“Overall, the first quarter clearly fell short of our expectations, driven primarily by the stronger than anticipated customer response to our
“Our Zoro and MonotaRO businesses continued to perform very well. We continue to be challenged in
Grainger’s pricing actions, first described in
- Adjusting list prices across the board to make it easier for large customers to consolidate their purchases;
- Introducing new web prices on about 450,000 SKUs to drive medium and large noncontract customer acquisition and growth;
- Negotiating large customer contracts with more competitive pricing for infrequently purchased items. Most large customers already receive very competitive pricing on routine items through their contracts.
Results from the first quarter pricing actions showed that customers with access to lower pricing bought more than company expectations. Although it is early, the data provided confidence that the pricing actions were successful. The decision to accelerate the pricing actions is expected to enable faster growth through share gain with existing customers and acquisition of new customers. Web pricing will be available on all SKUs in the 2017 third quarter.
The company lowered its 2017 sales and earnings per share guidance for the year and now expects sales growth of 1 to 4 percent and earnings per share of
Company
Sales increased 1 percent in the 2017 first quarter versus the prior year, driven by a 5 percentage point increase from volume growth, partially offset by a 3 percentage point decline in price and a 1 percentage point decline from lower sales of seasonal products.
Company operating earnings of
The first quarter contained the following restructuring items:
Three Months Ended |
|||||||||
2017 |
2016 |
% |
|||||||
Diluted earnings per share reported |
$ |
2.93 |
$ |
2.98 |
(2)% |
||||
Pretax adjustments: |
|||||||||
Restructuring ( |
(0.11) |
0.26 |
|||||||
Restructuring ( |
0.02 |
0.05 |
|||||||
Total pretax adjustments |
(0.09) |
0.31 |
|||||||
Tax effect (1) |
0.04 |
(0.11) |
|||||||
Total, net of tax |
(0.05) |
0.20 |
|||||||
Diluted earnings per share adjusted |
$ |
2.88 |
$ |
3.18 |
(9)% |
(1) |
The tax impact of adjustments is calculated based on the income tax rate in each applicable jurisdiction. |
The company has two reportable business segments,
Sales for the
Operating earnings for the
First quarter 2017 sales for the
The business in
Other Businesses
Sales for the Other Businesses increased 12 percent versus the prior year, consisting of 15 percentage points of growth from volume and price, partially offset by a 3 percentage point decline from foreign exchange, primarily attributable to weakness in the British pound. The performance was driven primarily by 23 percent sales growth for the single channel online businesses.
Operating earnings for the Other Businesses were
Other
Other income and expense was a net expense of
Cash Flow
Operating cash flow was
Webcast
Grainger will conduct a live conference call and webcast at
Visit www.grainger.com/investor to view information about the company, including a supplement regarding 2017 first quarter results. The Grainger website also includes more information through our Fact Book and Corporate Social Responsibility report.
Safe Harbor Statement
All statements in this communication, other than those relating to historical facts, are “forward-looking statements.” These forward-looking statements are not guarantees of future performance and are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from such statements. These statements include, but are not limited to, statements about future strategic plans and future financial and operating results. Important factors that could cause actual results to differ materially from our expectations include, among others: higher product costs or other expenses; a major loss of customers; loss or disruption of source of supply; increased competitive pricing pressures; failure to develop or implement new technologies; the implementation, timing and success of our strategic pricing initiatives; the outcome of pending and future litigation or governmental or regulatory proceedings, including with respect to wage and hour, anti-bribery and corruption, environmental, advertising, privacy and cybersecurity matters; investigations, inquiries, audits and changes in laws and regulations; disruption of information technology or data security systems; general industry or market conditions; general global economic conditions; currency exchange rate fluctuations; market volatility; commodity price volatility; labor shortages; facilities disruptions or shutdowns; higher fuel costs or disruptions in transportation services; natural and other catastrophes; unanticipated weather conditions; loss of key members of management; our ability to operate, integrate and leverage acquired businesses; changes in credit ratings; changes in effective tax rates and other factors which can be found in our filings with the
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) |
|||||||
(In thousands, except for per share amounts) |
|||||||
Three Months Ended |
|||||||
2017 |
2016 |
||||||
Net sales |
$ |
2,541,129 |
$ |
2,506,538 |
|||
Cost of merchandise sold |
1,521,937 |
1,461,485 |
|||||
Gross profit |
1,019,192 |
1,045,053 |
|||||
Warehousing, marketing and administrative expense |
723,704 |
727,961 |
|||||
Operating earnings |
295,488 |
317,092 |
|||||
Other income and (expense) |
|||||||
Interest income |
193 |
165 |
|||||
Interest expense |
(16,979) |
(13,725) |
|||||
Loss from equity method investment |
(8,374) |
(6,388) |
|||||
Other non-operating income |
345 |
440 |
|||||
Total other expense |
(24,815) |
(19,508) |
|||||
Earnings before income taxes |
270,673 |
297,584 |
|||||
Income taxes |
87,820 |
105,940 |
|||||
Net earnings |
182,853 |
191,644 |
|||||
Net earnings attributable to noncontrolling interest |
8,109 |
4,931 |
|||||
Net earnings attributable to |
$ |
174,744 |
$ |
186,713 |
|||
Earnings per share -Basic |
$ |
2.95 |
$ |
3.00 |
|||
-Diluted |
$ |
2.93 |
$ |
2.98 |
|||
Average number of shares outstanding -Basic |
58,720 |
61,689 |
|||||
-Diluted |
59,203 |
62,100 |
|||||
Diluted Earnings Per Share |
|||||||
Net earnings as reported |
$ |
174,744 |
$ |
186,713 |
|||
Earnings allocated to participating securities |
(1,470) |
(1,740) |
|||||
Net earnings available to common shareholders |
$ |
173,274 |
$ |
184,973 |
|||
Weighted average shares adjusted for dilutive securities |
59,203 |
62,100 |
|||||
Diluted earnings per share |
$ |
2.93 |
$ |
2.98 |
SEGMENT RESULTS (Unaudited) |
|||||||
(In thousands of dollars) |
|||||||
Three Months Ended |
|||||||
2017 |
2016 |
||||||
Sales |
|||||||
|
$ |
1,953,444 |
$ |
1,966,267 |
|||
|
186,141 |
178,771 |
|||||
Other Businesses |
497,407 |
445,333 |
|||||
Intersegment sales |
(95,863) |
(83,833) |
|||||
Net sales to external customers |
$ |
2,541,129 |
$ |
2,506,538 |
|||
Operating earnings |
|||||||
|
$ |
312,470 |
$ |
331,857 |
|||
|
(16,729) |
(12,347) |
|||||
Other Businesses |
31,507 |
21,783 |
|||||
Unallocated expense |
(31,760) |
(24,201) |
|||||
Operating earnings |
$ |
295,488 |
$ |
317,092 |
|||
Company operating margin |
11.6 |
% |
12.7 |
% |
|||
ROIC* for Company |
24.7 |
% |
25.6 |
% |
|||
ROIC* for United States |
40.0 |
% |
42.4 |
% |
|||
ROIC* for Canada |
(12.3) |
% |
(8.2) |
% |
|||
* |
The GAAP financial statements are the source for all amounts used in the Return on |
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) |
|||||||
Preliminary |
|||||||
(In thousands of dollars) |
|||||||
Assets |
|
|
|||||
Cash and cash equivalents |
$ |
238,801 |
$ |
274,146 |
|||
Accounts receivable – net |
1,325,218 |
1,223,096 |
|||||
Inventories |
1,388,091 |
1,406,470 |
|||||
Prepaid expenses and other assets |
144,073 |
116,517 |
|||||
Total current assets |
3,096,183 |
3,020,229 |
|||||
Property, buildings and equipment – net |
1,410,312 |
1,420,891 |
|||||
Deferred income taxes |
79,664 |
64,775 |
|||||
|
533,012 |
527,150 |
|||||
Intangibles – net |
587,418 |
586,126 |
|||||
Other assets |
75,960 |
75,136 |
|||||
Total assets |
$ |
5,782,549 |
$ |
5,694,307 |
|||
Liabilities and Shareholders’ Equity |
|||||||
Short-term debt |
$ |
421,555 |
$ |
386,140 |
|||
Current maturities of long-term debt |
20,069 |
19,966 |
|||||
Trade accounts payable |
672,471 |
650,092 |
|||||
Accrued compensation and benefits |
145,037 |
212,525 |
|||||
Accrued contributions to employees’ profit sharing plans (1) |
23,181 |
54,948 |
|||||
Accrued expenses |
317,243 |
290,207 |
|||||
Income taxes payable |
88,874 |
15,059 |
|||||
Total current liabilities |
1,688,430 |
1,628,937 |
|||||
Long-term debt |
1,847,717 |
1,840,946 |
|||||
Deferred income taxes and tax uncertainties |
133,984 |
126,101 |
|||||
Employment-related and other non-current liabilities |
195,895 |
192,555 |
|||||
Shareholders’ equity (2) |
1,916,523 |
1,905,768 |
|||||
Total liabilities and shareholders’ equity |
$ |
5,782,549 |
$ |
5,694,307 |
(1)
|
Accrued contributions to employees’ profit sharing plans decreased |
|
(2)
|
Common stock outstanding as of |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
|||||||
Preliminary |
|||||||
(In thousands of dollars) |
|||||||
Three Months Ended |
|||||||
2017 |
2016 |
||||||
Cash flows from operating activities: |
|||||||
Net earnings |
$ |
182,853 |
$ |
191,644 |
|||
Provision for losses on accounts receivable |
3,918 |
3,454 |
|||||
Deferred income taxes and tax uncertainties |
(7,632) |
21,035 |
|||||
Depreciation and amortization |
62,249 |
56,294 |
|||||
Gains from non-cash charges and sales of assets |
(10,966) |
(7,465) |
|||||
Stock-based compensation |
6,757 |
7,456 |
|||||
Losses from equity method investment |
8,374 |
6,388 |
|||||
Change in operating assets and liabilities – net of business acquisitions: |
|||||||
Accounts receivable |
(95,419) |
(84,435) |
|||||
Inventories |
27,826 |
10,831 |
|||||
Prepaid expenses and other assets |
(25,943) |
4,370 |
|||||
Trade accounts payable |
18,051 |
30,827 |
|||||
Other current liabilities |
(64,171) |
(104,552) |
|||||
Current income taxes payable |
73,227 |
32,757 |
|||||
Accrued employment-related benefits cost |
1,520 |
323 |
|||||
Other – net |
302 |
(8,290) |
|||||
Net cash provided by operating activities |
180,946 |
160,637 |
|||||
Cash flows from investing activities: |
|||||||
Additions to property, buildings and equipment |
(78,768) |
(51,797) |
|||||
Proceeds from sales of assets |
48,306 |
13,817 |
|||||
Equity method investment |
(7,067) |
(7,199) |
|||||
Other – net |
— |
(206) |
|||||
Net cash used in investing activities |
(37,529) |
(45,385) |
|||||
Cash flows from financing activities: |
|||||||
Net increase in commercial paper |
34,947 |
214,645 |
|||||
Borrowings under lines of credit |
9,883 |
12,028 |
|||||
Payments against lines of credit |
(9,167) |
(11,060) |
|||||
Payments of long-term debt |
(2,318) |
(124,769) |
|||||
Proceeds from stock options exercised |
26,345 |
5,206 |
|||||
Excess tax benefits from stock-based compensation |
— |
17,287 |
|||||
Shares withheld for employees taxes |
(11,625) |
(6,906) |
|||||
Purchase of treasury stock |
(159,146) |
(172,047) |
|||||
Cash dividends paid |
(72,118) |
(72,632) |
|||||
Net cash used in financing activities |
(183,199) |
(138,248) |
|||||
Exchange rate effect on cash and cash equivalents |
4,437 |
12,766 |
|||||
Net change in cash and cash equivalents |
(35,345) |
(10,230) |
|||||
Cash and cash equivalents at beginning of year |
274,146 |
290,136 |
|||||
Cash and cash equivalents at end of period |
$ |
238,801 |
$ |
279,906 |
SUPPLEMENTAL INFORMATION – CONSOLIDATED STATEMENTS OF EARNINGS
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (Unaudited)
(In thousands of dollars)
The company supplemented the reporting of financial information determined under
The reconciliations provided below reconcile the non-GAAP financial measures adjusted operating earnings, adjusted segment operating earnings, adjusted net earnings and adjusted diluted earnings per share with GAAP financial measures:
Three Months Ended |
|||||||||
2017 |
2016 |
% |
|||||||
Operating earnings reported |
$ |
295,488 |
$ |
317,092 |
(7)% |
||||
Restructuring ( |
(6,322) |
16,407 |
|||||||
Restructuring ( |
1,087 |
3,077 |
|||||||
Subtotal |
(5,235) |
19,484 |
|||||||
Operating earnings adjusted |
$ |
290,253 |
$ |
336,576 |
(14)% |
SUPPLEMENTAL INFORMATION – CONSOLIDATED STATEMENTS OF EARNINGS |
|||||||||
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (Unaudited) |
|||||||||
(In thousands of dollars) |
|||||||||
Three Months Ended |
|||||||||
2017 |
2016 |
% |
|||||||
Segment operating earnings adjusted |
|||||||||
|
306,148 |
348,264 |
|||||||
|
(15,642) |
(9,270) |
|||||||
Other Businesses |
31,507 |
21,783 |
|||||||
Unallocated expense |
(31,760) |
(24,201) |
|||||||
Segment operating earnings adjusted |
$ |
290,253 |
$ |
336,576 |
(14)% |
||||
Company operating margin adjusted |
11.4 |
% |
13.4 |
% |
|||||
ROIC* for Company |
24.2 |
% |
27.1 |
% |
|||||
ROIC* for United States |
39.2 |
% |
44.4 |
% |
|||||
ROIC* for Canada |
(11.5) |
% |
(6.2) |
% |
|||||
* |
Adjusted ROIC is calculated as defined on page 8, excluding the items adjusting operating earnings as noted above. |
Three Months Ended |
|||||||||
2017 |
2016 |
% |
|||||||
Net earnings reported |
$ |
174,744 |
$ |
186,713 |
(6)% |
||||
Restructuring ( |
(3,959) |
10,268 |
|||||||
Restructuring ( |
803 |
2,262 |
|||||||
Subtotal |
(3,156) |
12,530 |
|||||||
Net earnings adjusted |
$ |
171,588 |
$ |
199,243 |
(14)% |
||||
Diluted earnings per share reported |
$ |
2.93 |
$ |
2.98 |
(2)% |
||||
Pretax adjustments: |
|||||||||
Restructuring ( |
(0.11) |
0.26 |
|||||||
Restructuring ( |
0.02 |
0.05 |
|||||||
Total pretax adjustments |
(0.09) |
0.31 |
|||||||
Tax effect (1) |
0.04 |
(0.11) |
|||||||
Total, net of tax |
(0.05) |
0.20 |
|||||||
Diluted earnings per share adjusted |
$ |
2.88 |
$ |
3.18 |
(9)% |
(1) |
The tax impact of adjustments is calculated based on the income tax rate in each applicable jurisdiction. |
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/grainger-reports-results-for-the-2017-first-quarter-300440569.html
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