Grainger Tops $5 Billion in 2004 Revenues

W.W. Grainger,Chicago, IL, reported sales for the year ended Dec. 31, 2004 of $5.05 billion were up 8 percent versus 2003. Net earnings for the year were $287 million, up 26 percent as compared to $227 million in 2003. Sales in the 2004 fourth quarter were $1.3 billion, up 10 percent versus the prior year fourth quarter. The 2004 quarter had one less sales day than the 2003 quarter. Sales on a daily basis were up 11 percent. Net earnings of $90 million were up 46 percent versus $62 million in the 2003 fourth quarter.

 

Grainger's branch-based business ended the year with sales of $4.5 billion. Lab Safety Supply had sales of $334.6 million, while the integrated supply unit, which the company is discontinuing, was essentially flat at $211 million. "It was an outstanding year," said Grainger's Chairman and CEO Richard L. Keyser. "We completed the three-year upgrade of our logistics network, improved product availability, expanded our sales force, installed new communication technology in our U.S. branches and launched our market expansion efforts. All these position us for further profitable growth."

 

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Branch-based Distribution
Sales in the Branch-based Distribution segment increased by 11 percent in the 2004 fourth quarter, or 12 percent on a daily basis. Daily sales in the U.S. were up 13 percent, with growth in all customer end markets, especially in the manufacturing and commercial sectors. Sales processed through grainger.com increased 27 percent to $157 million from $124 million in the fourth quarter 2003. For the full year, sales through grainger.com were $611 million, up 28 percent versus $479 million in 2003.

 

Daily sales in the Phase 1 markets under the market expansion program were up 12 percent for the 2004 fourth quarter and the full year. Daily sales in Phase 2 markets were up 15 percent for the quarter. Phase 1, which includes Atlanta, Denver and Seattle, is 90 percent complete. Phase 2, covering four markets in Southern California, is 50 percent complete. Initiated mid-year 2004, Phase 3, Houston, St. Louis and Tampa, is less than 50 percent complete. During 2004, Grainger opened six full-size branches and 10 Grainger Express locations for will-call pick up, relocated six branches, expanded 13 existing branches and closed three in these 10 markets.

 

A new branch in Queretaro, a larger, relocated branch in Mexico City, improved telesales efforts and a strengthening Mexican economy resulted in an 18 percent increase in daily sales for the fourth quarter for Mexico. Daily sales in Canada were up 15 percent, aided by a strong Canadian dollar. In local currency, this business had daily sales growth of 7 percent for the quarter. During the year, the company opened two full-size and closed 10 small branches in Canada.

 

Operating earnings for the Branch-based Distribution segment were up 23 percent for the quarter, due in part to the increased sales and a 3.3 percentage point improvement in gross profit margins. The increase in gross profit margins was primarily due to product cost reduction programs and increased global sourcing of products. Operating expenses increased 19 percent during the quarter, which included spending on two key initiatives -- the market expansion program and the SAP implementation. Other areas where operating expenses grew faster than sales included variable compensation and benefits associated with improved performance.

 

Lab Safety Supply
Daily sales for Lab Safety Supply increased 6 percent for the quarter. This performance was driven by the strong economy, partially offset by lower sales due to the discontinued customer loyalty program, Harvest Partners. Operating expenses increased by 8 percent due in part to the upgrade of the data processing system, higher catalog media costs and higher variable compensation expense

related to the strong performance for the year. Operating earnings for the quarter were down 2 percent.

 

Integrated Supply
Daily sales for Integrated Supply were down 5 percent for the quarter due to the continued effect of disengagements of two large customers late in 2003, as well as lower sales to two large, existing customers. The segment had an operating loss of $1 million in the quarter as compared to earnings of $0.5 million in the same period in 2003. As announced late last year, in 2005 Grainger will no longer offer on-site integrated purchasing and tool crib management services. Grainger's Industrial Supply division intends to offer customers an expanded menu of on-site services. The company plans to fulfill but not renew existing Integrated Supply contracts.

Beginning January 1, 2005, Integrated Supply will no longer be reported as a separate segment. The business will be merged into Grainger's Industrial Supply division within the Branch-based segment.

 

Cash Flow
Operating cash flow was $405 million for the year. Capital expenditures were $161 million for the year compared to $80 million in 2003, as investments in the market expansion program, the SAP implementation, the telephony upgrade and Canadian branch and systems projects accelerated in the fourth quarter. Keyser concluded, "In 2005, we plan to expand into additional markets with improved presence, better product availability and increased sales coverage."