Thursday, October 14, 2010

Grainger reports 19 percent sales growth in Q3

Distributor raises outlook for year; will hire 150 sales reps

Broad line distributor Grainger Inc. reported today third quarter sales of $1.9billion, an increase of 19 percent versus the 2009 third quarter. Both quarters had the same number of selling days (64). Net earnings for the quarter increased 4 percent to $150 million versus $145 million in 2009.

Earnings per share increased 10 percent to $2.06 versus $1.88 for the third quarter of 2009. In the third quarter of 2009, Grainger obtained a majority ownership of MonotaRO Co., Ltd. in Japan, and recognized a one-time, non-operating gain of $47 million pre-tax, or $0.37 per share, from the revaluation of this investment. The third quarter of 2010, similar to the first two quarters of the year, benefitted from a policy change for employee paid time off that contributed $0.07 per share. Excluding these unusual items from both periods, net earnings increased 25 percent and earnings per share were up 32 percent for the quarter.

"Our focus on the foundational elements of our business, including industry-leading product availability, outstanding customer service and our ability to leverage economies of scale, was responsible for our strong performance in the quarter," said Chairman, President and Chief Executive Officer Jim Ryan.

Ryan added, "We're taking advantage of our strong financial position by accelerating our investment in growth by hiring another 150 sales representatives and onsite inventory services managers, expanding our eCommerce capabilities and further developing services that complement our broad product offering.

“We expect that these investments will contribute to continued market share growth by helping our customers improve their productivity. In the near term however, we expect fourth quarter organic revenue growth to moderate given increasingly tougher comparisons, lower sales contribution from products used to clean up the Gulf of Mexico oil spill and the slowing of the inventory build cycle with our customers. Our strong performance in the first nine months of the year, combined with our expectations for the fourth quarter, gives us confidence to raise our 2010 sales growth guidance to a range of 14 to 15 percent and increase our earnings per share guidance to a range of $6.40 to $6.70, excluding unusual items."

Previous guidance, issued by Grainger in July 2010, forecasted sales growth of 12 to 14 percent and earnings per share of $6.10 to $6.40 for the full year 2010.
Daily sales for the company increased 21 percent in July, 20 percent in August and 18percent in September. For the quarter, acquisitions contributed 5 percentage points, while sales of oil spill related products contributed 3 percentage points. Sales of seasonal products and foreign exchange added 1percentage point each to sales growth in the quarter. Pricing was flat while volume increased 9 percent.

Company operating earnings of $251 million increased 35 percent in the quarter versus $187 million in the third quarter of 2009

The company has two reportable segments, the United States and Canada, which represent approximately 95 percent of company sales. The remaining operating units (Japan, Mexico, India, Puerto Rico, China, Panama and Colombia) are included in Other Businesses and are not considered a reportable segment.
Sales for the quarter in the United States segment increased 15 percent, 13 percent excluding acquisitions. Daily sales increased 17 percent in July, 15 percent in August and 13 percent in September. Sales of products related to the oil spill clean up contributed 3 percentage points to growth in the quarter. Sales of seasonal products added 1 percentage point due to the hot weather experienced across much of the United States in July and August. All customer end markets within the United States posted sales growth versus the 2009 third quarter.

Sales for the Acklands-Grainger business increased 22 percent in U.S.dollars and 15 percent in local currency versus the 2009 third quarter. Acquisitions completed during the last 12 months contributed 3 percentage points to the growth in the quarter. Local currency sales on a daily basis were up 13 percent in July, up 14percent in August and up 19 percent in September. The sales increase in Canada was led by strong growth to customers in the heavy manufacturing, forestry, mining, and oil and gas sectors of the economy, partially offset by a decline in sales to the government and contractors.

Operating earnings in Canada increased 74 percent in the quarter, 64 percent in local currency.

Sales for the Other Businesses, which include Japan, Mexico, India, Puerto Rico, China, Panama and Colombia, increased 191 percent in the quarter versus prior year. This growth was primarily due to incremental sales from the Japanese and Colombian businesses acquired in the last 12 months, combined with strong sales growth in Mexico, India, China and Panama.

The company also announced it has acquired SafetyCertified, a risk and management firm. Please see our previous post.

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