accrued contributions to employees’ profit sharing plans (2)
42,596

 
178,076

Accrued expenses
246,145

 
245,300

Income taxes payable
74,792

 
12,256

Total current liabilities
1,297,545

 
1,261,716

Long-term debt
371,070

 
404,536

Deferred income taxes and tax uncertainties
92,141

 
95,455

Employment-related and other non-current liabilities
239,947

 
238,444

Shareholders' equity (3)
3,210,269

 
3,284,101

Total liabilities and shareholders’ equity
$
5,210,972

 
$
5,284,252


(1
)
Short-term debt increased $174 million due to an increase in the amount of commercial paper outstanding, issued for general working capital needs.
(2
)
Accrued contributions to employees' profit sharing plans decreased $135 million primarily due to the annual cash contributions to the profit sharing plan.
(3
)
Common stock outstanding as of March 31, 2015 was 66,920,726 shares as compared with 67,432,041 shares at December 31, 2014.


9

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Preliminary
(In thousands of dollars)

 
Three Months Ended March 31,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net earnings
$
214,146

 
$
219,055

Provision for losses on accounts receivable
2,558

 
2,413

Deferred income taxes and tax uncertainties
1,732

 
(2,671
)
Depreciation and amortization
52,411

 
45,776

Stock-based compensation
9,161

 
11,262

Change in operating assets and liabilities – net of business
acquisitions and divestitures:
 
 
 
Accounts receivable
(50,968
)
 
(78,676
)
Inventories
(2,808
)
 
30,608

Prepaid expenses and other assets
34,433

 
6,564

Trade accounts payable
(7,326
)
 
(13,497
)
Other current liabilities
(160,239
)
 
(146,616
)
Current income taxes payable
62,893

 
92,410

Employment-related and other non-current liabilities
2,296

 
1,177

Other – net
(2,080
)
 
(287
)
Net cash provided by operating activities
156,209

 
167,518

Cash flows from investing activities:
 
 
 
Additions to property, buildings and equipment
(99,489
)
 
(65,664
)
Proceeds from sales of property, buildings and equipment
7,333

 
462

Other – net
(48
)
 
13,023

Net cash used in investing activities
(92,204
)
 
(52,179
)
Cash flows from financing activities:
 
 
 
Net increase in short-term debt
176,047

 
38,508

Net decrease in long-term debt
(1,860
)
 
(5,807
)
Proceeds from stock options exercised
4,883

 
10,170

Excess tax benefits from stock-based compensation
4,319

 
6,807

Purchase of treasury stock
(149,992
)
 
(150,553
)
Cash dividends paid
(73,393
)
 
(64,682
)
Net cash used in financing activities
(39,996
)
 
(165,557
)
Exchange rate effect on cash and cash equivalents
(7,226
)
 
(4,862
)
Net change in cash and cash equivalents
16,783

 
(55,080
)
Cash and cash equivalents at beginning of year
226,644

 
430,644

Cash and cash equivalents at end of period
$
243,427

 
$
375,564


###

10

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