W.W. Grainger, Inc. ( GWW) Q3 2011 Earnings Call October 18, 2011 8:00 am ET Executives Laura D. Brown – Senior Vice President, Communications William D. Chapman – Investor Relations Presentation Laura D. Brown
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We are also very pleased to announce that we have raised our guidance for the year. As noted in the release, we are now expecting sales for 2011 to grow 11% to 12%, with earnings per share of $8.80 to $9.00, excluding unusual items. Please note that our guidance reflects higher growth-related spending for the remainder of the year, which we will discuss later in this podcast.Let’s start with total company results, then dig deeper into our segments. Company sales increased 11% versus the 2010 third quarter. We had the same number of selling days this quarter as 2010, so reported sales growth and daily sales growth were the same. Operating earnings and net earnings increased 21%. As highlighted in our release, earnings per share of $2.51 is an all-time record and represents a 22% increase versus 2010. As a reminder, the 2010 third quarter included a $0.07 per share benefit from the change in the Company’s paid time off, or PTO policy. Excluding the PTO benefit in 2010, third quarter earnings per share increased 26%. In a few moments, we’ll take an in-depth look at sales results for the quarter. Let’s now walk down the operating section of the income statement. Gross profit margins increased to 43.2%, up 160 basis points versus last year, with higher gross margins in the United States, Canada and in our Other Businesses. Again this quarter, we were able to manage product cost inflation below price increases. We’ll provide more detail when we review the business by segment. Reported company operating earnings for the quarter increased 21%. Company operating margins were 14.3%, up 110 basis points versus the prior year. If you exclude the $8 million benefit in 2010 from the PTO change, operating earnings were up 25% and operating margins increased 150 basis points. This strong performance was primarily driven by the 11% sales growth and the 160 basis point improvement in gross profit margins.
Let’s now focus on performance drivers during the quarter. In doing so, we’ll cover the following topics. First, sales by segment in the quarter and the month of September; second, our operating performance by segment; third, cash generation and capital deployment; and finally, we’ll wrap up with a discussion of other key items of interest.As mentioned earlier, sales for the Company increased 11% for the quarter. Of the 11% sales growth for the quarter, volume contributed 8 percentage points, price added 3 percentage points, acquisitions contributed 2 percentage points, and foreign exchange added 1 percentage point. Sales related to last year’s oil spill in the Gulf of Mexico represented a headwind of 3 percentage points. Daily sales growth by month was as follows, 10% in July, 10% in August, and 14% in September. Excluding Fabory, daily sales in September increased 10%. It is important to note that despite the uncertainty in the economy, we saw consistent, 10% sales growth throughout the quarter. Let’s move on to sales by segment. We report two segments, the United States and Canada. Our remaining operations, Fabory in Europe, Japan, Mexico, Colombia, India, China, Puerto Rico and Panama are reported under a grouping titled Other Businesses. Sales in the United States, which accounted for 81% of total company revenue in the quarter, increased 7%. By month, daily sales in the United States increased 5% in July, 8% in August and 7% in September. The 7% sales growth for the quarter consisted of 7% volume growth and 3 percentage points from price, partially offset by a 3 percentage point drag from the oil spill-related sales in 2010. In August, we put through a modest price increase in the U.S. business tied to commodity inflation. Now we’ll cover our sales performance by customer end-market in the United States. Domestic growth initiatives, including product line expansion, sales force expansion, eCommerce and inventory management services are driving the company to grow faster than the economy and gain additional market share. Read the rest of this transcript for free on seekingalpha.com