Grainger(US:GWW)2022-07-29 16:27Financial Data and Key Metrics Changes - The company reported a sales growth of 19.6%, or 22% on a daily constant currency basis, driven by strong performance in both segments [14][16] - Total company gross profit finished at 37.6%, expanding 255 basis points year-over-year, with a significant contribution from lapping the prior year's pandemic-related inventory adjustment [15][16] - Operating margin increased to 13.9%, up 350 basis points from the prior year, primarily due to improved gross margin performance and SG&A leverage [16][18] - Adjusted ROIC reached 40.5%, significantly up from 29.2% in the same quarter last year [16] - EPS for the quarter was $7.19, reflecting a 68% increase compared to Q2 2021 [18] Business Line Data and Key Metrics Changes - High-Touch Solutions segment saw daily sales up 22.2% compared to Q2 2021, with broad-based double-digit growth across all geographies [19] - In the US, daily sales growth was 23.1%, driven by strong volume growth and price realization of around 11% [20] - Endless Assortment segment reported daily sales growth of 11.4%, or 21.1% on a daily constant currency basis, with MonotaRO achieving 21.9% growth in local currency [26][27] Market Data and Key Metrics Changes - The US MRO market, including both volume and price inflation, grew between 12.5% and 13.5%, indicating the company achieved approximately 1,000 basis points of market outgrowth [24] - Canadian daily sales were up 11.1%, marking the fifth consecutive quarter of profitability for the Canadian team [20] Company Strategy and Development Direction - The company continues to focus on its Grainger Edge framework, which emphasizes customer solutions, speed, and value delivery [7][8] - Strategic investments in remerchandising and data-driven marketing programs are expected to yield strong returns and support ongoing market outgrowth [25] - The company is committed to maintaining price competitiveness while achieving price/cost neutrality during inflationary periods [22][28] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the team's ability to execute and drive market outgrowth despite uncertain market conditions [35][36] - The company has not observed a slowdown in demand and continues to receive positive sentiment from customers [31] - Full-year 2022 guidance was raised, with expected daily sales growth between 14.5% and 16.5% and EPS between $27.25 and $28.75, reflecting a 41% increase year-over-year at the midpoint [32] Other Important Information - The company reported a total SG&A as a percentage of sales at 23.7%, a 95 basis point improvement year-over-year [17] - The company returned $219 million to shareholders through share repurchases and dividends [16] Q&A Session Summary Question: Share gains drivers - Management indicated that initiatives have contributed more than the expected 300 to 400 basis points of share gains, alongside advantages from inventory position [41][42] Question: Demand slowdown - Management noted that while some markets have slowed, overall growth continues across all segments, with strong performance in healthcare and government [52][53] Question: Technology investments - Management highlighted positive results from investments in product information systems and customer databases, which have improved marketing outreach and seller coverage [56][57] Question: Price cost neutrality - Management clarified that price/cost neutrality refers to product costs and efforts to cover incremental freight costs during inflationary periods [59] Question: Endless Assortment profitability - Management explained that ongoing investments in MonotaRO and Zoro are impacting operating margins, but expect normalization in 2023 [66] Question: Customer inventory levels - Management observed that industrial manufacturers have higher inventory levels primarily due to work-in-process inventory, not MRO products [104][106] Question: Pricing momentum - Management expects pricing to end the year around 9% to 10%, with continued efforts to pass on inflation [128][129]