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W.W.: Grainger Reports Results For The 2016 First Quarter

The following excerpt is from the company's SEC filing.

Narrows 2016 Sales and EPS Guidance

Quarterly Summary

Sales of $2.5 billion, up 3 percent

Reported EPS of $2.98, down 3 percent

Adjusted EPS of $3.18, up 3 percent

CHICAGO, April 18, 2016 - Grainger (NYSE: GWW) today reported results for the 2016 first quarter ended March 31, 2016. Sales of $2.5 billion increased 3 percent versus $2.4 billion in the first quarter of 2015. There were 64 selling days in the 2016 first quarter, one more than the 2015 first quarter. On a daily basis, sales in the quarter increased 1 percent versus the prior year. Net earnings for the quarter of $18 7 million were down 12 percent versus $211 million in 2015. Earnings per share of $2.98 declined 3 percent versus $3.07 in 2015.

The first quarter contained the following restructuring items:

Three Months Ended

% Change

Diluted Earnings Per Share as reported:

Restructuring (United States)

Restructuring (Canada)

Restructuring (Other Businesses)

Subtotal

Diluted Earnings Per Share as adjusted:

“Revenue and share gains are tracking as we expected given the tough economic environment,” said Chairman, President and Chief Executive Officer Jim Ryan. “In our U.S. business, share gains with large and small businesses continue to outpace our performance with medium-sized customers. We continue to see price and gross margin pressure driven primarily by the low inflation economic environment and faster growth from lower gross margin customers. At the same time, we have reduced our operating expenses to offset some of the gross margin decline. In early February, we reached a significant milestone, successfully implementing SAP in Canada. We now have our North American business running on one platform, which will drive better service and increased productivity over time. In addition, I continue to be very pleased with the strong growth of our single channel businesses.” Ryan concluded, “Despite the current

short-term uncertainty, we will continue to invest in the business to drive long term results." The company also narrowed its 2016 sales and earnings per share guidance for the year and now expects sales growth of 0 to 6 percent and earnings per share of $11.00 to $12.80. The company’s previous 2016 guidance, communicated on January 26, 2016, was sales growth of -1 to 7 percent and earnings per share of $10.80 to $13.00.

Company

Sales increased 3 percent and 1 percent daily in the 2016 first quarter versus the prior year. The daily sales performance included a 4 percentage point contribution from acquisitions and a 1 percentage point reduction from foreign exchange. Excluding acquisitions and foreign exchange, organic sales declined 2 percent driven by a 3 percentage point reduction in price and a 1 percentage point reduction in sales of seasonal products, partially offset by a

2 percentage point increase from higher volume.

Company operating earnings of $317 million for the 2016 first quarter declined 10 percent versus $351 million in the 2015 quarter. The decline was driven primarily by lower gross profit margins and $19 million in restructuring charges recorded in the quarter.

The company has two reportable business segments, the United States and Canada, which represented approximately 82 percent of company sales for the quarter. The remaining operating businesses are located in Asia, Europe and Latin America. The single channel online businesses are included in Other Businesses and are not reportable segments.

Sales for the U.S. segment were flat versus the 2015 first quarter and declined 2 percent on a daily basis. The 2 percent decrease was driven by a 3 percentage point decline in price and a

1 percentage point decline from lower sales of seasonal products, partially offset by 1 percent from volume growth and a 1 percentage point contribution from increased sales to Zoro, the single channel online business in the United States. Sales to customers in the Government and Light Manufacturing end markets led the sales performance in the quarter.

Operating earnings for the U.S. segment declined 9 percent in the quarter driven by flat sales and lower gross profit margins partially offset by lower operating expenses. Gross profit margins for the quarter declined 2.8 percentage points driven by unfavorable selling mix, price deflation outpacing cost deflation and changes in the classification of certain funding received

from vendors related to the annual trade show. In the first quarter, operating expenses were down 4 percent including $16 million of restructuring costs related to planned branch closures as well as a reorganization of the sales force. Excluding restructuring, operating expenses were down 7 percent and operating earnings were down 5 percent.

First quarter 2016 sales for Acklands-Grainger declined 24 percent in U.S. dollars. On a daily basis, sales declined 25 percent and 17 percent in local currency. The 17 percent decline consisted of 14 percentage points from lower volume and 6 percentage points from the SAP implementation, partially offset by 3 percentage points from price. The business in Canada continues to be affected by weak oil and gas prices and lower commodity prices, resulting in lower sales to all customer end markets. Daily sales in the province of Alberta, which represents about a third of the company’s business in Canada, were down 26 percent in local currency versus the prior year. Daily sales growth for all other provinces was down 10 percent in local currency versus the prior year.

The business in Canada posted a $12 million operating loss in the 2016 first quarter versus operating earnings of $9 million in the prior year, primarily driven by the sales decline, a lower gross profit margin and negative expense leverage. The gross profit margin in Canada declined 6.7 percentage points versus the prior year largely due to cost of goods inflation exceeding price inflation due to...


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