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Grainger Sales Grow 19% in Third Quarter

Chicago-based Grainger (NYSE: GWW), No. 3 on MDM's list of the top 40 industrial distributors, reported results for the third quarter and nine months ended Sept. 30, 2010.

Third quarter sales of $1.9 billion increased 19 percent versus the 2009 third quarter. Profit for the quarter increased 4 percent to $150 million versus $145 million in 2009.

Excluding unusual items from both periods, profit increased 25 percent.

For the quarter, acquisitions contributed 5 percentage points, while sales of oil spill-related products contributed 3 percentage points. Sales of seasonal products and foreign exchange added 1 percentage point each to sales growth in the quarter. Pricing was flat while volume increased 9 percent.

"Our focus on the foundational elements of our business, including industry-leading product availability, outstanding customer service and our ability to leverage economies of scale, was responsible for our strong performance in the quarter," said President and CEO Jim Ryan.

"We're taking advantage of our strong financial position by accelerating our investment in growth by hiring another 150 sales representatives and onsite inventory services managers, expanding our eCommerce capabilities and further developing services that complement our broad product offering. We expect that these investments will contribute to continued market share growth by helping our customers improve their productivity."

Daily sales for the company increased 21 percent in July, 20 percent in August and 18 percent in September.

Year-to-Date
For the nine months ended Sept. 30, 2010, sales of $5.4 billion were up 17 percent versus the nine months in the prior period. Profit was up 14 percent to $379 million from the first three quarters of 2009.

Hear what Mike Marks of Indian River Consulting Group says about Grainger's strategy in October's Executive Briefing.

U.S.
Sales for the quarter in the U.S. segment increased 15 percent, 13 percent excluding acquisitions. Daily sales increased 17 percent in July, 15 percent in August and 13 percent in September. Sales of products related to the oil spill cleanup contributed 3 percentage points to growth in the quarter. Sales of seasonal products added 1 percentage point due to the hot weather experienced across much of the U.S. in July and August. All customer end markets within the U.S. posted sales growth versus the 2009 third quarter.

Gross profit margins for the U.S. increased 20 basis points, primarily the result of price increases exceeding product cost increases. The improvement in gross profit margin was partially offset by negative selling price mix driven by stronger growth with larger customers.

Canada
Sales for the Acklands-Grainger business increased 22 percent in U.S. dollars and 15 percent in local currency versus the 2009 third quarter. Acquisitions completed during the last 12 months contributed 3 percentage points to the growth in the quarter. Local currency sales on a daily basis were up 13 percent in July, up 14 percent in August and up 19 percent in September. The sales increase in Canada was led by strong growth to customers in the heavy manufacturing, forestry, mining, and oil and gas sectors of the economy, partially offset by a decline in sales to the government and contractors.

Operating earnings in Canada increased 74 percent in the quarter, 64 percent in local currency. This increase was due to a 340 basis point improvement in gross profit margin, partially offset by operating expenses, which increased at a faster rate than the sales growth. The improvement in gross margin was primarily driven by lower product costs, due to the positive effect of foreign exchange on buying products in U.S. dollars, and improved mix driven by an increase in sales of private label products.

Higher operating expenses were the result of increased payroll and benefits costs due to higher commissions and bonuses on higher sales, increased volume-related headcount, start-up costs for a new distribution center in Vancouver, British Columbia and incremental costs for acquisitions made during the past 12 months.

Other Businesses
Sales for the Other Businesses, which include Japan, Mexico, India, Puerto Rico, China, Panama and Colombia, increased 191 percent in the quarter versus prior year. This growth was primarily due to incremental sales from the Japanese and Colombian businesses acquired in the past 12 months, combined with strong sales growth in Mexico, India, China and Panama.

Operating earnings for the Other Businesses were $4 million for the 2010 third quarter compared to a $2 million loss a year ago. This improvement was the result of incremental earnings from the acquired businesses, strong earnings performance in Mexico and Panama, and lower operating losses in India and China.

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