10-Q 1 gww-20240930.htm 10-Q gww-20240930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
 Commission file number 1-5684

W.W. Grainger, Inc.
(Exact name of registrant as specified in its charter)
Illinois 36-1150280
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
100 Grainger Parkway
 
Lake Forest,Illinois 60045-5201
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (847) 535-1000             
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common StockGWWNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☒  Accelerated Filer ☐   Non-accelerated Filer ☐   Smaller Reporting Company Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐  No ☒ 

There were 48,700,165 shares of the Company’s Common Stock outstanding as of October 24, 2024.
1


TABLE OF CONTENTS
 Page
PART I - FINANCIAL INFORMATION 
   
Item 1:Financial Statements (Unaudited) 
 
Condensed Consolidated Statements of Earnings 
    for the Three and Nine Months Ended September 30, 2024 and 2023
 
Condensed Consolidated Statements of Comprehensive Earnings 
    for the Three and Nine Months Ended September 30, 2024 and 2023
 
Condensed Consolidated Balance Sheets
    as of September 30, 2024 and December 31, 2023
 
Condensed Consolidated Statements of Cash Flows
    for the Nine Months Ended September 30, 2024 and 2023
Condensed Consolidated Statements of Shareholders' Equity
    for the Three and Nine Months Ended September 30, 2024 and 2023
 Notes to Condensed Consolidated Financial Statements
Item 2:Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3:Quantitative and Qualitative Disclosures About Market Risk
Item 4:Controls and Procedures
PART II - OTHER INFORMATION

   
Item 1:Legal Proceedings
Item 1A:Risk Factors
Item 2:Unregistered Sales of Equity Securities and Use of Proceeds
Item 5:Other Information
Item 6:Exhibits
Signatures 
  























2


PART I – FINANCIAL INFORMATION

Item 1: Financial Statements

W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In millions of dollars and shares, except for per share amounts)
(Unaudited)
Three Months EndedNine Months Ended
 September 30,September 30,
 2024202320242023
Net sales$4,388 $4,208 $12,935 $12,481 
Cost of goods sold2,668 2,553 7,853 7,548 
Gross profit1,720 1,655 5,082 4,933 
Selling, general and administrative expenses1,034 988 3,078 2,925 
Operating earnings686 667 2,004 2,008 
Other expense (income):  
Interest expense – net19 22 60 70 
Other – net(4)(7)(18)(21)
Total other expense – net15 15 42 49 
Earnings before income taxes
671 652 1,962 1,959 
Income tax provision166 159 470 468 
Net earnings505 493 1,492 1,491 
Less net earnings attributable to noncontrolling interest19 17 58 57 
Net earnings attributable to W.W. Grainger, Inc.$486 $476 $1,434 $1,434 
Earnings per share:  
Basic$9.90 $9.47 $29.10 $28.45 
Diluted$9.87 $9.43 $29.00 $28.32 
Weighted average number of shares outstanding:    
Basic48.8 49.9 49.0 50.1 
Diluted48.9 50.1 49.2 50.3 
 
The accompanying notes are an integral part of these financial statements.
3


W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In millions of dollars)
(Unaudited)
 Three Months EndedNine Months Ended
September 30,September 30,
 2024202320242023
Net earnings$505 $493 $1,492 1,491 
Other comprehensive earnings (losses):  
Foreign currency translation adjustments 79 (39)(32)(69)
Postretirement benefit plan losses and other – net of tax benefit of $1, $1, $3, and $3, respectively
(3)(3)(10)(9)
Total other comprehensive earnings (losses)76 (42)(42)(78)
Comprehensive earnings – net of tax581 451 1,450 1,413 
Less comprehensive earnings (losses) attributable to noncontrolling interest
Net earnings19 17 58 57 
Foreign currency translation adjustments38 (7)(4)(39)
Total comprehensive earnings (losses) attributable to noncontrolling interest57 10 54 18 
Comprehensive earnings attributable to W.W. Grainger, Inc.
$524 $441 $1,396 $1,395 

The accompanying notes are an integral part of these financial statements.
4


W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions of dollars, except for share and per share amounts)
As of
Assets
(Unaudited) September 30, 2024
December 31, 2023
Current assets  
Cash and cash equivalents$1,448 $660 
Accounts receivable (less allowance for credit losses of $36 and $35, respectively)
2,346 2,192 
Inventories – net2,170 2,266 
Prepaid expenses and other current assets219 156 
Total current assets6,183 5,274 
Property, buildings and equipment – net1,746 1,658 
Goodwill366 370 
Intangibles – net247 234 
Operating lease right-of-use400 429 
Other assets172 182 
Total assets$9,114 $8,147 
Liabilities and shareholders' equity
Current liabilities  
Current maturities$497 $34 
Trade accounts payable1,046 954 
Accrued compensation and benefits306 327 
Operating lease liability78 71 
Accrued expenses429 397 
Income taxes payable27 48 
Total current liabilities2,383 1,831 
Long-term debt2,279 2,266 
Long-term operating lease liability353 381 
Deferred income taxes and tax uncertainties125 104 
Other non-current liabilities118 124 
Shareholders' equity 
Cumulative preferred stock – $5 par value – 12,000,000 shares authorized; none issued or outstanding
  
Common Stock – $0.50 par value – 300,000,000 shares authorized; 109,659,219 shares issued
55 55 
Additional contributed capital1,388 1,355 
Retained earnings13,302 12,162 
Accumulated other comprehensive losses(210)(172)
Treasury stock, at cost – 60,951,791 and 60,341,817
shares, respectively
(11,032)(10,285)
Total W.W. Grainger, Inc. shareholders’ equity3,503 3,115 
Noncontrolling interest353 326 
Total shareholders' equity3,856 3,441 
Total liabilities and shareholders' equity$9,114 $8,147 
  
The accompanying notes are an integral part of these financial statements.
5


W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of dollars)
(Unaudited)
Nine Months Ended
 September 30,
 20242023
Cash flows from operating activities: 
Net earnings$1,492 $1,491 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Provision for credit losses18 15 
Deferred income taxes and tax uncertainties 24 20 
Depreciation and amortization175 157 
Non-cash lease expense61 56 
Net (gains) losses from sale of assets (4)
Stock-based compensation48 49 
Change in operating assets and liabilities: 
Accounts receivable(183)(351)
Inventories86 42 
Prepaid expenses and other assets(26)104 
Trade accounts payable99 55 
Operating lease liabilities(73)(65)
Accrued liabilities36 (92)
Income taxes – net(64)(34)
Other non-current liabilities(10)(16)
Net cash provided by operating activities1,683 1,427 
Cash flows from investing activities: 
Capital expenditures(283)(318)
Proceeds from sale of assets2 11 
Other – net19  
Net cash used in investing activities(262)(307)
Cash flows from financing activities: 
Proceeds from debt503 7 
Payments of debt(38)(37)
Proceeds from stock options exercised26 29 
Payments for employee taxes withheld from stock awards(44)(32)
Purchases of treasury stock(739)(506)
Cash dividends paid(321)(300)
Other – net(2) 
Net cash used in financing activities(615)(839)
Exchange rate effect on cash and cash equivalents(18)(5)
Net change in cash and cash equivalents788 276 
Cash and cash equivalents at beginning of year660 325 
Cash and cash equivalents at end of period$1,448 $601 
The accompanying notes are an integral part of these financial statements.
6


W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In millions of dollars, except for per share amounts)
(Unaudited)

Common StockAdditional Contributed CapitalRetained EarningsAccumulated Other Comprehensive Earnings (Losses)Treasury StockNoncontrolling
Interest
Total
Balance at January 1, 2023$55 $1,310 $10,700 $(180)$(9,445)$295 $2,735 
Stock-based compensation— 14 — — 18 — 32 
Purchases of treasury stock— — — — (142)— (142)
Net earnings— — 488 — — 20 508 
Other comprehensive earnings (losses)— — — 4 — (5)(1)
Cash dividends paid ($1.72 per share)
— — (87)— — — (87)
Balance at March 31, 2023$55 $1,324 $11,101 $(176)$(9,569)$310 $3,045 
Stock-based compensation— 7 — — (7)2 2 
Purchases of treasury stock— — — — (168)— (168)
Net earnings— — 470 — — 20 490 
Other comprehensive earnings (losses)— — — (8)— (27)(35)
Cash dividends paid ($1.86 per share)
— — (94)— — (13)(107)
Balance at June 30, 2023$55 $1,331 $11,477 $(184)$(9,744)$292 $3,227 
Stock-based compensation$— $13 $— $— $(1)$— $12 
Purchases of treasury stock— — — — (203)(1)(204)
Net earnings— — 476 — — 17 493 
Other comprehensive earnings (losses)— — — (35)— (7)(42)
Capital contribution— (1)— — — 3 2 
Cash dividends paid ($1.86 per share)
— — (94)— — (12)(106)
Balance at September 30, 2023$55 $1,343 $11,859 $(219)$(9,948)$292 $3,382 

The accompanying notes are an integral part of these financial statements.

7


W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In millions of dollars, except for per share amounts)
(Unaudited)


Common StockAdditional Contributed CapitalRetained EarningsAccumulated Other Comprehensive Earnings (Losses)Treasury StockNoncontrolling
Interest
Total
Balance at January 1, 2024$55 $1,355 $12,162 $(172)$(10,285)$326 $3,441 
Stock-based compensation— 8 — — 2 — 10 
Purchases of treasury stock— — — — (277)— (277)
Net earnings— — 478 — — 19 497 
Other comprehensive earnings (losses)— — — (35)— (22)(57)
Cash dividends paid ($1.86 per share)
— — (92)— — (13)(105)
Balance at March 31, 2024$55 $1,363 $12,548 $(207)$(10,560)$310 $3,509 
Stock-based compensation— 8 — — (15)1 (6)
Purchases of treasury stock— — — — (243)(1)(244)
Net earnings— — 470 — — 20 490 
Other comprehensive earnings (losses)— — — (41)— (20)(61)
Cash dividends paid ($2.05 per share)
— — (101)— — — (101)
Balance at June 30, 2024$55 $1,371 $12,917 $(248)$(10,818)$310 $3,587 
Stock-based compensation— 18 — — 9 — 27 
Purchases of treasury stock— — — — (223)— (223)
Net earnings— — 486 — — 19 505 
Other comprehensive earnings (losses)— — — 38 — 38 76 
Capital contribution— (1)— — — 1  
Cash dividends paid ($2.05 per share)
— — (101)— — (15)(116)
Balance at September 30, 2024$55 $1,388 $13,302 $(210)$(11,032)$353 $3,856 

The accompanying notes are an integral part of these financial statements.
8

W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
W.W. Grainger, Inc. is a broad line, business-to-business distributor of maintenance, repair and operating (MRO) products and services with operations primarily in North America (N.A.), Japan and the United Kingdom (U.K.). In this report, the words “Grainger” or “Company” mean W.W. Grainger, Inc. and its subsidiaries, except where the context makes it clear that the reference is only to W.W. Grainger, Inc. itself and not its subsidiaries.

Basis of Presentation
The Company's Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial reporting and the rules and regulations of the U.S. Securities and Exchange Commission (SEC) and therefore do not include all information and disclosures normally included in the annual Consolidated Financial Statements. The preparation of these Condensed Consolidated Financial Statements and accompanying notes in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from these estimated amounts. In the opinion of the Company’s management, the Condensed Consolidated Financial Statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.

The Condensed Consolidated Balance Sheet at December 31, 2023, has been derived from the audited Consolidated Financial Statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.

The Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and accompanying notes for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 22, 2024 (2023 Form 10-K).

There were no material changes to the Company’s significant accounting policies from those disclosed in Note 1 of the Notes to Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data in the Company's 2023 Form 10-K.
9

W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

NOTE 2 - REVENUE
Grainger serves a large number of customers in diverse industries, which are subject to different economic and market-specific factors. The Company's revenue is primarily comprised of MRO product sales and related activities.

The Company's presentation of revenue by reportable segment and customer industry most reasonably depicts how the nature, amount, timing and uncertainty of the Company's revenue and cash flows are affected by economic and market-specific factors. The majority of Company revenue originates from contracts with a single performance obligation to deliver products, whereby performance obligations are satisfied when control of the product is transferred to the customer per the arranged shipping terms.

The following tables present the Company's percentage of revenue by reportable segment and by customer industry:
Three Months Ended September 30,
2024
2023
Customer Industry(1)
High-Touch Solutions N.A.Endless Assortment
Total Company(2)
High-Touch Solutions N.A.Endless Assortment
Total Company(2)
Manufacturing30 %30 %30 %30 %30 %30 %
Government20 %3 %17 %19 %3 %16 %
Wholesale7 %18 %9 %7 %17 %9 %
Commercial Services7 %12 %8 %7 %12 %8 %
Contractors5 %12 %6 %5 %12 %6 %
Healthcare7 %1 %6 %7 %2 %6 %
Retail4 %4 %4 %4 %4 %4 %
Transportation4 %2 %4 %5 %2 %4 %
Utilities3 %2 %3 %3 %2 %2 %
Warehousing3 % %2 %4 % %4 %
Other(3)
10 %16 %11 %9 %16 %11 %
Total net sales100 %100 %100 %100 %100 %100 %
Percent of total company revenue80 %18 %100 %81 %17 %100 %
(1) Customer industry results for the three months ended September 30, 2024 and 2023 primarily use the North American Industry Classification System (NAICS). As customers' businesses evolve, industry classifications may change. When these changes occur, Grainger does not recast the customer classification for prior periods as the industry used in the prior period was appropriate at the point-in-time. As a result, year-over-year changes may be impacted.
(2) Total Company includes other businesses, which includes the Cromwell business. Other businesses account for approximately 2% of Total Company revenue for both the three months ended September 30, 2024 and 2023.
(3) Other primarily includes revenue from industries and customers that are not material individually, including hospitality, restaurants, property management and natural resources.

10

W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Nine Months Ended September 30,
2024
2023
Customer Industry(1)
High-Touch Solutions N.A.Endless Assortment
Total Company(2)
High-Touch Solutions N.A.Endless Assortment
Total Company(2)
Manufacturing31 %29 %31 %30 %30 %30 %
Government19 %3 %16 %20 %3 %16 %
Wholesale7 %18 %9 %7 %16 %9 %
Commercial Services7 %12 %8 %7 %12 %8 %
Contractors5 %12 %6 %5 %12 %6 %
Healthcare7 %1 %6 %7 %2 %6 %
Retail4 %4 %4 %4 %4 %4 %
Transportation4 %2 %4 %4 %2 %4 %
Utilities3 %2 %3 %3 %2 %3 %
Warehousing3 % %2 %4 %1 %3 %
Other(3)
10 %17 %11 %9 %16 %11 %
Total net sales100 %100 %100 %100 %100 %100 %
Percent of total company revenue80 %18 %100 %81 %18 %100 %
(1) Customer industry results for the nine months ended September 30, 2024 and 2023 primarily use the North American Industry Classification System (NAICS). As customers' businesses evolve, industry classifications may change. When these changes occur, Grainger does not recast the customer classification for prior periods as the industry used in the prior period was appropriate at the point-in-time. As a result, year-over-year changes may be impacted.
(2) Total Company includes other businesses, which includes the Cromwell business. Other businesses account for approximately 2% and 1% of Total Company revenue for the nine months ended September 30, 2024 and 2023, respectively.
(3) Other primarily includes revenue from industries and customers that are not material individually, including hospitality, restaurants, property management and natural resources.

Total accrued sales incentives are recorded in Accrued expenses and were approximately $111 million and $114 million as of September 30, 2024 and December 31, 2023, respectively.

The Company had no material unsatisfied performance obligations, contract assets or liabilities as of September 30, 2024 and December 31, 2023.


NOTE 3 - PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment consisted of the following (in millions of dollars):
As of
September 30, 2024December 31, 2023
Land and land improvements$403 $397 
Building, structures and improvements1,578 1,469 
Furniture, fixtures, machinery and equipment1,927 1,852 
Property, buildings and equipment$3,908 $3,718 
Less accumulated depreciation2,162 2,060 
Property, buildings and equipment – net$1,746 $1,658 

11

W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

NOTE 4 - GOODWILL AND OTHER INTANGIBLE ASSETS
The Company did not identify any significant events or changes in circumstances that indicated the existence of impairment indicators during the three and nine months ended September 30, 2024. As such, quantitative assessments were not required.     

The balances and changes in the carrying amount of goodwill by segment are as follows (in millions of dollars):
High-Touch Solutions N.A.Endless AssortmentTotal
Balance at January 1, 2023$313 $58 $371 
Translation2 (3)(1)
Balance at December 31, 2023315 55 370 
Translation(2)(2)(4)
Balance at September 30, 2024
$313 $53 $366 
The Company's cumulative goodwill impairments as of September 30, 2024 were $137 million. No goodwill impairments were recorded for the three and nine months ended September 30, 2024 and 2023.
The balances and changes in intangible assets net are as follows (in millions of dollars):
As of
September 30, 2024December 31, 2023
Weighted average lifeGross carrying amountAccumulated amortizationNet carrying amountGross carrying amountAccumulated amortizationNet carrying amount
Customer lists and relationships10.7 years$166 $156 $10 $166 $153 $13 
Trademarks, trade names and other14.8 years32 25 7 31 23 8 
Non-amortized trade names and otherIndefinite20  20 20  20 
Capitalized software4.3 years721 511 210 659 466 193 
Total intangible assets6.1 years$939 $692 $247 $876 $642 $234 

12

W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

NOTE 5 - DEBT
Total debt, including long-term and current maturities, consisted of the following (in millions of dollars):
As of
September 30, 2024
December 31, 2023
Carrying ValueFair Value Carrying ValueFair Value
4.60% senior notes due 2045
$1,000$948$1,000$967
1.85% senior notes due 2025
  500 483 
4.45% senior notes due 2034
500 499   
3.75% senior notes due 2046
400 334 400 336 
4.20% senior notes due 2047
400 356 400361
Debt issuance costs – net of amortization and other(21)(21)(34)(34)
Long-term debt2,279 2,116 2,266 2,113 
1.85% senior notes due 2025
500 495   
Japanese yen term loan  32 32 
Other(3)(3)2 2 
Current maturities497 492 34 34 
Total debt$2,776 $2,608 $2,300 $2,147 

Senior Notes
Between 2015 and 2020, Grainger issued $2.3 billion in unsecured debt (Senior Notes) primarily to provide flexibility in funding general working capital needs, share repurchases and long-term cash requirements. The Senior Notes require no principal payments until maturity and interest is paid semi-annually.

In September 2024, Grainger issued $500 million in unsecured 4.45% senior notes (4.45% Notes). Grainger intends to use the net proceeds from this offering to repay the 1.85% Senior Notes that mature in February 2025 and any remaining net proceeds for general corporate purposes. The 4.45% Notes mature in September 2034, require no principal payments until maturity, and interest is paid semi-annually in arrears, beginning March 15, 2025.

The Company incurred debt issuance costs related to its Senior Notes, representing underwriting fees and other expenses. These costs were recorded as a contra-liability in Long-term debt and are being amortized over the term of the Senior Notes using the straight-line method to Interest expense – net. As of September 30, 2024 and December 31, 2023, the cumulative unamortized costs were $23 million and $19 million, respectively.

The Company uses interest rate swaps to manage the risks associated with its 1.85% Senior Notes. These swaps were designated for hedge accounting treatment as fair value hedges. The resulting carrying value adjustments are presented in Other in Current maturities as of September 30, 2024 and Other in Long-term debt as of December 31, 2023 in the table above. For further discussion on the Company's hedge accounting policies, see Note 6.

MonotaRO Term Loan
In August 2020, MonotaRO Co., Ltd (MonotaRO) entered into a ¥9 billion term loan agreement to fund technology investments and the expansion of its distribution center (DC) network. In the third quarter of 2024, the term loan was paid in full.

Fair Value
The estimated fair value of the Company’s Senior Notes was based on available external pricing data and current market rates for similar debt instruments, among other factors, which are classified as Level 2 inputs within the fair value hierarchy.
13

W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

NOTE 6 - DERIVATIVE INSTRUMENTS
The Company's earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange and interest rates. Grainger currently enters into certain derivatives or other financial instruments to hedge against these risks.

Fair Value Hedges
The Company uses interest rate swaps to hedge a portion of its fixed-rate debt. These swaps are treated as fair value hedges and consequently the gain or loss on the derivative as well as the offsetting gain or loss on the hedged item, are recognized in the Condensed Consolidated Statements of Earnings in Interest expense – net. The notional amount of the Company’s outstanding fair value hedges as of September 30, 2024 and December 31, 2023 was $450 million.

Due to the high degree of effectiveness between the hedging instruments and the underlying exposures being hedged, no recognition of ineffectiveness was recorded for the three and nine months ended September 30, 2024 and 2023.

The liability hedged by the interest rate swaps is recorded in Current maturities as of September 30, 2024 and Long-term debt as of December 31, 2023 on the Condensed Consolidated Balance Sheets. The carrying amount of the hedged item, including the cumulative amount of fair value hedging adjustments was $444 million as of September 30, 2024 and $432 million as of December 31, 2023.

The interest rate swaps are reported on the Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 as shown in the following table (in millions of dollars):
As of
September 30, 2024December 31, 2023
Accrued expenses$6 $ 
Other non-current liabilities$ $16 

Fair Value
The estimated fair values of the Company's derivative instruments were based on quoted market forward rates, which are classified as Level 2 inputs within the fair value hierarchy and reflect the present value of the amount that the Company would pay for contracts involving the same notional amounts and maturity dates. No adjustments were required during the current period to reflect the counterparty’s credit risk or the Company’s own nonperformance risk.

14

W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

NOTE 7 - SEGMENT INFORMATION
Grainger's two reportable segments are High-Touch Solutions N.A. and Endless Assortment. The remaining businesses, which include the Company's Cromwell business, are classified as Other to reconcile to consolidated results. These remaining businesses individually and in the aggregate do not meet the criteria of a reportable segment.

The Company's corporate costs are allocated to each reportable segment based on benefits received. Additionally, intersegment sales transactions, which are sales between Grainger businesses in separate reportable segments, are eliminated within the segment to present only the impact of sales to external customers. Service fees for intersegment sales are included in each reportable segment's Selling, general and administrative expenses (SG&A) and are also eliminated in the Company's Condensed Consolidated Financial Statements.

Following is a summary of segment results (in millions of dollars):
 Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
 Net salesOperating earnings (losses)Net salesOperating earnings (losses)Net salesOperating earnings (losses)Net salesOperating earnings (losses)
High-Touch Solutions N.A.$3,515 $617 $3,403 $612 $10,378 $1,818 $10,052 $1,833 
Endless Assortment791 70 732 55 2,318 190 2,207 178 
Other82 (1)73  239 (4)222 (3)
Total Company$4,388 $686 $4,208 $667 $12,935 $2,004 $12,481 $2,008 

The Company is a broad line distributor of MRO products and services. Products are regularly added and removed from the Company's inventory. Accordingly, it would be impractical to provide sales information by product category due to the way the business is managed and the dynamic nature of the inventory offered, including the evolving list of products stocked and additional products available online but not stocked. Assets for reportable segments are not disclosed as such information is not regularly reviewed by the Company's Chief Operating Decision Maker.

NOTE 8 - CONTINGENCIES AND LEGAL MATTERS
From time to time the Company is involved in various legal and administrative proceedings, including claims related to: product liability, safety or compliance; privacy and cybersecurity matters; negligence; contract disputes; environmental issues; unclaimed property; wage and hour laws; intellectual property; advertising and marketing; consumer protection; pricing (including disaster or emergency declaration pricing statutes); employment practices; regulatory compliance, including trade and export matters; anti-bribery and corruption; and other matters and actions brought by team members, consumers, competitors, suppliers, customers, governmental entities and other third parties.

The Company remains in litigation involving KMCO, LLC (KMCO) as previously disclosed. The Company continues to contest the remaining KMCO-related lawsuits and cannot predict the timing, outcome or any estimate of possible loss or range of losses on the remaining KMCO lawsuits.

NOTE 9 - SUBSEQUENT EVENTS
On October 30, 2024, the Company’s Board of Directors declared a quarterly dividend of $2.05 per share, payable December 1, 2024, to shareholders of record on November 11, 2024.
15

W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis (MD&A) of Financial Condition and Results of Operations is intended to help the reader understand the results of operations and financial condition of W.W. Grainger, Inc. (Grainger or Company) as it is viewed by management of the Company. The following discussion should be read in conjunction with the Consolidated Financial Statements and accompanying notes for the year ended December 31, 2023 included in the Company's 2023 Form 10-K and the Condensed Consolidated Financial Statements and accompanying notes included in Part I, Item 1: Financial Statements of this Form 10-Q.

Percentage figures included in this section have not been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in the Company's Condensed Consolidated Financial Statements or in the associated text.

Overview
Grainger is a broad line, business-to-business distributor of maintenance, repair and operating (MRO) products and services with operations primarily in North America, Japan and the U.K. Grainger uses a combination of its high-touch solutions and endless assortment businesses to serve its customers worldwide, which rely on Grainger for products and services that enable them to run safe, sustainable and productive operations.

Strategic Priorities
For a discussion of the Company’s strategic priorities for 2024, see Part 1, Item 1: Business and Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2023 Form 10-K.

Recent Events
Macroeconomic Conditions
The global economy continues to experience volatility and uncertainty including to the commodity, labor and transportation markets, arising from a combination of geopolitical conditions and events, and various economic and financial factors. These conditions have affected the Company's operations and may continue to affect the Company's business, financial condition and results of operations.

The Company continues to monitor economic conditions in the U.S. and globally, and the impact of macroeconomic pressures, including repercussions from changes in interest rates, currency exchange fluctuations, changing inflationary environment, and a potential recession on the Company’s business, customers, suppliers and other third parties. The Company has implemented strategies designed to mitigate certain adverse effects from the impact of the changing inflationary environment while remaining market price competitive. Historically, the Company’s broad and diverse customer base and the nondiscretionary nature of the Company’s products to its customers has helped to insulate it from the effects of recessionary periods in the industrial MRO market. The full extent and impact of these conditions are uncertain and cannot be predicted at this time.

For further discussion of the Company's risks and uncertainties, see Part I, Item 1A: Risk Factors in the Company’s 2023 Form 10-K.
16

W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations –Three Months Ended September 30, 2024
In this section, Grainger utilizes non-GAAP measures where it believes it will assist users of its financial statements in understanding its business. For further information regarding the Company's non-GAAP measures including reconciliations to the most directly comparable GAAP measure, see below "Non-GAAP Measures."

The following table is included as an aid to understanding the changes in Grainger’s Condensed Consolidated Statements of Earnings for three months ended September 30, 2024 and 2023 (in millions of dollars except per share amounts):
Three Months Ended September 30,
% Change% of Net Sales
2024202320242023
Net sales(1)
$4,388 $4,208 4.3 %100.0 %100.0 %
Cost of goods sold2,668 2,553 4.5 60.8 60.7 
Gross profit1,720 1,655 3.9 39.2 39.3 
Selling, general and administrative expenses1,034 988 4.7 23.6 23.4 
Operating earnings686 667 2.8 15.6 15.9 
Other expense – net15 15 — 0.3 0.4 
Income tax provision166 159 4.4 3.8 3.8 
Net earnings505 493 2.4 11.5 11.7 
Noncontrolling interest19 17 11.8 0.4 0.4 
Net earnings attributable to W.W. Grainger, Inc.$486 $476 2.1 11.1 %11.3 %
Diluted earnings per share$9.87 $9.43 4.7 %
(1) For further information regarding the Company's disaggregated revenue, see Note 2 of the Notes to Condensed Consolidated Financial Statements in Part 1, Item 1: Financial Statements of this Form 10-Q.

The following table is included as an aid to understanding the changes of Grainger's total net sales, daily net sales and daily, organic constant currency net sales from the prior period for the three months ended September 30, 2024 and 2023 (in millions of dollars):

Three Months Ended September 30,
2024
% Change(1)
2023
% Change(1)
Net sales $4,388 4.3 %$4,208 6.7 %
Daily net sales(2)
$67.5 2.6 %$67.9 8.4 %
Daily, organic constant currency net sales(2)
$68.5 4.0 %$68.1 8.7 %
(1) Calculated on the basis of prior year net sales for the three months ended September 30, 2024 and 2023.
(2) Daily net sales are adjusted for the difference in U.S. selling days relative to the prior year period. Daily, organic constant currency net sales are also adjusted to exclude the impact on net sales due to year-over-year foreign currency exchange rate fluctuations and the prior year period results of E & R Industrial Sales, Inc. (E&R) divested in the fourth quarter of 2023. There were 64 and 63 sales days in the three months ended September 30, 2024 and 2023, respectively. For further information regarding the Company's non-GAAP measures, including reconciliations to the most directly comparable GAAP measure, see below "Non-GAAP Measures."

Net sales of $4,388 million for the three months ended September 30, 2024 increased $180 million, or 4% on a reported and daily, organic constant currency basis, compared to the same period in 2023. Both High-Touch Solutions N.A. and the Endless Assortment segments contributed to sales growth in the third quarter of 2024. For further discussion on the Company's net sales, see the Segment Analysis section below.

17

W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Gross profit of $1,720 million for the three months ended September 30, 2024 increased $65 million, or 4%, and gross profit margin of 39.2% decreased 10 basis points compared to the same period in 2023. For further discussion on the Company's gross profit, see the Segment Analysis section below.

Selling, general and administrative (SG&A) expenses of $1,034 million for the three months ended September 30, 2024 increased $46 million, or 5%, compared to the same period in 2023. The increase was primarily due to higher marketing and payroll and benefit expenses in the third quarter of 2024. SG&A leverage decreased 20 basis points compared to the same period in 2023.

Operating earnings of $686 million for the three months ended September 30, 2024 increased $19 million, or 3%, compared to the same period in 2023. The increase was due to higher gross profit dollars, partially offset by increased SG&A expenses in the third quarter of 2024.

Income tax expense of $166 million and $159 million represents effective tax rates of 24.8% and 24.4% for the three months ended September 30, 2024 and 2023, respectively.

Diluted earnings per share was $9.87 for the three months ended September 30, 2024, an increase of 5% compared to $9.43 for the same period in 2023.

Segment Analysis
In this section, Grainger utilizes non-GAAP measures where it believes it will assist users of its financial statements in understanding its business. For further information regarding the Company's non-GAAP measures including reconciliations to the most directly comparable GAAP measure, see below "Non-GAAP Measures." For further     segment information, see Note 7 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1: Financial Statements of this Form 10-Q.

High-Touch Solutions N.A.
The following table shows reported segment results (in millions of dollars):
Three Months Ended September 30,
20242023% Change
Net sales$3,515 $3,403 3.3 %
Gross profit$1,462 $1,418 3.1 %
Selling, general and administrative expenses$845 $806 4.8 %
Operating earnings$617 $612 0.8 %

Net sales of $3,515 million for the three months ended September 30, 2024 increased $112 million, or 3% on a reported and daily, organic constant currency basis, compared to the same period in 2023. The increase was primarily due to volume.

Gross profit of $1,462 million for the three months ended September 30, 2024 increased $44 million, or 3%. Gross profit margin of 41.6% decreased 10 basis points compared to the same period in 2023.

SG&A of $845 million for the three months ended September 30, 2024 increased $39 million, or 5%, compared to the same period in 2023. The increase was primarily due to higher marketing and payroll and benefit expenses. SG&A leverage decreased 30 basis points.

Operating earnings of $617 million for the three months ended September 30, 2024 increased $5 million, or 1%, compared to the same period in 2023.



18

W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Endless Assortment
The following table shows reported segment results (in millions of dollars):
Three Months Ended September 30,
20242023% Change
Net sales$791 $732 8.1 %
Gross profit$233 $216 7.9 %
Selling, general and administrative expenses$163 $161 1.2 %
Operating earnings$70 $55 27.3 %

Net sales of $791 million for the three months ended September 30, 2024 increased $59 million, or 8%, and on a daily constant currency basis increased 12% compared to the same period in 2023. The increase was due to sales growth of 13%, driven by customer acquisition for the segment and enterprise growth at MonotaRO. Sales growth was partially offset by unfavorable currency exchange of 5% due to changes in the exchange rate between the U.S. dollar and the Japanese yen.

Gross profit of $233 million for the three months ended September 30, 2024 increased $17 million, or 8%, and gross profit margin of 29.5% decreased 10 basis points compared to the same period in 2023.

SG&A of $163 million for the three months ended September 30, 2024 increased $2 million, or 1%, compared to the same period in 2023. SG&A leverage improved 140 basis points as sales growth outpaced SG&A expenses driven by occupancy efficiencies compared to the same period in 2023.

Operating earnings of $70 million for the three months ended September 30, 2024 increased $15 million, or 27%, compared to the same period in 2023.
19

W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Results of Operations – Nine Months Ended September 30, 2024
In this section, Grainger utilizes non-GAAP measures where it believes it will assist users of its financial statements in understanding its business. For further information regarding the Company's non-GAAP measures including reconciliations to the most directly comparable GAAP measure, see below "Non-GAAP Measures."

The following table is included as an aid to understanding the changes in Grainger's Condensed Consolidated Statements of Earnings (in millions of dollars except per share amounts):

Nine Months Ended September 30,
Percent Increase/(Decrease) from Prior Year
As a Percent of Net Sales
2024202320242023
Net sales(1)
$12,935 $12,481 3.6 %100.0 %100.0 %
Cost of goods sold7,853 7,548 4.0 60.7 60.5 
Gross profit5,082 4,933 3.0 39.3 39.5 
Selling, general and administrative expenses3,078 2,925 5.2 23.8 23.4 
Operating earnings2,004 2,008 (0.2)15.5 16.1 
Other expense – net42 49 (14.3)0.4 0.4 
Income tax provision470 468 0.4 3.6 3.7 
Net earnings1,492 1,491 0.1 11.5 12.0 
Noncontrolling interest58 57 1.8 0.4 0.5 
Net earnings attributable to W.W. Grainger, Inc.$1,434 $1,434 — 11.1 %11.5 %
Diluted earnings per share$29.00 $28.32 2.4 %
(1) For further information regarding the Company's disaggregated revenue, see Note 2 of the Notes to Condensed Consolidated Financial Statements in Part 1, Item 1: Financial Statements of this Form 10-Q.

The following table is included as an aid to understanding the changes of Grainger's total net sales, daily net sales and daily, organic constant currency net sales compared from the prior period for the nine months ended September 30, 2024 and 2023 (in millions of dollars):
Nine Months Ended September 30,
2024
% Change(1)
2023
% Change(1)
Net sales $12,935 3.6 %$12,481 9.2 %
Daily net sales(2)
$67.0 3.1 %$65.7 9.8 %
Daily, organic constant currency net sales(2)
$68.1 4.8 %$66.4 11.1 %
(1) Calculated on the basis of prior year net sales for the nine months ended September 30, 2024 and 2023.
(2) Daily net sales are adjusted for the difference in U.S. selling days relative to the prior year period. Daily, organic constant currency net sales are also adjusted to exclude the impact on net sales due to year-over-year foreign currency exchange rate fluctuations and the prior year period results of E&R divested in the fourth quarter of 2023. There were 192 and 191 sales days in the nine months ended September 30, 2024 and 2023, respectively. For further information regarding the Company's non-GAAP measures, including reconciliations to the most directly comparable GAAP measure, see below "Non-GAAP Measures."

Net sales of $12,935 million for the nine months ended September 30, 2024 increased $454 million, or 4%, and on a daily, organic constant currency basis increased 5% compared to the same period in 2023. Both High-Touch
20

W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Solutions N.A. and the Endless Assortment segments contributed to sales growth in the nine months ended September 30, 2024. For further discussion on the Company's net sales, see the Segment Analysis section below.

Gross profit of $5,082 million for the nine months ended September 30, 2024 increased $149 million, or 3%, and gross profit margin of 39.3% decreased 20 basis points compared to the same period in 2023. For further discussion on the Company's gross profit, see the Segment Analysis section below.

SG&A of $3,078 million for the nine months ended September 30, 2024 increased $153 million, or 5%, compared to the same period in 2023. Adjusted SG&A of $3,062 million increased $137 million, or 5%, driven by higher marketing and payroll and benefit expenses in 2024. SG&A leverage decreased 40 basis points and adjusted SG&A leverage decreased 30 basis points compared to the same period in 2023.

Operating earnings of $2,004 million for the nine months ended September 30, 2024 decreased $4 million, compared to the same period in 2023. Adjusted operating earnings of $2,020 million increased $12 million, or 1%.

Income taxes of $470 million for the nine months ended September 30, 2024 increased $2 million, compared to the same period in 2023. Adjusted income taxes of $474 million increased $6 million compared to the same period in 2023. Grainger's effective tax rates were 24.0% and 23.9% for the nine months ended September 30, 2024 and 2023, respectively. The adjusted effective tax rate for the nine months ended September 30, 2024 was 24.0%.

Diluted earnings per share was $29.00 and adjusted diluted earnings per share was $29.25 for the nine months ended September 30, 2024. On an adjusted basis, this was an increase of 3% compared to $28.32 for the same period in 2023.

Segment Analysis
In this section, Grainger utilizes non-GAAP measures where it believes it will assist users of its financial statements in understanding its business. For further information regarding the Company's non-GAAP measures including reconciliations to the most directly comparable GAAP measure, see "Non-GAAP Measures." For further segment information, see Note 7 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1: Financial Statements of this Form 10-Q.

High-Touch Solutions N.A.
The following table shows reported segment results (in millions of dollars):
Nine Months Ended September 30,
20242023% Change
Net sales$10,378 $10,052 3.2 %
Gross profit$4,328 $4,213 2.7 %
Selling, general and administrative expenses$2,510 $2,380 5.5 %
Operating earnings$1,818 $1,833 (0.8)%

Net sales of $10,378 million for the nine months ended September 30, 2024 increased $326 million, or 3% on a reported and daily, organic constant currency basis, compared to the same period in 2023. The increase was primarily due to volume.

Gross profit of $4,328 million for the nine months ended September 30, 2024 increased $115 million, or 3%, and gross profit margin of 41.7% decreased 20 basis points compared to the same period in 2023.

SG&A of $2,510 million for the nine months ended September 30, 2024 increased $130 million, or 6%, compared to the same period in 2023. Adjusted SG&A of $2,495 million increased $115 million, or 5%. The increase was primarily due to higher marketing and payroll and benefit expenses in 2024. SG&A leverage decreased 50 basis points and adjusted SG&A leverage decreased 30 basis points compared to the same period in 2023.

21

W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Operating earnings of $1,818 million for the nine months ended September 30, 2024 decreased $15 million, or 1%, compared to the same period in 2023. Adjusted operating earnings of $1,833 million was the same as the prior year period.

Endless Assortment
The following table shows reported segment results (in millions of dollars):
Nine Months Ended September 30,
20242023% Change
Net sales$2,318 $2,207 5.0 %
Gross profit$682 $654 4.3 %
Selling, general and administrative expenses$492 $476 3.4 %
Operating earnings$190 $178 6.7 %

Net sales of $2,318 million for the nine months ended September 30, 2024 increased $111 million, or 5% and on a daily constant currency basis increased 11% compared to the same period in 2023. The increase was due to sales growth of 12%, driven by customer acquisition for the segment and enterprise growth at MonotaRO. Sales growth was partially offset by unfavorable currency exchange of 7% due to changes in the exchange rate between the U.S. dollar and the Japanese yen.

Gross profit of $682 million for the nine months ended September 30, 2024 increased $28 million, or 4%, and gross profit margin of 29.4% decreased 20 basis points compared to the same period in 2023. The decrease was driven by unfavorable product mix.

SG&A of $492 million for the nine months ended September 30, 2024 increased $16 million, or 3%, compa