Grainger (NYSE: GWW) today reported sales, earnings and earnings per share for the year ended Dec. 31, 2009.
Sales of $6.2 billion were down 9 percent versus 2008. Net earnings of $430 million decreased 9 percent versus $475 million in 2008. Earnings per share of $5.62 decreased 6 percent versus $5.97** in 2008.
“I am very proud of our employees and how they have successfully navigated this company through one of the most difficult economic times in our history,” said Chairman, President and Chief Executive Officer Jim Ryan.
“The actions we took in 2009 to keep service levels and customer relationships strong are paying off. I am excited about the opportunity we have going forward to gain additional market share and create value for our shareholders by serving as the indispensable MRO partner to businesses and institutions.”
*The GAAP financial statements are the source for all amounts used in the Return on Invested Capital (ROIC) calculation. ROIC is calculated using annualized operating earnings based on year-to-date operating earnings divided by a 13 point average for net working assets.
Net working assets are working assets minus working liabilities defined as follows: working assets equal total assets less cash equivalents (non operating cash), deferred taxes, and investments in unconsolidated entities, plus the LIFO reserve.
Working liabilities are the sum of trade payables, accrued compensation and benefits, accrued contributions to employees’ profit sharing plans, and accrued expenses.
** Reported 2008 EPS were $6.04, which was restated after adopting FSP 03-6-1 on January 1, 2009, resulting in a 7 cent reduction in EPS in 2008 and 6 cents in 2009. (See page K-41 of the company’s 2008 10-K for additional information).
Ryan added, “We are seeing some initial signs of improvement in the overall economy, although job growth is expected to lag the recovery. Stronger sales growth in December and January give us greater confidence to raise our 2010 sales growth guidance to a range of 6 to 10 percent and our earnings per share guidance to the new range of $5.40 to $5.90.
We remain cautiously optimistic about the economy and are executing on the things we can control like our customer service and high product availability. As a result, we are well positioned for continued share gain, particularly as many competitors have been forced to reduce inventories.”
The company had previously issued 2010 guidance of 4 to 9 percent sales growth and earnings per share of $5.30 to $5.80.
For the 2009 fourth quarter, sales of $1.6 billion increased 3 percent versus the fourth quarter of 2008. There were 64 sales days in both the 2009 and 2008 fourth quarters. Daily sales decreased 3 percent in October, increased 2 percent in November and increased 11 percent in December.
The 3 percent increase for the quarter included a 4 percentage point contribution from acquisitions, a 2 percentage point benefit from foreign exchange and a 2 percentage point lift from price increases, partially offset by a 5 percentage point decline in volume.
Net earnings of $97 million decreased 10 percent versus $108 million in 2008. Earnings per share of $1.27 decreased 7 percent versus $1.37 in 2008. The effect of adopting FSP 03-6-1 was a 1 cent per share reduction in the fourth quarter of 2009 and 2 cents in the 2008 quarter.
During the quarter, the company continued to lower its cost structure by closing branches and reducing headcount. In total, 12 branches, including 6 Will Call Express locations, were closed. These closures, along with other asset write-downs, resulted in asset impairment charges of $9 million or 7 cents per share.
In addition, the company reduced headcount by another 200 positions in the 2009 fourth quarter, incurring $7.5 million or 5 cents per share in severance cost. For the full year 2009, the company eliminated approximately 600 positions and incurred $18 million in severance or 11 cents per share.
Effective with the first quarter of 2009, the company has two reportable business segments, the United States and Canada, which represent approximately 98 percent of full year company sales. This reporting structure reflects the integration of Lab Safety Supply with Grainger’s U.S. branch-based business.
The remaining operating units (Japan, Mexico, India, Puerto Rico, China and Panama) are included in other businesses and are not considered a segment. The company acquired Asia Pacific Brands India Private Limited in June 2009 resulting in the inclusion of the India operations in other businesses in the third quarter.
The company also acquired a majority ownership of MonotaRO in September 2009, consolidated this Japanese entity in its balance sheet as of the end of the third quarter and began consolidating its income statement in the fourth quarter.
United States
Sales for the United States segment decreased 2 percent in the 2009 fourth quarter, with daily sales down 7 percent in October, down 3 percent in November and up 5 percent in December. Acquisitions and the timing of the Christmas holiday accounted for 3 percentage points of the sales growth in December.
Grainger serves a diverse set of customer end-markets in the United States. During the quarter, sales to government and commercial customers increased versus the 2008 fourth quarter, while sales to resellers, contractors, manufacturing and retail customers declined.
Throughout 2009, Grainger added products to its already broad offering that will result in having approximately 307,000 in-stock products in the 2010 catalog. Product line expansion contributed $260 million in sales for the fourth quarter versus $185 million in the 2008 fourth quarter. Products added over the last four years resulted in $934 million in sales in 2009.
Also contributing to segment performance in the quarter was ongoing work to integrate Lab Safety Supply with Grainger Industrial Supply. The company still expects this combination to deliver $70-$100 million in incremental revenue and $20-$30 million in cost savings by mid-2010. Through the end of 2009, the integration has generated $44 million of the additional revenue and $22 million of the cost savings.
Operating earnings for the quarter were down 6 percent in the United States, the result of operating expenses declining at a slower rate than sales.
The decline in operating expenses was primarily the result of lower payroll-related expenses, reduced commissions and no bonus accruals, partially offset by higher severance and asset impairment charges particularly related to the branch closings. Gross profit margins for the quarter were flat with the prior year.
Canada
Sales for the Acklands-Grainger business in the quarter were up 11 percent versus the 2008 fourth quarter in U.S. dollars. In local currency, sales were down 3 percent for the quarter and on a daily basis were down 7 percent in October, down 8 percent in November and up 7 percent in December. Sales performance in December benefited from some large customer orders and the incremental sales from an acquisition.
From a customer sector standpoint, the 3 percent sales decline for the quarter was attributable to continued weakness among heavy manufacturing, contractor and forestry, partially offset by growth among utilities, government and agriculture and mining.
Operating earnings in Canada increased 59 percent in the 2009 fourth quarter and were up 38 percent in local currency. This improvement resulted from the sales increase, a 0.9 percentage point improvement in gross profit margins, and operating expenses which increased at a slower rate than sales.
The improvement in gross margins was driven by a year-end inventory pick up primarily attributable to lower than forecasted transportation and product costs. Product costs were lower than expected due in part to favorable foreign exchange.
The 2008 fourth quarter included a charge for the bankruptcy of a provider of freight payment services. Excluding these items, operating earnings were up 6 percent in U.S. dollars, and down 7 percent in local currency, versus 2008.
Other Businesses
Sales for the other businesses, which now include Japan, Mexico, India, Puerto Rico, China, and Panama, were up 214 percent for the 2009 fourth quarter versus prior year. The sales increase was due primarily to the acquisition of the businesses in India and Japan, along with contributions from Mexico and China.
Operating losses for other businesses were $3 million in both the 2009 and 2008 quarters.
Taxes
The fourth quarter 2009 tax rate of 40.6 percent includes the effect of a one-time tax expense resulting from tax law changes in Mexico. Excluding the effect of this one-time expense, the effective tax rate for the fourth quarter was 39.1 percent.
The effective tax rate for the year 2009 was also 39.1 percent, excluding the effects of the Mexican tax expense recognized in the fourth quarter and a tax benefit recorded in the 2009 third quarter.
Cash Flow
Operating cash flow was $223 million versus $195 million in the 2008 fourth quarter. For the full year, the company generated $732 million in operating cash flow versus $530 million in 2008. The company used cash from operations to fund capital expenditures of $53 million in the quarter versus $54 million in the fourth quarter of 2008.
Capital expenditures for the year were $142 million versus $195 million in 2008. The company paid $35 million in dividends to shareholders and repurchased 2.5 million shares of stock in the quarter. For the full year, Grainger returned $507 million in cash to shareholders in the form of dividends and share repurchases.
After buying back 4.5 million shares of stock in 2009, approximately 3.1 million shares remain under the current repurchase authorization at the end of the year.
W.W. Grainger, Inc. with 2009 sales of $6.2 billion is the leading broad line supplier of facilities maintenance products serving businesses and institutions in the United States and Canada, with an expanding presence in Japan, Mexico, India, China and Panama.
Through a highly integrated network including branches, distribution centers and Web sites, Grainger’s employees help customers get the job done.
Visit grainger.com/investor to view information about the company, including a history of daily sales by segment and a podcast regarding fourth quarter 2009 results.
Okay, I’ll admit this is a stretch from the usual talk about hydrogen cars and vehicles. Let’s chalk this one up to “hydrogen transportation” or at least “hydrogen assisted transportation”.
The idea of alternative fuel has been pushed to a new level as a car powered by government office wastepaper and waste cardboard is about to be driven on the streets of Washington DC. The impressive demonstration is possible due to global bioinnovation company Novozymes and Maryland-based Fiberight.
Google Reader just got a very interesting new feature, the ability to keep track of any website even if doesn’t have an RSS or Atom feed set up. Even if there are plenty of those heralding the impending demise of the technology, most sites these days, certainly all news sites, blogs and any other with episodic content, have a feed, but t… (
EV infrastructure developer Better Place announced today it managed to secure an extra $350 million in fresh equity as part of a second round of financing aimed at making the company fully operational by 2011, when Renault, its partner, will be ready to launch the first electric vehicle, the Fluence ZE. 