Financial Data and Key Metrics Changes - The company reported sales growth of 18.2% or 17.9% on a daily constant currency basis, driven by strong performance in both segments [13][19] - Total company gross profit margin finished at 37.9%, expanding 245 basis points year-over-year, with an operating margin of 14.6%, an increase of 305 basis points [14][19] - Adjusted return on invested capital (ROIC) was 41%, with $163 million returned to shareholders through share repurchases and dividends [14][15] Business Line Data and Key Metrics Changes - High-Touch Solutions North America saw exceptional daily sales growth of 18.2%, outgrowing the broader MRO market by 550 basis points [13][19] - Endless Assortment segment sales increased by 12.1% or 10.4% on a daily basis, with MonotaRO achieving 18.4% growth in local currency [25][19] Market Data and Key Metrics Changes - The U.S. MRO market is estimated to have grown between 12.5% and 13.5%, indicating the company achieved roughly 550 basis points of market outgrowth [24] - Canadian daily sales were up 10% or 11.8% in local currency, with strong growth in manufacturing [20] Company Strategy and Development Direction - The company continues to focus on executing key growth initiatives, driving operational excellence, and strengthening its culture [16][32] - Strategic investments in marketing, remerchandising, and technology are aimed at maintaining competitive pricing and improving service levels [12][16] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges from inflation, supply chain issues, and geopolitical tensions but expressed confidence in navigating these challenges [9][10] - The company raised its full-year 2022 guidance, expecting daily sales growth between 11% and 14% and EPS between $25 and $27, representing over 30% earnings growth year-over-year at the midpoint [30][29] Other Important Information - The company was recognized as one of Fortune's 100 Best Companies to Work For, reflecting its strong organizational culture [8] - The pandemic-related sales mix has returned to pre-pandemic levels, with expectations of stability in gross margins moving forward [22][55] Q&A Session Summary Question: Update on Canadian operations and profitability - Management indicated that the Canadian business is on a sustainable path to profitability, with signs of share gain returning and a good cost structure [36] Question: Customer demand and energy sector insights - Management noted that customers across various sectors, including heavy manufacturing, are experiencing strong demand despite global uncertainties [40] Question: High-Touch business profit margins outlook - Management expects Q1 to be the high watermark for profit margins, with seasonal pricing adjustments anticipated throughout the year [42] Question: Market share and growth potential with midsized customers - Management expressed confidence in improving margins in Canada and indicated that there is potential for growth in the midsized customer segment [46][70] Question: Supply chain challenges and product availability - Management stated that while there are still supply chain challenges, they have effectively managed to find alternatives and minimize missed sales [72] Question: Pricing strategy and inflation impact - Management expects price increases to moderate but remain healthy, with a specific outlook of 6% to 7% price growth in High-Touch U.S. for the year [88][86]

Part I [Business](index=4&type=section&id=Item%201%3A%20Business) W.W. Grainger, Inc. is a broad-line B2B distributor of MRO products, operating primarily in North America, Japan, and the UK through High-Touch Solutions N.A. and Endless Assortment segments - Grainger is a B2B distributor of MRO products, operating primarily in North America, Japan, and the UK[14](index=14&type=chunk) - The company operates under two reportable segments effective January 1, 2021: **High-Touch Solutions N.A.** and **Endless Assortment**[17](index=17&type=chunk) - Grainger serves over **4.5 million customers** worldwide, with no single customer representing more than **3% of total sales** in 2021[23](index=23&type=chunk) - The company sources from approximately **5,000 suppliers**, with no single supplier accounting for more than **5% of total purchases** in 2021[29](index=29&type=chunk) - Private label products, bearing trademarks like DAYTON® and SPEEDAIRE®, constituted about **19% of 2021 sales**[33](index=33&type=chunk) [Business Segments](index=4&type=section&id=Item%201%3A%20Business%23Segments) Grainger's business is structured into High-Touch Solutions N.A. for complex MRO needs and Endless Assortment for online platforms - **High-Touch Solutions N.A.:** Serves customers with complex buying needs in the U.S., Canada, Mexico, and Puerto Rico through Grainger-branded businesses[19](index=19&type=chunk) - **Endless Assortment:** Includes Zoro (U.S., U.K.) and MonotaRO (Japan), offering millions of products via a streamlined online platform[20](index=20&type=chunk) - **Other:** Comprises smaller international high-touch businesses, primarily in the U.K., and businesses divested in 2020 (Fabory and China)[21](index=21&type=chunk) [Human Capital](index=7&type=section&id=Item%201%3A%20Business%23Human%20Capital) Grainger employed approximately 24,200 team members as of December 31, 2021, emphasizing culture, diversity, and safety Team Member Profile (as of Dec 31, 2021) | Metric | Value | | :--- | :--- | | Total Team Members | ~24,200 | | Full-time | ~22,700 | | Part-time/Temporary | ~1,500 | | Location - North America | ~86% | | Location - Asia | ~8% | | Location - Europe | ~6% | 2021 U.S. Safety Metrics | Metric | Rate | | :--- | :--- | | OSHA Total Recordable Incident Rate | 1.2 | | Lost Time Incident Rate | 0.3 | Diversity & Inclusion Statistics (as of Dec 31, 2021) | Group | Female Representation | Racially/Ethnically Diverse Representation | | :--- | :--- | :--- | | Board of Directors | ~31% | ~31% | | CEO's Leadership Team | ~43% | ~29% | | U.S. Workforce | ~39% | ~37% | [Executive Officers](index=10&type=section&id=Item%201%3A%20Business%23Executive%20Officers) This section details Grainger's executive officers as of January 31, 2022, including their positions and backgrounds Executive Officers (as of Jan 31, 2022) | Name | Age | Position | | :--- | :--- | :--- | | D.G. Macpherson | 54 | Chairman of the Board and Chief Executive Officer | | Deidra C. Merriwether | 53 | Senior Vice President and Chief Financial Officer | | Paige K. Robbins | 53 | Senior Vice President and President, Grainger Business Unit | | Kathleen S. Carroll | 53 | Senior Vice President and Chief Human Resources Officer | | John L. Howard | 64 | Senior Vice President and General Counsel | | Laurie R. Thomson | 48 | Vice President, Controller and principal accounting officer | [Risk Factors](index=11&type=page&id=Item%201A%3A%20Risk%20Factors) Grainger faces significant risks from supply chain disruptions, inflation, cybersecurity, and its substantial $2.4 billion debt - **Industry/Market Risks:** The COVID-19 pandemic continues to pose risks through supply chain disruptions, shifts in product demand, and higher costs. Inflation could also negatively impact gross margins and net earnings[56](index=56&type=chunk)[57](index=57&type=chunk)[66](index=66&type=chunk) - **Operational Risks:** The company is vulnerable to interruptions in its information systems and cybersecurity incidents, which could be heightened by remote work arrangements. Failure to attract and retain key talent is also a significant risk[86](index=86&type=chunk)[89](index=89&type=chunk)[100](index=100&type=chunk) - **Regulatory/Legal Risks:** Grainger is subject to a wide array of domestic and foreign laws, with non-compliance potentially leading to fines and reputational damage. The company also faces risks from product liability litigation and government contract regulations[103](index=103&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) - **Credit/Liquidity Risks:** As of December 31, 2021, Grainger had approximately **$2.4 billion** in consolidated indebtedness, which could limit business flexibility. A downgrade in credit ratings could increase borrowing costs[112](index=112&type=chunk)[113](index=113&type=chunk) [Unresolved Staff Comments](index=20&type=section&id=Item%201B%3A%20Unresolved%20Staff%20Comments) The company reports no unresolved comments from the SEC staff - None[116](index=116&type=chunk) [Properties](index=21&type=section&id=Item%202%3A%20Properties) Grainger owned and leased approximately 29.2 million square feet of facilities as of December 31, 2021, primarily in North America and Asia Material Facilities by Location (as of Dec 31, 2021) | Location | Facility Type | Size (in thousands sq. ft.) | Segment | | :--- | :--- | :--- | :--- | | U.S. | DCs | 9,132 | High-Touch Solutions N.A. | | U.S. | Branch Locations | 6,407 | High-Touch Solutions N.A. | | U.S. | Other Facilities | 4,805 | High-Touch Solutions N.A. | | Japan | DCs | 3,718 | Endless Assortment | - Total owned and leased facilities amounted to approximately **29.2 million square feet** as of year-end 2021[118](index=118&type=chunk) [Legal Proceedings](index=21&type=section&id=Item%203%3A%20Legal%20Proceedings) Grainger is involved in legal proceedings, including product liability lawsuits from a 2019 refinery explosion and asbestos exposure - The company is a defendant in **16 lawsuits** with approximately **186 plaintiffs** concerning a 2019 chemical refinery explosion in Texas[367](index=367&type=chunk) - Grainger is also a defendant in various lawsuits related to asbestos and/or silica exposure, for which it believes it has strong defenses and insurance coverage[370](index=370&type=chunk) - The company states that information on legal proceedings is further detailed in Note 15 of the financial statements[119](index=119&type=chunk) [Mine Safety Disclosures](index=21&type=section&id=Item%204%3A%20Mine%20Safety%20Disclosures) This section is not applicable to the company - Not applicable[120](index=120&type=chunk) Part II [Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities](index=22&type=section&id=Item%205%3A%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Shareholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Grainger's common stock trades on the NYSE under GWW, with the company repurchasing shares and paying quarterly dividends - Grainger's common stock is traded on the NYSE under the symbol **GWW**[123](index=123&type=chunk) Issuer Purchases of Equity Securities (Q4 2021) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Program | | :--- | :--- | :--- | :--- | | Oct. 1 – Oct. 31 | 138,985 | $423.80 | 138,890 | | Nov. 1 – Nov. 30 | 101,244 | $484.93 | 101,043 | | Dec. 1 – Dec. 31 | 134,893 | $502.16 | 134,359 | | **Total** | **375,122** | | **374,292** | - The company has a share repurchase program authorized on April 28, 2021, for up to **five million shares** with no expiration date. As of December 31, 2021, **3,886,189 shares** remained available for repurchase under this program[126](index=126&type=chunk) [Reserved](index=23&type=section&id=Item%206%3A%20%5BReserved%5D) This item is reserved [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%207%3A%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Grainger's 2021 net sales grew 10.4% to $13.0 billion, with operating earnings up 51.8% and diluted EPS rising 54.8% [Results of Operations](index=26&type=section&id=Item%207%3A%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%23Results%20of%20Operations) In 2021, net sales increased 10.4% to $13.0 billion, operating earnings surged 51.8%, and diluted EPS rose 54.8% Consolidated Statement of Earnings Summary (in millions, except EPS) | Metric | 2021 | 2020 | 2019 | % Change (2021 vs 2020) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $13,022 | $11,797 | $11,486 | 10.4% | | Gross profit | $4,720 | $4,238 | $4,397 | 11.4% | | Operating earnings | $1,547 | $1,019 | $1,262 | 51.8% | | Net earnings attributable to W.W. Grainger, Inc. | $1,043 | $695 | $849 | 50.0% | | Diluted EPS | $19.84 | $12.82 | $15.32 | 54.8% | - The **11.3% daily sales increase** in 2021 was driven by a **10.1% increase in volume/product mix** and a **2.3% increase in price/customer mix**, reflecting a recovery in core, non-pandemic product sales[147](index=147&type=chunk) - Adjusted diluted EPS for 2021 was **$19.84**, a **23% increase** from the adjusted **$16.18** in 2020, which excluded items like restructuring and divestiture charges[164](index=164&type=chunk)[167](index=167&type=chunk) [Segment Analysis](index=30&type=section&id=Item%207%3A%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%23Segment%20Analysis) In 2021, High-Touch Solutions N.A. sales grew 10.5% to $10.2 billion, and Endless Assortment sales increased 18.3% to $2.6 billion High-Touch Solutions N.A. Performance (2021 vs 2020) | Metric | 2021 (in millions) | % Change from 2020 | | :--- | :--- | :--- | | Net sales | $10,186 | 10.5% | | Gross profit | $3,906 | 10.9% | | Operating earnings | $1,334 | 12.9% | Endless Assortment Performance (2021 vs 2020) | Metric | 2021 (in millions) | % Change from 2020 | | :--- | :--- | :--- | | Net sales | $2,576 | 18.3% | | Gross profit | $729 | 21.3% | | Operating earnings | $232 | 39.3% | - The 'Other' segment's operating loss decreased **94% to $19 million** in 2021, primarily due to the absence of impairment charges and losses related to the divested Fabory business that were recorded in 2020[193](index=193&type=chunk) [Financial Condition and Liquidity](index=33&type=section&id=Item%207%3A%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%23Financial%20Condition%20and%20Liquidity) Grainger maintained strong liquidity with $1.5 billion available as of December 31, 2021, despite decreased cash and increased capital expenditures - As of December 31, 2021, the company had cash and cash equivalents of **$241 million** and available liquidity of approximately **$1.5 billion**[201](index=201&type=chunk) Cash Flow Summary (in millions) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $937 | $1,123 | | Net cash used in investing activities | ($226) | ($179) | | Net cash used in financing activities | ($1,039) | ($726) | - Capital expenditures were **$255 million** in 2021 and are projected to be between **$275 million** and **$325 million** in 2022[206](index=206&type=chunk)[207](index=207&type=chunk) Credit Ratings (as of Dec 31, 2021) | Agency | Corporate | Senior Unsecured | Short-term | | :--- | :--- | :--- | :--- | | Moody's | A3 | A3 | P2 | | S&P | A+ | A+ | A1 | [Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%207A%3A%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Grainger is exposed to foreign currency, interest rate, and commodity price risks, which it manages through various strategies and derivative instruments - The company is exposed to foreign currency exchange rate volatility, primarily between the U.S. dollar and the Japanese yen, Canadian dollar, and British pound sterling[224](index=224&type=chunk) - Grainger uses derivative instruments, including interest rate swaps and cross-currency swaps, to manage risks associated with its fixed-rate long-term debt and foreign currency-denominated borrowings[226](index=226&type=chunk)[224](index=224&type=chunk) - The company is exposed to commodity price risk through fuel costs and materials in sourced products, which it mitigates through sourcing strategies and operational scale[228](index=228&type=chunk) [Financial Statements and Supplementary Data](index=38&type=section&id=Item%208%3A%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements, an unqualified auditor's report, and detailed notes on financial policies [Report of Independent Registered Public Accounting Firm](index=38&type=section&id=Item%208%3A%20Financial%20Statements%20and%20Supplementary%20Data%23Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Ernst & Young LLP issued an unqualified opinion on Grainger's financial statements and internal controls, identifying Canadian goodwill valuation as a critical audit matter - The auditor, Ernst & Young LLP, issued an unqualified opinion on the consolidated financial statements and the company's internal control over financial reporting[231](index=231&type=chunk)[232](index=232&type=chunk) - A Critical Audit Matter was identified concerning the valuation of goodwill for the Canadian reporting unit, which had a balance of **$129 million** at year-end[235](index=235&type=chunk)[237](index=237&type=chunk) [Notes to Consolidated Financial Statements](index=45&type=section&id=Item%208%3A%20Financial%20Statements%20and%20Supplementary%20Data%23Notes%20to%20Consolidated%20Financial%20Statements) The notes detail business re-segmentation, divestitures, revenue breakdown, $2.4 billion long-term debt, leases, goodwill, and legal contingencies - **Revenue Breakdown:** In 2021, the High-Touch Solutions N.A. segment accounted for **78% of total revenue**, while the Endless Assortment segment accounted for **20%**. The Manufacturing industry was the largest customer segment at **30% of total revenue**[305](index=305&type=chunk) - **Goodwill:** The company performed its annual goodwill impairment test in Q4 2021 and concluded that the fair value of its reporting units exceeded their carrying amounts. The goodwill balance for the Canada business was **$129 million** as of December 31, 2021[308](index=308&type=chunk)[310](index=310&type=chunk) - **Debt:** As of December 31, 2021, total long-term debt obligations were approximately **$2.4 billion**, primarily consisting of senior notes with maturities ranging from 2025 to 2047[319](index=319&type=chunk)[322](index=322&type=chunk) - **Taxes:** The effective tax rate for 2021 was **25.0%**, up from **20.3%** in 2020. The increase was primarily due to the absence of tax losses from the divested Fabory business that were present in the prior year[356](index=356&type=chunk) [Controls and Procedures](index=68&type=section&id=Item%209A%3A%20Controls%20and%20Procedures) Management and auditors concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[373](index=373&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021, an assessment audited and confirmed by Ernst & Young LLP[376](index=376&type=chunk)[377](index=377&type=chunk) - There were no material changes to internal control over financial reporting during the fourth quarter of 2021[378](index=378&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=72&type=section&id=Item%2010%3A%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 proxy statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2022 proxy statement[393](index=393&type=chunk) [Executive Compensation](index=72&type=section&id=Item%2011%3A%20Executive%20Compensation) Executive and director compensation details are incorporated by reference from the company's 2022 proxy statement - Details on executive compensation are incorporated by reference from the company's 2022 proxy statement[394](index=394&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=72&type=section&id=Item%2012%3A%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership and equity compensation plans is incorporated by reference from the company's 2022 proxy statement - Information on security ownership and equity compensation plans is incorporated by reference from the company's 2022 proxy statement[394](index=394&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=72&type=section&id=Item%2013%3A%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Details on related party transactions and director independence are incorporated by reference from the 2022 proxy statement - Details on related transactions and director independence are incorporated by reference from the company's 2022 proxy statement[395](index=395&type=chunk) [Principal Accountant Fees and Services](index=72&type=section&id=Item%2014%3A%20Principal%20Accountant%20Fees%20and%20Services) Information on principal accountant fees and services is incorporated by reference from the company's 2022 proxy statement - Information on principal accountant fees and services is incorporated by reference from the company's 2022 proxy statement[395](index=395&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=73&type=section&id=Item%2015%3A%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all documents filed as part of the Form 10-K, including financial statements, exhibits, and required certifications - This item provides an index of all financial statements and exhibits filed with the Form 10-K[398](index=398&type=chunk) [Form 10-K Summary](index=76&type=section&id=Item%2016%3A%20Form%2010-K%20Summary) The company reports no Form 10-K summary - None[406](index=406&type=chunk)

Financial Data and Key Metrics Changes - The company achieved $13 billion in sales for the full year 2021, with organic daily sales growth of 12.7% [19] - The operating margin increased to 11.9%, up 65 basis points from the previous year, and the return on invested capital (ROIC) was 31.9% [21] - For Q4 2021, sales were up 16% year-over-year, with a gross profit margin of 37.3%, which was 240 basis points higher than the prior year [22] Business Line Data and Key Metrics Changes - High-Touch Solutions segment saw daily sales growth of 16.5% in Q4 compared to the same quarter in 2020, with gross profit margin at 39.6%, up 250 basis points year-over-year [24][26] - The Endless Assortment segment reported daily sales growth of 15.2%, with MonotaRO's daily sales growing 20.2% in local currency [33] - Core non-pandemic product sales increased by 28% year-over-year in Q4, while pandemic product sales remained elevated, up 41% compared to 2019 [30] Market Data and Key Metrics Changes - The U.S. market grew between 10% and 11%, with the company achieving 650 basis points of market share outgrowth in Q4 [32] - The company expects to grow 300 basis points above the estimated MRO market growth of 4% to 7% in 2022 [36] - Canadian daily sales grew by 12.2%, with positive growth across 11 of 14 industries [25] Company Strategy and Development Direction - The company remains focused on customer needs and strategic initiatives that drive growth, including increased marketing investments and technology enhancements [12][14] - The company aims to execute growth drivers that provide customers with a flawless experience and tangible value [48] - ESG initiatives are being prioritized, with a focus on reducing greenhouse gas emissions and improving supplier diversity [17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating supply chain challenges and maintaining strong customer relationships [68][83] - The outlook for 2022 includes revenue expectations between $14.1 billion and $14.5 billion, with daily sales growth projected between 7.5% and 10.5% [36] - Management anticipates a more normal year with reasonable sequential trends and plans to resume standard guidance practices [45] Other Important Information - The company plans to invest between $275 million and $325 million in capital expenditures, focusing on supply chain and technology investments [43] - A significant LIFO adjustment of around $49 million is expected due to increased inventory and cost inflation [74] - The company is optimistic about the performance of its Endless Assortment segment, particularly Zoro and MonotaRO [35] Q&A Session Summary Question: 2022 guidance on High-Touch Solutions market outgrowth - Management clarified that the expected share gain is primarily driven by volume, with pricing aligned to market [56][57] Question: Zoro margins and operating margin outlook - Management confirmed that expectations for Zoro's operating margin remain unchanged despite recent gross profit improvements [62][63] Question: Supply chain issues and private label manufacturing - Management acknowledged ongoing supply chain challenges but noted successful navigation and prioritization of locally sourced items [68][69] Question: Capital expenditures and investment focus - Management indicated that the increase in CapEx is not a catch-up but a return to normal levels, focusing on maintenance and capacity investments [70][72] Question: LIFO adjustment details - The LIFO adjustment is included in the adjusted results and is significantly larger than historical levels due to inventory investments and cost inflation [74][76] Question: Gross margin outlook for 2022 - Management expects gross margin to stabilize near pre-pandemic levels, with some compression anticipated from the Endless Assortment segment [78] Question: Market share dynamics and supply chain benefits - Management believes the company has benefited from supply chain challenges faced by competitors, enhancing customer relationships [82][83] Question: Medium customer strategy and market share growth - Management noted ongoing recovery in midsized customer sales, with confidence in future growth potential [86] Question: MonotaRO's enterprise customer growth - Management indicated that the competitive market dynamics differ significantly between Japan and the U.S., with enterprise customer growth focused on the Grainger brand [89]

W.W. Grainger, Inc. (NYSE:GWW) Q3 2021 Results Earnings Conference Call October 29, 2021 11:00 AM ET Company Participants D.G. Macpherson – Chairman and CEO Dee Merriwether – Senior Vice President and CFO Irene Holman – Vice President of Investor Relations Conference Call Participants Chris Snyder – UBS Christopher Glynn – Oppenheimer Ryan Merkel – William Blair Deane Dray – RBC Capital Markets David Manthey – Baird Adam Uhlman – Cleveland Research Jacob Levenson – Melius Research Hamzah Mazari – Jefferi ...

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and related notes for W.W. Grainger, Inc [Item 1: Financial Statements (Unaudited)](index=3&type=section&id=Item%201%3A%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for W.W. Grainger, Inc. and its subsidiaries, including statements of earnings, comprehensive earnings, balance sheets, cash flows, and shareholders' equity, along with detailed notes explaining accounting policies, segment information, debt, derivatives, and contingencies [Condensed Consolidated Statements of Earnings](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Earnings) This statement details the company's revenues, costs, and net earnings over specified periods | Metric | Three Months Ended Sep 30, 2021 (Millions $) | Three Months Ended Sep 30, 2020 (Millions $) | Nine Months Ended Sep 30, 2021 (Millions $) | Nine Months Ended Sep 30, 2020 (Millions $) | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | :----------------------------------------- | :----------------------------------------- | | Net sales | 3,372 | 3,018 | 9,663 | 8,856 | | Gross profit | 1,250 | 1,074 | 3,467 | 3,211 | | Operating earnings | 438 | 380 | 1,130 | 744 | | Net earnings attributable to W.W. Grainger, Inc. | 297 | 240 | 760 | 527 | | Basic EPS | 5.68 | 4.43 | 14.48 | 9.74 | | Diluted EPS | 5.65 | 4.41 | 14.40 | 9.70 | | Cash dividends paid per share | 1.62 | 1.53 | 4.77 | 4.41 | [Condensed Consolidated Statements of Comprehensive Earnings](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Earnings) This statement presents net earnings and other comprehensive income components, leading to total comprehensive earnings | Metric | Three Months Ended Sep 30, 2021 (Millions $) | Three Months Ended Sep 30, 2020 (Millions $) | Nine Months Ended Sep 30, 2021 (Millions $) | Nine Months Ended Sep 30, 2020 (Millions $) | | :------------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :----------------------------------------- | :----------------------------------------- | | Net earnings | 315 | 256 | 813 | 570 | | Total other comprehensive earnings (losses) | (21) | 22 | (52) | 26 | | Comprehensive earnings attributable to W.W. Grainger, Inc. | 277 | 257 | 727 | 547 | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's assets, liabilities, and shareholders' equity at specific points in time | Metric | As of September 30, 2021 (Millions $) | As of December 31, 2020 (Millions $) | | :----------------------------------- | :------------------------------------ | :----------------------------------- | | Cash and cash equivalents | 328 | 585 | | Accounts receivable (net) | 1,742 | 1,474 | | Inventories - net | 1,786 | 1,733 | | Total current assets | 4,005 | 3,919 | | Property, buildings and equipment - net | 1,429 | 1,395 | | Goodwill | 387 | 391 | | Intangibles - net | 233 | 228 | | Total assets | 6,390 | 6,295 | | Total current liabilities | 1,550 | 1,441 | | Long-term debt (less current maturities) | 2,372 | 2,389 | | Total shareholders' equity | 2,117 | 2,093 | | Total liabilities and shareholders' equity | 6,390 | 6,295 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement outlines the cash inflows and outflows from operating, investing, and financing activities | Metric | Nine Months Ended Sep 30, 2021 (Millions $) | Nine Months Ended Sep 30, 2020 (Millions $) | | :----------------------------------- | :----------------------------------------- | :----------------------------------------- | | Net cash provided by operating activities | 724 | 787 | | Net cash used in investing activities | (180) | (132) | | Net cash used in financing activities | (790) | (147) | | Net change in cash and cash equivalents | (257) | 499 | | Cash and cash equivalents at end of period | 328 | 859 | [Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) This statement details changes in equity accounts, including retained earnings and treasury stock, over time - For the nine months ended September 30, 2021, Retained Earnings increased from **$8,779 million** to **$9,301 million**, driven by net earnings of **$297 million** in Q3 2021 and **$225 million** in Q2 2021, partially offset by cash dividends paid. Treasury Stock increased from **$(8,184) million** to **$(8,690) million** due to significant purchases of treasury stock totaling **$525 million**[23](index=23&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [NOTE 1 - BACKGROUND AND BASIS OF PRESENTATION](index=9&type=section&id=NOTE%201%20-%20BACKGROUND%20AND%20BASIS%20OF%20PRESENTATION) This note describes W.W. Grainger, Inc.'s business, operations, and reportable segments - W.W. Grainger, Inc. is a broad line, business-to-business distributor of maintenance, repair and operating (MRO) products and services, primarily operating in North America, Japan, and the United Kingdom[25](index=25&type=chunk) - Effective January 1, 2021, the Company's reportable segments are High-Touch Solutions N.A. (Grainger-branded businesses in U.S., Canada, Mexico, Puerto Rico) and Endless Assortment (Zoro in U.S. and U.K., MonotaRO in Japan). Other international High-Touch Solutions businesses are classified as 'Other'[28](index=28&type=chunk)[29](index=29&type=chunk) [NOTE 2 - NEW ACCOUNTING STANDARDS](index=9&type=section&id=NOTE%202%20-%20NEW%20ACCOUNTING%20STANDARDS) This note discusses the adoption and evaluation of new accounting standards and their impact on financial statements - The Company adopted ASU 2019-12 (Income Taxes), ASU 2020-01 (Investments), and ASU 2020-10 (Codification Improvements) effective January 1, 2021, none of which had a material impact on the financial statements[30](index=30&type=chunk)[31](index=31&type=chunk)[33](index=33&type=chunk) - The Company is evaluating ASU 2020-04 (Reference Rate Reform), as modified by ASU 2021-01, and does not expect a material impact on the financial statements[34](index=34&type=chunk) [NOTE 3 - REVENUE](index=10&type=section&id=NOTE%203%20-%20REVENUE) This note details the company's revenue recognition policies and disaggregates revenue by industry and segment - Company revenue is primarily from MRO product sales and related activities, with service revenue accounting for approximately **1%** for the three and nine months ended September 30, 2021 and 2020[35](index=35&type=chunk) Revenue by Industry (Three Months Ended Sep 30) | Industry | High-Touch Solutions N.A. (3M 2021) | Endless Assortment (3M 2021) | Total Company (3M 2021) | High-Touch Solutions N.A. (3M 2020) | Endless Assortment (3M 2020) | Total Company (3M 2020) | | :----------- | :---------------------------------- | :--------------------------- | :---------------------- | :---------------------------------- | :--------------------------- | :---------------------- | | Contractors | 9 % | 15 % | 10 % | 8 % | 15 % | 10 % | | Commercial | 9 % | 15 % | 10 % | 9 % | 15 % | 10 % | | Government | 18 % | 3 % | 15 % | 22 % | 3 % | 18 % | | Healthcare | 7 % | 2 % | 6 % | 8 % | 2 % | 6 % | | Manufacturing | 29 % | 30 % | 29 % | 27 % | 27 % | 28 % | | Retail/Wholesale | 9 % | 10 % | 10 % | 9 % | 10 % | 9 % | | Transportation | 5 % | 3 % | 5 % | 5 % | 3 % | 5 % | | Others | 14 % | 22 % | 15 % | 12 % | 25 % | 14 % | | **Percent of Total Company Revenue** | **79 %** | **19 %** | **100 %** | **79 %** | **19 %** | **100 %** | Revenue by Industry (Nine Months Ended Sep 30) | Industry | High-Touch Solutions N.A. (9M 2021) | Endless Assortment (9M 2021) | Total Company (9M 2021) | High-Touch Solutions N.A. (9M 2020) | Endless Assortment (9M 2020) | Total Company (9M 2020) | | :----------- | :---------------------------------- | :--------------------------- | :---------------------- | :---------------------------------- | :--------------------------- | :---------------------- | | Contractors | 9 % | 15 % | 10 % | 9 % | 15 % | 10 % | | Commercial | 9 % | 15 % | 10 % | 9 % | 15 % | 9 % | | Government | 19 % | 3 % | 15 % | 20 % | 3 % | 16 % | | Healthcare | 7 % | 2 % | 6 % | 9 % | 2 % | 7 % | | Manufacturing | 30 % | 29 % | 29 % | 28 % | 29 % | 29 % | | Retail/Wholesale | 9 % | 10 % | 10 % | 9 % | 10 % | 9 % | | Transportation | 5 % | 3 % | 5 % | 5 % | 3 % | 5 % | | Others | 12 % | 23 % | 15 % | 11 % | 23 % | 15 % | | **Percent of Total Company Revenue** | **78 %** | **20 %** | **100 %** | **78 %** | **18 %** | **100 %** | [NOTE 4 - PROPERTY, BUILDINGS AND EQUIPMENT](index=11&type=section&id=NOTE%204%20-%20PROPERTY%2C%20BUILDINGS%20AND%20EQUIPMENT) This note provides a breakdown of the company's property, buildings, and equipment, net of depreciation Property, Buildings and Equipment (Millions $) | Category | As of September 30, 2021 (Millions $) | As of December 31, 2020 (Millions $) | | :----------------------------------- | :------------------------------------ | :----------------------------------- | | Property, buildings and equipment (gross) | 3,340 | 3,537 | | Less: Accumulated depreciation and amortization | 1,911 | 2,142 | | **Property, buildings and equipment - net** | **1,429** | **1,395** | [NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS](index=11&type=section&id=NOTE%205%20-%20GOODWILL%20AND%20OTHER%20INTANGIBLE%20ASSETS) This note details changes in goodwill and other intangible assets, including their carrying amounts and amortization - Goodwill decreased from **$391 million** at December 31, 2020, to **$387 million** at September 30, 2021, primarily due to a **$4 million** translation adjustment in the Endless Assortment segment. No significant impairment indicators were identified in Q3 2021[41](index=41&type=chunk) Intangible Assets (Millions $) | Intangible Asset Category | Weighted Average Life | Gross Carrying Amount (Sep 30, 2021, Millions $) | Net Carrying Amount (Sep 30, 2021, Millions $) | Net Carrying Amount (Dec 31, 2020, Millions $) | | :-------------------------------- | :-------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Customer lists and relationships | 11.8 years | 221 | 46 | 52 | | Trademarks, trade names and other | 14.1 years | 36 | 12 | 14 | | Non-amortized trade names and other | Indefinite | 26 | 26 | 28 | | Capitalized software | 4.2 years | 510 | 149 | 134 | | **Total intangible assets** | **6.9 years** | **793** | **233** | **228** | [NOTE 6 - DEBT](index=13&type=section&id=NOTE%206%20-%20DEBT) This note outlines the company's long-term debt structure, including senior notes and term loans, and their fair values Long-Term Debt (Millions $) | Debt Type | Carrying Value (Sep 30, 2021, Millions $) | Fair Value (Sep 30, 2021, Millions $) | Carrying Value (Dec 31, 2020, Millions $) | Fair Value (Dec 31, 2020, Millions $) | | :-------------------------- | :--------------------------------------- | :------------------------------------ | :--------------------------------------- | :------------------------------------ | | 4.60% senior notes due 2045 | 1,000 | 1,298 | 1,000 | 1,343 | | 3.75% senior notes due 2046 | 400 | 463 | 400 | 479 | | 4.20% senior notes due 2047 | 400 | 497 | 400 | 514 | | 1.85% senior notes due 2025 | 500 | 515 | 500 | 526 | | Japanese Yen term loan | 81 | 81 | 87 | 87 | | Other | 14 | 14 | 34 | 34 | | **Long-term debt (less current maturities)** | **2,372** | **2,845** | **2,389** | **2,951** | - The Company's long-term debt includes **$1.8 billion** in Senior Notes issued between 2015-2017 with maturities up to 2047 and a **$500 million** 1.85% Senior Note due 2025. A **¥9 billion** Japanese Yen term loan, maturing in 2024, was entered into in August 2020 to fund technology and distribution center expansion[44](index=44&type=chunk)[45](index=45&type=chunk)[50](index=50&type=chunk) [NOTE 7 - DERIVATIVE INSTRUMENTS](index=14&type=section&id=NOTE%207%20-%20DERIVATIVE%20INSTRUMENTS) This note describes the company's use of derivative instruments for hedging interest rate and foreign currency risks - The Company uses fair value hedges (interest rate swaps) to hedge fixed-rate long-term debt, with a notional amount of **$500 million** as of September 30, 2021. It also uses cash flow hedges (cross-currency swaps) to manage foreign currency risk on intercompany borrowings, with a notional amount of approximately **$34 million**[48](index=48&type=chunk)[49](index=49&type=chunk) Derivative Instruments (Millions $) | Derivative Type | Balance Sheet Classification | Fair Value and Carrying Amounts (Sep 30, 2021, Millions $) | Fair Value and Carrying Amounts (Dec 31, 2020, Millions $) | | :------------------ | :--------------------------- | :------------------------------------------------------- | :------------------------------------------------------- | | Cross-currency swap | Other non-current liabilities | 2 | 2 | | Interest rate swap | Other assets | 9 | 21 | [NOTE 8 - INCOME TAXES](index=16&type=section&id=NOTE%208%20-%20INCOME%20TAXES) This note presents the income tax provision and effective tax rates for the reported periods, explaining key drivers Income Tax Provision and Effective Tax Rate (Millions $) | Metric | Three Months Ended Sep 30, 2021 (Millions $) | Three Months Ended Sep 30, 2020 (Millions $) | Nine Months Ended Sep 30, 2021 (Millions $) | Nine Months Ended Sep 30, 2020 (Millions $) | | :-------------------------- | :------------------------------------------ | :------------------------------------------ | :----------------------------------------- | :----------------------------------------- | | Income tax provision | 107 | 106 | 271 | 118 | | Effective tax rate | 25.5 % | 29.3 % | 25.0 % | 17.3 % | - The change in effective tax rate for both the three and nine months ended September 30, 2021, was primarily due to the absence of tax impacts and prior year net tax benefits from the Fabory business divestiture in 2020[55](index=55&type=chunk) [NOTE 9 - DIVIDEND](index=16&type=section&id=NOTE%209%20-%20DIVIDEND) This note reports on the quarterly cash dividends declared by the company's Board of Directors - On October 27, 2021, the Board of Directors declared a quarterly dividend of **$1.62** per share, payable December 1, 2021[56](index=56&type=chunk) [NOTE 10 - SEGMENT INFORMATION](index=16&type=section&id=NOTE%2010%20-%20SEGMENT%20INFORMATION) This note provides financial performance data, including net sales and operating earnings, for each reportable segment Segment Performance (Three Months Ended Sep 30, Millions $) | Segment | Net Sales (3M 2021, Millions $) | Operating Earnings (3M 2021, Millions $) | Net Sales (3M 2020, Millions $) | Operating Earnings (3M 2020, Millions $) | | :------------------------ | :------------------------------ | :------------------------------------- | :------------------------------ | :------------------------------------- | | High-Touch Solutions N.A. | 2,663 | 387 | 2,377 | 334 | | Endless Assortment | 646 | 59 | 572 | 48 | | Other | 63 | (8) | 69 | (2) | | **Total Company** | **3,372** | **438** | **3,018** | **380** | Segment Performance (Nine Months Ended Sep 30, Millions $) | Segment | Net Sales (9M 2021, Millions $) | Operating Earnings (9M 2021, Millions $) | Net Sales (9M 2020, Millions $) | Operating Earnings (9M 2020, Millions $) | | :------------------------ | :------------------------------ | :------------------------------------- | :------------------------------ | :------------------------------------- | | High-Touch Solutions N.A. | 7,558 | 975 | 6,929 | 933 | | Endless Assortment | 1,913 | 172 | 1,593 | 125 | | Other | 192 | (17) | 334 | (314) | | **Total Company** | **9,663** | **1,130** | **8,856** | **744** | [NOTE 11 - CONTINGENCIES, LEGAL MATTERS, COMMITMENTS AND OTHER CONTRACTUAL OBLIGATIONS](index=18&type=section&id=NOTE%2011%20-%20CONTINGENCIES%2C%20LEGAL%20MATTERS%2C%20COMMITMENTS%20AND%20OTHER%20CONTRACTUAL%20OBLIGATIONS) This note discloses ongoing legal proceedings, contingencies, and contractual obligations - The Company is involved in various legal and administrative proceedings, including product liability lawsuits related to a KMCO chemical refinery incident (**16 lawsuits**, ~**186 plaintiffs**) and asbestos/silica claims. The Company intends to vigorously contest these matters and believes their ultimate resolution will not have a material adverse effect on its financial condition or results of operations[61](index=61&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk)[64](index=64&type=chunk)[65](index=65&type=chunk)[66](index=66&type=chunk) - There were no material changes to the Company's commitments and other contractual obligations from those disclosed in its 2020 Form 10-K[67](index=67&type=chunk) [Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202%3A%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial performance, condition, and results of operations for the three and nine months ended September 30, 2021, highlighting key drivers, segment performance, and the ongoing impact of the COVID-19 pandemic [General Business Overview](index=19&type=section&id=General%20Business%20Overview) This section provides an overview of W.W. Grainger, Inc.'s business model and operational segments - W.W. Grainger, Inc. is a broad line, business-to-business distributor of maintenance, repair and operating (MRO) products and services, primarily in North America, Japan, and the U.K[69](index=69&type=chunk) - The Company operates through two reportable segments: High-Touch Solutions N.A. (Grainger-branded businesses) and Endless Assortment (Zoro and MonotaRO online channels)[70](index=70&type=chunk) [Strategic Priorities and COVID-19 Impact](index=19&type=section&id=Strategic%20Priorities%20and%20COVID-19%20Impact) This section discusses the company's strategic goals and the ongoing effects of the COVID-19 pandemic on its operations - Grainger's strategic priorities are to 'Keep the World Working' and expand its leadership in the MRO space. These priorities are continuously impacted by the COVID-19 pandemic[71](index=71&type=chunk) - The COVID-19 pandemic continues to cause significant disruptions in supply chains, transportation efficiency, raw materials, and labor availability, while demand for core, non-pandemic products has increased as industries recover[73](index=73&type=chunk) - The Company cannot reasonably estimate the full extent of the pandemic's impact but remains focused on servicing customers, supporting employees, and maintaining a strong financial position[74](index=74&type=chunk) [Matters Affecting Comparability](index=20&type=section&id=Matters%20Affecting%20Comparability) This section explains factors impacting the comparability of financial results, including prior year divestitures and sales mix shifts - Comparability is affected by prior year divestitures of Fabory (June 2020), China (August 2020), and the liquidation of Zoro Tools Europe (November 2020)[78](index=78&type=chunk) - The mix of sales has shifted from elevated COVID-19 pandemic-related products (e.g., PPE) in early 2020 to increased core, non-pandemic product sales in 2021, impacting gross margin due to lower margins on pandemic-related products[79](index=79&type=chunk) [Results of Operations – Three Months Ended September 30, 2021](index=20&type=section&id=Results%20of%20Operations%20%E2%80%93%20Three%20Months%20Ended%20September%2030%2C%202021) This section analyzes the company's financial performance for the three-month period, highlighting key revenue and earnings drivers Key Financial Metrics (Three Months Ended Sep 30, Millions $) | Metric | 3 Months Ended Sep 30, 2021 (Millions $) | 3 Months Ended Sep 30, 2020 (Millions $) | % Increase/(Decrease) | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | | Net sales | 3,372 | 3,018 | 11.7 % | | Gross profit | 1,250 | 1,074 | 16.3 % | | Gross profit margin | 37.1 % | 35.6 % | +1.5 ppts | | SG&A | 812 | 694 | 16.7 % | | Operating earnings | 438 | 380 | 15.6 % | | Net earnings attributable to W.W. Grainger, Inc. | 297 | 240 | 23.7 % | - Net sales increased **11.7%** driven by volume increases in both High-Touch Solutions N.A. and Endless Assortment segments, with significant growth in core, non-pandemic products as the economy improved[80](index=80&type=chunk) - Gross profit margin increased **1.5 percentage points** to **37.1%**, primarily due to price realization and higher sales volume for core, non-pandemic products[81](index=81&type=chunk) - SG&A increased **17%** due to higher wages, variable compensation, healthcare costs, and marketing expenses[83](index=83&type=chunk) [High-Touch Solutions N.A. (3 Months)](index=22&type=section&id=High-Touch%20Solutions%20N.A.%20(3%20Months)) This section details the financial performance of the High-Touch Solutions N.A. segment for the three-month period - Net sales increased **12.0%** to **$2,663 million**, driven by **8.6%** from volume (including product mix) and **3.0%** from price and customer mix[93](index=93&type=chunk) - Gross profit margin increased **1.4 percentage points** due to price realization and higher sales volume for core, non-pandemic products[95](index=95&type=chunk) - Operating earnings increased **16%** to **$387 million**, primarily from higher gross profit dollars partially offset by increased SG&A[96](index=96&type=chunk) [Endless Assortment (3 Months)](index=22&type=section&id=Endless%20Assortment%20(3%20Months)) This section details the financial performance of the Endless Assortment segment for the three-month period - Net sales increased **12.7%** to **$646 million**, driven by **14.9%** from volume/price/mix, partially offset by a **2.2%** negative foreign exchange impact[97](index=97&type=chunk) - Gross profit margin increased **1.2 percentage points**, driven by pricing actions and freight efficiency at Zoro[98](index=98&type=chunk) - Operating earnings increased **24%** to **$59 million**, primarily due to higher sales volume from strong customer acquisitions[101](index=101&type=chunk) [Other Businesses (3 Months)](index=23&type=section&id=Other%20Businesses%20(3%20Months)) This section details the financial performance of the company's other businesses for the three-month period - Net sales decreased **6.1%** to **$63 million**, primarily due to the China business divestiture (**-11.9%**), partially offset by favorable foreign exchange for the Cromwell business (**+5.8%**)[102](index=102&type=chunk)[103](index=103&type=chunk) - Operating losses increased to **$8 million** from **$2 million** in the prior year, driven by higher SG&A expenses[104](index=104&type=chunk) [Results of Operations – Nine Months Ended September 30, 2021](index=24&type=section&id=Results%20of%20Operations%20%E2%80%93%20Nine%20Months%20Ended%20September%2030%2C%202021) This section analyzes the company's financial performance for the nine-month period, highlighting key revenue and earnings drivers Key Financial Metrics (Nine Months Ended Sep 30, Millions $) | Metric | 9 Months Ended Sep 30, 2021 (Millions $) | 9 Months Ended Sep 30, 2020 (Millions $) | % Increase/(Decrease) | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | | Net sales | 9,663 | 8,856 | 9.1 % | | Gross profit | 3,467 | 3,211 | 8.0 % | | Gross profit margin | 35.9 % | 36.3 % | -0.4 ppts | | SG&A | 2,337 | 2,467 | (5.3)% | | Operating earnings | 1,130 | 744 | 52.0 % | | Net earnings attributable to W.W. Grainger, Inc. | 760 | 527 | 44.3 % | - Net sales increased **9.1%** (**9.7%** daily basis), driven by volume and product mix, partially offset by prior year business divestitures. Core, non-pandemic product sales improved as pandemic-related demand tapered[107](index=107&type=chunk) - Gross profit margin decreased **0.4 percentage points** to **35.9%**, primarily due to pandemic-related inventory adjustments in the first half of 2021, partially offset by Q3 price realization[108](index=108&type=chunk) - SG&A decreased **5%** due to impairment charges and losses from the divested Fabory business in 2020. Excluding these, SG&A increased **7%** due to higher wages, variable compensation, healthcare, and marketing[109](index=109&type=chunk)[112](index=112&type=chunk) [High-Touch Solutions N.A. (9 Months)](index=26&type=section&id=High-Touch%20Solutions%20N.A.%20(9%20Months)) This section details the financial performance of the High-Touch Solutions N.A. segment for the nine-month period - Net sales increased **9.1%** (**9.6%** daily basis) to **$7,558 million**, driven by **6.7%** from volume (including product mix) and **2.3%** from price and customer mix[120](index=120&type=chunk) - Gross profit margin decreased **0.7 percentage points** due to U.S. business inventory adjustments on pandemic-related products in H1 2021, partially offset by Q3 price realization and product mix[122](index=122&type=chunk) - Operating earnings increased **5%** to **$975 million**, driven by higher gross profit dollars partially offset by increased SG&A expenses[123](index=123&type=chunk) [Endless Assortment (9 Months)](index=26&type=section&id=Endless%20Assortment%20(9%20Months)) This section details the financial performance of the Endless Assortment segment for the nine-month period - Net sales increased **20.0%** (**20.7%** daily basis) to **$1,913 million**, driven by **20.5%** from volume/price/mix[124](index=124&type=chunk) - Gross profit margin increased **0.8 percentage points**, primarily due to pricing actions and freight efficiency at Zoro[125](index=125&type=chunk) - Operating earnings increased **38%** to **$172 million**, driven by higher sales from strong customer acquisitions, partially offset by increased SG&A[127](index=127&type=chunk) [Other Businesses (9 Months)](index=27&type=section&id=Other%20Businesses%20(9%20Months)) This section details the financial performance of the company's other businesses for the nine-month period - Net sales decreased **42.0%** to **$192 million**, primarily due to the Fabory and China business divestitures (**-47.6%**), partially offset by favorable foreign exchange and volume increases at Cromwell[129](index=129&type=chunk)[130](index=130&type=chunk) - Operating losses improved by **$297 million** to **$17 million**, largely due to the absence of impairment and losses related to the divested Fabory business in the prior year[132](index=132&type=chunk) [Financial Condition](index=28&type=section&id=Financial%20Condition) This section assesses the company's liquidity, cash flows, working capital, and debt position [Cash, Cash Equivalents and Liquidity](index=28&type=section&id=Cash%2C%20Cash%20Equivalents%20and%20Liquidity) This section discusses changes in cash and cash equivalents and the company's overall liquidity position - Cash and cash equivalents decreased from **$585 million** at December 31, 2020, to **$328 million** at September 30, 2021, primarily due to resuming capital investments and share repurchases[136](index=136&type=chunk) - As of September 30, 2021, the Company had approximately **$1.8 billion** in available liquidity and expects to meet liquidity needs for the next twelve months through cash, equivalents, and revolving credit facilities[135](index=135&type=chunk)[136](index=136&type=chunk) [Cash Flows](index=28&type=section&id=Cash%20Flows) This section analyzes the company's cash generation and usage across operating, investing, and financing activities - Net cash provided by operating activities decreased to **$724 million** for the nine months ended September 30, 2021, from **$787 million** in the prior year, mainly due to the net impacts from the divested Fabory business, partially offset by higher net earnings[137](index=137&type=chunk) - Net cash used in investing activities increased to **$180 million** from **$132 million**, driven by higher capital additions to supply chain infrastructure and lower proceeds from asset sales[138](index=138&type=chunk) - Net cash used in financing activities increased significantly to **$790 million** from **$147 million**, primarily due to higher treasury stock repurchases and prior year long-term debt borrowings[139](index=139&type=chunk) [Working Capital](index=28&type=section&id=Working%20Capital) This section examines the company's working capital components and their impact on financial flexibility - Working capital increased by **$130 million** to **$2,350 million** at September 30, 2021, compared to **$2,220 million** at December 31, 2020, driven by an increase in accounts receivable partially offset by an increase in accounts payable[141](index=141&type=chunk) - The ratio of current assets to current liabilities remained stable at **2.6** for both periods[141](index=141&type=chunk) [Debt](index=28&type=section&id=Debt) This section provides an overview of the company's debt structure and credit ratings - Total debt as a percentage of total capitalization was **55.1%** at September 30, 2021, a slight decrease from **55.6%** at December 31, 2020[142](index=142&type=chunk) Credit Ratings | Rating Agency | Corporate | Senior Unsecured | Short-term | | :-------------- | :-------- | :--------------- | :--------- | | Moody's | A3 | A3 | P2 | | S&P | A+ | A+ | A1 | [Commitments and Other Contractual Obligations](index=29&type=section&id=Commitments%20and%20Other%20Contractual%20Obligations) This section confirms no material changes to the company's contractual obligations since the last annual report - There were no material changes to the Company's commitments and other contractual obligations from those disclosed in its 2020 Form 10-K[145](index=145&type=chunk) [Critical Accounting Estimates](index=29&type=section&id=Critical%20Accounting%20Estimates) This section confirms no material changes to the company's critical accounting estimates since the last annual report - There have been no material changes to the Company's critical accounting estimates from those described in its 2020 Form 10-K[147](index=147&type=chunk) [Forward-Looking Statements](index=29&type=section&id=Forward-Looking%20Statements) This section outlines the inherent risks and uncertainties associated with the company's forward-looking statements - The report contains forward-looking statements subject to risks and uncertainties, including the ongoing impacts of the COVID-19 pandemic (e.g., supply chain disruptions, labor shortages, demand shifts, vaccine mandates), higher product costs, major customer losses, increased competition, and cybersecurity incidents[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) - Grainger cautions against undue reliance on these statements and undertakes no obligation to update them, except as required by law[153](index=153&type=chunk) [Item 3: Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203%3A%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section reiterates the Company's primary market risk exposures and refers to previous disclosures for detailed information - Grainger's primary market risk exposures include changes in foreign currency exchange and interest rates[155](index=155&type=chunk) - Current market conditions are influenced by the COVID-19 pandemic, as discussed in Item 2[156](index=156&type=chunk) [Item 4: Controls and Procedures](index=31&type=section&id=Item%204%3A%20Controls%20and%20Procedures) This section details the effectiveness of the Company's disclosure controls and procedures and reports on any changes in internal control over financial reporting [Disclosure Controls and Procedures](index=31&type=section&id=Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures - The Chief Executive Officer and Chief Financial Officer concluded that Grainger's disclosure controls and procedures were effective as of September 30, 2021[157](index=157&type=chunk) [Changes in Internal Control Over Financial Reporting](index=31&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section reports on any material changes to the company's internal control over financial reporting - There have been no changes in Grainger's internal control over financial reporting for the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting[158](index=158&type=chunk) [PART II - OTHER INFORMATION](index=32&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section provides additional information not covered in the financial statements, including legal matters and risk factors [Item 1: Legal Proceedings](index=32&type=section&id=Item%201%3A%20Legal%20Proceedings) This section refers to the detailed discussion of legal proceedings provided in the notes to the financial statements - For a description of the Company's legal proceedings, refer to Note 11 - Contingencies, Legal Matters, Commitments and Other Contractual Obligations - to the Condensed Consolidated Financial Statements[160](index=160&type=chunk) [Item 1A: Risk Factors](index=32&type=section&id=Item%201A%3A%20Risk%20Factors) This section supplements and updates the risk factors from the 2020 Form 10-K, focusing on the ongoing impacts of the COVID-19 pandemic and cybersecurity threats [COVID-19 Pandemic Risks](index=32&type=section&id=COVID-19%20Pandemic%20Risks) This section details the ongoing adverse impacts of the COVID-19 pandemic on the company's business operations and financial performance - The COVID-19 pandemic continues to adversely affect Grainger's business, including customer disruptions, supply chain issues, supplier inability to meet demand, higher product costs, transportation delays, and labor shortages[163](index=163&type=chunk)[164](index=164&type=chunk) - Remote working arrangements due to the pandemic may increase vulnerability to cybersecurity incidents and have required adaptions to controls and financial reporting processes[165](index=165&type=chunk) - Pandemic-driven product shortages may necessitate procuring from new suppliers, risking quality issues or delivery delays, and have led to excess inventory and associated carrying costs/obsolescence[166](index=166&type=chunk)[168](index=168&type=chunk) - Compliance with vaccine mandates and other public safety measures could disrupt the workforce, operations, and impose additional costs[171](index=171&type=chunk) [Cybersecurity Risks](index=33&type=section&id=Cybersecurity%20Risks) This section outlines the evolving cybersecurity threats and their potential consequences for the company's operations and data - Grainger faces evolving cyber threats, including unauthorized access, viruses, ransomware, and phishing, which could lead to loss or misuse of sensitive information, business disruptions, increased costs, and reputational damage[172](index=172&type=chunk)[173](index=173&type=chunk)[176](index=176&type=chunk)[181](index=181&type=chunk) - Risks extend to third-party providers whose systems may be breached, potentially compromising data shared with them, despite contractual assurances[174](index=174&type=chunk)[175](index=175&type=chunk) - The Company has experienced immaterial cybersecurity incidents in the past and continuously evaluates and implements safeguards, but cannot guarantee protection against all sophisticated attacks[178](index=178&type=chunk)[179](index=179&type=chunk)[181](index=181&type=chunk) [Item 2: Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202%3A%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section provides details on the Company's share repurchase activities during the third quarter Share Repurchases | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--------------- | :------------------------------- | :--------------------------- | | July 1 – July 31 | 80,047 | $453.15 | | Aug. 1 – Aug. 31 | 274,451 | $437.41 | | Sept. 1 – Sept. 30 | 208,265 | $413.23 | | **Total** | **562,763** | | - Purchases were made under a share repurchase program approved on April 28, 2021, authorizing up to **5 million** shares with no expiration date. As of September 30, 2021, **4,260,481** shares remained available under the program[183](index=183&type=chunk) [Item 6: Exhibits](index=37&type=section&id=Item%206%3A%20Exhibits) This section lists all exhibits filed with the Form 10-Q report - The report includes certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32) and various XBRL-related documents (Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[190](index=190&type=chunk) [Signatures](index=36&type=section&id=Signatures) This section contains the required signatures for the Form 10-Q filing - The report was signed on October 29, 2021, by Deidra C. Merriwether, Senior Vice President and Chief Financial Officer, and Laurie R. Thomson, Vice President and Controller[188](index=188&type=chunk)

| --- | --- | |-------|-------| | | | | | | Safe Harbor Statement and Non-GAAP Financial Measures All statements in this communication, other than those relating to historical facts, are "forward-looking statements." Forward-looking statements can generally be identified by their use of terms such as "anticipate," "estimate," "believe," "expect," "could," "forecast," "may," "intend," "plan," "predict," "project" "will" or "would" and similar terms and phrases, including references to assumptions. Forward-lo ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _______ Commission file number 1-5684 W.W. Grainger, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction of inco ...

Financial Data and Key Metrics Changes - The company achieved strong organic daily sales growth of 15% on a constant currency basis, with Q2 2021 sales up approximately 14% compared to 2019 [23][24] - Gross profit was impacted by a $63 million inventory adjustment due to a sudden decline in demand for pandemic products, resulting in a total company operating margin of 10.4%, down 70 basis points year-over-year [19][28] - Operating cash flow generated was $269 million, with a strong return on invested capital (ROIC) of 29.2% [26] Business Line Data and Key Metrics Changes - The High-Touch Solutions North America segment grew 12.7% on a daily constant currency basis, with gross profit finishing at 36.9%, down 125 basis points year-over-year [23][30] - The Endless Assortment segment saw impressive daily sales growth of 23.9% on a constant currency basis, driven by strong customer acquisition [43] - The Canadian business reported positive operating earnings growth and managed expenses effectively, with continued momentum in targeted end markets [25] Market Data and Key Metrics Changes - The U.S. MRO market grew between 18.5% and 19.5%, while the U.S. High-Touch business grew 12.4%, resulting in a two-year average market outgrowth of approximately 275 basis points [36][71] - Pandemic product sales declined approximately 28% versus 2020 but increased 27% compared to 2019, indicating a shift back to non-pandemic sales growth [32][34] Company Strategy and Development Direction - The company is focused on leveraging its scale to navigate supply chain challenges and is actively investing in non-pandemic inventory [8][14] - The Grainger Edge framework continues to guide the company's operations and customer service strategies, emphasizing the importance of digital solutions and inventory management [6][115] - The company aims to maintain price/cost neutrality while managing supplier relationships to mitigate cost increases [41][86] Management's Comments on Operating Environment and Future Outlook - Management expects supply chain challenges to persist through the end of the year and likely into next year, but remains confident in the company's ability to deliver strong results and gain market share [18][50] - The company anticipates revenue growth of 10% to 11% on a daily organic basis for Q3, with gross profit expected to improve by 100 to 120 basis points year-over-year [49][91] - Management highlighted the importance of adapting to customer needs for digital solutions and inventory management as key trends moving forward [115] Other Important Information - Grainger was certified as a Great Place to Work, reflecting the company's commitment to team member experience [54] - The company has set a new goal to reduce absolute Scope 1 and 2 greenhouse gas emissions by 30% by 2030, continuing its focus on sustainability [56] Q&A Session All Questions and Answers Question: Inquiry on large customer contracts and price-cost trends - Management explained that about 70% of the business is with large customers, allowing for the passing on of price increases, although timing may not always align perfectly with cost increases [61][62] Question: Clarification on guidance and expectations for the second half - Management maintained guidance but indicated that gross profit operating margin and EPS may trend towards the lower end of the range due to inventory adjustments and wage increases [65][66] Question: Outlook for gross margins and competition - Management expressed confidence in maintaining gross profit margins and achieving share gains, despite the competitive environment [70][71] Question: Discussion on inventory and potential sales - Management acknowledged the uncertainty surrounding inventory sales but noted the potential for increased mask sales in the short term due to changing guidelines [74][76] Question: Insights on freight costs and customer conversations - Management reported that conversations with customers regarding freight costs have been positive, and they are working to recoup increased costs while ensuring service quality [83][84] Question: Update on SG&A and structural savings - Management indicated that while SG&A is expected to increase, they are working on mitigating factors to improve leverage over time [121][122] Question: Discussion on customer interactions and market changes - Management noted that customers are increasingly focused on digital solutions and inventory management, reflecting changes in purchasing behavior post-COVID [115][116]

W.W. Grainger, Inc. (NYSE:GWW) Q1 2021 Earnings Conference Call April 30, 2021 11:00 AM ET Company Representatives D.G. Macpherson - Chairman, Chief Executive Officer Dee Merriwether - Senior Vice President, Chief Financial Officer Irene Holman - Vice President of Investor Relations Conference Call Participants Ryan Merkel - William Blair David Manthey - Baird Christopher Glynn - Oppenheimer Nigel Coe - Wolfe Research Chris Snyder - UBS Deane Dray - RBC Capital Markets Hamzah Mazari - Jeffries Jake Levinson ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _______ Commission file number 1-5684 W.W. Grainger, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction of inc ...