"It was a record year for Grainger," said President and CEO Jim Ryan. "Despite a slowing of business activity in the back half of the year, particularly in late December when uncertainty surrounding the economy and the fiscal cliff virtually paralyzed many businesses and government institutions, we achieved solid results while continuing to invest for future growth. For the full year, we invested an additional $70 million in expanding our product line and sales force, enhancing eCommerce capabilities, increasing inventory management services and expanding our international presence.”
The distributor’s sales growth slowed in the fourth quarter 2012, up 7 percent to $2.2 billion from the prior-year period. Profit was $156 million for the quarter. On a daily basis, sales increased 6 percent in the fourth quarter with 6 percent daily sales growth in October, 8 percent in November and 2 percent in December.
The 6 percent daily sales growth for the quarter consisted of 3 percentage points from price, 2 percentage points from volume, 1 percentage point from Hurricane Sandy-related sales, 1 percentage point from acquisitions, offset by a 1 percentage point decline attributable to the timing of the December holidays.
In addition to the timing of the holidays, Grainger reported that concerns regarding the fiscal cliff led many businesses and institutions to implement extended facility shutdowns and employee furloughs in late December and early January.
During 2012, Grainger reached the following milestones relative to the company's growth drivers:
E-Commerce: Posted $2.7 billion in e-commerce sales, representing 30 percent of total company sales and an increase of 23 percent versus the prior year. (Read more: Grainger: 'We're Not Close to Being Done with E-Commerce')
Sales Force Expansion: Added 160 new sales representatives and contributed approximately 1 percentage point to company sales growth for the year.
Inventory Management :Increased the number of U.S. customer KeepStock installations by 30 percent, ending the year at about 40,000 installations.
Product Line Expansion: Added more than 80,000 new products to the Grainger U.S. catalog, bringing the number of products in the 2012 printed catalog to more than 413,000.
International: Surpassed $1 billion in sales in Canada and expanded the company's presence in Latin America by entering Brazil with the acquisition of AnFreixo.
Quarterly Segment Sales
Sales in the U.S. segment increased 5 percent, 4 percent on a daily basis, in the 2012 fourth quarter versus the prior year. The 4 percent daily sales growth was driven by 3 percentage points from price, 1 percentage point from volume, 1 percentage point from Hurricane Sandy-related sales, offset by a 1 percentage point decline from the timing of the holidays in December as noted above. Daily sales increased 4 percent in October, 6 percent in November and declined 1 percent in December. The manufacturing, commercial and government customer end-markets contributed to the sales growth in the quarter.
Operating earnings for the U.S. segment increased 17 percent in the quarter driven by the 5 percent sales growth, higher gross profit margins and positive expense leverage. Gross profit margins for the quarter increased 50 basis points driven by price inflation exceeding product cost inflation, partially offset by negative customer mix.
Sales in the 2012 fourth quarter at Acklands-Grainger increased 14 percent, 13 percent on a daily basis. The 13 percent daily sales growth consisted of 8 percentage points from volume, 4 percentage points from foreign exchange, 1 percentage point from price, 1 percentage point from sales of seasonal products, offset by a 1 percentage point decline from December holiday timing. In local currency, sales increased 11 percent, 9 percent on a daily basis. Daily sales in local currency increased 12 percent in October, 8 percent in November and 5 percent in December. The sales increase for the quarter in Canada was led by strong growth to customers in the commercial, construction, oil and gas, and utilities end-markets.
Operating earnings in Canada increased 2 percent in the 2012 fourth quarter. This increase was driven by favorable foreign exchange, modest expense leverage, partially offset by lower gross profit margins. The gross profit margin in Canada declined 150 basis points versus the prior year. The decline was primarily due to an unfavorable customer and product mix.
Sales for the Other Businesses, which includes operations primarily in Asia, Europe and Latin America, increased 16 percent, 14 percent on a daily basis, for the 2012 fourth quarter versus the prior year. This increase was primarily due to strong revenue growth in Japan and the incremental sales from the acquired business in Brazil. Excluding Brazil, daily sales for the Other Businesses increased 10 percent.
The Other Businesses posted a $10.4 million operating loss in the 2012 fourth quarter versus a $5 million profit in the 2011 fourth quarter. During the quarter, the company announced structural changes to the businesses in Europe, India and China to improve long-term performance, resulting in $13.7 million in restructuring charges. Excluding these charges, the Other Businesses would have generated $3.3 million in operating earnings in the 2012 fourth quarter driven by the businesses in Japan and Mexico. This was partially offset by modest operating losses from the businesses in Brazil and Europe, before the restructuring charges.