Grainger WW Earnings 2020-09-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

gww-20200930

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, 2020

☐ 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)

847

535-1000

(Registrant’s telephone number including area code)

Not Applicable

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock	GWW	New 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 53,668,050 shares of the Company’s Common Stock, par value $0.50, outstanding as of September 30, 2020.


	TABLE OF CONTENTS
		Page No.
	PART I FINANCIAL INFORMATION

Item 1:	Financial Statements (Unaudited)

	Condensed Consolidated Statements of Earnings for the Three and Nine Months Ended September 30, 2020 and 2019	4

	Condensed Consolidated Statements of Comprehensive Earnings for the Three and Nine Months Ended September 30, 2020 and 2019	5

	Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	6

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	7

	Condensed Consolidated Statements of Shareholders' Equity for the Three and Nine Months Ended September 30, 2020 and 2019	8

	Notes to Condensed Consolidated Financial Statements	10

Item 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3:	Quantitative and Qualitative Disclosures About Market Risk	34

Item 4:	Controls and Procedures	34

	PART II OTHER INFORMATION

Item 1:	Legal Proceedings	35

Item 1A:	Risk Factors	35

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 6:	Exhibits	36

Signatures		37

EXHIBITS

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 Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		2020		2019
Net sales	$	3,018	$	2,947	$	8,856	$	8,639
Cost of goods sold	1,944		1,848		5,645		5,324
Gross profit	1,074		1,099		3,211		3,315
Selling, general and administrative expenses	694		761		2,467		2,234
Operating earnings	380		338		744		1,081
Other (income) expense:
Interest expense, net	23		20		72		60
Other, net	(5)		(4)		(16)		(18)
Total other expense, net	18		16		56		42
Earnings before income taxes	362		322		688		1,039
Income tax provision	106		78		118		261
Net earnings	256		244		570		778
Less: Net earnings attributable to noncontrolling interest	16		11		43		32
Net earnings attributable to W.W. Grainger, Inc.	$	240	$	233	$	527	$	746
Earnings per share:
Basic	$	4.43	$	4.27	$	9.74	$	13.46
Diluted	$	4.41	$	4.25	$	9.70	$	13.40
Weighted average number of shares outstanding:
Basic	53.6		54.1		53.6		55.0
Diluted	53.9		54.4		53.8		55.2
Cash dividends paid per share	$	1.53	$	1.44	$	4.41	$	4.24

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

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(In millions of dollars)

(Unaudited)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		2020		2019
Net earnings	$	256	$	244	$	570	$	778
Other comprehensive earnings (losses):
Foreign currency translation adjustments, net of reclassification	24		(17)		30		6


Postretirement benefit plan reclassification, net of tax benefit of $1, $1, $3, and $3, respectively	(2)		(2)		(8)		(7)
Other	—		—		4		—
Total other comprehensive earnings (losses)	22		(19)		26		(1)
Comprehensive earnings, net of tax	278		225		596		777
Less: Comprehensive earnings (losses) attributable to noncontrolling interest
Net earnings	16		11		43		32
Foreign currency translation adjustments	5		(1)		6		2
Total comprehensive earnings (losses) attributable to noncontrolling interest	21		10		49		34
Comprehensive earnings attributable to W.W. Grainger, Inc.	$	257	$	215	$	547	$	743

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

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, 2020		December 31, 2019
CURRENT ASSETS
Cash and cash equivalents	$	859	$	360
Accounts receivable (less allowances for credit losses of $26 and $21, respectively)	1,485		1,425
Inventories - net	1,780		1,655
Prepaid expenses and other current assets	120		104

Prepaid income taxes	29		11
Total current assets	4,273		3,555
PROPERTY, BUILDINGS AND EQUIPMENT - NET	1,394		1,400
DEFERRED INCOME TAXES	11		11
GOODWILL	369		429
INTANGIBLES - NET	224		304
OTHER ASSETS	312		306
TOTAL ASSETS	$	6,583	$	6,005

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt	$	—	$	55
Current maturities of long-term debt	12		246
Trade accounts payable	836		719
Accrued compensation and benefits	201		228
Accrued contributions to employees' profit sharing plans	48		85
Accrued expenses	324		318
Income taxes payable	20		27
Total current liabilities	1,441		1,678
LONG-TERM DEBT (less current maturities)	2,388		1,914
DEFERRED INCOME TAXES AND TAX UNCERTAINTIES	112		106
OTHER NON-CURRENT LIABILITIES	267		247
SHAREHOLDERS' EQUITY
Cumulative preferred stock – $5 par value – 12,000,000 shares authorized; none issued nor outstanding	—		—
Common Stock – $0.50 par value –300,000,000 shares authorized; issued 109,659,219 shares	55		55
Additional contributed capital	1,214		1,182
Retained earnings	8,694		8,405
Accumulated other comprehensive earnings (losses)	(134)		(154)
Treasury stock, at cost - 55,991,169 and 55,971,691 shares, respectively	(7,698)		(7,633)
Total W.W. Grainger, Inc. shareholders’ equity	2,131		1,855
Noncontrolling interest	244		205
Total shareholders' equity	2,375		2,060
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	6,583	$	6,005

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

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions of dollars)

(Unaudited)


	Nine Months Ended
	September 30,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	570	$	778

Provision for credit losses	18		7
Deferred income taxes and tax uncertainties	9		19
Depreciation and amortization	137		171
Net losses (gains) from sales of assets and business divestitures	104		(5)
Impairment of goodwill, intangibles and long-lived assets	177		—
Stock-based compensation	36		32

Subtotal	481		224
Change in operating assets and liabilities:
Accounts receivable	(145)		(119)
Inventories	(222)		18
Prepaid expenses and other assets	(29)		(15)
Trade accounts payable	145		50
Accrued liabilities	(13)		(137)
Income taxes - net	(19)		(16)
Other non-current liabilities	19		(13)
Subtotal	(264)		(232)
Net cash provided by operating activities	787		770
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, buildings, equipment and intangibles	(152)		(163)
Proceeds from sales of assets and business divestitures	22		16
Other	(2)		2


Net cash used in investing activities	(132)		(145)
CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings under lines of credit	12		22
Payments against lines of credit	(65)		(18)
Proceeds from long-term debt	1,583		—
Payments of long-term debt	(1,361)		(48)
Proceeds from stock options exercised	47		19
Payments for employee taxes withheld from stock awards	(16)		(10)
Purchases of treasury stock	(101)		(600)
Cash dividends paid	(246)		(242)
Other - net	—		2
Net cash used in financing activities	(147)		(875)
Exchange rate effect on cash and cash equivalents	(9)		(2)
NET CHANGE IN CASH AND CASH EQUIVALENTS	499		(252)
Cash and cash equivalents at beginning of year	360		538
Cash and cash equivalents at end of period	$	859	$	286

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

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In millions of dollars, except for per share amounts)

(Unaudited)


	Common Stock		Additional Contributed Capital		Retained Earnings		Accumulated Other Comprehensive Earnings (Losses)		Treasury Stock		Noncontrolling Interest		Total
Balance at January 1, 2019	$	55	$	1,134	$	7,869	$	(171)	$	(6,966)	$	172	$	2,093
Stock-based compensation	—		3		—		—		3		—		6
Purchases of treasury stock	—		—		—		—		(135)		—		(135)
Net earnings	—		—		253		—		—		9		262
Other comprehensive earnings (losses)	—		—		—		3		—		(2)		1
Capital contribution	—		—		—		—		—		2		2
Cash dividends paid ($1.36 per share)	—		—		(77)		—		—		—		(77)
Balance at March 31, 2019	$	55	$	1,137	$	8,045	$	(168)	$	(7,098)	$	181	$	2,152
Stock-based compensation	—		15		—		—		9		—		24
Purchases of treasury stock	—		—		—		—		(265)		—		(265)
Net earnings	—		—		260		—		—		12		272
Other comprehensive earnings (losses)	—		—		—		12		—		5		17

Cash dividends paid ($1.44 per share)	—		—		(79)		—		—		(7)		(86)
Balance at June 30, 2019	$	55	$	1,152	$	8,226	$	(156)	$	(7,354)	$	191	$	2,114
Stock-based compensation	—		9		—		—		3		—		12
Purchases of treasury stock	—		—		—		—		(200)		—		(200)
Net earnings	—		—		233		—		—		11		244
Other comprehensive earnings (losses)	—		—		—		(18)		—		(1)		(19)

Cash dividends paid ($1.44 per share)	—		—		(79)		—		—		—		(79)
Balance at September 30, 2019	$	55	$	1,161	$	8,380	$	(174)	$	(7,551)	$	201	$	2,072

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

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In millions of dollars, except for per share amounts)

(Unaudited)


	Common Stock		Additional Contributed Capital		Retained Earnings		Accumulated Other Comprehensive Earnings (Losses)		Treasury Stock		Noncontrolling Interest		Total
Balance at January 1, 2020	$	55	$	1,182	$	8,405	$	(154)	$	(7,633)	$	205	$	2,060
Stock-based compensation	—		10		—		—		13		—		23
Purchases of treasury stock	—		—		—		—		(100)		—		(100)
Net earnings	—		—		173		—		—		12		185
Other comprehensive earnings (losses)	—		—		—		(63)		—		3		(60)

Cash dividends paid ($1.44 per share)	—		—		(78)		—		—		—		(78)
Balance at March 31, 2020	$	55	$	1,192	$	8,500	$	(217)	$	(7,720)	$	220	$	2,030
Stock-based compensation	—		6		—		—		11		—		17
Purchases of treasury stock	—		—		—		—		—		(1)		(1)
Net earnings	—		—		114		—		—		15		129
Other comprehensive earnings (losses)	—		—		—		66		—		(2)		64

Cash dividends paid ($1.44 per share)	—		—		(78)		—		—		(9)		(87)
Balance at June 30, 2020	$	55	$	1,198	$	8,536	$	(151)	$	(7,709)	$	223	$	2,152
Stock-based compensation	—		16		—		—		11		—		27

Net earnings	—		—		240		—		—		16		256
Other comprehensive earnings (losses)	—		—		—		17		—		5		22

Cash dividends paid ($1.53 per share)	—		—		(82)		—		—		—		(82)
Balance at September 30, 2020	$	55	$	1,214	$	8,694	$	(134)	$	(7,698)	$	244	$	2,375

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

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BACKGROUND AND BASIS OF PRESENTATION

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, Japan and Europe. In this report, the words “Company” or “Grainger” 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.

Consistent with the Company's strategic focus on broad line MRO distribution in key markets, Grainger divested the Fabory business in Europe (Fabory) on June 30, 2020 and the China business (China) on August 21, 2020. Accordingly, the Company's condensed consolidated statements of earnings, comprehensive earnings and cash flows and related notes include Fabory and China results through the respective dates of divestiture. The proceeds from these divestitures will be used to fund general corporate needs. During the second and third quarters of 2020, Grainger recognized a net loss of approximately $109 million and gain of $5 million (presented within Selling, general and administrative expenses (SG&A)) as a result of the Fabory and China divestitures, respectively, which included net accumulated foreign currency translation losses of $45 million, that were reclassified from Accumulated other comprehensive earnings (losses) (AOCE) to SG&A.

The Company's Condensed Consolidated Financial Statements (Financial Statements) and the related notes are unaudited and should be read in conjunction with the consolidated financial statements and associated notes for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 20, 2020 (the 2019 Form 10-K). The Condensed Consolidated Balance Sheet as of December 31, 2019 has been derived from the audited consolidated financial statements at that date but does not include all of the disclosures required by accounting principles generally accepted in the United States of America (U.S.) for complete financial statements.

The unaudited financial information reflects all adjustments (primarily consisting of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of the statements contained in this report.

2. UPDATE TO SIGNIFICANT ACCOUNTING POLICIES

Other than the implemented accounting policies related to the allowances for credit losses per the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-13 (see Notes 3 and 5 to the Financial Statements), change in depreciation estimates (see Note 6 to the Financial Statements) and accounting for derivative instruments (see Note 9 to the Financial Statements), there have been no material changes to the Company’s significant accounting policies disclosed in the 2019 Form 10-K, Part II, Item 8.

3. NEW ACCOUNTING STANDARDS

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments as modified by subsequently issued ASUs 2018-19, 2019-04, 2019-05, 2019-11 and 2020-02. This ASU requires estimating all expected credit losses for certain types of financial instruments, including trade receivables, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The Company adopted this ASU effective January 1, 2020. While the adoption of this ASU did not have a material impact on the Company's Financial Statements, it required changes to the Company’s process of estimating expected credit losses on trade receivables. See Note 5 to the Financial Statements for further information on the Company’s allowance for credit losses.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU clarifies and simplifies accounting for income taxes by eliminating certain exceptions for intraperiod tax allocation principles, the methodology for calculating income tax rates in an interim period, and recognition of deferred taxes for outside basis differences in an investment, among other updates. The effective date of this ASU is for fiscal years and interim periods beginning after December 15, 2020. The Company is currently evaluating the potential impact of this ASU on the Financial Statements.

In January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), Clarifying the Interactions

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

between Topic 321, Topic 323 and Topic 815. This ASU simplifies the understanding and application of the codification topics by eliminating inconsistencies and providing clarifications. The effective date of this ASU is for fiscal years and interim periods beginning after December 15, 2020. The Company is currently evaluating the potential impact of this ASU on the Financial Statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides optional expedients and exceptions for applying generally accepted accounting principles to certain contract modifications and hedging relationships that reference London Inter-bank Offered Rate (LIBOR) or another reference rate expected to be discontinued. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company is currently evaluating the potential impact of this ASU on the Financial Statements.

4. REVENUE

Company revenue is primarily comprised of MRO product sales and related activities, such as freight and services. Total service revenue is not material and accounted for approximately 1% of the Company's revenue for the three and nine months ended September 30, 2020 and 2019, respectively.

Grainger serves a large number of customers in diverse industries, which are subject to different economic and market specific factors. The Company's presentation of revenue by industry most reasonably depicts how the nature, amount, timing and uncertainty of Company revenue and cash flows are affected by economic and market specific factors. The following table presents the Company's percentage of revenue by reportable segment and by major customer industry:


	Three Months Ended September 30,
	2020										2019
	U.S.		Canada		Total Company (2)		U.S.		Canada		Total Company (2)
Government	23	%	8	%	17	%	20	%	5	%	15	%
Heavy Manufacturing	15	%	19	%

Price	291.11	EPS	18
Shares	55	P/E	16
MCap	16,075	P/FCF	21
Net Debt	1,872	EBIT	1,312
TEV	17,947	TEV/EBIT	14
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-09-30	Filed 2020-10-22
10-Q	2020-06-30	Filed 2020-07-23
10-Q	2020-03-31	Filed 2020-04-23
10-K	2019-12-31	Filed 2020-02-20
10-Q	2019-09-30	Filed 2019-10-23
10-Q	2019-06-30	Filed 2019-07-24
10-Q	2019-03-31	Filed 2019-04-22
10-K	2018-12-31	Filed 2019-02-28
10-Q	2018-09-30	Filed 2018-11-01
10-Q	2018-06-30	Filed 2018-07-26
10-Q	2018-03-31	Filed 2018-04-27
10-K	2017-12-31	Filed 2018-02-26
10-Q	2017-09-30	Filed 2017-10-26
10-Q	2017-06-30	Filed 2017-07-27
10-Q	2017-03-31	Filed 2017-04-27
10-K	2016-12-31	Filed 2017-02-28
10-Q	2016-09-30	Filed 2016-10-28
10-Q	2016-06-30	Filed 2016-07-28
10-Q	2016-03-31	Filed 2016-04-28
10-K	2015-12-31	Filed 2016-02-29
10-Q	2015-09-30	Filed 2015-10-29
10-Q	2015-06-30	Filed 2015-07-30
10-Q	2015-03-31	Filed 2015-04-30
10-K	2014-12-31	Filed 2015-02-27
10-Q	2014-09-30	Filed 2014-10-30
10-Q	2014-06-30	Filed 2014-07-31
10-Q	2014-03-31	Filed 2014-05-01
10-K	2013-12-31	Filed 2014-02-27
10-Q	2013-09-30	Filed 2013-10-31
10-Q	2013-06-30	Filed 2013-08-01
10-Q	2013-03-31	Filed 2013-04-25
10-K	2012-12-31	Filed 2013-02-28
10-Q	2012-09-30	Filed 2012-11-01
10-Q	2012-06-30	Filed 2012-07-26
10-Q	2012-03-31	Filed 2012-04-26
10-K	2011-12-31	Filed 2012-02-28
10-Q	2011-09-30	Filed 2011-10-27
10-Q	2011-06-30	Filed 2011-07-28
10-Q	2011-03-31	Filed 2011-04-28
10-K	2010-12-31	Filed 2011-02-28
10-Q	2010-09-30	Filed 2010-10-28
10-Q	2010-06-30	Filed 2010-07-29
10-Q	2010-03-31	Filed 2010-04-29
10-K	2009-12-31	Filed 2010-02-25

8-K	2020-10-27
8-K	2020-10-22
8-K	2020-07-23
8-K	2020-05-01
8-K	2020-04-23
8-K	2020-04-09
8-K	2020-03-26
8-K	2020-02-28
8-K	2020-02-21
8-K	2020-02-19
8-K	2020-02-14
8-K	2020-01-30
8-K	2019-10-23
8-K	2019-07-24
8-K	2019-04-25
8-K	2019-04-22
8-K	2019-01-24
8-K	2018-10-16
8-K	2018-07-18
8-K	2018-04-26
8-K	2018-04-19
8-K	2018-04-02
8-K	2018-01-24

EX-31.1	gww-2020093020xex311.htm
EX-31.2	gww-2020093020xex312.htm
EX-32	gww-2020093020xex32.htm

GWW 10Q Quarterly Report

Grainger WW Earnings 2020-09-30