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Grainger, Chicago, IL, reported a 20% increase in earnings per share for the second quarter ended June 30, 2004. Earnings per share were 72 cents versus 60 cents in the 2003 second quarter, setting an all-time quarterly high. Sales were $1.3 billion, up 7% versus the prior year's second quarter. Net earnings were up 19% to $66.6 million, also a new quarterly high.
Chairman and CEO Richard L. Keyser said, "Thanks to the hard work and dedication of Grainger's employees, we saw sales increase in our Branch-based and Lab Safety segments and solid earnings growth in all three business segments in the second quarter. Although much of the sales growth was helped by a strong economy, our ongoing strategic investments are expected to contribute even more to revenue growth in the future."
"During the quarter we increased efficiencies in the supply chain and improved product availability. Our nine distribution centers in the United States help provide better service by replenishing branches daily and shipping product to customers for next-day delivery. With the continuing productivity improvements, our redesigned logistics network is on schedule to contribute $10 million to operating earnings this year and $20 million in 2005."
Keyser added, "In the second quarter we hit several key milestones with our growth programs. We expanded and upgraded our sales force to gain market share. We made good progress with our market expansion program, particularly in Seattle and Denver, which are growing faster than the overall business. We continue to move aggressively into the St. Louis and Tampa markets, while tight real estate markets have affected our pace of expansion in Houston and Southern California." As part of its market expansion program, Grainger has opened two new branches, relocated three, expanded two, closed two, and opened six Grainger Express locations in target markets so far this year.
Sales in the Branch-based Distribution segment increased by 7% in the 2004 second quarter. Sales in the United States were up 8%, due largely to a strengthening manufacturing sector. Sales processed through grainger.com increased 32% in the quarter to $151 million from $115 million in 2003. Grainger now expects sales through this Web site of $575 to $625 million for 2004, up from the previous estimate of $500 to $550 million.
Sales in Mexico were up 12% in the quarter, driven by increased telesales and an improving economy. Although the Canadian economy grew in the quarter, Canadian sales were only up 2% (flat in Canadian dollars) because there was no counterpart to last year's sales of safety products related to the SARS epidemic.
Operating earnings for the quarter were up 21%, the result of higher sales and improved gross profit margins. Although steel and copper prices affected many of the company's suppliers, product costs were down for the quarter. Operating expenses rose during the quarter as the company executed on its various strategic initiatives.
Lab Safety Supply
Sales for Lab Safety accelerated through the quarter, increasing 8% driven by double-digit increases in sales of labware, maintenance and material handling products. Operating earnings were up 8%, affected in part by higher catalog media and health care-related expenses.
While sales to existing customers were up modestly, overall sales were flat for the quarter due to two customer disengagements late in 2003. Operating earnings for Integrated Supply were up 88% for the quarter due to easy comparisons. The 2003 second quarter included higher data processing costs associated with a systems upgrade.
A lower tax rate benefited the company in the quarter. Excluding the results of unconsolidated entities, the effective tax rate declined 2%age points versus 2003, adding 2 cents per share to the results for the quarter.