Grainger Sales Increase 3% in Fourth Quarter

Chicago, IL-based Grainger (NYSE: GWW) today reported fourth quarter sales of $1.6 billion, an increase of 3% over fourth quarter 2008. Gains were a result of positive contributions from acquisitions (4%), foreign exchange (2%) and price increases (2%), which were partially offset by a 5 percentage point decline in volume. Profit for the broad line facilities maintenance distributor decreased 10% to $97 million.

For the year ended Dec. 31, 2009, sales were $6.2 billion, down 9% from the prior year. Profit declined 9% to $430 million.

"We are seeing some initial signs of improvement in the overall economy, although job growth is expected to lag the recovery," said President and CEO Jim Ryan. "Stronger sales growth in December and January give us greater confidence to raise our 2010 sales growth guidance to a range of 6 to 10% and our earnings per share guidance to the new range of $5.40 to $5.90.

"We remain cautiously optimistic about the economy and are executing on the things we can control like our customer service and high product availability. As a result, we are well positioned for continued share gain, particularly as many competitors have been forced to reduce inventories."

During the quarter, the company continued to lower its cost structure by closing 12 branches, including 6 Will Call Express locations, and reducing headcount by 200 positions. For the full year 2009, the company eliminated approximately 600 positions and incurred $18 million in severance.

United States
Sales for the United States segment decreased 2% in the 2009 fourth quarter, with daily sales down 7% in October, down 3% in November and up 5% in December. Acquisitions and the timing of the Christmas holiday accounted for 3 percentage points of the sales growth in December.

During the quarter, sales to government and commercial customers increased versus the 2008 fourth quarter, while sales to resellers, contractors, manufacturing and retail customers declined. Product line expansion contributed $260 million in sales for the fourth quarter versus $185 million in the 2008 fourth quarter. Products added over the last four years resulted in $934 million in sales in 2009.

Operating earnings for the quarter were down 6% in the United States, the result of operating expenses declining at a slower rate than sales. The decline in operating expenses was primarily the result of lower payroll-related expenses, reduced commissions and no bonus accruals, partially offset by higher severance and asset impairment charges particularly related to the branch closings. Gross profit margins for the quarter were flat with the prior year.

Canada
Sales for the Acklands-Grainger business in the quarter were up 11% versus the 2008 fourth quarter. In local currency, sales were down 3% for the quarter and on a daily basis were down 7% in October, down 8% in November and up 7% in December. Continued weakness among heavy manufacturing, contractor and forestry, was partially offset by growth among utilities, government and agriculture and mining.

Operating earnings in Canada increased 59% in the 2009 fourth quarter and were up 38% in local currency. Improvement in gross margins was driven by a year-end inventory pick up primarily attributable to lower than forecasted transportation and product costs. Product costs were lower than expected due in part to favorable foreign exchange.

Other Businesses
Sales for the other businesses, which now include Japan, Mexico, India, Puerto Rico, China, and Panama, were up 214% for the 2009 fourth quarter versus prior year. The sales increase was due primarily to the acquisition of the businesses in India and Japan, along with contributions from Mexico and China. Operating losses for other businesses were $3 million in both the 2009 and 2008 quarters.