W.W. GRAINGER, INC.
10-Qs and 10-Ks
PROXIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark One)
For the quarterly period ended
March 31, 2024
OR
For the transition period from ______ to _______
Commission file number
1-5684
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||||||||
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Registrant’s telephone number, including area code: (
847
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535-1000
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||||||
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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.
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 we
re
49,068,805
shares of the Company’s Common Stock outstanding as of April 18, 2024
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1
| TABLE OF CONTENTS | ||||||||
| Page | ||||||||
| PART I - FINANCIAL INFORMATION | ||||||||
| Item 1: | Financial Statements (Unaudited) | |||||||
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Condensed Consolidated Statements of Earnings
for the Three Months Ended March 31, 2024 and 2023
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Condensed Consolidated Statements of Comprehensive Earnings
for the Three Months Ended March 31, 2024 and 2023
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Condensed Consolidated Balance Sheets
as of March 31, 2024 and December 31, 2023
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Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2024 and 2023
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Condensed Consolidated Statements of Shareholders' Equity
for the Three Months Ended March 31, 2024 and 2023
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| 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 |
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| 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 Ended | |||||||||||
| March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net sales | $ |
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$ |
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| Cost of goods sold |
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| Gross profit |
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| Selling, general and administrative expenses |
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| Operating earnings |
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| Other expense (income): | |||||||||||
| Interest expense – net |
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| Other – net |
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(
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| Total other expense – net |
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Earnings before income taxes
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| Income tax provision |
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| Net earnings |
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| Less net earnings attributable to noncontrolling interest |
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| Net earnings attributable to W.W. Grainger, Inc. | $ |
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$ |
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| Earnings per share: | |||||||||||
| Basic | $ |
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$ |
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| Diluted | $ |
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$ |
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| Weighted average number of shares outstanding: | |||||||||||
| Basic |
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| Diluted |
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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 Ended | |||||||||||
| March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net earnings | $ |
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$ |
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| Other comprehensive earnings (losses): | |||||||||||
| Foreign currency translation adjustments – net of reclassification to earnings |
(
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Postretirement benefit plan losses and other – net of tax benefit of $
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(
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(
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| Total other comprehensive earnings (losses) |
(
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(
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| Comprehensive earnings – net of tax |
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| Less comprehensive earnings (losses) attributable to noncontrolling interest | |||||||||||
| Net earnings |
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| Foreign currency translation adjustments |
(
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| Total comprehensive earnings (losses) attributable to noncontrolling interest |
(
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Comprehensive earnings attributable to W.W. Grainger, Inc.
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$ |
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$ |
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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) March 31, 2024
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December 31, 2023 | |||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ |
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$ |
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Accounts receivable (less allowances for credit losses of $
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| Inventories – net |
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| Prepaid expenses and other current assets |
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| Total current assets |
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| Property, buildings and equipment – net |
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| Goodwill |
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| Intangibles – net |
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| Operating lease right-of-use |
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| Other assets |
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| Total assets | $ |
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$ |
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| Liabilities and shareholders' equity | |||||||||||
| Current liabilities | |||||||||||
| Current maturities | $ |
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$ |
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| Trade accounts payable |
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| Accrued compensation and benefits |
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| Operating lease liability |
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| Accrued expenses |
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| Income taxes payable |
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| Total current liabilities |
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| Long-term debt |
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| Long-term operating lease liability |
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| Deferred income taxes and tax uncertainties |
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| Other non-current liabilities |
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| Shareholders' equity | |||||||||||
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Cumulative preferred stock – $
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Common Stock – $
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| Additional contributed capital |
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| Retained earnings |
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| Accumulated other comprehensive losses |
(
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(
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Treasury stock, at cost –
shares, respectively
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(
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(
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| Total W.W. Grainger, Inc. shareholders’ equity |
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| Noncontrolling interest |
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| Total shareholders' equity |
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| Total liabilities and shareholders' equity | $ |
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$ |
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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)
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net earnings | $ |
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$ |
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| Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||
| Provision for credit losses |
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| Deferred income taxes and tax uncertainties |
(
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| Depreciation and amortization |
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| Non-cash lease expense |
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| Stock-based compensation |
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| Change in operating assets and liabilities: | |||||||||||
| Accounts receivable |
(
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(
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| Inventories |
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| Prepaid expenses and other assets |
(
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| Trade accounts payable |
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| Operating lease liabilities |
(
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(
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| Accrued liabilities |
(
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(
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| Income taxes – net |
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| Other non-current liabilities |
(
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(
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| Net cash provided by operating activities |
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| Cash flows from investing activities: | |||||||||||
| Capital expenditures |
(
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(
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| Proceeds from sale of assets |
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| Net cash used in investing activities |
(
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(
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| Cash flows from financing activities: | |||||||||||
| Proceeds from debt |
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| Payments of debt |
(
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(
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| Proceeds from stock options exercised |
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| Payments for employee taxes withheld from stock awards |
(
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| Purchases of treasury stock |
(
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| Cash dividends paid |
(
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(
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| Other – net |
(
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(
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| Net cash used in financing activities |
(
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(
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| Exchange rate effect on cash and cash equivalents |
(
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| Net change in cash and cash equivalents |
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| Cash and cash equivalents at beginning of year |
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| Cash and cash equivalents at end of period | $ |
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$ |
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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 Stock | Additional Contributed Capital | Retained Earnings | Accumulated Other Comprehensive Earnings (Losses) | Treasury Stock |
Noncontrolling
Interest |
Total | |||||||||||||||||
| Balance at January 1, 2023 | $ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
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| Stock-based compensation | — |
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— | — |
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— |
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| Purchases of treasury stock | — | — | — | — |
(
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— |
(
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| Net earnings | — | — |
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— | — |
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| Other comprehensive earnings (losses) | — | — | — |
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— |
(
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(
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Cash dividends paid ($
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— | — |
(
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— | — | — |
(
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| Balance at March 31, 2023 | $ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
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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 Stock | Additional Contributed Capital | Retained Earnings | Accumulated Other Comprehensive Earnings (Losses) | Treasury Stock |
Noncontrolling
Interest |
Total | |||||||||||||||||
| Balance at January 1, 2024 | $ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
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| Stock-based compensation | — |
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— | — |
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— |
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| Purchases of treasury stock | — | — | — | — |
(
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— |
(
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| Net earnings | — | — |
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— | — |
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| Other comprehensive earnings (losses) | — | — | — |
(
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— |
(
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(
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Cash dividends paid ($
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— | — |
(
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— | — |
(
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(
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| Balance at March 31, 2024 | $ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
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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 M
RO product sales and related activities.
The Company's presentation of revenue by 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 table presents the Company's percentage of revenue by reportable segment and by major customer industry:
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
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2024
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2023
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Customer Industry
(1)
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High-Touch Solutions N.A. | Endless Assortment |
Total Company
(2)
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High-Touch Solutions N.A. | Endless Assortment |
Total Company
(2)
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| Manufacturing |
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% |
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% |
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% |
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% |
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% |
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% | ||||||||||||||||||||||||||
| Government |
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% |
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% |
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% |
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% |
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% |
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% | ||||||||||||||||||||||||||
| Wholesale |
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% |
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% |
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% |
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% |
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% |
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% | ||||||||||||||||||||||||||
| Commercial Services |
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% |
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% |
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% |
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% |
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% |
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% | ||||||||||||||||||||||||||
| Contractors |
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% |
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% |
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% |
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% |
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% |
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% | ||||||||||||||||||||||||||
| Healthcare |
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% |
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% |
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% |
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% |
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% |
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% | ||||||||||||||||||||||||||
| Retail |
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% |
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% |
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% |
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% |
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% |
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% | ||||||||||||||||||||||||||
| Transportation |
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% |
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% |
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% |
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% |
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% |
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% | ||||||||||||||||||||||||||
| Utilities |
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% |
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% |
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% |
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% |
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% |
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% | ||||||||||||||||||||||||||
| Warehousing |
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% |
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% |
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% |
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% |
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% |
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% | ||||||||||||||||||||||||||
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Other
(3)
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% |
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% |
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% |
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% |
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% |
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% | ||||||||||||||||||||||||||
| Total net sales |
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% |
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% |
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% |
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% |
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% |
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% | ||||||||||||||||||||||||||
| Percent of total company revenue |
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% |
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% |
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% |
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% |
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% |
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% | ||||||||||||||||||||||||||
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(1)
Customer industry results for the three months ended March 31, 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.
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(2)
Total Company includes other businesses, which includes the Company's Cromwell business. Other businesses account for approximately
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(3)
Other primarily includes revenue from industries and customers that are not material individually, including hospitality, restaurants, property management and natural resources.
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Total accrued sales incentives are recorded in Accrued expenses and were approximately $
112
million and $
114
million as of March 31, 2024 and December 31, 2023, respectively.
The Compa
ny
had no material unsatisfied performance obligations, contract assets or liabilities as of March 31, 2024 and December 31, 2023.
10
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 3 -
PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment consisted of the following (in millions of dollars):
| As of | |||||||||||
| March 31, 2024 | December 31, 2023 | ||||||||||
| Land and land improvements | $ |
|
$ |
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| Building, structures and improvements |
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| Furniture, fixtures, machinery and equipment |
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| Property, buildings and equipment | $ |
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$ |
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| Less accumulated depreciation |
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| Property, buildings and equipment – net | $ |
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$ |
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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
months ended March 31, 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 Assortment | Total | ||||||||||||||||||
| Balance at January 1, 2023 | $ |
|
$ |
|
$ |
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| Translation |
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(
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(
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| Balance at December 31, 2023 |
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| Translation |
(
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(
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(
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Balance at March 31, 2024
|
$ |
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$ |
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$ |
|
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The Company's cumulative goodwill impairments as of March 31, 2024 were $
137
million.
No g
oodwill impairments were recorded for the
three months ended March 31, 2024 and 2023.
The balances and changes in intangible assets
–
net are as follows (in millions of dollars):
| As of | |||||||||||||||||||||||||||||||||||||||||
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||||||||||||||
| Weighted average life | Gross carrying amount | Accumulated amortization | Net carrying amount | Gross carrying amount | Accumulated amortization | Net carrying amount | |||||||||||||||||||||||||||||||||||
| Customer lists and relationships |
|
$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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| Trademarks, trade names and other |
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| Non-amortized trade names and other | Indefinite |
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| Capitalized software |
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| Total intangible assets |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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11
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 5 -
DEBT
Tota
l debt, including long-term and cur
rent maturities, consisted of the following (in millions of dollars):
| As of | |||||||||||||||||||||||
|
March 31, 2024
|
December 31, 2023
|
||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||
|
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
| Debt issuance costs – net of amortization and other |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Long-term debt |
|
|
|
|
|||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
| Japanese yen term loan |
|
|
|
|
|||||||||||||||||||
| Other |
(
|
(
|
|
|
|||||||||||||||||||
| Current maturities |
|
|
|
|
|||||||||||||||||||
| Total debt | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
Senior Notes
Between 2015 and 2020, Grainger issue
d $
2.3
billion in unsecured debt (Senior Notes) primarily to provide flexibility in funding general working capital needs, share repurchases a
nd long-term cash requirements. The Senior Notes require no principal payments until maturity and interest is paid semi-annually.
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 March 31, 2024 and December 31, 2023
, the unamortized costs were $
18
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 March 31, 2024 and Other in Long-term debt as of December 31, 2023 in the table above. F
or 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 te
rm loan agreement to fund technology investments and the expansion of its distribution center (DC) network. As of March 31, 2024 and December 31, 2023, the carrying amount of the term loan in Current maturities was $
15
million and $
32
million, respectively. The term loan matures i
n August 2024 and bears an average interest rate of
0.05
%.
Fair Value
12
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 March 31, 2024 and December 31, 2023 wa
s $
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 months ended March 31, 2024 and 2023.
The liability hedged by the interest rate swaps is recorded in Current maturities as of March 31, 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
$
434
million as of March 31, 2024 and $
432
million as of December 31, 2023.
The interest rate swaps are reported on the Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 as shown in the following table (in millions of dollars):
| As of | ||||||||||||||
| March 31, 2024 | December 31, 2023 | |||||||||||||
| Accrued expenses | $ |
|
$ |
|
||||||||||
| Other non-current liabilities | $ |
|
$ |
|
||||||||||
Fair Value
13
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 segment's Selling, general and administrative expenses 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 March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Net sales | Operating earnings | Net sales | Operating earnings | ||||||||||||||||||||
| High-Touch Solutions N.A. | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Endless Assortment |
|
|
|
|
|||||||||||||||||||
| Other |
|
|
|
|
|||||||||||||||||||
| Total Company | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
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 has been engaged in litigation involving KMCO, LLC (KMCO) as described in previous quarterly and annual reports. The Company has since settled several of the personal injury lawsuits. Those settlements had, and continue to have, no effect on net earnings or cash flows. 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 April 24, 2024, the Company’s Board of Directors declared a quarterly dividend of $
2.05
per share, payable June 1, 2024, to shareholders of record on May 13, 2024.
14
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 volatile disruptions including to the commodity, labor and transportation markets, arising from a combination of geopolitical events and various economic and financial factors. These disruptions 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, inflation and a potential recession on the Company’s business, customers, suppliers and other third parties. As a result of continued inflation, the Company has implemented strategies designed to mitigate certain adverse effects of higher costs while also 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.
15
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations –Three Months Ended March 31, 2024
The following table is included as an aid to understanding the changes in Grainger’s Condensed Consolidated Statements of Earnings for three months ended March 31, 2024 and 2023 (in millions of dollars except per share amounts):
|
Three Months Ended March 31,
|
|||||||||||||||||||||||||||||
| % Change | % of Net Sales | ||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||
|
Net sales
(1)
|
$ | 4,235 | $ | 4,091 | 3.5 | % | 100.0 | % | 100.0 | % | |||||||||||||||||||
| Cost of goods sold | 2,567 | 2,457 | 4.5 | 60.6 | 60.1 | ||||||||||||||||||||||||
| Gross profit | 1,668 | 1,634 | 2.1 | 39.4 | 39.9 | ||||||||||||||||||||||||
| Selling, general and administrative expenses | 999 | 954 | 4.7 | 23.6 | 23.3 | ||||||||||||||||||||||||
| Operating earnings | 669 | 680 | (1.6) | 15.8 | 16.6 | ||||||||||||||||||||||||
| Other expense – net | 14 | 18 | (22.2) | 0.4 | 0.4 | ||||||||||||||||||||||||
| Income tax provision | 158 | 154 | 2.6 | 3.7 | 3.8 | ||||||||||||||||||||||||
| Net earnings | 497 | 508 | (2.2) | 11.7 | 12.4 | ||||||||||||||||||||||||
| Noncontrolling interest | 19 | 20 | (5.0) | 0.4 | 0.5 | ||||||||||||||||||||||||
| Net earnings attributable to W.W. Grainger, Inc. | $ | 478 | $ | 488 | (2.0) | 11.3 | 11.9 | ||||||||||||||||||||||
| Diluted earnings per share: | $ | 9.62 | $ | 9.61 | 0.1 | % | |||||||||||||||||||||||
|
(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 March 31, 2024 and 2023 (in millions of dollars):
|
Three Months Ended March 31,
|
|||||||||||||||||||||||
| 2024 |
% Change
(1)
|
2023 |
% Change
(1)
|
||||||||||||||||||||
| Net sales | $ | 4,235 | 3.5 | % | $ | 4,091 | 12.2 | % | |||||||||||||||
|
Daily net sales
(2)
|
$ | 66.2 | 3.5 | % | $ | 63.9 | 12.2 | % | |||||||||||||||
|
Daily, organic constant currency net sales
(2)
|
$ | 67.1 | 4.9 | % | $ | 65.2 | 14.5 | % | |||||||||||||||
|
(1)
Calculated on the basis of prior year net sales for the three months ended March 31, 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 comparable prior year period results of E & R Industrial Sales, Inc. (E&R) divested in the fourth quarter of 2023. There were 64 sales days in the three months ended March 31, 2024 and 2023.
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 $4,235 million for the three months ended March 31, 2024 increased $144 million, or 4%, and on a daily, organic constant currency basis, net sales increased 5% compared to the same period in 2023
. Both High-Touch Solutions N.A. and the Endless Assortment segments contributed to sales growth in the first quarter of 2024.
For further discussion on the Company's net sales, see the Segment Analysis section below.
Gross profit of $1,668 million for the three months ended March 31, 2024 increased $34 million, or 2%, and gross profit margin of 39.4% decreased 50 basis points compared to the same period in 2023. For further discussion on the Company's gross profit, see the Segment Analysis section below.
16
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Selling, general and administrative (SG&A) expenses of $999 million for the three months ended March 31, 2024 increased $45 million, or 5%, compared to the same period in 2023
driven by higher marketing and payroll and benefit expenses. SG&A leverage decreased 30 basis points compared to the same period in 2023.
Operating earnings of $669 million for the three months ended March 31, 2024 decreased $11 million, or 2%, compared to the same period in 2023 as higher gross profit dollars were more than offset by increased SG&A.
Income tax expense of $158 million and $154 million represents effective tax rates of 24.2% and 23.3% for the three months ended March 31, 2024 and 2023, respectively. The increase in the effective tax rate was primarily due to reduced tax benefits from stock compensation compared to the same period in 2023.
Diluted earnings per share was $9.62 for the three months ended March 31, 2024 compared to $9.61 for the same period in 2023.
17
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Non-GAAP Measures
Grainger utilizes non-GAAP measures where it believes it will assist users of its financial statements in understanding its business. Non-GAAP measures exclude certain items affecting comparability that can affect the year-over-year assessment of operating results and other one-time items that do not directly reflect ongoing operating resul
ts. The Company adjusts its reported net sales when there are differences in the number of U.S. selling days relative to the prior year period and also excludes the impact on reported net sales due to changes in foreign currency exchange rate fluctuations and results of certain divested businesses. This includes the net sales results of E&R divested in the fourth quarter of 2023 previously reported in the High-Touch Solutions N.A. segment. Adjusted results including adjusted SG&A, adjusted operating earnings, adjusted net earnings and adjusted diluted EPS exclude certain non-recurring items, including restructuring charges, asset impairments, gains and losses associated with business divestitures and other non-recurring, infrequent or unusual gains and losses from the Company’s most directly comparable reported U.S. generally accepted accounting principles (GAAP) results. The Company believes its non-GAAP measures provide meaningful information to assist investors in understanding financial results and assessing prospects for future performance as they provide a better baseline for analyzing the ongoing performance of its businesses by excluding items that may not be indicative of core operating results. Grainger’s non-GAAP finan
cial measures should be considered in addition to, and not as a replacement for or as a superior measure to its most directly comparable GAAP measures and may not be comparable to similarly titled measures reported by other companies.
The following table provides a reconciliation of reported net sales growth from the prior year period in accordance with GAAP to the Company's non-GAAP measures daily net sales and daily, organic constant currency net sales
for th
e
three months ended March 31, 2024 and 2023
(in millions of dollars):
| Three months ended March 31, | ||||||||||||||||||||||||||||||||||||||
| High-Touch Solutions N.A. | Endless Assortment |
Total Company
(1)
|
||||||||||||||||||||||||||||||||||||
| 2024 |
% Change
(2)
|
2024 |
% Change
(2)
|
2024 |
% Change
(2)
|
|||||||||||||||||||||||||||||||||
| Reported net sales | $ | 3,405 | 3.4 | % | $ | 751 | 3.7 | % | $ | 4,235 | 3.5 | % | ||||||||||||||||||||||||||
|
Daily net sales
(3)
|
53.2 | 3.4 | 11.7 | 3.7 | 66.2 | 3.5 | ||||||||||||||||||||||||||||||||
|
Foreign currency exchange
(4)
|
(0.1) | (0.2) | 0.7 | 6.3 | 0.6 | 0.9 | ||||||||||||||||||||||||||||||||
|
Business divestiture
(5)
|
0.3 | 0.6 | — | — | 0.3 | 0.5 | ||||||||||||||||||||||||||||||||
| Daily, organic constant currency net sales | $ | 53.4 | 3.8 | % | $ | 12.4 | 10.0 | % | $ | 67.1 | 4.9 | % | ||||||||||||||||||||||||||
| 2023 |
% Change
(2)
|
2023 |
% Change
(2)
|
2023 |
% Change
(2)
|
|||||||||||||||||||||||||||||||||
| Reported net sales | $ | 3,294 | 14.5 | % | $ | 724 | 3.8 | % | $ | 4,091 | 12.2 | % | ||||||||||||||||||||||||||
|
Daily net sales
(3)
|
51.5 | 14.5 | 11.3 | 3.8 | 63.9 | 12.2 | ||||||||||||||||||||||||||||||||
|
Foreign currency exchange
(4)
|
0.1 | 0.2 | 1.1 | 10.2 | 1.3 | 2.3 | ||||||||||||||||||||||||||||||||
| Daily, organic constant currency net sales | $ | 51.6 | 14.7 | % | $ | 12.4 | 14.0 | % | 65.2 | 14.5 | % | |||||||||||||||||||||||||||
|
(1)
Total Company includes Other. Grainger's businesses reported in Other do not meet the criteria of a reportable segment.
|
||||||||||||||||||||||||||||||||||||||
|
(2)
Calculated on the basis of prior year net sales.
|
||||||||||||||||||||||||||||||||||||||
|
(3)
There were 64 sales days in the three months ended March 31, 2024 and 2023.
|
||||||||||||||||||||||||||||||||||||||
|
(4)
Excludes the impact on net sales due to year-over-year foreign currency exchange rate fluctuations on a daily basis.
|
||||||||||||||||||||||||||||||||||||||
|
(5)
Excludes the net sales results of the divested E&R business in the comparable prior year period on a daily basis.
|
||||||||||||||||||||||||||||||||||||||
18
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 a reconciliation to the most directly comparable GAAP measure, see above "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 March 31, | |||||||||||||||||
| 2024 | 2023 | % Change | |||||||||||||||
| Net sales | $ | 3,405 | $ | 3,294 | 3.4 | % | |||||||||||
| Gross profit | $ | 1,423 | $ | 1,397 | 1.9 | % | |||||||||||
| Selling, general and administrative expenses | $ | 813 | $ | 775 | 4.9 | % | |||||||||||
| Operating earnings | $ | 610 | $ | 621 | (1.8) | % | |||||||||||
Net sales of $3,405 million for the three months ended March 31, 2024 increased $111 million, or 3%, and on a
daily, organic constant currency basis, increased 4% compared to the same period in 2023. The increase was primarily due to volume.
Gross profit of $1,423 million for the three months ended March 31, 2024 increased $26 million, or 2%, and gross profit margin of 41.8% decreased 60 basis points compared to the same period in 2023.
The decrease was primarily driven by negative price cost spread.
SG&A of $813 million for the three months ended March 31, 2024 increased $38 million, or 5%, compared to the same period in 2023. The increase was primarily due to higher marketing and payroll expenses. SG&A leverage decreased 40 basis points compared to the same period in 2023.
Operating earnings of $610 million for the three months ended March 31, 2024 decreased $11 million, or 2%, compared to the same period in 2023.
Endless Assortment
The following table sho
ws reported segment results (in millions of dollars):
| Three Months Ended March 31, | |||||||||||||||||
| 2024 | 2023 | % Change | |||||||||||||||
| Net sales | $ | 751 | $ | 724 | 3.7 | % | |||||||||||
| Gross profit | $ | 220 | $ | 214 | 2.8 | % | |||||||||||
| Selling, general and administrative expenses | $ | 161 | $ | 156 | 3.2 | % | |||||||||||
| Operating earnings | $ | 59 | $ | 58 | 1.7 | % | |||||||||||
Net sales of $751 million for the three months ended March 31, 2024 increased $27 million, or 4%, and on a daily constant currency basis, increased 10% compared to the same period in 2023. The increase was due to sales growth of 10%, driven by customer acquisition for the segment and enterprise growth at MonotaRO, partially offset by declining non-core, consumer-like customers at Zoro. Sales growth was offset by unfavorable currency exchange of 6% due to changes in the exchange rate between the U.S. dollar and the Japanese yen.
Gross profit of $220 million for the three months ended March 31, 2024 increased $6 million, or 2.8%, and gross profit margin of 29.3% decreased 30 basis points compared to the same period in 2023. The decrease was driven by unfavorable product mix at Zoro partially offset by freight efficiencies at MonotaRO.
19
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SG&A of $161 million for the three months ended March 31, 2024 increased $5 million, or 3%, compared to the same period in 2023. The increase was due to higher marketing expense in the first quarter of 2024. SG&A leverage improved 10 basis points compared to the same period in 2023.
Operating earnings of $59 million for the three months ended March 31, 2024 increased $1 million, or 2%, compared to the same period in 2023.
20
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Grainger believes its current balances of cash and cash equivalents, marketable securities and availability under its revolving credit facility will be sufficient to meet its liquidity needs for the next twelve months. The Company expects to continue to invest in its business and return excess cash to shareholders through cash dividends and share repurchases, which it plans to fund through cash flows generated from operations. Grainger also maintains access to capital markets and may issue debt or equity securities from time to time, which may provide an additional source of liquidity.
Cash and Cash Equivalents
As of March 31, 2024 and December 31, 2023, Grainger had cash and cash equivalents of $804 million and $660 million, respectively. The Company had approximately $2.1 billion in available liquidity as of March 31, 2024.
Cash Flows
The following table shows the Company's cash flow activity for the periods presented (in millions of dollars):
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Total cash provided by (used in): | |||||||||||
| Operating activities | $ | 661 | $ | 454 | |||||||
| Investing activities | (118) | (96) | |||||||||
| Financing activities | (391) | (224) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (8) | 2 | |||||||||
| Increase in cash and cash equivalents | $ | 144 | $ | 136 | |||||||
Net cash provided by operating activities was $661 million and $454 million for the three months ended March 31, 2024 and 2023, respe
ctively. The increase was driven by favorable working capital primarily due to timing of cash payments and inventory management compared to the prior year period.
Net cash used in investing activities was $118 million and $96 million for the three months ended March 31, 2024 and 2023, respectively.
The increase was due to capital expenditures for U.S. supply chain enhancements, technology investments and MonotaRO headquarter expansion compared to the prior year period.
Net cash used in financing activities was $391 million and $224 million for the three months ended March 31, 2024 and 2023, respectively. The increase was primarily due to higher treasury stock purchases compared to the prior year period.
Working Capital
Working capital as of March 31, 2024 was $2,953 million, a decrease of $125 million compared to $3,078 million as of December 31, 2023
. The decrease was driven by timing of disbursements and accrued expenses, partially offset by higher cash and lower inventory compared to the prior year period. As of March 31, 2024 and December 31, 2023, the ratio of current assets to current liabilities was 2.5 and 2.8, respectively.
Debt
Grainger maintains a debt ratio and liquidity position that provides flexibility in funding working capital needs and long-term cash requirements. Grainger has various sources of financing available.
Total debt as a percent of total capitalization was 39.4% and 40.1% as of March 31, 2024 and December 31, 2023, respectively.
Grainger receives ratings from two independent credit rating agencies: Moody's Investor Service (Moody's) and Standard & Poor's (S&P). Both credit rating agencies currently rate the Company's corporate credit at investment grade.
21
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table summarizes the Company's credit ratings as of March 31, 2024:
| Corporate | Senior Unsecured | Short-term | |||||||||||||||
| Moody's | A2 | A2 | P1 | ||||||||||||||
| S&P | A+ | A+ | A1 | ||||||||||||||
Commitments and Other Contractual Obligations
Th
ere were no material
changes to the Company’s commitments and other contractual obligations from those disclosed in Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2023 Form 10-K.
Critical Accounting Estimates
The preparation of Grainger’s Condensed Consolidated Financial Statements and accompanying notes are in conformity with GAAP and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make assumptions and estimates that affect the reported amounts. The Company considers an accounting policy to be a critical estimate if: (1) it involves assumptions that are uncertain when judgment was applied, and (2) changes in the estimate assumptions, or selection of a different estimate methodology, could have a significant impact on Grainger’s consolidated financial position and results. While the Company believes the assumptions and estimates used are reasonable, the Company’s
management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances.
Note 1 of the Notes to Consolidated Financial Statements in Part II, Item 8: Financial Statements of the Company's 2023 Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s Condensed Consolidated Financial Statements.
T
here were no material changes to the Company's critical accounting estimates from those disclosed in Part II, Item 7: Management's Disc
ussion and Analysis of Financial Condition and Results of Operations in the Company's 2023 Form 10-K.
22
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
From time to time in this Quarterly Report on Form 10-Q as well as in other written reports, communications and verbal statements, Grainger makes forward-looking statements that are not historical in nature but concern forecasts of future results, business plans, analyses, prospects, strategies, objectives and other matters that may be deemed to be “forward-looking statements” under the federal securities laws. Forward-looking statements can generally be identified by their use of terms such as “estimate,” “believe,” “expect,” “could,” “may,” "continue," “plan,” “predict,” “will,” or “would,” and similar terms and phrases, including references to assumptions.
Grainger cannot guarantee that any forward-looking statement will be realized and achievement of future results is subject to risks and uncertainties, many of which are beyond Grainger’s control, which could cause Grainger’s results to differ materially from those that are presented.
Important factors that could cause actual results to differ materially from those presented or implied in the forward-looking statements include, without limitation: inflation, higher product costs or other expenses, including operational and administrative expenses; the impact of macroeconomic pressures and geopolitical trends, changes and events; a major loss of customers; loss or disruption of sources of supply; changes in customer or product mix; increased competitive pricing pressures; changes in third party practices regarding digital advertising; failure to enter into or sustain contractual arrangements on a satisfactory basis with group purchasing organizations; failure to develop, manage or implement new technology initiatives or business strategies, including with respect to Grainger’s eCommerce platforms; failure to adequately protect intellectual property or successfully defend against infringement claims; fluctuations or declines in Grainger's gross profit margin; Grainger’s responses to market pressures; the outcome of pending and future litigation or governmental or regulatory proceedings, including with respect to wage and hour, anti-bribery and corruption, environmental, regulations related to advertising, marketing and the Internet, consumer protection, pricing (including disaster or emergency declaration pricing statutes), product liability, compliance or safety, trade and export compliance, general commercial disputes, or privacy and cybersecurity matters; investigations, inquiries, audits and changes in laws and regulations; failure to comply with laws, regulations and standards, including new or stricter environmental laws or regulations; government contract matters; the impact of any government shutdown; disruption or breaches of information technology or data security systems involving Grainger or third parties on which Grainger depends; general industry, economic, market or political conditions; general global economic conditions including tariffs and trade issues and policies; currency exchange rate fluctuations; market volatility, including price and trading volume volatility or price declines of Grainger’s common stock; commodity price volatility; facilities disruptions or shutdowns; higher fuel costs or disruptions in transportation services; outbreaks of pandemic disease or viral contagions; natural or human induced disasters, extreme weather and other catastrophes or conditions; effects of climate change; failure to execute on our efforts and programs related to environmental, social and governance matters; competition for, or failure to attract, retain, train, motivate and develop executives and key team members; loss of key members of management or key team members; loss of operational flexibility and potential for work stoppages or slowdowns if team members unionize or join a collective bargaining arrangement; changes in effective tax rates; changes in credit ratings or outlook; Grainger’s incurrence of indebtedness or failure to comply with restrictions and obligations under its debt agreements and instruments; and other factors identified under Part I, Item 1A: Risk Factors and elsewhere in Grainger's latest Form 10-K, as updated from time to time in Grainger's Quarterly Form 10-Q.
The preceding list is not intended to be an exhaustive list of all of the factors that could impact Grainger's forward-looking statements. Given these risks and uncertainties, you are cautioned not to place undue reliance on Grainger’s forward-looking statements and Grainger undertakes no obligation to update or revise any of its forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
23
W.W. Grainger, Inc. and Subsidiaries
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Grainger’s primary market risk exposures include changes in foreign currency exchange and interest rates.
There were no material changes to the Company’s market risk from those described in Part II, Item 7A: Quantitative and Qualitative Disclosures About Market Risk in the Company's 2023 Form 10-K.
Item 4: Controls and Procedures
Disclosure Controls and Procedures
The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of Grainger's disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934, as amended (the Exchange Act) as of the end of the period covered by this quarterly report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that Grainger’s disclosure controls and procedures were effective as of the end of the period covered by this report in (i) ensuring that information required to be disclosed by Grainger in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes in Grainger's internal control over financial reporting for the quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, Grainger’s internal control over financial reporting.
24
PART II – OTHER INFORMATION
Item 1: Legal Proceedings
For an update to the description of the Company’s legal proceedings, s
ee
Note 8 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1: Financial Information of this Form 10-Q.
Item 1A: Risk Factors
There have been no material changes from the risk factors previously disclosed in Part 1, Item 1A: Risk Factors in the Company's 2023 Form 10-K.
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities – First Quarter 2024
| Period |
Total Number of Shares Purchased
(A)(B)
|
Average Price Paid per Share
(C)
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
(D)
|
Maximum Number of
Shares That May Yet be Purchased Under the Plans or Programs |
|||||||||||||
| Jan. 1 – Jan. 31 | 139,376 | $850.11 | 139,376 | 1,412,550 | |||||||||||||
| Feb. 1 – Feb. 29 | 92,896 | $948.43 | 92,896 | 1,319,654 | |||||||||||||
| Mar. 1 – Mar 31 | 68,171 | $994.45 | 68,065 | 1,251,589 | |||||||||||||
| Total | 300,443 | 300,337 | |||||||||||||||
A.
There were
no
shares withheld to satisfy tax withholding obligations.
B.
The difference of 106 shares between the Total Number of Shares Purchased and the Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs represents shares purchased by the administrator and record keeper of the W.W. Grainger, Inc. Retirement Savings Plan for the benefit of the employees who participate in the plan.
C.
Average price paid per share excludes commissions of $0.02 per share paid.
D.
Purchases were made pursuant to a share repurchase program approved by Grainger's Board of Directors and announced on April 28, 2021 (2021 Program). The 2021 Program authorized the repurchase of up to five million shares with no expiration date. On April 24, 2024, Grainger's Board of Directors authorized a program for the Company to repurchase an aggregate amount of up to five million shares in the open market, through privately negotiated transactions and block transactions, pursuant to a trading plan or otherwise (2024 Program) with no expiration date. In authorizing the 2024 Program, the Board of Directors also terminated the repurchase program authorized on April 28, 2021.
Item 5: Other Information
None of the Company's directors or officers
adopted
, modified, or
terminated
a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company's quarter ended March 31, 2024.
25
W.W. Grainger, Inc. and Subsidiaries
Item 6: Exhibits
| EXHIBIT NO. | DESCRIPTION | |||||||
| 2024 Form of W.W. Grainger, Inc. 2022 Incentive Plan Restricted Stock Unit Award Agreement between W.W. Grainger, Inc. and certain of its executive officers* | ||||||||
| 2024 Form of W.W. Grainger, Inc. 2022 Incentive Plan Performance Stock Unit Award Agreement between W.W. Grainger, Inc. and certain of its executive officers* | ||||||||
| 2024 Form of Confidentiality, Invention Assignment, Non-Competition and Non-Solicitation Agreement between W.W. Grainger, Inc. and certain of its executive officers* | ||||||||
| Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||||
| Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||||
| Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||||||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). | |||||||
| (*) Management contract or compensatory plan or arrangement. | ||||||||
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| W.W. GRAINGER, INC. | |||||||||||
| Date: | April 25, 2024 |
By:
|
/s/ Deidra C. Merriwether
|
||||||||
| Deidra C. Merriwether | |||||||||||
| Senior Vice President | |||||||||||
| and Chief Financial Officer | |||||||||||
| (Principal Financial Officer) | |||||||||||
| Date: | April 25, 2024 |
By:
|
/s/ Laurie R. Thomson
|
||||||||
| Laurie R. Thomson | |||||||||||
| Vice President and Controller | |||||||||||
| (Principal Accounting Officer) | |||||||||||
27
TABLE OF CONTENTS
Part I Financial InformationprintItem 1: Financial StatementsprintNote 1 - Summary Of Significant Accounting PoliciesprintNote 2 - RevenueprintNote 3 - Property, Buildings and EquipmentprintNote 4 - Goodwill and Other Intangible AssetsprintNote 5 - DebtprintNote 6 - Derivative InstrumentsprintNote 7 - Segment InformationprintNote 8 - Contingencies and Legal MattersprintNote 9 - Subsequent EventsprintItem 2: Management's Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 3: Quantitative and Qualitative Disclosures About Market RiskprintItem 4: Controls and ProceduresprintPart II Other InformationprintItem 1: Legal ProceedingsprintItem 1A: Risk FactorsprintItem 2: Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 5: Other InformationprintItem 6: Exhibitsprint