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W.W.: Grainger Reports Results For The 2015 Third Quarter Quarterly Highlights

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

Sales of $2.5 billion, down 1 percent, flat organic

Operating earnings of $341 million, down 12 percent

EPS of $2.92, down 12 percent, or $3.03, down 8 percent excluding charges

Returned $812 million to shareholders through share repurchases and dividends

CHICAGO, October 16, 2015 - Grainger (NYSE: GWW) today reported results for the 2015 third quarter ended September 30, 2015. Sales of $2.5 billion declined 1 percent versus $2.6 billion in the 2014 third quarter. There were 64 selling days in the quarter, the same as in 2014. Net earnings for the third quarter were down 17 percent t o $192 million versus $230 million in 2014. Earnings per share of $2.92 declined 12 percent versus $3.30 in 2014.

The 2015 third quarter included charges of $11.0 million, or $0.11 per share. These charges reflect cost actions begun in the third quarter related to the announcement of 26 branch closures in the United States and company restructuring, primarily related to payroll. On an adjusted basis, earnings per share were as follows:

Three Months Ended

September 30,

% Change

Diluted Earnings Per Share as reported:

U.S. branch closures

Company restructuring

Diluted Earnings Per Share as adjusted:

“Our results reflect the challenging industrial economy in North America. While we remain confident about our ability to gain market share, we are expecting continued revenue deceleration given recent feedback from our customers and suppliers. A number of large customers have announced layoffs, and there are indications of extended year-end holiday shutdowns. We have begun the process of aggressively adjusting our cost structure to reflect the weaker economic environment. At the same time, we are staying focused on providing industry-leading service, while making select investments that will accelerate our growth long term. These actions are especially important during an economic downturn and the subsequent recovery,” said Chairman, President and Chief Executive Officer Jim Ryan.

Given the performance to date and the expectation of continued economic weakness, the company lowered its sales and earnings per share guidance. For 2015, the company now expects sales in the range of -0.5 percent to 0.5 percent and earnings per share of $11.60 to $11.80, excluding the $0.16 per share in charges for the full year detailed at the end of the release. The new guidance includes the benefit of the recent Cromwell Group (Holdings) Limited acquisition, which is expected to contribute approximately 1.5 percentage points of sales growth and $0.01 to $0.02 to earnings per share for the final four months of 2015. The company’s previous 2015 guidance was issued on July 17, 2015, with expectations of 0 to 2 percent sales growth and earnings per share of $12.00 to $12.50 for the full year.

Sales in the 2015 third quarter declined 1 percent driven by a 3 percentage point reduction from foreign exchange and a 2 percentage point benefit from acquisitions. Excluding foreign exchange and acquisitions, organic sales were flat and consisted of 1 percentage point from volume and a 1 percentage point decline in price.

The company’s gross profit margin declined 1.1 percentage point to 41.9 percent versus 43.0 percent in the 2014 third quarter, due primarily to faster growth with lower gross margin customers, lower supplier rebates tied to lower-than-expected volume and price deflation versus slight cost inflation. Excluding the business in Canada, the company experienced slight product cost deflation versus the 2014 third quarter. Operating expenses for the company increased 1 percent and included approximately $43 million in incremental growth and infrastructure spending versus the 2014 quarter.

Company operating earnings declined 12 percent to $341 million for the 2015 third quarter versus $386 million in the prior year. The 12 percent decline was driven by the sales decline, lower gross profit margins and a 1 percent increase in operating expenses. Excluding the charges in the 2015 third quarter, operating expenses were down 1 percent and operating earnings declined 9 percent.

Grainger has two reportable business segments, the United States and Canada, which represented approximately 86 percent of company sales for the quarter. The remaining operating units are included in Other Businesses and are not reportable segments.

Sales for the U.S. segment were flat in the 2015 third quarter versus the prior year and included 1 percentage point from increased sales to Zoro, the single channel online business in the United States, offset by a 1 percentage point decline in price. Sales growth to customers in the Commercial, Light Manufacturing, Retail, and Government customer end markets were offset by lower sales to Heavy Manufacturing, Contractor, Reseller and Natural Resources customers.

Operating earnings for the United States segment declined 7 percent in the quarter driven by flat sales and lower gross profit margins. Gross profit margins for the quarter declined 1.2 percentage points primarily driven by price deflation exceeding cost deflation and higher sales to Zoro reflecting the lower transfer price used to account for these intercompany sales. Excluding Zoro, gross profit margins were down 0.9 percentage point versus the prior year. Operating expenses were flat in the quarter versus the prior year driven primarily by lower payroll and benefits which were offset by incremental growth and infrastructure spending of $30 million. The 2015 third quarter included announced branch closures and restructuring charges of approximately $9 million. Excluding the charges, operating expenses decreased 2 percent and operating earnings were down 5 percent.

Sales for Acklands-Grainger declined 23 percent in U.S. dollars in the third quarter of 2015 and declined 8 percent in local currency. The 8 percent sales decrease consisted of a 17 percentage point decline in volume partially offset by a 5 percentage point benefit from price and a 4 percentage point contribution from WFS Enterprises, Inc., which was acquired September 2, 2014. Lower sales to the Oil and Gas, Construction, Commercial, Transportation, Retail, Heavy Manufacturing, Government and Light Manufacturing sectors were partially offset by growth to customers in the Mining, Utilities and Forestry 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 more than a third of the company’s business in Canada, were down 26 percent in local currency versus the prior year. In contrast, sales for the remaining provinces in aggregate were down 3 percent in local currency versus the prior year.

In U.S. dollars, operating earnings in Canada...