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W.W. Grainger, Chicago, IL, reported sales of $1.4 billion, up 10 percent versus the prior year's third quarter. Earnings per share increased to 97 cents versus 74 cents in the 2004 third quarter, up 31 percent. Net earnings were up 30 percent to $88.1 million.
"This record performance is the result of our employees' commitment to customer service, helping drive positive sales and earnings growth," said Grainger Chairman and CEO Richard L. Keyser. "As a result of our performance and outlook, we're raising our 2005 earnings per share estimate from $3.40 to $3.60 to a guidance range of $3.60 to $3.70. During the quarter we effectively continued to execute programs to further improve service to our customers, including market expansion and our SAP infrastructure."
Keyser added, "I'm proud of how Grainger employees responded to the communities affected by Hurricanes Katrina and Rita. Backed by a national logistics network, teams from across the country provided products to help the recovery efforts along the Gulf Coast." During the quarter, Grainger also contributed $1.2 million in cash to the American Red Cross, matching employee donations four-to-one.
Sales in the Branch-based Distribution segment increased by 10 percent in the 2005 third quarter versus the 2004 quarter. Strong growth in all customer sectors except transportation contributed to a 9 percent increase in sales in the United States. Improved sales of seasonal products contributed approximately 1 percentage point to sales growth. Overall, U.S. sales growth was reduced 2 percentage points as a result of the wind-down of Integrated Supply and automotive-related contracts.
Hurricane-related sales for the quarter were approximately $4 million below the same period last year. Damage to company facilities as a result of the hurricanes was minimal.
Sales in Phase 1 of the market expansion program (Atlanta, Denver and Seattle) grew by 9 percent in the quarter. Sales growth in the Denver market continued to be affected by lower sales to one large customer. Excluding the effect of that customer, sales in Phase 1 were up 13 percent. Sales in Phase 2, covering four markets in Southern California, were up 17 percent for the quarter. Sales in Phase 3 - Houston, St. Louis and Tampa - were up 18 percent. In total, market expansion contributed approximately 1 percentage point to the 10 percent segment sales growth. Phase 1 was completed in the first quarter of 2005, when the final branch opened in Seattle. Phase 2 is 90 percent complete and Phase 3 is 70 percent complete.
Sales in Mexico were up 18 percent in the quarter versus the 2004 period, driven by a strengthening Mexican economy, additional telesales efforts and the opening of a new branch in September 2004. Canadian operations benefited from increased sales in the natural resources industry and a favorable exchange rate, with overall sales for the quarter up 16 percent (7 percent in Canadian currency).
Operating earnings for the quarter were up 27 percent in the Branch-based Distribution segment, the result of higher sales and improved gross profit. The segment's gross profit margins continued to benefit from the positive effect of product mix and exiting lower-margin Integrated Supply and automotive contracts. The market expansion initiative in Phases 1, 2 and 3 approached break-even from an operating earnings standpoint for the third quarter versus a loss in the 2004 quarter. However, entering future expansion markets will affect operating earnings performance.
Lab Safety Supply
Lab Safety Supply's sales for the quarter were up 13 percent, primarily the result of the acquisition of AW Direct in January 2005. Also contributing to the growth was an increase in volume in the core product lines. Operating earnings were up 9 percent, affected by an increase in spending on catalog media, information technology