6309 Monarch Park Place, Suite 203
Niwot, CO 80503, USA
Phone (303) 443-5060
Toll free (888) 742-5060
Richard L. Keyser, Chairman and CEO said, "I am pleased we were able to grow sales and maintain margins in a difficult economy. We continue to position for future growth by investing in service enhancements to extend Grainger's competitive advantage in the facilities maintenance industry. Construction of our redesigned logistics network remains on schedule, with all distribution centers expected to be up and running by early next year."
Keyser added, "We are facing an uncertain economy, which shows few signs of improvement. Based on softer than expected sales in the first quarter and our limited visibility to a recovery, the company now forecasts sales growth of 4 to 6 percent and earnings per share of $2.50 to $2.65 for 2003. This guidance is within our original range provided in December 2002, but reflects our caution regarding the current economic environment."
Sales in the Branch-based Distribution segment increased by 2 percent in the 2003 first quarter. The segment benefited from improvements in Canada. This improvement was partially offset by flat sales in Mexico, as the economy there remains weak. Continuing softness in the U.S. economy also affected domestic sales, which were up 1 percent in the quarter. While sales were generally softer, the company reported an 11 percent increase in sales to government customers and a 4 percent increase to national accounts. Daily sales through grainger.com increased 21 percent to $115 million versus the 2002 first quarter. Operating earnings for the Branch-based Distribution segment were up 2 percent versus the 2002 first quarter.
Lab Safety, the premier direct marketer of safety and industrial products, experienced a 2 percent decline in sales. This business participates heavily in the manufacturing sector, and its performance reflects ongoing weakness in that sector in the United States. Operating earnings for this unit were down 16 percent, due in large part to higher catalog media and health care-related expenses.
Integrated Supply's sales were flat versus 2002 as a result of disengagements from several customers. Operating earnings for this segment were $1.1 million as compared to $1.6 million in the 2002 first quarter, down 28 percent, due to lower fee income.
Other Income and Expense swung from a net $8.8 million of income in the first quarter of 2002 to a net $3.4 million of expense in 2003. The 2003 first quarter included a before tax write-down of $1.6 million, to recognize the decline in value of an investment security; the 2002 first quarter included $7.3 million in before tax non-operating gains from the sale of investment securities. The impact in earnings per share for the write-down in the first quarter of 2003 was 1 cent of expense versus 4 cents of income from the gains on sale of securities in 2002.
The effective tax rate for the quarter decreased due to lower non- deductible losses in Mexico and a reduced tax rate in Canada. Operating cash flow of $50 million for the quarter was primarily used to invest in the business, which included capital projects, such as the logistics network, and to pay dividends.