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, "Despite the effect of a difficult economy, we reported improved earnings. We remain committed to improving service to our customers as they continue to look for ways to reduce costs. Enhancements to our logistics network and local availability of the right products will provide higher levels of service. Our initiatives should accelerate sales growth as more customers experience this improved service."
During the quarter, the company opened two additional distribution centers in Memphis, Tennessee, and Kansas City, Missouri, representing the fifth and sixth centers in its redesigned logistics network, a key strategic initiative. When the final center is completed by April 2004, the new network will comprise nine distribution centers adding one million square feet of capacity, upgraded automation, $100 million less inventory and a 50 percent improvement in productivity. As forecasted by the company last December, the project is expected to lower operating earnings by $15 million in 2003 but contribute $10 million in 2004 and
$20 million in 2005.
As part of the roll out of the logistics project, the company incurred incremental costs in the quarter associated with the start up of the distribution centers and headcount reductions at several locations. The company also realized a gain of $2.6 million on the sale of a distribution center in Carol Stream, Illinois, whose operations combined with Grainger's Chicago distribution center last year.
Sales in the Branch-based Distribution segment decreased by 2 percent in the 2003 second quarter. The weak economy in the United States and Mexico contributed to sales declines of 4 and 6 percent, respectively. In contrast, sales grew 18 percent in Canada aided by currency translation and incremental sales of safety products for SARS in Ontario. Unseasonably cool weather in certain parts of the United States resulted in a 19 percent decline in the sales of seasonal products. Other results included 7 percent growth in sales to government customers and an 8 percent increase in sales processed through grainger.com. Sales through this Web site in the 2003 quarter were $115 million versus the $106 million in the 2002 second quarter. Although gross profit margins increased, operating earnings for the Branch-based Distribution segment declined 6 percent versus the 2002 second quarter, due to lower sales volume, and an increase in operating expenses reflecting incremental expenses for the logistics network and higher health care costs.
Lab Safety, the country's premier direct marketer of safety and industrial products, posted a 7 percent increase in sales. Excluding revenues from the Gempler's business acquired on April 14, 2003, sales were down 2 percent. These results reflect ongoing weakness in the manufacturing sector, which represents approximately half of Lab Safety's sales. Operating earnings for this unit were down 8 percent, due primarily to higher catalog media costs and one-time expenses to complete the successful integration of the Gempler's business.
Sales for Integrated Supply were down 10 percent versus the 2002 quarter, the result of fewer engagements at customer locations and the weaker economy. Operating earnings for this segment were $0.8 million as compared to $1.3 million in the 2002 second quarter, due to lower fee revenue and