Grainger(GWW) - 2024 Q2 - Quarterly Results

Second Quarter 2024 Highlights Grainger reported solid second-quarter 2024 results, with sales rising 3.1% to $4.3 billion and adjusted diluted EPS growing 5.2% to $9.76 Key Financial Highlights | Metric | Q2 2024 Value | Change vs. Q2 2023 (Adjusted) | | :--- | :--- | :--- | | Net Sales | $4.3 billion | +3.1% | | Daily, Organic Constant Currency Sales | N/A | +5.1% | | Adjusted Operating Margin | 15.4% | -40 bps | | Adjusted Diluted EPS | $9.76 | +5.2% | | Operating Cash Flow | $411 million | N/A | - CEO D.G. Macpherson commented on the performance as solid results produced amidst a slow but generally stable demand environment, expressing confidence for the second half of the year[2] Adjusted Financial Performance Summary | ($ in millions, except per share) | Q2 2024 Reported | Q2 2024 Adjusted | Q2 2023 Adjusted | % Change (Adjusted) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $4,312 | $4,312 | $4,182 | 3.1% | | Operating Earnings | $649 | $665 | $661 | 0.6% | | Net Earnings | $470 | $482 | $470 | 2.6% | | Diluted EPS | $9.51 | $9.76 | $9.28 | 5.2% | Detailed Financial Performance Analysis The company's financial performance was characterized by sales growth driven by increased volume across both segments, stable gross margin, and slightly contracted adjusted operating margin due to strategic investments Revenue Total sales for Q2 2024 increased by 3.1% to $4.3 billion, with strong growth in the Endless Assortment segment - Reported sales increased 3.1%, while daily, organic constant currency sales rose 5.1% after normalizing for foreign currency and the divestiture of E & R Industrial Sales, Inc[4] Segment Sales Growth (Daily, Organic Constant Currency) | Segment | Daily, Organic Constant Currency Sales Growth | | :--- | :--- | | High-Touch Solutions - N.A. | +3.7% | | Endless Assortment | +11.7% | Gross Profit Margin The total company gross profit margin remained flat at 39.3%, while the Endless Assortment segment's margin declined due to product and customer mix headwinds - Total company gross profit margin was 39.3%, unchanged from Q2 2023[6] - The Endless Assortment segment's gross margin decreased by 20 basis points, primarily due to product and customer mix headwinds[7] Earnings Adjusted operating earnings rose 0.6% to $665 million, with adjusted diluted EPS increasing 5.2% to $9.76, benefiting from sales growth and a lower tax rate - Adjusted operating margin decreased by 40 basis points to 15.4%, driven by continued investment in demand-generating activities and distribution center network expansion[8] - Adjusted diluted EPS grew 5.2% to $9.76, driven by sales growth, fewer shares outstanding, and a lower tax rate[8] Tax Rate The effective tax rate for the second quarter decreased to 22.9% from 24.0% in the prior year, primarily due to an increase in tax credits - The Q2 2024 effective tax rate was 22.9%, down from 24.0% in Q2 2023, mainly due to an increase in tax credits[9] Cash Flow and Shareholder Returns In Q2 2024, Grainger generated $411 million in operating cash flow and returned $345 million to shareholders through dividends and share repurchases Cash Flow and Shareholder Returns Summary | Metric | Q2 2024 Value ($ millions) | | :--- | :--- | | Cash Flow from Operating Activities | $411 | | Capital Expenditures | $76 | | Free Cash Flow | $335 | | Returned to Shareholders | $345 | Updated 2024 Guidance Grainger has narrowed most of its 2024 guidance ranges, projecting daily, organic constant currency sales growth of 4.0% to 6.0% and adjusted diluted EPS of $38.00 to $39.50 Updated 2024 Financial Guidance | Metric | Previous 2024 Guidance | Updated 2024 Guidance | | :--- | :--- | :--- | | Daily, organic constant currency sales growth | 4.0% - 7.0% | 4.0% - 6.0% | | Gross Profit Margin | 39.1% - 39.4% | 39.2% - 39.4% | | Operating Margin (Adjusted) | 15.3% - 15.8% | 15.3% - 15.7% | | Diluted EPS (Adjusted) | $38.00 - $40.50 | $38.00 - $39.50 | | Operating Cash Flow | $1.9 - $2.1 billion | $1.95 - $2.15 billion | | Share Buyback | $0.9 - $1.1 billion | $1.0 - $1.2 billion | Financial Statements This section presents the unaudited condensed consolidated financial statements for the three and six months ended June 30, 2024, providing a detailed view of the company's financial position and performance Condensed Consolidated Statements of Earnings For the three months ended June 30, 2024, net sales were $4.31 billion, with operating earnings of $649 million and net earnings of $470 million Condensed Consolidated Statements of Earnings | ($ in millions) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net sales | $4,312 | $4,182 | | Gross profit | $1,694 | $1,644 | | Operating earnings | $649 | $661 | | Net earnings attributable to W.W. Grainger, Inc. | $470 | $470 | | Diluted EPS | $9.51 | $9.28 | Condensed Consolidated Balance Sheets As of June 30, 2024, Grainger's total assets increased to $8.35 billion, with total shareholders' equity rising to $3.59 billion Condensed Consolidated Balance Sheets | ($ in millions) | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $5,521 | $5,274 | | Total assets | $8,352 | $8,147 | | Total current liabilities | $2,397 | $1,831 | | Long-term debt | $1,783 | $2,266 | | Total shareholders' equity | $3,587 | $3,441 | Condensed Consolidated Statements of Cash Flows For Q2 2024, the company generated $411 million in cash from operations, with $372 million used in financing activities primarily for share repurchases and dividends Condensed Consolidated Statements of Cash Flows | ($ in millions) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $411 | $450 | | Net cash used in investing activities | $(59) | $(95) | | Net cash used in financing activities | $(372) | $(297) | | Net change in cash and cash equivalents | $(35) | $54 | Supplemental Information (Non-GAAP Reconciliation) This section details adjustments to GAAP figures for non-GAAP measures, providing a clearer view of core operational performance by excluding items like restructuring costs - The company uses non-GAAP measures to provide a better baseline for analyzing ongoing business performance by excluding items that may not be indicative of core operating results, such as restructuring costs[26][28] Reconciliation of Sales Growth | Reconciliation of Sales Growth | Total Company | High-Touch Solutions - N.A. | Endless Assortment | | :--- | :--- | :--- | :--- | | Reported sales growth | 3.1% | 3.1% | 3.3% | | Business divestiture impact | 0.5% | 0.6% | —% | | Foreign currency exchange impact | 1.5% | —% | 8.4% | | Daily, organic constant currency sales growth | 5.1% | 3.7% | 11.7% | - For Q2 2024, reported operating earnings of $649 million were adjusted by $16 million for restructuring costs to arrive at adjusted operating earnings of $665 million[35][36]