Deidra C. Merriwether
Senior Vice President and Chief Financial Officer at W.W. Grainger
Thanks, D.G. And I apologize upfront, everyone. I'm a little hoarse today, so please bear with me. Turning to our fourth quarter results. We had a solid quarter to finish out the year with profitability coming in stronger than expected but also reflected some top line softness as we exited the year. For the total company results, daily sales grew 5.1% or 5.5% on a daily organic constant currency basis which was driven by growth across both segments. Consistent with what we've seen all year, year- over-year top line growth rates continue to moderate as we wrap price pass in the prior year. While sales finished within our implied guidance range for the quarter, we did see more holiday-related softness than anticipated as we ended the quarter.
The total company gross margin for the quarter finished at 39.1%, declining by 50 basis points over the prior year period. Both segments saw slight year-over-year margin contraction as expected, which I will detail in the coming slides but in total, finished the quarter at the top end of our implied fourth quarter guide. Total company operating margin was up 80 basis points which was aided by a lap of roughly $35 million of onetime expenses in the prior year period. When excluding this impact, SG&A as a percentage of sales was still favorable versus prior year by roughly 40 basis points. In total, we delivered diluted EPS for the quarter of $8.33 which was up over 16% versus the fourth quarter of 2022.
Moving on to segment level results. The High Tech Solutions segment continued to perform well, with sells up 4.7% on both the reported and daily organic constant currency basis, fueled by growth across all geographies. Volume growth remains strong and accounts for a vast majority of the overall year-over-year expansion. In the U.S., almost all customer end markets continue to see growth in the fourth quarter with government contractors and health care seeing the strongest year-over-year performance. Canada grew slowly in Q4, driven by a softer macro but the business remains solidly profitable in the quarter and finished 2023 with their most profitable year in over half a decade.
For the segment, gross profit margin finished the quarter at 41.4%, down 50 basis points versus the prior year due to negative price/cost spread and year-end inventory cost adjustments, which included the lap of a prior year LIFO inventory benefit that we did not repeat in 2023. These headwinds were partially offset by the continued supply chain tailwinds we've seen all year as improved product availability and lower fuel and container costs drove year-over-year favorability. Although we were price cost negative in the quarter and for the full year of 2023, we are nearly neutral on a two year stack as the timing favorability captured in 2022 has fully unwound and we enter 2024 on a neutral footing.
At the operating margin line, we saw an improvement of 90 basis points year-over-year as the slight GP decline was offset by leverage in the business despite continued investment in marketing and headcount to drive long-term growth. As mentioned, year-over-year SG&A leverage was aided by roughly 90 basis points due to the lap of onetime expenses in the prior year period. Overall, it was another solid quarter for the High-Tech Solutions North American segment, wrapping up a great year.
Looking at market outgrowth on Slide 13. We estimate that the U.S. MRO market grew in the quarter between 2.5% and 3%, largely driven by price with industrial production, our proxy for volume remaining roughly flat year-over-year. This indicates that the High-Touch Solutions U.S. business achieved roughly 225 basis points of outgrowth in the fourth quarter in total. This more muted quarterly outgrowth reflects higher market- based inflation in Grainger's Q4 price contribution due to the timing of when we pass price versus the market. On a pure volume basis, when looking at our volume contribution versus IP growth, our market outgrowth was closer to 475 basis points. In any case, as D.G. mentioned, looking at the full year, we achieved an annual outgrowth target by capturing approximately 525 basis points of growth above the market and remain poised to deliver against our target again in 2024.
Moving to our endless assortment segment. Sales increased 6% or 8.2% on a daily constant currency basis which adjusts for the impact of the depreciated Japanese yen. Zoro U.S. was up 2.6%, while MonotaRO achieved 9.9% growth in local days local currency. At a business level, Zoro's growth reflects the continuation of headwinds they've experienced all year with declines in noncore B2C volume and a slowing macro environment impacting its B2B customers. B2B customer growth remained steady in the high single digits for the quarter while noncore B2C and B2C like customer performance remained down over 20% year-over- year.
At MonotaRO, macro-related headwinds continued to impact results, however, the business still drove strong growth with increased sales to new and enterprise customers while also maintaining strong repeat purchase rates. From a profitability perspective, gross margins in the segment declined 60 basis points versus the prior year as MonotaRO's favorability was offset by year-over- year declines at Zoro. As in the prior quarters, MonotaRO's results reflect continued freight efficiencies, while the Zoro decline was driven by negative product mix and the impact of unfavorable timing from prior year price increases. Operating margins for this segment expanded by 50 basis points to 7.8% as the unfavorable gross margin was offset by SG&A leverage aided by the lap of onetime distribution center and commissioning costs in the prior year.
Now looking forward to 2024. We expect to deliver another solid year of performance amidst more muted MRO market. Our outlook for the year includes revenue to be between $17.2 billion and $17.7 billion at the total company level with daily organic constant currency sales growth between 4% and 7%, driven by top line growth in both segments. With our High-Touch Solutions segment, we expect daily organic constant currency sales growth between 3.5% and 6.5%. In the U.S., we're planning for the total MRO market growth to be largely flat with a range of down 0.5% to plus 1.5%. This assumes the flattish volume range coupled with price inflation between 0% and 1%. On top of this market outlook, we expect to continue executing against our strategic growth engines to achieve 400 to 500 basis points of U.S. market outgrowth in 2024.
In the endless assortment segment, we anticipate daily constant currency sales to grow between 7% and 10%, which normalizes for the impact of two additional business days and expected foreign currency exchange headwinds. MonotaRO is expected to grow in the low double digits in local currency and local gains as they continue to ramp new and enterprise customers amidst an expected slower macro demand environment. Zoro is anticipated to grow in the mid-single digits as we anticipate that many of the macro- related headwinds impacting their core B2B customers hold over into 2024. We also expect the continued unwind of B2C and B2C like customers, which include resellers and marketplaces to impact results, especially in the first half of the year. In 2024, the team will focus on growing long-term relationships with its core B2B customers, including work to improve targeted marketing, fine-tune their pricing model and drive consistent service for all of their customers.
Moving to our margin expectations. Even after normalizing for some onetime gross margin benefits we realized in 2023, we expect total company operating margins to remain quite healthy in 2024. In the High- Touch Solutions segment, operating margins will stay relatively flat year-over-year between 17.4% and 17.9%. We expect gross profit margins to be down in 2024 after lapping roughly 50 basis points of onetime benefits captured in 2023. We anticipate price cost for the year will be the only neutral as we have worked our way through the timing discrepancies we've seen over the last couple of years.
On the SG&A side, we expect modest leverage while we continue to make incremental investments towards our strategic initiatives to fuel our growth. In endless assortment, we are modeling operating margins to be roughly consistent to what we've seen in the back half of 2023 in the 7.3% to 7.8% range as the segment re-baselines following Zoro's revenue declines with the noncore B2C and B2C-like customers. At the business unit level, Zoro's operating margins are expected to decline while MonotaRO's operating margins are expected to be roughly neutral for the year.
Turning now to capital allocation. We expect the business will continue to generate strong cash flow in the year with an expected range of $1.9 billion to $2.1 billion, implying operating cash conversion around 100%. We plan to continue to execute a consistent return-driven approach to our capital allocation strategy, meaning our priorities remain largely unchanged from prior years. First, we look at investing in the business in both organic investment and opportunistic M&A. For 2024, we expect capital spending in the range of $400 million to $500 million. Spending here includes continued supply chain expansion in the United States as we work to expand our facilities in the Pacific Northwest and the Houston area. We also plan to further invest in our homegrown data and technology capabilities, helping power our growth engines and further our customer value proposition. Lastly, sustainability-related spends remains a priority. We will continue to invest in projects with solid returns to help achieve our emissions targets.
On M&A, we remain highly selective, but are also open to investing in capabilities and acquiring the right assets to further our strategy. And we have a small, dedicated team who continually evaluate opportunities in this area. Secondly, we expect to return the balance of our excess cash to shareholders in the form of dividends and share repurchase. As always, we'll formally set our 2024 dividend in the second quarter but I can say we remain proud of our history of increasing the dividend for 52 consecutive years and expect to do so again this year. We do not tie our dividend payout to specific metrics.
However, we anticipate consistent annual dividend increases in the high single digits to low double-digit percentage range every year. Lastly, we expect to allocate the balance of our cash flow to share repurchases and anticipate the amount to be between $900 million and $1.1 billion in 2024. We think this return focused allocation philosophy provides the organization optimal flexibility to efficiently manage investment while maximizing shareholder returns.
In summary, rolling all this up at the total company level, as mentioned, we plan to grow top line by roughly 4% to 7% on the daily organic constant currency basis. Note that reported sales growth is a bit higher than our daily organic constant currency range as we are normalizing for the divestiture of our E&R subsidiary, FX changes and the impact of two additional selling days in 2024 compared to the prior year. A reconciliation of these impacts is provided in the appendix of this presentation.
Operating margin, as we discussed range from 15.3% to 15.8% leading to expected EPS growth of 3.6% to 10.5% or $38 to $40.50 per share. From a seasonality perspective, we do expect both revenue and profitability to be more back half weighted as we move through the year. This includes a softer start in January from the timing of the New Year's holiday and cold weather disruptions experienced mid-month across a large portion of the U.S. With this, January sales started slowing but picked up momentum as not progress with preliminary results up 4.4% on a daily organic constant currency basis.
On profitability, with more muted inflation in the year, we won't see the price timing favorability we normally capture in the first quarter. With this, gross margins will show very little seasonality and remain reasonably consistent with our full year gross margin outlook throughout the year. For SG&A, we expect year-over- year deleverage in the first quarter as we ramp up investment spending in 2024. Leverage will improve each quarter, looking to a tailwind in the back half of the year. Altogether, this will drive EPS growth to be flat to slightly down in the first quarter and will ramp thereafter as the year continues.
Before I hand it back to D.G., I wanted to quickly touch on our long-term outlook on where we expect to take the business over the next several years. As we discussed on our last call, we have made great progress towards the 2025 targets we rolled out at our Investor Day in September 2022. We remain on track to hit our revenue goals that are meaningfully ahead on most of our profitability targets.
With this, we're replacing our 2025 targets with an updated long-term earnings framework. The framework is actually quite similar to what we've discussed previously, as we continue to target double-digit annual EPS growth in a normalized MRO market, driven by continued strong top line growth, including 400 to 500 basis points of annual market outgrowth in the High-Touch U.S. business and annual growth in the teens for endless assortment, generally stable gross margins which should normalize from the 2024 baseline and SG&A growing Florida sales while still investing in demand generation activities to drive sustainable long-term growth. You will notice we made a few tweaks to the earnings framework, which largely offsets.
First, we've widened the top line outlook for endless assortment as each business there is facing dynamics making it harder to achieve historical growth rates. With MonotaRO, at this stage of their maturity, the business has onboarded most of the large and midsized business within their market. With this, the team is pivoting its marketing strategy from firm level of customer acquisition to end user penetration in an effort to expand total customer share of wallet. At Zoro, following the post- pandemic volume decline to B2C and B2C like customers, the business is refocusing their efforts on B2B customers as they work to build long- term profitable relationships with its core customer set.
As the business refocuses, we think it's prudent to widen range of growth outcomes for this segment over the next few years. Regardless, we still expect to deliver a very strong growth through this segment and remain confident in the model's ability to continue to take share and drive profitable operating scale to the total business overall. Second, as we foreshadowed last quarter, we expect to maintain elevated gross margins in the High-Touch Solutions segment, which is underpinned by the confidence we have in executing against our 2 core pricing strategies, remaining market price competitive while maintaining price cost neutrality.
Adding these together, net-net, we end at roughly the same outlook as we discussed at Investor Day. Strong earnings, growing in double digits annually. When we drive these results, the business will thrive considerable amounts of cash, which we will allocate through a consistent and return driven approach. This includes continuing to invest in the business at an elevated level for the next few years as we add incremental supply chain capacity and continue to build out our technology capability. Add all this up, and we think this represents an attractive return profile, we remain well positioned to drive significant value creation for our shareholders. With that, I'll turn it back to D.G. for some closing remarks.
