4/18/2016 11:44:00 AM
Grainger Sales Edge Up, Earnings Decline
Grainger reported sales, including fasteners, increased 3% to $2.5 billion in the first quarter of 2016. Daily sales rose 1%, which included a 4 percentage point contribution from acquisitions and a 1 percentage point reduction from foreign exchange. Excluding acquisitions and foreign exchange, organic sales declined 2%, driven by a 3 percentage point reduction in price and a 1 percentage point reduction in sales of seasonal products, partially offset by a 2 percentage point increase from higher volume.
Operating earnings dropped 10% to $317 million, hurt by lower gross profit margins and $19 million in restructuring charges recorded in the quarter. Net earnings fell 12% to $187 million, while earnings per share declined 3% to $2.98.
“Revenue and share gains are tracking as we expected given the tough economic environment,” said CEO Jim Ryan.
“In our U.S. business, share gains with large and small businesses continue to outpace our performance with medium-sized customers. We continue to see price and gross margin pressure driven primarily by the low inflation economic environment and faster growth from lower gross margin customers.
“At the same time, we have reduced our operating expenses to offset some of the gross margin decline.”
United States
Sales for the U.S. segment were flat at $1.97 billion. On a daily basis, U.S. sales declined 2%, driven by a 3 percentage point decline in price and a 1 percentage point decline from lower sales of seasonal products, partially offset by 1% from volume growth and a 1 percentage point contribution from increased sales to Zoro, the single channel online business in the U.S.
Sales to customers in the Government and Light Manufacturing end markets led the U.S. sales performance in the quarter.
Operating earnings for the U.S. segment declined 9% in Q1, driven by flat sales and lower gross profit margins partially offset by lower operating expenses. Gross profit margins declined 2.8 percentage points, hurt by an unfavorable selling mix and price deflation outpacing cost deflation.
In the first quarter, operating expenses declined 4%, including $16 million of restructuring costs related to planned branch closures as well as a reorganization of the sales force.
Canada
First quarter sales for Acklands-Grainger declined 24% to $178.8 million. On a daily basis, sales fell 25% (17% in local currency) on lower volume and SAP implementation, partially offset by 3 percentage points from price.
“The business in Canada continues to be affected by weak oil and gas prices and lower commodity prices, resulting in lower sales to all customer end markets. Daily sales in the province of Alberta, which represents about a third of the company’s business in Canada, were down 26% in local currency versus the prior year.”
Acklands-Grainger posted a $12 million operating loss in Q1, primarily driven by the sales decline, a lower gross profit margin and negative expense leverage. The gross profit margin in Canada declined 6.7 percentage points. Operating expenses decreased 14%, benefiting from a $7 million gain from the sale of a property, partially offset by $3 million in restructuring costs.
Other Businesses
Sales for the Other Businesses (Europe, Asia and Latin America) jumped 50% to $445.3 million in Q1. On a daily basis, sales increased 47%, consisting of 33 percentage points from Cromwell, acquired on September 1, 2015, and 17 percentage points of growth from volume and price, partially offset by a 3 percentage points decline from foreign exchange. Strong performance for the Other Businesses was driven by 34% daily sales growth for the single channel online businesses.
Other Businesses operating earnings more than doubled to $22 million, boosted by strong results from Zoro in the U.S. and MonotaRO in Japan.
Grainger narrowed its 2016 sales and earnings per share guidance for the year and now expects sales growth of 0 to 6% and earnings per share of $11.00 to $12.80.
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• Grainger Reports Sales Growth in April
Related Links:
• Grainger
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