Grainger(GWW) - 2025 Q2 - Quarterly Results

Executive Summary: Second Quarter Highlights Grainger delivered solid Q2 2025 financial performance with increased sales and adjusted diluted EPS, generating strong operating cash flow and shareholder returns, despite tariff-related headwinds Q2 2025 Performance Overview Grainger reported solid results for the second quarter of 2025, with sales increasing by 5.6% to $4.6 billion and adjusted diluted EPS growing by 2.2% to $9.97, while generating $377 million in operating cash flow and returning $336 million to shareholders Q2 2025 Key Financial Metrics | Metric | Q2 2025 | YoY Change (Reported) | YoY Change (Adjusted) | | :-------------------------------- | :------ | :-------------------- | :-------------------- | | Sales ($ billion) | $4.6 | 5.6% | 5.1% (daily, constant currency) | | Operating Margin (%) | 14.9% | -20 bps | -50 bps | | Diluted EPS ($) | $9.97 | 4.8% | 2.2% | | Operating Cash Flow ($ million) | $377 | N/A | N/A | | Shareholder Returns ($ million) | $336 | N/A | N/A | CEO Commentary Chairman and CEO D.G. Macpherson noted that Q2 results were largely in-line with expectations, despite impacts from tariff-related factors, emphasizing the company's focus on customers, service, and innovation to create value amidst macroeconomic uncertainty - Performance was largely in-line with communicated expectations, though impacted by tariff-related factors[4] - The company remains focused on customers, fostering relationships, providing exceptional service, and driving innovation through differentiated capabilities[4] Second Quarter 2025 Financial Results Grainger's Q2 2025 financial results detail net sales growth, changes in gross profit and operating margins, earnings performance, tax rates, and cash flow generation Overall Financial Summary Grainger's second quarter 2025 financial summary shows an increase in net sales and operating earnings, but a decrease in gross profit margin and operating margin compared to Q2 2024 Q2 2025 vs. Q2 2024 Financial Summary (Reported and Adjusted) | ($ in millions, except per share amounts) | Q2 2025 Reported | Q2 2025 Adjusted | Q2 2024 Reported | Q2 2024 Adjusted | Q2'25 vs. Q2'24 Reported Fav. / (Unfav.) | Q2'25 vs. Q2'24 Adjusted Fav. / (Unfav.) | | :---------------------------------------- | :--------------- | :--------------- | :--------------- | :--------------- | :-------------------------------------- | :------------------------------------- | | Net Sales | $4,554 | $4,554 | $4,312 | $4,312 | 5.6% | 5.6% | | Gross Profit | $1,755 | $1,755 | $1,694 | $1,694 | 3.6% | 3.6% | | Operating Earnings | $678 | $678 | $649 | $665 | 4.5% | 2.0% | | Net Earnings Attributable to W.W. Grainger, Inc. | $482 | $482 | $470 | $482 | 2.6% | —% | | Diluted Earnings Per Share | $9.97 | $9.97 | $9.51 | $9.76 | 4.8% | 2.2% | | Gross Profit Margin (%) | 38.5% | 38.5% | 39.3% | 39.3% | (80) bps | (80) bps | | Operating Margin (%) | 14.9% | 14.9% | 15.1% | 15.4% | (20) bps | (50) bps | | Effective Tax Rate (%) | 23.2% | 23.2% | 22.9% | 22.9% | (30) bps | (30) bps | Revenue Performance Total company sales increased by 5.6% (5.1% on a daily, constant currency basis) in Q2 2025, with the Endless Assortment segment showing strong growth that significantly outpaced the High-Touch Solutions - N.A. segment - Total sales increased 5.6% compared to Q2 2024, or 5.1% on a daily, constant currency basis[7] Q2 2025 Sales Growth by Segment | Segment | Q2 2025 Sales Growth (Reported) | Q2 2025 Sales Growth (Daily, Constant Currency) | | :-------------------------- | :------------------------------ | :---------------------------------------------- | | High-Touch Solutions - N.A. | 2.5% | 2.8% | | Endless Assortment | 19.7% | 16.3% | - Endless Assortment segment growth was driven by strong performance at both MonotaRO and Zoro[8] Gross Profit Margin The company's gross profit margin decreased by 80 basis points to 38.5% in Q2 2025, primarily due to headwinds in the High-Touch Solutions - N.A. segment, partially offset by improvements in the Endless Assortment segment - Gross profit margin was 38.5% in Q2 2025, an 80 basis point decrease from Q2 2024[9] - High-Touch Solutions - N.A. segment gross profit margin decreased by 70 basis points due to tariff-related inflation causing unfavorable price/cost timing and LIFO inventory valuation headwinds[10] - Endless Assortment segment gross profit margin increased by 30 basis points, primarily due to margin improvement at Zoro[10] Earnings Performance Operating earnings increased by 4.5% on a reported basis, but operating margin declined, while diluted EPS also saw an increase, primarily driven by fewer shares outstanding Q2 2025 Earnings Performance | Metric | Q2 2025 | YoY Change (Reported) | YoY Change (Adjusted) | | :-------------------- | :------ | :-------------------- | :-------------------- | | Operating Earnings ($ million) | $678 | 4.5% | 2.0% | | Operating Margin (%) | 14.9% | -20 bps | -50 bps | | Diluted EPS ($) | $9.97 | 4.8% | 2.2% | - Unfavorable gross margin in High-Touch Solutions - N.A. was partially offset by strong expense leverage in Endless Assortment[11] - The increase in diluted EPS was primarily driven by fewer shares outstanding[12] Tax Rate The effective tax rate for Q2 2025 was 23.2%, a slight increase compared to 22.9% in the prior year quarter, remaining consistent on both reported and adjusted bases Effective Tax Rate Comparison | Metric | Q2 2025 | Q2 2024 | | :---------------- | :------ | :------ | | Effective Tax Rate (%) | 23.2% | 22.9% | Cash Flow Grainger generated $377 million in operating cash flow and $202 million in free cash flow during Q2 2025, investing $175 million in capital expenditures and returning $336 million to shareholders through dividends and share repurchases Q2 2025 Cash Flow Summary | Metric | Q2 2025 | | :-------------------------- | :------ | | Operating Cash Flow ($ million) | $377 | | Capital Expenditures ($ million) | $175 | | Free Cash Flow ($ million) | $202 | | Shareholder Returns ($ million) | $336 | - Net earnings were partially offset by unfavorable working capital in operating activities[14] Full Year 2025 Guidance Update Grainger updated its full-year 2025 guidance, reflecting tariff impacts with a revised net sales range, lower adjusted diluted EPS, and adjustments to margins, CapEx, and share buyback Revised Guidance Overview Grainger updated its full-year 2025 guidance to reflect anticipated headwinds from certain known tariff impacts, including a higher net sales range but a lower adjusted diluted EPS range, along with adjustments to gross profit margin, operating margin, CapEx, and share buyback - Guidance ranges were updated to reflect anticipated headwinds from certain known tariff impacts[15] Full Year 2025 Guidance Comparison | Metric | Previous 2025 Guidance Range (as of May 1, 2025) | Updated 2025 Guidance Range (as of August 1, 2025) | | :-------------------------------- | :----------------------------------------------- | :--------------------------------------------- | | Net Sales ($ billion) | $17.6 - $18.1 | $17.9 - $18.2 | | Sales growth (%) | 2.7% - 5.2% | 4.4% - 5.9% | | Daily, constant currency sales growth (%) | 4.0% - 6.5% | 4.5% - 6.0% | | Gross Profit Margin (%) | 39.1% - 39.4% | 38.6% - 38.9% | | Operating Margin (%) | 15.1% - 15.5% | 14.7% - 15.1% | | Diluted Earnings per Share ($) | $39.00 - $41.50 | $38.50 - $40.25 | | Operating Cash Flow ($ billion) | $2.05 - $2.25 | $2.05 - $2.25 | | CapEx (cash basis) ($ billion) | $0.45 - $0.55 | $0.55 - $0.65 | | Share Buyback ($ billion) | $1.15 - $1.25 | $1.05 - $1.15 | | Effective Tax Rate (%) | ~23.8% | ~23.8% | | Segment Operating Margin (High-Touch Solutions - N.A.) (%) | 17.0% - 17.4% | 16.5% - 16.9% | | Segment Operating Margin (Endless Assortment) (%) | 8.5% - 9.0% | 9.2% - 9.6% | Company Information This section provides an overview of Grainger's business, details for the Q2 results webcast, a safe harbor statement regarding forward-looking information, and contact details About Grainger W.W. Grainger, Inc. is a leading broad line distributor primarily operating in North America, Japan, and the United Kingdom, serving over 4.5 million customers with MRO products and solutions, and reported $17.2 billion in revenue for 2024 - Grainger is a leading broad line distributor with operations primarily in North America, Japan, and the United Kingdom[18] - The company serves over 4.5 million customers worldwide with maintenance, repair, and operating (MRO) products and value-added solutions[18] - Grainger reported $17.2 billion in revenue for 2024[18] Webcast Information Grainger will host a live conference call and webcast on August 1, 2025, at 11:00 a.m. ET to discuss the second quarter results, with a replay available for 90 days - A live conference call and webcast for Q2 results will be held on Friday, August 1, 2025, at 11:00 a.m. ET, accessible at invest.grainger.com[17] - A webcast replay will be available for 90 days[17] Safe Harbor Statement The document includes a safe harbor statement, indicating that all forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected, and Grainger disclaims any obligation to update these statements - All statements other than historical facts are forward-looking and subject to risks and uncertainties beyond Grainger's control[19] - Important factors that could cause actual results to differ include inflation, customer loss, supply disruptions, competitive pressures, technological failures, and changes in economic or regulatory conditions[19] - Grainger disclaims any obligation to update or revise any forward-looking statement, except as required by law[19] Contacts Contact information for media and investor relations is provided for inquiries regarding the company - Media inquiries can be directed to Erin Ptacek or Robb Kristopher at Media_Inquiries@grainger.com[21] - Investor relations inquiries can be directed to Kyle Bland or Kevin Byrne at InvestorRelations@grainger.com[21] Condensed Consolidated Financial Statements This section presents Grainger's condensed consolidated statements of earnings, balance sheets, and cash flows for the specified periods, detailing financial performance and position Condensed Consolidated Statements of Earnings The condensed consolidated statements of earnings show Grainger's financial performance for the three and six months ended June 30, 2025, detailing net sales, gross profit, operating earnings, and net earnings Condensed Consolidated Statements of Earnings | (In millions of dollars, except for share and per share amounts) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $4,554 | $4,312 | $8,860 | $8,547 | | Cost of goods sold | 2,799 | 2,618 | 5,395 | 5,185 | | Gross profit | 1,755 | 1,694 | 3,465 | 3,362 | | Selling, general and administrative expenses | 1,077 | 1,045 | 2,115 | 2,044 | | Operating earnings | 678 | 649 | 1,350 | 1,318 | | Earnings before income taxes | 661 | 636 | 1,318 | 1,291 | | Income tax provision | 153 | 146 | 310 | 304 | | Net earnings | 508 | 490 | 1,008 | 987 | | Net earnings attributable to W.W. Grainger, Inc. | $482 | $470 | $961 | $948 | | Diluted Earnings per share | $9.97 | $9.51 | $19.83 | $19.13 | Condensed Consolidated Balance Sheets The condensed consolidated balance sheets present Grainger's financial position as of June 30, 2025, and December 31, 2024, detailing assets, liabilities, and shareholders' equity Condensed Consolidated Balance Sheets | (In millions of dollars) | As of June 30, 2025 | As of December 31, 2024 | | :------------------------------------ | :------------------ | :---------------------- | | Assets | | | | Cash and cash equivalents | $597 | $1,036 | | Total current assets | 5,650 | 5,737 | | Property, buildings and equipment – net | 2,107 | 1,927 | | Total assets | $8,937 | $8,829 | | Liabilities and Shareholders' Equity | | | | Total current liabilities | $2,002 | $2,305 | | Long-term debt | 2,341 | 2,279 | | Shareholders' equity | 4,083 | 3,703 | | Total liabilities and shareholders' equity | $8,937 | $8,829 | Condensed Consolidated Statements of Cash Flows The condensed consolidated statements of cash flows outline Grainger's cash movements for the three and six months ended June 30, 2025, across operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows | (In millions of dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $377 | $411 | $1,023 | $1,072 | | Net cash used in investing activities | (158) | (59) | (283) | (177) | | Net cash used in financing activities | (303) | (372) | (1,201) | (763) | | Net change in cash and cash equivalents | (69) | (35) | (439) | 109 | | Cash and cash equivalents at end of period | $597 | $769 | $597 | $769 | Supplemental Information: GAAP to Non-GAAP Reconciliations This section provides definitions for non-GAAP financial measures and reconciliations for sales growth, free cash flow, and income statement adjustments Non-GAAP Financial Measures Definitions This section defines various non-GAAP financial measures used by Grainger, such as adjusted gross profit, operating earnings, diluted EPS, free cash flow, and different sales growth metrics, explaining their purpose in providing a clearer view of core operating results - Non-GAAP measures provide meaningful information to investors by excluding non-recurring items like restructuring charges, asset impairments, and business divestiture gains/losses[28][30] - Free cash flow (FCF) is calculated as total cash provided by operating activities less capital expenditures[31] - Daily sales, daily constant currency sales, and daily organic constant currency sales are defined to adjust for selling days, foreign currency exchange rates, and divested businesses, respectively[32][33][34] Sales Growth Reconciliation The sales growth reconciliation details the impact of foreign currency exchange on reported sales growth for the total company and its segments, showing the conversion to daily, constant currency sales growth Sales Growth Reconciliation by Segment (Q2 2025) | | Total Company | High-Touch Solutions - N.A. | Endless Assortment | | :-------------------------- | :------------ | :-------------------------- | :----------------- | | Reported sales (%) | 5.6% | 2.5% | 19.7% | | Daily impact (%) | —% | —% | —% | | Daily sales (%) | 5.6% | 2.5% | 19.7% | | Foreign currency exchange (%) | (0.5)% | 0.3% | (3.4)% | | Daily, constant currency sales (%) | 5.1% | 2.8% | 16.3% | - There were 64 selling days in both Q2 2025 and Q2 2024[37] Free Cash Flow Reconciliation This reconciliation shows the calculation of free cash flow for Q2 2025, starting from net cash flows provided by operating activities and subtracting capital expenditures Free Cash Flow Reconciliation (Q2 2025) | (in millions of dollars) | Q2 2025 | | :------------------------------------ | :------ | | Net cash flows provided by operating activities | $377 | | Capital expenditures | (175) | | Free cash flow | $202 | Income Statement Adjustments Reconciliation This section provides a detailed reconciliation of GAAP to adjusted non-GAAP income statement figures for Q2 2025 and Q2 2024, highlighting adjustments primarily related to restructuring costs incurred in the prior year Q2 2025 Income Statement Adjustments Reconciliation Q2 2025 (in millions of dollars): | Metric | Reported | Adjustment | Adjusted | % of Net sales (Reported) | % of Net sales (Adjusted) | Y/Y (Reported) | Y/Y (Adjusted) | | :-------------------------------- | :------- | :--------- | :------- | :------------------------ | :------------------------ | :------------- | :------------- | | SG&A | $1,077 | — | $1,077 | 23.6 % | 23.6 % | 3.1 % | 4.7 % | | Operating earnings | 678 | — | 678 | 14.9 | 14.9 | 4.5 | 2.0 | | Net earnings attributable to W.W. Grainger, Inc. | $482 | — | $482 | 10.6 % | 10.6 % | 2.6 % | — % | | Diluted earnings per share | $9.97 | — | $9.97 | | | 4.8 % | 2.2 % | Q2 2024 (in millions of dollars): | Metric | Reported | Adjustment | Adjusted | % of Net sales (Reported) | % of Net sales (Adjusted) | Y/Y (Reported) | Y/Y (Adjusted) | | :-------------------------------- | :------- | :--------- | :------- | :------------------------ | :------------------------ | :------------- | :------------- | | SG&A | $1,045 | $(16) | $1,029 | 24.2 % | 23.9 % | 6.3 % | 4.7 % | | Operating earnings | 649 | 16 | 665 | 15.1 | 15.4 | (1.8) | 0.6 | | Net earnings attributable to W.W. Grainger, Inc. | $470 | 12 | $482 | 10.9 % | 11.2 % | — % | 2.6 % | | Diluted earnings per share | $9.51 | 0.25 | $9.76 | | | 2.5 % | 5.2 % | - Adjustments for Q2 2024 reflect restructuring costs of $15 million in Grainger's HTS-N.A. segment and $1 million in Other businesses; no non-GAAP adjustments were made for Q2 2025[40] - The reported and adjusted effective tax rates were 23.2% for Q2 2025 and 22.9% for Q2 2024, with a tax benefit related to 2024 restructuring costs[40]