Grainger 1Q Sales Grow 14%

Chicago-based Grainger (NYSE: GWW) reported first-quarter sales of $1.7 billion, up 14% from the prior-year period. Profit was up 3% to $99 million.

Daily sales for the company increased 12% in January, 12% in February and 18% in March. For the quarter, sales were positively affected by foreign exchange, which contributed 3 percentage points to the increase. Acquisitions contributed 5% in the quarter. Pricing was flat while volume was up 6%.

The company has two reportable business segments, the U.S. and Canada, which represent approximately 95% of company sales. The remaining operating units (Japan, Mexico, India, Puerto Rico, China and Panama) are included in other businesses and are not considered a reportable segment.

U.S.
Sales for the U.S. segment increased 8% in the 2010 first quarter. Daily sales increased 6% in January, 6% in February and 10% in March. There was no effect in the quarter from the sale of seasonal products. All customer end markets were up except contractor.

Read: Grainger's E-Commerce Evolution

Also contributing to segment performance in the quarter was the benefit of the integration of Lab Safety Supply and Grainger Industrial Supply. From the beginning of 2009 through the end of the 2010 first quarter, this integration has generated $65 million of additional revenue and $31 million of cost savings, according to Grainger.

The U.S. business closed nine branches in the quarter. That brings the total to 20 including 11 in the fourth quarter of 2009. The distributor said it will continue to examine ways to improve its cost structure and address underperforming assets.

Operating earnings for the quarter were up 16% in the U.S., up 11% excluding a paid time off policy change. Gross profit margins for the quarter were up 10 basis points. Higher sales to large customers with greater volume discounts negatively affected gross profit, something the company expects to continue.

Canada
Sales for the Acklands-Grainger business in the quarter were up 35% in U.S. dollars versus the 2009 first quarter. In local currency, sales were up 13% for the quarter and on a daily basis were up 4% in January, up 13% in February and up 20% in March.

According to Grainger, sales in Canada benefited from strength in the Canadian oil and gas, agriculture and mining, utilities and forestry sectors, partially offset by weaker sales to the government. Operating earnings increased 6% for the 2010 first quarter but were down 12% in local currency. The decrease in operating earnings is due to a 50 basis point decline in gross margin as sales to large customers, which typically have lower margins, were particularly strong in the quarter.

In addition, operating expenses increased faster than sales driven by increased commissions and Acklands-Grainger's sponsorship of the Winter Olympic Games in Vancouver.

Other Businesses
Sales for the other businesses, which include Japan, Mexico, India, Puerto Rico, China and Panama, were up 259% versus the prior year, due primarily to the new consolidation of sales for Japan and India, along with strong growth in Mexico and China.

Operating earnings for other businesses were breakeven for the first quarter 2010 compared to a $3 million loss a year ago. In addition to the earnings contribution from Japan, the Mexican business returned to profitability and the Chinese business reduced its loss.