6309 Monarch Park Place, Suite 203
Niwot, CO 80503, USA
Phone (303) 443-5060
Toll free (888) 742-5060
'We achieved strong sales and earnings growth this quarter due to the strengthening economy and our improved customer service,' said Grainger's Chairman and CEO Richard L. Keyser.
'Over the past few years we've invested in our operations to improve performance and accelerate growth. We completed our logistics network project in March with the opening of our ninth distribution center in New Jersey. All of our distribution centers are up and running, and we continue to see productivity improvements while increasing product availability. The new logistics network provides the platform to grow our business.
Keyser added, 'In the first quarter we launched the second phase of our market expansion program and, to improve customer coverage, we added more than 100 sales representatives. We expect to see additional sales growth from these programs throughout the year.'
Sales in the Branch-based Distribution segment increased by 7% in the 2004 first quarter. Sales in the United States were up 6%; sales to government accounts rose 9%, national accounts grew 7% and all other customer accounts were up 5%. Sales processed through grainger.com increased 25% to $143 million from $115 million in 2003.
A weak U.S. dollar accounted for Canada's 15% increase in sales for the quarter. Sales in Mexico were up 13% for the quarter driven by increased Internet sales, telesales and the effect of two branch expansions in 2003.
Operating earnings for the quarter were up 17%, a result of increased sales, improved gross margins, and proportionately lower operating expenses. Operating expenses included two programs, market expansion and accelerating the SAP installation. Expenses for both are expected to ramp up in subsequent quarters.
Lab Safety Supply
Sales for Lab Safety increased 20% for the quarter largely due to the acquisition of Gempler's in April 2003. Operating earnings were up 9% reflecting the sales increase partially offset by lower gross profit margins driven by a customer loyalty program at Gempler's. Lab Safety plans to continue to invest in catalog media to strengthen its customer file.
Sales for Grainger Integrated Supply were up 3% for the quarter due to sales at new customer sites. Operating earnings for this segment were down 7% for the quarter, the result of severance expenses and lower management fees.
A reduced tax rate benefited the company in the quarter. Excluding the impact of unconsolidated entities, the effective tax rate decreased from 40% to 38%, adding 2 cents to EPS in the quarter. A reduced tax rate in Canada and the realization of tax loss carryforwards for the Mexican operation contributed to this rate decrease.
Stronger earnings and continued improvements in working capital management contributed to operating cash flow of $93 million for the quarter versus $50 million in 2003. Capital expenditures in the quarter were $15 million. For the full year, the company now anticipates capital expenditures of no more than $200 million, in part because a higher number of branches in the market expansion program may be leased instead of purchased. During the quarter, the company repurchased 785,300 shares of stock. Approximately 8.3 million shares remain under the current authorization.
Keyser concluded, 'Previously, we had forecast earnings per share for 2004 between $2.45 and $2.70. We are increasing our earnings per share guidance to $2.60 to $2.80 for 2004 due to the lower tax rate and strong execution in the first quarter.