Grainger(GWW) - 2023 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial information, including statements of earnings, balance sheets, cash flows, and management's discussion and analysis Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for W.W. Grainger, Inc. for the three months ended March 31, 2023, compared to the same period in 2022, showing significant year-over-year growth Condensed Consolidated Statements of Earnings This section presents the unaudited condensed consolidated statements of earnings for Q1 2023 and 2022, highlighting key financial performance metrics Consolidated Statements of Earnings Highlights (Q1 2023 vs Q1 2022) | Metric | Q1 2023 ($M) | Q1 2022 ($M) | % Change | | :--- | :--- | :--- | :--- | | Net Sales | 4,091 | 3,647 | +12.2% | | Gross Profit | 1,634 | 1,383 | +18.1% | | Operating Earnings | 680 | 534 | +27.4% | | Net Earnings Attributable to W.W. Grainger, Inc. | 488 | 366 | +33.3% | | Diluted EPS | $9.61 | $7.07 | +36.0% | Condensed Consolidated Balance Sheets This section provides the unaudited condensed consolidated balance sheets as of March 31, 2023, and December 31, 2022, detailing assets, liabilities, and equity Balance Sheet Highlights | Metric | March 31, 2023 ($M) | Dec 31, 2022 ($M) | | :--- | :--- | :--- | | Total Current Assets | 5,190 | 4,977 | | Total Assets | 7,825 | 7,588 | | Total Current Liabilities | 1,924 | 2,010 | | Total Liabilities | 4,780 | 4,853 | | Total Shareholders' Equity | 3,045 | 2,735 | Condensed Consolidated Statements of Cash Flows This section presents the unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2023, and 2022, summarizing cash movements Cash Flow Summary (Three Months Ended March 31) | Activity | 2023 ($M) | 2022 ($M) | | :--- | :--- | :--- | | Net cash provided by operating activities | 454 | 343 | | Net cash used in investing activities | (96) | (57) | | Net cash used in financing activities | (224) | (159) | | Net change in cash and cash equivalents | 136 | 123 | Notes to Condensed Consolidated Financial Statements This section provides explanatory notes to the condensed consolidated financial statements, covering segment information, legal proceedings, and dividends - The company's two reportable segments are High-Touch Solutions N.A. and Endless Assortment. The High-Touch Solutions N.A. segment accounted for 81% of total company revenue in Q1 2023[35][57] - The company is involved in several product liability-related lawsuits concerning a 2019 chemical refinery explosion. As of the report date, the company has settled with 32 plaintiffs, including all six from the first scheduled trial[61][62][63] - On April 26, 2023, the Board of Directors declared a quarterly dividend of $1.86 per share, an increase from the $1.72 per share paid in Q1 2023[25][69] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q1 2023 performance to robust demand, leading to increased net sales, gross profit margin expansion, and diluted EPS growth Results of Operations This section details the company's financial performance for Q1 2023 compared to Q1 2022, including net sales, gross profit, and earnings per share Q1 2023 vs Q1 2022 Performance Summary | Metric | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $4,091M | $3,647M | +12.2% | | Gross Profit | $1,634M | $1,383M | +18.1% | | Gross Profit Margin | 39.9% | 37.9% | +200 bps | | Operating Earnings | $680M | $534M | +27.4% | | Diluted EPS | $9.61 | $7.07 | +36.0% | - The effective tax rate decreased to 23.3% in Q1 2023 from 25.5% in Q1 2022, primarily due to an increased stock compensation tax benefit[83] Segment Analysis This section analyzes the performance of the High-Touch Solutions N.A. and Endless Assortment segments, detailing sales and profit contributions High-Touch Solutions N.A. Segment Performance (Q1 2023 vs Q1 2022) | Metric | Q1 2023 ($M) | Q1 2022 ($M) | % Change | | :--- | :--- | :--- | :--- | | Net Sales | 3,294 | 2,878 | +14.5% | | Gross Profit | 1,397 | 1,164 | +20.0% | | Operating Earnings | 621 | 481 | +29.3% | - High-Touch Solutions N.A. sales growth of 15% was driven by price/customer mix (8%) and volume/product mix (7%). Gross profit margin increased by 195 basis points due to improved product mix and freight efficiencies[86][87] Endless Assortment Segment Performance (Q1 2023 vs Q1 2022) | Metric | Q1 2023 ($M) | Q1 2022 ($M) | % Change | | :--- | :--- | :--- | :--- | | Net Sales | 724 | 697 | +3.8% | | Gross Profit | 214 | 197 | +9.0% | | Operating Earnings | 58 | 55 | +6.0% | - Endless Assortment sales growth was 14%, driven by Zoro and MonotaRO, but was partially offset by a 10% unfavorable foreign exchange impact from the Japanese yen[91] Liquidity and Capital Resources This section discusses the company's liquidity position, cash flow from operations, and capital allocation activities, including share repurchases - The company had cash and cash equivalents of $461 million and total available liquidity of approximately $1.7 billion as of March 31, 2023[98] - Net cash from operating activities increased to $454 million in Q1 2023 from $343 million in Q1 2022, primarily due to higher net earnings[99] - Net cash used in financing activities increased to $224 million from $159 million year-over-year, driven by higher treasury stock repurchases[100] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its primary market risk exposures, which include foreign currency exchange and interest rates, from its 2022 Form 10-K - There were no material changes to the Company's market risk from those described in the 2022 Form 10-K[117] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting - The CEO and CFO concluded that Grainger's disclosure controls and procedures were effective as of the end of the reporting period[118] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[119] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and a list of exhibits filed with the report Legal Proceedings This section refers to Note 8 of the financial statements for a detailed description of the company's ongoing legal proceedings - For a description of the Company's legal proceedings, see Note 8 of the Notes to Condensed Consolidated Financial Statements[122] Risk Factors The company reports no material changes from the risk factors previously disclosed in its 2022 Form 10-K - There have been no material changes from the risk factors previously disclosed in the Company's 2022 Form 10-K[123] Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2023, the company repurchased 225,061 shares under its ongoing 5 million share repurchase program Issuer Purchases of Equity Securities – First Quarter 2023 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan. 1 – Jan. 31 | 92,528 | $563.74 | | Feb. 1 – Feb. 28 | 57,903 | $661.23 | | Mar. 1 – Mar. 31 | 74,630 | $675.01 | | Total | 225,061 | | - As of March 31, 2023, 2,517,384 shares may yet be purchased under the publicly announced plan[124] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications as required by the Sarbanes-Oxley Act and XBRL data files - The exhibits filed with this report include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, as well as XBRL data files[126]