Grainger 3Q sales decline
Grainger reported third quarter sales of $2.5 billion declined 1 percent versus $2.6 billion in the 2014 third quarter.
Net earnings for the third quarter were down 17 percent to $192 million versus $230 million in 2014. Earnings per share of $2.92 declined 12 percent versus $3.30 in 2014.
The quarter included charges of $11.0 million related to the announcement of 26 branch closures in the United States and company restructuring, primarily related to payroll.
"Our results reflect the challenging industrial economy in North America. While we remain confident about our ability to gain market share, we are expecting continued revenue deceleration given recent feedback from our customers and suppliers," said said chairman, president and chief executive officer Jim Ryan. "A number of large customers have announced layoffs, and there are indications of extended year-end holiday shutdowns. We have begun the process of aggressively adjusting our cost structure to reflect the weaker economic environment."
Based on an expectation of continued economic weakness, the company lowered its sales and earnings per share guidance. For 2015, Grainger expects sales in the range of -0.5 percent to 0.5 percent and earnings per share of $11.60 to $11.80
Sales in the 2015 third quarter declined 1 percent, driven by a 3 percentage point reduction from foreign exchange and a 2 percentage point benefit from acquisitions. Organic sales were flat.
United States
Sales for the U.S. segment were flat in the 2015 third quarter versus the prior year and included 1 percentage point from increased sales to Zoro, the single channel online business in the United States, offset by a 1 percentage point decline in price. Sales growth to customers in the Commercial, Light Manufacturing, Retail and Government customer end markets were offset by lower sales to Heavy Manufacturing, Contractor, Reseller and Natural Resources customers.
Operating earnings for the United States segment declined 7 percent in the quarter driven by flat sales and lower gross profit margins.
Canada
Sales for Acklands-Grainger declined 23 percent in U.S. dollars in the third quarter of 2015 and declined 8 percent in local currency. The 8 percent sales decrease consisted of a 17 percentage point decline in volume partially offset by a 5 percentage point benefit from price and a 4 percentage point contribution from WFS Enterprises, Inc., which was acquired September 2, 2014. Lower sales to the Oil and Gas, Construction, Commercial, Transportation, Retail, Heavy Manufacturing, Government and Light Manufacturing sectors were partially offset by growth to customers in the Mining, Utilities and Forestry end markets. The business in Canada continues to be affected by weak oil and gas prices and lower commodity prices. Sales in the province of Alberta, which represents more than a third of the company's business in Canada, were down 26 percent in local currency versus the prior year. In contrast, sales for the remaining provinces in aggregate were down 3 percent in local currency versus the prior year.
In U.S. dollars, operating earnings in Canada declined 87 percent in the 2015 third quarter primarily driven by lower sales and lower gross profit margins. The gross profit margin in Canada declined 1.3 percentage points versus the prior year.
Other Businesses
During the quarter, Grainger completed the acquisition of Cromwell, which is reported as a part of the Other Businesses. Prior to the acquisition, Cromwell was the largest independent MRO distributor in the United Kingdom, serving more than 35,000 industrial and manufacturing customers worldwide with more than 80,000 industrial products. Sales for the fiscal year ending August 31, 2015, were approximately £285 million GBP ($437 million USD).
Sales for the Other Businesses increased 18 percent for the 2015 third quarter versus the prior year. This performance consisted of 22 percentage points of growth from volume and price, partially offset by a 16 percentage points decline from unfavorable foreign exchange, and the Cromwell acquisition, which contributed 12 percentage points of growth. The organic sales increase was primarily driven by the single channel online businesses MonotaRO in Japan and Zoro in the United States.
Operating earnings for the Other Businesses were $14 million in the 2015 third quarter versus $5 million in the 2014 third quarter. The earnings increase for the quarter versus the prior year was driven by strong results from the single channel online businesses in Japan and United States and a $2 million contribution from Cromwell, partially offset by an incremental $2 million in start-up costs for the single channel online business in Germany.
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