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W.W. Grainger's (GWW) Q1 2016 Results - Earnings Call Transcript

Q1 2016 Earnings Conference Call

April 18, 2016 7:30 AM ET

Executives

Laura Brown - Senior Vice President Communications and Investor Relations

William Chapman - Senior Director of Investor Relations

Analysts

Laura Brown

Hello, this is Laura Brown, Senior Vice President of Communications and Investor Relations. With me is Bill Chapman, Senior Director of Investor Relations. The purpose of this podcast is to provide you with additional information regarding Grainger’s first quarter 2016 results.

This podcast is supplemented by our 2016 first quarter earnings release issued today, April 18, and other information available on our Investor Relations website. This material contains forward looking statements that are based on our current view of the competitive market and the overall environment. Future risks and uncertainties could cause our actual results to differ materially.

Please see our SEC filings, including our most recent periodic reports filed on Form 10-K and Form 10-Q, which are available on the Investor Relations website, for a discussion of factors that may affect our forward-looking statements. Tables reconciling non-GAAP measures accompany the script to this podcast and today’s earnings release, which are both available on our Investor Relations website.

Today we reported our 2016 first quarter results. While we are currently experiencing economic headwinds and our short term results are affected, we continue to manage the business for the long term. Our investments in eCommerce, KeepStock and supply chain, including the New Jersey and Toronto distribution centers, will provide and support growth for years to come.

We have also invested in tools and processes that will make us more productive including a new CRM system and SAP in Canada and Mexico. Now, let’s cover the specifics for the quarter.

A stronger-than-expected January, due to carryover spending from fourth quarter customer shutdowns and favorable holiday timing, contributed to our sales performance. The difficult economic environment and headwind from last year’s strong sales of seasonal products and Ebola-related products were also considerations.

Solid expense management and the timing of planned spending offset some of the gross margin pressure. In Canada, we completed the installation of SAP, which will drive better service and increased productivity over time. However, we saw a further slowdown in February and March due to the implementation, which also had an unfavorable impact on expenses.

And our single channel online businesses of Zoro in the United States and MonotaRO in Japan posted continued strong performance.

Let’s now look at the quarter in detail. Company sales increased 3%. We had 64 selling days in the quarter, one more than the previous year. On a daily basis, sales increased 1%. Reported operating earnings declined 10% and net earnings were down 12%. Reported earnings per share of $2.98 were down 3% versus $3.07 in the previous year.

The first quarter in both years contained restructuring items as noted in the press release issued today, April 18. Please refer to the adjusted results found in the press release. All results referenced in the remainder of this podcast are adjusted unless specifically noted.

Now, let’s now walk down the operating section of the income statement in more detail.

Gross profit margins decreased 300 basis points versus the prior year to 41.8% driven by lower performance in the U.S. and Canada segments. Operating expenses for the company declined 4%, driven by restructuring benefits and the timing of planned spending. Company operating earnings declined 5% versus the 2015 quarter. This decrease was primarily driven by lower gross profit margins, partially offset by lower operating expenses.