NYSE:GWW W.W. Grainger Q2 2024 Earnings Report $1,015.06 -4.09 (-0.40%) Closing price 04/25/2025 03:59 PM EasternExtended Trading$1,014.37 -0.69 (-0.07%) As of 04/25/2025 07:03 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast W.W. Grainger EPS ResultsActual EPS$9.76Consensus EPS $9.58Beat/MissBeat by +$0.18One Year Ago EPS$9.28W.W. Grainger Revenue ResultsActual Revenue$4.31 billionExpected Revenue$4.35 billionBeat/MissMissed by -$39.24 millionYoY Revenue Growth+3.10%W.W. Grainger Announcement DetailsQuarterQ2 2024Date8/1/2024TimeBefore Market OpensConference Call DateThursday, August 1, 2024Conference Call Time11:00AM ETUpcoming EarningsW.W. Grainger's Q1 2025 earnings is scheduled for Thursday, May 1, 2025, with a conference call scheduled at 11:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)SEC FilingEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by W.W. Grainger Q2 2024 Earnings Call TranscriptProvided by QuartrAugust 1, 2024 ShareLink copied to clipboard.There are 9 speakers on the call. Operator00:00:03Greetings. Welcome to the W. W. Grainger Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. Operator00:00:12A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to Kyle Bland, Vice President of Investor Relations. Thank you. You may begin. Speaker 100:00:31Good morning. Welcome to Grainger's 2nd quarter earnings call. With me are D. J. McPherson, Chairman and CEO and Dean Merriwether, Senior Vice President and CFO. Speaker 100:00:40As a reminder, some of our comments today may include forward looking statements that are subject to various risks and uncertainties. Additional information regarding factors that could cause actual results to differ materially is included in the company's most recent Form 8 ks and other periodic reports filed with the SEC. This morning's call will focus on the adjusted results for the Q2 of 2024, which exclude $16,000,000 of pre tax restructuring costs incurred in the quarter. Please remember that we have also included a daily organic constant currency sales growth metric within these materials to normalize divestiture of our ENR Industrial Sales subsidiary, which was sold at the end of 2023. Definitions and full reconciliations of this and any other non GAAP financial measures with their corresponding GAAP measures are found in the tables at the end of this presentation and in our earnings release, both of which are available on our IR website. Speaker 100:01:35We will also share results related to Monotaro. Please remember that Monotaro is a public company and follows Japanese GAAP, which differs from U. S. GAAP and is reported in our results 1 month in arrears. As a result, the numbers disclosed will differ from Monotaro's public statements. Speaker 100:01:50Now I'll turn it over to DG. Thanks, Kyle. Good morning and thank you for joining the call. As we pass the midpoint of 2024, I'm proud of the way the team continues to show up for our customers, providing a flawless experience on each transaction. Our team members are consistently living the principles outlined by the Grainger Edge and in doing so, we become a trusted partner for our customers, creating tangible value each day. Speaker 100:02:141 of the best examples of the value that we create for our customers is by simplifying their purchasing processes. Complicated and high cost purchasing processes are common in our space, wasting our customers' time and money. Fortunately, we are well equipped to help customers solve this challenge by assisting them in choosing the right digital solution, setting up necessary workflows and approvals and providing systems training to maximize the benefits. Recently, during negotiations on a multi year agreement, one of our national account managers identified opportunities where our team could help the customer meet their process improvement goals, most notably in streamlining their procurement systems, engage our internal EDI E Pro team who worked with the customer to connect their purchasing platform to Grainger. Together, through enterprise wide integration and training, we were able to move nearly all of the customers' MRO transactions to digital channel, helping them to consolidate orders, lower PO processing costs and driving several $100,000 in annual savings. Speaker 100:03:07These process improvements are part of a broader engagement with this customer. We also help them reduce inventory levels and drive product standardization, further saving them time and money. This example is just one of many where our team works to understand the customer's operations, tailor our solutions to meet their needs and drive lower cost. Moving on to our Q2 performance, we delivered another solid quarter of results amidst a slow yet generally stable demand environment. Total company reported sales were up 3.1% or 5.1% on a daily organic constant currency basis with positive contributions from both segments. Speaker 100:03:40In the High Touch Solutions segment, we remain focused on our growth engines and delivered tangible value for our customers, resulting in another quarter of solid performance. Within the endless assortment business, our focus on gaining new customers and increasing repeat purchase rates is paying off and we continue to make progress with these initiatives. From a profitability standpoint, total company operating margin of 15.4% remained strong, but as anticipated was down 40 basis points versus prior year. EPS finished the quarter at $9.76 up 5.2% versus the prior year. Beyond the P and L, we achieved ROIC of 42.6% and operating cash flow remained healthy in the quarter, allowing us to return a total of $345,000,000 to Grainger shareholders through dividends and share repurchases. Speaker 100:04:24Overall, the business continues to perform well as we stay focused on the customer and the things that matter. While 2024 is playing out largely as expected, further Yandi valuation and continued pockets of demand softness in the U. S. Remain as headwinds. With this, we've trimmed the top end of our earnings guidance range, which Dee will discuss in a bit. Speaker 100:04:40Now, I'll turn it over to Dee. Speaker 200:04:43Thank you, D. G. Turning to Slide 7. You can see the high level second quarter results for the total company, including 5.1% growth on a daily organic constant currency basis. The quarter played out largely as anticipated, despite the persistent demand softness DG mentioned. Speaker 200:05:03Operating margins were down 40 basis points year over year, generally following normal seasonal trends. Gross margins were flat year over year as a number of items offset within the period and SG and A delevered 40 basis points as we ramp our demand generation investments. In total, we delivered diluted EPS for the quarter of $9.76 up 5.2 percent or $0.48 over the prior year period. Moving on to segment level results, the Hi Tec Solutions segment continues to perform well with sales up 3.1 percent on a reported basis or 3.7% on a daily organic constant currency basis. Results were driven by strong volume growth and moderate price contribution across all geographies in the period. Speaker 200:05:55In the U. S. Specifically, nearly all customer end markets were up year over year with warehousing, contractors and healthcare customers having the largest gain. For the segment, gross profit margin finished the quarter at 41.7%, flat versus the prior year. In the quarter, we experienced an unfavorable lap of roughly 40 basis points from the non recurring rebate benefit captured in Q2 of 2023, which was offset by several small tailwinds in the current year period. Speaker 200:06:30When excluding the unfavorable lap of non recurring rebate, price cost was roughly neutral in the quarter. SG and A delevered 40 basis points in Q2 as DC capacity came online and we continue to invest in demand generating activities like marketing and seller headcount. Annual merit increases that went live in April were offset by productivity actions and lower variable compensation expense within the period. Overall, it was a solid quarter of growth and profitability for the Hi Touch Solutions business. Looking at market outgrowth on Slide 9, we estimate that the U. Speaker 200:07:11S. MRO market, including volume and price, grew in the quarter between 2.5% and 3%, with price contributing nearly all of the growth. Within our Hi Tec Solutions U. S. Business, growing at 3.6% organically, our mathematical market outgrowth in the quarter was roughly 100 basis points in total. Speaker 200:07:33This includes approximately 300 basis points of volume outgrowth contribution netted against the continued price headwinds when comparing our price contribution to PPI. As we said before, there is no perfect way to measure the MRO market and we're currently in a cycle where the headline PPI and IP metrics don't completely reflect what we're seeing in the MRO specific space. With the differences in product and customer mix, these disconnects happen from time to time and cause short term noise within our external market share gain calculation. Given the current dislocation we're seeing this year, it's unlikely we will mathematically achieve our market outlook to understand our relative performance and know we're performing quite well in the current environment. History would suggest that this dislocation will normalize over a multiyear period, and we believe this metric remains useful in tracking our relative performance over time. Speaker 200:08:42We're still generating strong returns on our demand generating investments, which gives us confidence that over the long term, we will continue to outload the market by 400 to 500 basis points annually on average. Now turning to the endless assortment segment. Sales increased 3.3% or 11.7 percent on a daily constant currency basis, which adjusts for the impact of the depreciated Japanese yen. ZURO US was up 8.7 percent with Monotaro achieving 13.2% in local days local currency. At a business level, Zillow saw improved growth from core B2B customers who were up mid teens in the quarter. Speaker 200:09:30Performance was driven by B2B customer acquisition and improved repeat purchase rates, which were aided by service enhancements to increase same day shipping and better communicate delivery dates. Headwinds from the continued unwind of non core business, including B2C and B2C like volumes started to dissipate in the quarter, but remained down low double digits year over year. We expect these B2C headwinds to continue to subside as the year progresses. At Monitaro, sales were strong from continued growth with enterprise customers coupled with solid acquisition and repeat purchase rates with small and midsized businesses. On a reported basis, these results were all offset by continued foreign exchange rate pressures as the yen continues to show incremental weakness against the dollar. Speaker 200:10:22On profitability, operating margins for the segment declined 70 basis points to 7.9%. This decline was driven by lower gross margins at Monotaro from product and customer mix headwinds, combined with SG and A deleverage at Zoro as the business ramps marketing investments and rebaselines on lower B2C and B2C like volumes. As these volumes normalize, this should create a better baseline to relever the business going forward. Overall, for Endless Assortment, we're encouraged by the strong progress in the quarter and are on track to finish the year at or above our regional expectations. Now moving to the updated outlook for the remainder of 2024. Speaker 200:11:09As DG mentioned at the beginning of the call, we are trimming the top end of most estimates to reflect continued market softness as macroeconomic uncertainty persists in the U. S. With this, we're now expecting total company daily organic constant currency sales to grow between 4% 6% for the full year of 2024. When including the continued deterioration of the Japanese yen, this translates to an updated reported sales range between $17,000,000,000 $17,300,000,000 and an EPS range between $38 $39.50 As you can see on this slide, we flowed these changes through and have also made slight tweaks to the margin outlook based upon how we're performing in the first half. I want to note, while we continue to remain diligent on managing expenses and measuring returns given the softer top line, our ability to generate leverage is challenged this year as we invest in our growth engines to power long term share gain. Speaker 200:12:16Setting that aside, we remain strongly committed to growing SG and A slower than sales over time and have a track record of doing so. Supplemental guidance ranges, including increased operating cash flow and share repurchase expectations can be found in the appendix of this presentation. On seasonality, as we move to the second half of the year, we expect relatively normal sequential growth from Q2 to Q3 and the Q4. There are some puts and takes from a profitability perspective, but we anticipate operating margins and earnings to remain healthy and relatively consistent in the 3rd quarter when compared to the 2nd. As we start the 3rd quarter, a number of external factors have impacted our results in July. Speaker 200:13:05The sales started to ramp in the final few days of the month. This led preliminary July sales results to finish up roughly 2% on the total company daily organic constant currency basis. Of note, this number will be approximately 100 basis points higher if you normalize for the tough comp caused by an elevated level of project related service engagement in July of last year. Altogether, at the total company level, we're performing well and are confident in our ability to drive solid growth and strong profitability in the second half of the year. With that, I'll pass it back to DG. Speaker 100:13:46Thanks, Dee. As we head into the second half of twenty twenty four, a number of macroeconomic uncertainties remain ahead, but our teams are committed to focusing on what matters most, meeting our customers' needs and creating value for their business. We know that our ability to serve our customers better than our competitors relies on having a strong culture, where team members can have a meaningful and fulfilling career. Among several other recognitions this year, Grainger was recently named the Best Workplace for Millennials. These awards are a testament to the well rounded culture we've built to help us fulfill our purpose. Speaker 100:14:15I'm confident that Grainger will continue to be recognized as an employer of choice because of the emphasis we put on living our principles. One of those principles starting with the customer is key to achieving great results for all stakeholders. And I'm confident that we will continue to do that in 2024 and for years to come. And with that, we will open the line for questions. Operator00:14:33Thank Our first question is from Tommy Moll with Stephens Inc. Please proceed. Speaker 300:15:03Good morning and thank you for taking my questions. Speaker 100:15:07Good morning. Speaker 300:15:08I wanted to start on the HiTouch business where once again the midsized customers outgrew the large. And my question is really how much do you think this is a function of share gain versus some other factor? How important to the midsize customers is the digital capability versus that level of importance for the larger customers? And what do you think the runway is ahead on these favorable trends for the midsize? Thank you. Speaker 100:15:41Yes. Thanks, Tommy. I think most almost all of the growth in midsize customer and the outgrowth would be share gain. The reality is that and I think most of them know the story. We at one point were close to $2,000,000,000 in revenue. Speaker 100:15:55We got down to $800,000,000 We're back up to where we were. We think there's a long runway ahead. We believe that the digital capabilities we've built product information assets we've built help us with midsize customers significantly. And so really we think it's what we're doing to build relationships with them through digital capabilities. And a lot of those customers when you look at how they buy start digital and that's their main channel. Speaker 300:16:25Shifting gears, DG, last quarter you referenced inflation being stickier than expected and talked about some corrective price actions slated for early May. I'm just curious for an update there, how is realization And do you still think you'll land in price cost neutrality by the end of this year? Thanks. Speaker 100:16:46Yes. We do believe we'll land in price cost neutrality by the end of year. The price realization the realization of the pricing actions on May 1st have been basically as expected. We talked about at the beginning of the year, we were a little bit behind on price increases. We are making some of that up as the year progresses and notably gross profit remains strong. Speaker 100:17:06So we are not concerned about ending the year as we expect. Operator00:17:11Our next question is from Dave Manthey with Baird. Please proceed. Speaker 400:17:18Yes. Thank you. Good morning, everyone. You may have mentioned this, but June average daily sales running up 7 after sort of 4 to 5 all years. Is there anything we can read into that? Speaker 400:17:32And again, I apologize if you mentioned it, but did you make any comments on trends in July so far? Speaker 200:17:39Yes. In the reported remarks, we noted that preliminarily July is rolling up around 2%. However, if you recall, we believe if you normalize for some project related service revenue, outsized project related service revenue we had last year, that would put us north of 3% for July. Speaker 100:18:07Yes, I would just say that Dave that I think that June, July the differences are probably noise. We actually don't think there's we look at daily run rates. We are concerned about anything and there's nothing that I would say that would necessarily cause those other than noise. Speaker 400:18:27Yes, makes sense. Thank you for that. And then I know other international is small, but we're talking $300,000,000 drag on overall profitability, maybe a distraction, I don't know. Could you update us on the other international operations and what you're targeting there medium term? Speaker 200:18:50Yes. The majority of that it's Cromwell plus some other charges and other. But the Cromwell business has been working towards profitability. And if you recall, our results last year, they exited the year profitable and they continue to see profitability this year. Now in this quarter, they had a little bit of a challenge with some gross margin related to customer mix, but we expect them to end this year profitable as well. Speaker 200:19:19And we feel like the U. K. Is an important market for us and we just with Brexit and some other challenges over the last couple of years, it's kind of delayed some of our strategic plans in that business, but that we feel that business is doing really well and have outgrown the market the last 6 quarters. Operator00:19:40Our next question is from Ryan Merkel with William Blair. Please proceed. Speaker 500:19:46Hey, everyone. I wanted to go back to pricing. What do you expect for 2024 now? And any more color you can provide on the May we are priced competitively. And we want to make sure that Speaker 100:20:05we are priced competitively and we want to make sure that over time we're shooting for price cost neutrality. I think we will do that this year. Our price increases this year will be modest overall. Our cost increases will be modest overall on product cost. But we are making adjustments both at May 1 September 1. Speaker 100:20:26And those adjustments aren't meaningful. In aggregate, we would expect to be in that one percent range that we talked about roughly at the beginning of the Speaker 200:20:34year, 1% to 2. 1% to 2%. Yes. Speaker 500:20:37Okay, got it. That's helpful. And then just back to the macro, DG, any factors you would point out that caused you to lower the second half or maybe just rank the things that drove that? And generally, what are you hearing from customers about the outlook? Speaker 100:20:54Yes. I think that what we're seeing is what everybody is seeing. If you look at sort of the general demand environment, it's pretty slow. It's consistent though. There's not a lot of panic. Speaker 100:21:07There are certain industries that have had significant challenges this year, pockets of automotive, pockets of other. I won't get into too many details about those, but certainly there are pockets of weakness that have been significant and some pockets of strength. And I think that just continues to be the case. We expect I think we came in thinking that volume this year would be flat in our market, roughly something like that and it's probably going to be down 1 now. So that's probably given what we've seen that that's probably the biggest change we have in our projections. Operator00:21:47Our next question is from Jacob Levenson with Melius Research. Please proceed. Speaker 600:21:54Good morning, everyone. Speaker 200:21:56Good morning. Good morning, Jacob. Speaker 600:21:59On the marketing investment, I know you guys have a tight feedback loop there and understanding where to push the accelerator or not. But is that spend something that you would look to actually flex up in sort of a sloppier macro environment or is it really not demand dependent, if you will? Speaker 100:22:23So the way we measure marketing, we look at, we run tests all the time and that guides us on how much to spend. So, you could argue that in certain macro environment, those tests might show different results. But in general, that's not going to change how we think about spending. We're spending the levels that give us a marginal return that we expect. And none of that's changed and I wouldn't expect that to change through time. Speaker 600:22:50Okay. That makes sense. And then just on the distribution investments that you're making, I know that's been pretty well telegraphed back at your Analyst Day a few years ago. Can you just help us understand where you are in that cycle and maybe just give us a sense of maybe what the utilization rates look like today in your network? Speaker 100:23:15Yes. We're the network is pretty busy, I'd say. We probably we think we talked about this in 2022. We were probably a bit behind. It was difficult to actually build anything during the pandemic to get materials and finish things. Speaker 100:23:29We have remedied some of that situation. We've put in 3 new bulk warehouses. The building in the northwest, the shell of the building is up and we will start receiving by the end of this year and start shipping next year. We have a building in Houston that is just land now, but that's going to go up as well. So we've talked about those 2 and announced those 2 buildings. Speaker 100:23:49I would say that the biggest bulge in capital right now we would project would be probably next year as we build finish those 2 buildings out and then we expect to be in probably more normal times after that and be in a little bit better shape from a capacity perspective. But the plan has just been executed exactly as we expected and timing that we haven't changed on any of that. Operator00:24:12Our next question is from Deane Dray with RBC Capital Markets. Please proceed. Speaker 700:24:19Good morning. This is Jeff Reeve on for Deane. My first question is on the MS Assortment segment, pretty nice organic growth this quarter. I know one of your peers had some e commerce stumbles recently. Curious if you're winning share there or if that maybe created an opportunity to do so? Speaker 100:24:40I wouldn't necessarily tag what happens to us to any specific competitor. The market is quite big that Zoro in the U. S. Plays in. I think what's happened with us is we've gotten much better at getting better repeat rates and we've been able to get better acquisition also this year. Speaker 100:24:58So, the 2 things we focus on have gone better, but I wouldn't tag it to any competitor. Speaker 700:25:04Got it. And then just on guidance, the kind of trimming the high end, I think you called out kind of the weaker macro and the yen devaluation. If you had to kind of peg it percentage to each of those buckets, kind of how should we think about it? Speaker 200:25:20Can you repeat that? I'm trying to make sure I'm following your Speaker 700:25:30then also the also the yen devaluation. I was curious if you could just kind of point to and kind of give a percentage to each one into the kind of the reasons behind the trimming of the guidance. Is it more macro, more yen? Speaker 200:25:43Okay. So, more macro, so probably 2 thirds macro and probably a third yen. Operator00:25:52Our next question is from Christopher Glynn with Oppenheimer. Please proceed. Speaker 400:25:59Thanks. Just Slide 19, you show the verticals for HTS and really pretty remarkable balance across there with just a couple of flat everything else up. I was curious about the double digit categories, warehousing and other and then contract are up high single digits. I think other is a bit of a grab bag, but those numbers for those sectors seem a little incongruous with general macro. So curious if you could opine there? Speaker 100:26:33Yes. I mean, so for contractors in particular, I'd also make the point that we're pretty small. So we start with a pretty small base. So I'm not sure that you can compare that to what's going on in the broader market. Warehousing, there's some comparisons to last year with some customers that are positive right now that that's driving that. Speaker 100:26:50I wouldn't read too much into those just to be fair. I think that we're performing fairly consistently across the segments and then you have sort of in year impacts that are a little unusual into some of them. Speaker 400:27:05Okay. And then second question is on Zoro. Could we get an update on the path to margins? Clearly, demand gen is going very well there back to mid teens for the B2B, but kind of low single digit margins, how should we maybe just want to revisit the path there to get to target margins? Speaker 100:27:30Yes. What I would say is that, probably low point it was probably Q4 was last end of last year. We think from now on, we're going to get better consistently and we'll be able to get SG and A leverage as we move forward given the growth rates we're seeing. So it'll start to get better through the back half of this year and we think into next year as well. And so we're pretty confident that we'll start to rise. Speaker 100:27:54It's not going to be fast. It's going to be very consistent in terms of getting improved margins into the business. Operator00:28:03Our next question is from Patrick Baumann with JPMorgan. Please proceed. Speaker 800:28:09Good morning. Quick one maybe for Dee. Can you talk about the external factors that you mentioned impacting the July growth rate? And you mentioned a ramp back toward the end of the month and something about sequential growth from Q2 to Q3, but my line cut out. So wondering if you could rehash what you were saying Speaker 200:28:30on that? Yes. Well, if you look at just July, you're talking about July now, not the prior quarter, right? When we started this month, the month started a little slow. There were a number of things that happened. Speaker 200:28:47There was some weather related impacts that didn't go in our favor. There was also a well known IT outage that impacted a number of our customers since we cover a lot of people in the U. S. And then there was just some general holiday softness. This is really unique because a lot of it happened around the same time. Speaker 200:29:08So really, really hard to measure. I'd say the good news is the last week of the month has been was really strong for us. And so that is a good sign. So those were some of the impacts that we noted on a go forward basis. I think you're asking the next question sequentially sequential sales, am I correct, from like this quarter to the next? Speaker 200:29:30If you look at that, from a top line perspective, we expect that to be reasonably consistent Q2 to Q3 and then through the Q4. And then as it relates to some of our other metrics from a sequential perspective, we're expecting profitability, sequential growth from the revenue numbers that I just talked about. We expect profitability. There's going to be some puts and takes there, but we Okay. And then I may have missed, but could you talk about the restructuring you did in Speaker 100:30:09the quarter? Speaker 800:30:10Okay. And then I may have missed, but could you talk about the restructuring you did in the quarter? Was it just kind of what was it and what is the expected benefit from it? Is there more to come in terms of the restructuring or was it kind of isolated just to the Q2? Speaker 200:30:26Sure. As we've talked about making sure that we can continue to invest in the cycle to ensure that we have long term share gain. A part of that is making sure that we're paying for some of those investments through productivity actions. So our entire business is really focused on continuous improvement and looking at how we can drive productivity. So a lot of those actions were focused on voluntary actions with team members and that happened both in the U. Speaker 200:31:04S. And internationally quite a bit. We see that as a one time specific incident. However, our focus on continuous improvement is longer term. And we in doing those things, we are gaining scale on our non demand generating expenses and we expect that to continue through the cycle as we continue to invest in demand generation. Operator00:31:30We have reached the end of our question and answer session. I would like to turn the conference back over to D. G. For closing remarks. Speaker 100:31:38All right. Thanks for joining us. Must be a busy day because we didn't get as many questions as normal. But I appreciate you joining. And I would just reiterate that we are we feel really good about where we're at. Speaker 100:31:48We're going to continue to invest in the core capabilities that we need to build to make sure that we can serve customers better than our competitors. That's really what we're focused on. And we're also focused, as you said, on driving productivity through the business. We think doing both of those things at the same time is critical for our long term success. So hope you enjoy the rest of your summer. Speaker 100:32:06And thanks for joining our call. Operator00:32:08Thank you. This will conclude today's You may disconnect your lines at this time and thank you for your participation.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallW.W. Grainger Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) W.W. Grainger Earnings HeadlinesBrokerages Set W.W. Grainger, Inc. (NYSE:GWW) PT at $1,130.89April 25 at 2:45 AM | americanbankingnews.comW.W. Grainger (GWW) Expected to Announce Quarterly Earnings on ThursdayApril 24 at 1:09 AM | americanbankingnews.comHere’s How to Claim Your Stake in Elon’s Private Company, xAIElon Musk has done it again. He’s developed a powerful new AI model that’s already turning heads — and turning the industry upside down. Some say it could threaten Google’s search engine dominance. Others believe it could mark the beginning of the end for ChatGPT.April 26, 2025 | Brownstone Research (Ad)Shareholders Would Enjoy A Repeat Of W.W. Grainger's (NYSE:GWW) Recent Growth In ReturnsApril 21, 2025 | finance.yahoo.comIs Weakness In W.W. Grainger, Inc. (NYSE:GWW) Stock A Sign That The Market Could be Wrong Given Its Strong Financial Prospects?April 17, 2025 | finance.yahoo.comWhat to Expect From W.W. Grainger's Next Quarterly Earnings ReportApril 17, 2025 | msn.comSee More W.W. Grainger Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like W.W. Grainger? Sign up for Earnings360's daily newsletter to receive timely earnings updates on W.W. Grainger and other key companies, straight to your email. Email Address About W.W. GraingerW.W. Grainger (NYSE:GWW), together with its subsidiaries, distributes maintenance, repair, and operating products and services primarily in North America, Japan, the United Kingdom, and internationally. The company operates through two segments, High-Touch Solutions N.A. and Endless Assortment. The company provides safety, security, material handling and storage equipment, pumps and plumbing equipment, cleaning and maintenance, and metalworking and hand tools. It also offers technical support and inventory management services. The company serves smaller businesses to large corporations, government entities, and other institutions, as well as commercial, healthcare, and manufacturing industries through sales and service representatives, and electronic and ecommerce channels. W.W. Grainger, Inc. was founded in 1927 and is headquartered in Lake Forest, Illinois.View W.W. 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There are 9 speakers on the call. Operator00:00:03Greetings. Welcome to the W. W. Grainger Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. Operator00:00:12A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to Kyle Bland, Vice President of Investor Relations. Thank you. You may begin. Speaker 100:00:31Good morning. Welcome to Grainger's 2nd quarter earnings call. With me are D. J. McPherson, Chairman and CEO and Dean Merriwether, Senior Vice President and CFO. Speaker 100:00:40As a reminder, some of our comments today may include forward looking statements that are subject to various risks and uncertainties. Additional information regarding factors that could cause actual results to differ materially is included in the company's most recent Form 8 ks and other periodic reports filed with the SEC. This morning's call will focus on the adjusted results for the Q2 of 2024, which exclude $16,000,000 of pre tax restructuring costs incurred in the quarter. Please remember that we have also included a daily organic constant currency sales growth metric within these materials to normalize divestiture of our ENR Industrial Sales subsidiary, which was sold at the end of 2023. Definitions and full reconciliations of this and any other non GAAP financial measures with their corresponding GAAP measures are found in the tables at the end of this presentation and in our earnings release, both of which are available on our IR website. Speaker 100:01:35We will also share results related to Monotaro. Please remember that Monotaro is a public company and follows Japanese GAAP, which differs from U. S. GAAP and is reported in our results 1 month in arrears. As a result, the numbers disclosed will differ from Monotaro's public statements. Speaker 100:01:50Now I'll turn it over to DG. Thanks, Kyle. Good morning and thank you for joining the call. As we pass the midpoint of 2024, I'm proud of the way the team continues to show up for our customers, providing a flawless experience on each transaction. Our team members are consistently living the principles outlined by the Grainger Edge and in doing so, we become a trusted partner for our customers, creating tangible value each day. Speaker 100:02:141 of the best examples of the value that we create for our customers is by simplifying their purchasing processes. Complicated and high cost purchasing processes are common in our space, wasting our customers' time and money. Fortunately, we are well equipped to help customers solve this challenge by assisting them in choosing the right digital solution, setting up necessary workflows and approvals and providing systems training to maximize the benefits. Recently, during negotiations on a multi year agreement, one of our national account managers identified opportunities where our team could help the customer meet their process improvement goals, most notably in streamlining their procurement systems, engage our internal EDI E Pro team who worked with the customer to connect their purchasing platform to Grainger. Together, through enterprise wide integration and training, we were able to move nearly all of the customers' MRO transactions to digital channel, helping them to consolidate orders, lower PO processing costs and driving several $100,000 in annual savings. Speaker 100:03:07These process improvements are part of a broader engagement with this customer. We also help them reduce inventory levels and drive product standardization, further saving them time and money. This example is just one of many where our team works to understand the customer's operations, tailor our solutions to meet their needs and drive lower cost. Moving on to our Q2 performance, we delivered another solid quarter of results amidst a slow yet generally stable demand environment. Total company reported sales were up 3.1% or 5.1% on a daily organic constant currency basis with positive contributions from both segments. Speaker 100:03:40In the High Touch Solutions segment, we remain focused on our growth engines and delivered tangible value for our customers, resulting in another quarter of solid performance. Within the endless assortment business, our focus on gaining new customers and increasing repeat purchase rates is paying off and we continue to make progress with these initiatives. From a profitability standpoint, total company operating margin of 15.4% remained strong, but as anticipated was down 40 basis points versus prior year. EPS finished the quarter at $9.76 up 5.2% versus the prior year. Beyond the P and L, we achieved ROIC of 42.6% and operating cash flow remained healthy in the quarter, allowing us to return a total of $345,000,000 to Grainger shareholders through dividends and share repurchases. Speaker 100:04:24Overall, the business continues to perform well as we stay focused on the customer and the things that matter. While 2024 is playing out largely as expected, further Yandi valuation and continued pockets of demand softness in the U. S. Remain as headwinds. With this, we've trimmed the top end of our earnings guidance range, which Dee will discuss in a bit. Speaker 100:04:40Now, I'll turn it over to Dee. Speaker 200:04:43Thank you, D. G. Turning to Slide 7. You can see the high level second quarter results for the total company, including 5.1% growth on a daily organic constant currency basis. The quarter played out largely as anticipated, despite the persistent demand softness DG mentioned. Speaker 200:05:03Operating margins were down 40 basis points year over year, generally following normal seasonal trends. Gross margins were flat year over year as a number of items offset within the period and SG and A delevered 40 basis points as we ramp our demand generation investments. In total, we delivered diluted EPS for the quarter of $9.76 up 5.2 percent or $0.48 over the prior year period. Moving on to segment level results, the Hi Tec Solutions segment continues to perform well with sales up 3.1 percent on a reported basis or 3.7% on a daily organic constant currency basis. Results were driven by strong volume growth and moderate price contribution across all geographies in the period. Speaker 200:05:55In the U. S. Specifically, nearly all customer end markets were up year over year with warehousing, contractors and healthcare customers having the largest gain. For the segment, gross profit margin finished the quarter at 41.7%, flat versus the prior year. In the quarter, we experienced an unfavorable lap of roughly 40 basis points from the non recurring rebate benefit captured in Q2 of 2023, which was offset by several small tailwinds in the current year period. Speaker 200:06:30When excluding the unfavorable lap of non recurring rebate, price cost was roughly neutral in the quarter. SG and A delevered 40 basis points in Q2 as DC capacity came online and we continue to invest in demand generating activities like marketing and seller headcount. Annual merit increases that went live in April were offset by productivity actions and lower variable compensation expense within the period. Overall, it was a solid quarter of growth and profitability for the Hi Touch Solutions business. Looking at market outgrowth on Slide 9, we estimate that the U. Speaker 200:07:11S. MRO market, including volume and price, grew in the quarter between 2.5% and 3%, with price contributing nearly all of the growth. Within our Hi Tec Solutions U. S. Business, growing at 3.6% organically, our mathematical market outgrowth in the quarter was roughly 100 basis points in total. Speaker 200:07:33This includes approximately 300 basis points of volume outgrowth contribution netted against the continued price headwinds when comparing our price contribution to PPI. As we said before, there is no perfect way to measure the MRO market and we're currently in a cycle where the headline PPI and IP metrics don't completely reflect what we're seeing in the MRO specific space. With the differences in product and customer mix, these disconnects happen from time to time and cause short term noise within our external market share gain calculation. Given the current dislocation we're seeing this year, it's unlikely we will mathematically achieve our market outlook to understand our relative performance and know we're performing quite well in the current environment. History would suggest that this dislocation will normalize over a multiyear period, and we believe this metric remains useful in tracking our relative performance over time. Speaker 200:08:42We're still generating strong returns on our demand generating investments, which gives us confidence that over the long term, we will continue to outload the market by 400 to 500 basis points annually on average. Now turning to the endless assortment segment. Sales increased 3.3% or 11.7 percent on a daily constant currency basis, which adjusts for the impact of the depreciated Japanese yen. ZURO US was up 8.7 percent with Monotaro achieving 13.2% in local days local currency. At a business level, Zillow saw improved growth from core B2B customers who were up mid teens in the quarter. Speaker 200:09:30Performance was driven by B2B customer acquisition and improved repeat purchase rates, which were aided by service enhancements to increase same day shipping and better communicate delivery dates. Headwinds from the continued unwind of non core business, including B2C and B2C like volumes started to dissipate in the quarter, but remained down low double digits year over year. We expect these B2C headwinds to continue to subside as the year progresses. At Monitaro, sales were strong from continued growth with enterprise customers coupled with solid acquisition and repeat purchase rates with small and midsized businesses. On a reported basis, these results were all offset by continued foreign exchange rate pressures as the yen continues to show incremental weakness against the dollar. Speaker 200:10:22On profitability, operating margins for the segment declined 70 basis points to 7.9%. This decline was driven by lower gross margins at Monotaro from product and customer mix headwinds, combined with SG and A deleverage at Zoro as the business ramps marketing investments and rebaselines on lower B2C and B2C like volumes. As these volumes normalize, this should create a better baseline to relever the business going forward. Overall, for Endless Assortment, we're encouraged by the strong progress in the quarter and are on track to finish the year at or above our regional expectations. Now moving to the updated outlook for the remainder of 2024. Speaker 200:11:09As DG mentioned at the beginning of the call, we are trimming the top end of most estimates to reflect continued market softness as macroeconomic uncertainty persists in the U. S. With this, we're now expecting total company daily organic constant currency sales to grow between 4% 6% for the full year of 2024. When including the continued deterioration of the Japanese yen, this translates to an updated reported sales range between $17,000,000,000 $17,300,000,000 and an EPS range between $38 $39.50 As you can see on this slide, we flowed these changes through and have also made slight tweaks to the margin outlook based upon how we're performing in the first half. I want to note, while we continue to remain diligent on managing expenses and measuring returns given the softer top line, our ability to generate leverage is challenged this year as we invest in our growth engines to power long term share gain. Speaker 200:12:16Setting that aside, we remain strongly committed to growing SG and A slower than sales over time and have a track record of doing so. Supplemental guidance ranges, including increased operating cash flow and share repurchase expectations can be found in the appendix of this presentation. On seasonality, as we move to the second half of the year, we expect relatively normal sequential growth from Q2 to Q3 and the Q4. There are some puts and takes from a profitability perspective, but we anticipate operating margins and earnings to remain healthy and relatively consistent in the 3rd quarter when compared to the 2nd. As we start the 3rd quarter, a number of external factors have impacted our results in July. Speaker 200:13:05The sales started to ramp in the final few days of the month. This led preliminary July sales results to finish up roughly 2% on the total company daily organic constant currency basis. Of note, this number will be approximately 100 basis points higher if you normalize for the tough comp caused by an elevated level of project related service engagement in July of last year. Altogether, at the total company level, we're performing well and are confident in our ability to drive solid growth and strong profitability in the second half of the year. With that, I'll pass it back to DG. Speaker 100:13:46Thanks, Dee. As we head into the second half of twenty twenty four, a number of macroeconomic uncertainties remain ahead, but our teams are committed to focusing on what matters most, meeting our customers' needs and creating value for their business. We know that our ability to serve our customers better than our competitors relies on having a strong culture, where team members can have a meaningful and fulfilling career. Among several other recognitions this year, Grainger was recently named the Best Workplace for Millennials. These awards are a testament to the well rounded culture we've built to help us fulfill our purpose. Speaker 100:14:15I'm confident that Grainger will continue to be recognized as an employer of choice because of the emphasis we put on living our principles. One of those principles starting with the customer is key to achieving great results for all stakeholders. And I'm confident that we will continue to do that in 2024 and for years to come. And with that, we will open the line for questions. Operator00:14:33Thank Our first question is from Tommy Moll with Stephens Inc. Please proceed. Speaker 300:15:03Good morning and thank you for taking my questions. Speaker 100:15:07Good morning. Speaker 300:15:08I wanted to start on the HiTouch business where once again the midsized customers outgrew the large. And my question is really how much do you think this is a function of share gain versus some other factor? How important to the midsize customers is the digital capability versus that level of importance for the larger customers? And what do you think the runway is ahead on these favorable trends for the midsize? Thank you. Speaker 100:15:41Yes. Thanks, Tommy. I think most almost all of the growth in midsize customer and the outgrowth would be share gain. The reality is that and I think most of them know the story. We at one point were close to $2,000,000,000 in revenue. Speaker 100:15:55We got down to $800,000,000 We're back up to where we were. We think there's a long runway ahead. We believe that the digital capabilities we've built product information assets we've built help us with midsize customers significantly. And so really we think it's what we're doing to build relationships with them through digital capabilities. And a lot of those customers when you look at how they buy start digital and that's their main channel. Speaker 300:16:25Shifting gears, DG, last quarter you referenced inflation being stickier than expected and talked about some corrective price actions slated for early May. I'm just curious for an update there, how is realization And do you still think you'll land in price cost neutrality by the end of this year? Thanks. Speaker 100:16:46Yes. We do believe we'll land in price cost neutrality by the end of year. The price realization the realization of the pricing actions on May 1st have been basically as expected. We talked about at the beginning of the year, we were a little bit behind on price increases. We are making some of that up as the year progresses and notably gross profit remains strong. Speaker 100:17:06So we are not concerned about ending the year as we expect. Operator00:17:11Our next question is from Dave Manthey with Baird. Please proceed. Speaker 400:17:18Yes. Thank you. Good morning, everyone. You may have mentioned this, but June average daily sales running up 7 after sort of 4 to 5 all years. Is there anything we can read into that? Speaker 400:17:32And again, I apologize if you mentioned it, but did you make any comments on trends in July so far? Speaker 200:17:39Yes. In the reported remarks, we noted that preliminarily July is rolling up around 2%. However, if you recall, we believe if you normalize for some project related service revenue, outsized project related service revenue we had last year, that would put us north of 3% for July. Speaker 100:18:07Yes, I would just say that Dave that I think that June, July the differences are probably noise. We actually don't think there's we look at daily run rates. We are concerned about anything and there's nothing that I would say that would necessarily cause those other than noise. Speaker 400:18:27Yes, makes sense. Thank you for that. And then I know other international is small, but we're talking $300,000,000 drag on overall profitability, maybe a distraction, I don't know. Could you update us on the other international operations and what you're targeting there medium term? Speaker 200:18:50Yes. The majority of that it's Cromwell plus some other charges and other. But the Cromwell business has been working towards profitability. And if you recall, our results last year, they exited the year profitable and they continue to see profitability this year. Now in this quarter, they had a little bit of a challenge with some gross margin related to customer mix, but we expect them to end this year profitable as well. Speaker 200:19:19And we feel like the U. K. Is an important market for us and we just with Brexit and some other challenges over the last couple of years, it's kind of delayed some of our strategic plans in that business, but that we feel that business is doing really well and have outgrown the market the last 6 quarters. Operator00:19:40Our next question is from Ryan Merkel with William Blair. Please proceed. Speaker 500:19:46Hey, everyone. I wanted to go back to pricing. What do you expect for 2024 now? And any more color you can provide on the May we are priced competitively. And we want to make sure that Speaker 100:20:05we are priced competitively and we want to make sure that over time we're shooting for price cost neutrality. I think we will do that this year. Our price increases this year will be modest overall. Our cost increases will be modest overall on product cost. But we are making adjustments both at May 1 September 1. Speaker 100:20:26And those adjustments aren't meaningful. In aggregate, we would expect to be in that one percent range that we talked about roughly at the beginning of the Speaker 200:20:34year, 1% to 2. 1% to 2%. Yes. Speaker 500:20:37Okay, got it. That's helpful. And then just back to the macro, DG, any factors you would point out that caused you to lower the second half or maybe just rank the things that drove that? And generally, what are you hearing from customers about the outlook? Speaker 100:20:54Yes. I think that what we're seeing is what everybody is seeing. If you look at sort of the general demand environment, it's pretty slow. It's consistent though. There's not a lot of panic. Speaker 100:21:07There are certain industries that have had significant challenges this year, pockets of automotive, pockets of other. I won't get into too many details about those, but certainly there are pockets of weakness that have been significant and some pockets of strength. And I think that just continues to be the case. We expect I think we came in thinking that volume this year would be flat in our market, roughly something like that and it's probably going to be down 1 now. So that's probably given what we've seen that that's probably the biggest change we have in our projections. Operator00:21:47Our next question is from Jacob Levenson with Melius Research. Please proceed. Speaker 600:21:54Good morning, everyone. Speaker 200:21:56Good morning. Good morning, Jacob. Speaker 600:21:59On the marketing investment, I know you guys have a tight feedback loop there and understanding where to push the accelerator or not. But is that spend something that you would look to actually flex up in sort of a sloppier macro environment or is it really not demand dependent, if you will? Speaker 100:22:23So the way we measure marketing, we look at, we run tests all the time and that guides us on how much to spend. So, you could argue that in certain macro environment, those tests might show different results. But in general, that's not going to change how we think about spending. We're spending the levels that give us a marginal return that we expect. And none of that's changed and I wouldn't expect that to change through time. Speaker 600:22:50Okay. That makes sense. And then just on the distribution investments that you're making, I know that's been pretty well telegraphed back at your Analyst Day a few years ago. Can you just help us understand where you are in that cycle and maybe just give us a sense of maybe what the utilization rates look like today in your network? Speaker 100:23:15Yes. We're the network is pretty busy, I'd say. We probably we think we talked about this in 2022. We were probably a bit behind. It was difficult to actually build anything during the pandemic to get materials and finish things. Speaker 100:23:29We have remedied some of that situation. We've put in 3 new bulk warehouses. The building in the northwest, the shell of the building is up and we will start receiving by the end of this year and start shipping next year. We have a building in Houston that is just land now, but that's going to go up as well. So we've talked about those 2 and announced those 2 buildings. Speaker 100:23:49I would say that the biggest bulge in capital right now we would project would be probably next year as we build finish those 2 buildings out and then we expect to be in probably more normal times after that and be in a little bit better shape from a capacity perspective. But the plan has just been executed exactly as we expected and timing that we haven't changed on any of that. Operator00:24:12Our next question is from Deane Dray with RBC Capital Markets. Please proceed. Speaker 700:24:19Good morning. This is Jeff Reeve on for Deane. My first question is on the MS Assortment segment, pretty nice organic growth this quarter. I know one of your peers had some e commerce stumbles recently. Curious if you're winning share there or if that maybe created an opportunity to do so? Speaker 100:24:40I wouldn't necessarily tag what happens to us to any specific competitor. The market is quite big that Zoro in the U. S. Plays in. I think what's happened with us is we've gotten much better at getting better repeat rates and we've been able to get better acquisition also this year. Speaker 100:24:58So, the 2 things we focus on have gone better, but I wouldn't tag it to any competitor. Speaker 700:25:04Got it. And then just on guidance, the kind of trimming the high end, I think you called out kind of the weaker macro and the yen devaluation. If you had to kind of peg it percentage to each of those buckets, kind of how should we think about it? Speaker 200:25:20Can you repeat that? I'm trying to make sure I'm following your Speaker 700:25:30then also the also the yen devaluation. I was curious if you could just kind of point to and kind of give a percentage to each one into the kind of the reasons behind the trimming of the guidance. Is it more macro, more yen? Speaker 200:25:43Okay. So, more macro, so probably 2 thirds macro and probably a third yen. Operator00:25:52Our next question is from Christopher Glynn with Oppenheimer. Please proceed. Speaker 400:25:59Thanks. Just Slide 19, you show the verticals for HTS and really pretty remarkable balance across there with just a couple of flat everything else up. I was curious about the double digit categories, warehousing and other and then contract are up high single digits. I think other is a bit of a grab bag, but those numbers for those sectors seem a little incongruous with general macro. So curious if you could opine there? Speaker 100:26:33Yes. I mean, so for contractors in particular, I'd also make the point that we're pretty small. So we start with a pretty small base. So I'm not sure that you can compare that to what's going on in the broader market. Warehousing, there's some comparisons to last year with some customers that are positive right now that that's driving that. Speaker 100:26:50I wouldn't read too much into those just to be fair. I think that we're performing fairly consistently across the segments and then you have sort of in year impacts that are a little unusual into some of them. Speaker 400:27:05Okay. And then second question is on Zoro. Could we get an update on the path to margins? Clearly, demand gen is going very well there back to mid teens for the B2B, but kind of low single digit margins, how should we maybe just want to revisit the path there to get to target margins? Speaker 100:27:30Yes. What I would say is that, probably low point it was probably Q4 was last end of last year. We think from now on, we're going to get better consistently and we'll be able to get SG and A leverage as we move forward given the growth rates we're seeing. So it'll start to get better through the back half of this year and we think into next year as well. And so we're pretty confident that we'll start to rise. Speaker 100:27:54It's not going to be fast. It's going to be very consistent in terms of getting improved margins into the business. Operator00:28:03Our next question is from Patrick Baumann with JPMorgan. Please proceed. Speaker 800:28:09Good morning. Quick one maybe for Dee. Can you talk about the external factors that you mentioned impacting the July growth rate? And you mentioned a ramp back toward the end of the month and something about sequential growth from Q2 to Q3, but my line cut out. So wondering if you could rehash what you were saying Speaker 200:28:30on that? Yes. Well, if you look at just July, you're talking about July now, not the prior quarter, right? When we started this month, the month started a little slow. There were a number of things that happened. Speaker 200:28:47There was some weather related impacts that didn't go in our favor. There was also a well known IT outage that impacted a number of our customers since we cover a lot of people in the U. S. And then there was just some general holiday softness. This is really unique because a lot of it happened around the same time. Speaker 200:29:08So really, really hard to measure. I'd say the good news is the last week of the month has been was really strong for us. And so that is a good sign. So those were some of the impacts that we noted on a go forward basis. I think you're asking the next question sequentially sequential sales, am I correct, from like this quarter to the next? Speaker 200:29:30If you look at that, from a top line perspective, we expect that to be reasonably consistent Q2 to Q3 and then through the Q4. And then as it relates to some of our other metrics from a sequential perspective, we're expecting profitability, sequential growth from the revenue numbers that I just talked about. We expect profitability. There's going to be some puts and takes there, but we Okay. And then I may have missed, but could you talk about the restructuring you did in Speaker 100:30:09the quarter? Speaker 800:30:10Okay. And then I may have missed, but could you talk about the restructuring you did in the quarter? Was it just kind of what was it and what is the expected benefit from it? Is there more to come in terms of the restructuring or was it kind of isolated just to the Q2? Speaker 200:30:26Sure. As we've talked about making sure that we can continue to invest in the cycle to ensure that we have long term share gain. A part of that is making sure that we're paying for some of those investments through productivity actions. So our entire business is really focused on continuous improvement and looking at how we can drive productivity. So a lot of those actions were focused on voluntary actions with team members and that happened both in the U. Speaker 200:31:04S. And internationally quite a bit. We see that as a one time specific incident. However, our focus on continuous improvement is longer term. And we in doing those things, we are gaining scale on our non demand generating expenses and we expect that to continue through the cycle as we continue to invest in demand generation. Operator00:31:30We have reached the end of our question and answer session. I would like to turn the conference back over to D. G. For closing remarks. Speaker 100:31:38All right. Thanks for joining us. Must be a busy day because we didn't get as many questions as normal. But I appreciate you joining. And I would just reiterate that we are we feel really good about where we're at. Speaker 100:31:48We're going to continue to invest in the core capabilities that we need to build to make sure that we can serve customers better than our competitors. That's really what we're focused on. And we're also focused, as you said, on driving productivity through the business. We think doing both of those things at the same time is critical for our long term success. So hope you enjoy the rest of your summer. Speaker 100:32:06And thanks for joining our call. Operator00:32:08Thank you. This will conclude today's You may disconnect your lines at this time and thank you for your participation.Read morePowered by