http://www.morningstar.com/earnings/54483628-w-w-grainger-inc-gww-q2-2013.aspx

W W Grainger Inc GWW
Q2 2013 Earnings Call Transcript

Transcript Call Date 07/17/2013

Operator: Good morning and welcome to the W.W. Grainger, Inc. Q2 2013 Earnings Conference Call.

Laura D. Brown - SVP of Communications and IR: Hi, this is Laura Brown, Senior Vice President of Communications and Investor Relations. With me is Bill Chapman, Senior Director of Investor Relations. The purpose of this podcast is to provide you with additional information regarding Grainger's 2013 second quarter results. Please also reference our 2013 second quarter earnings release issued today, July 17th, in addition to other information available on our Investor Relations website, to supplement this podcast.

Before we begin, please remember that certain statements and projections of future results made in the press release and in this podcast constitute forward-looking information. These statements are based on current market conditions and competitive and regulatory expectations and involve risk and uncertainty. Please see our Form 10-K for a discussion of factors that relate to forward-looking statements.

Today we reported results for the 2013 second quarter. Company sales for the quarter increased 6% versus the 2012 second quarter. There were 64 selling days in both quarters. Operating earnings increased 11% and net earnings increased 14%. Earnings per share were $3.03 for the quarter, an increase of 15% versus the 2012 second quarter. The 2013 second quarter included a $0.03 per share tax benefit which we will discuss later in the podcast. Excluding this benefit, earnings per share increased 14%. We also narrowed our guidance ranges for both 2013 sales and earnings per share which Bill will cover in detail at the end of the podcast.

Let's now walk down the operating section of the income statement in more detail. Gross profit margins increased 50 basis points to 44% versus 43.5% in 2012, primarily driven by Canada and the Other Businesses. Company operating margin increased 70 basis points to 14.7% versus 14% a year ago. Both reportable segments and the Other Businesses contributed to the increase in company operating margin, which was driven by the 6% sales increase, higher gross margins and operating expense leverage.

Operating expenses increased 5%, including $37 million in incremental growth-related spending versus the 2012 second quarter. These growth investments include additional sales coverage, eCommerce, inventory management, advertising, IT systems and expansion of the Company's distribution center network.

We are continuing to aggressively invest in our growth drivers and are now estimating incremental growth-related spending of $150 million for 2013, $10 million less than we forecasted in the first quarter. The $10 million reduction in our estimate is largely driven by timing.

Given that we are at the mid-point, we thought it would be helpful to provide an update on our growth drivers. We added approximately 75 new sales representatives in the United States and expect to hire another 100 by year-end. In addition, we've aggressively expanded our sales force in several of our international businesses including Canada, Brazil and Mexico, where we've hired more than 70 new sales representative year to date.

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