Total accrued sales incentives are recorded in Accrued expenses and were approximately $111 million and $114 million as of September 30, 2024 and December 31, 2023, respectively.
The Company had no material unsatisfied performance obligations, contract assets or liabilities as of September 30, 2024 and December 31, 2023.
NOTE 3 - PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment consisted of the following (in millions of dollars):
As of
September 30, 2024
December 31, 2023
Land and land improvements
$
403
$
397
Building, structures and improvements
1,578
1,469
Furniture, fixtures, machinery and equipment
1,927
1,852
Property, buildings and equipment
$
3,908
$
3,718
Less accumulated depreciation
2,162
2,060
Property, buildings and equipment – net
$
1,746
$
1,658
11
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 4 - GOODWILL AND OTHER INTANGIBLE ASSETS
The Company did not identify any significant events or changes in circumstances that indicated the existence of impairment indicators during the three and nine months ended September 30, 2024. As such, quantitative assessments were not required.
The balances and changes in the carrying amount of goodwill by segment are as follows (in millions of dollars):
High-Touch Solutions N.A.
Endless Assortment
Total
Balance at January 1, 2023
$
313
$
58
$
371
Translation
2
(3)
(1)
Balance at December 31, 2023
315
55
370
Translation
(2)
(2)
(4)
Balance at September 30, 2024
$
313
$
53
$
366
The Company's cumulative goodwill impairments as of September 30, 2024 were $137 million.No goodwill impairments were recorded for the three and nine months ended September 30, 2024 and 2023.
The balances and changes in intangible assets – net are as follows (in millions of dollars):
As of
September 30, 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
10.7 years
$
166
$
156
$
10
$
166
$
153
$
13
Trademarks, trade names and other
14.8 years
32
25
7
31
23
8
Non-amortized trade names and other
Indefinite
20
—
20
20
—
20
Capitalized software
4.3 years
721
511
210
659
466
193
Total intangible assets
6.1 years
$
939
$
692
$
247
$
876
$
642
$
234
12
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 5 - DEBT
Total debt, including long-term and current maturities, consisted of the following (in millions of dollars):
As of
September 30, 2024
December 31, 2023
Carrying Value
Fair Value
Carrying Value
Fair Value
4.60% senior notes due 2045
$1,000
$948
$1,000
$967
1.85% senior notes due 2025
—
—
500
483
4.45% senior notes due 2034
500
499
—
—
3.75% senior notes due 2046
400
334
400
336
4.20% senior notes due 2047
400
356
400
361
Debt issuance costs – net of amortization and other
(21)
(21)
(34)
(34)
Long-term debt
2,279
2,116
2,266
2,113
1.85% senior notes due 2025
500
495
—
—
Japanese yen term loan
—
—
32
32
Other
(3)
(3)
2
2
Current maturities
497
492
34
34
Total debt
$
2,776
$
2,608
$
2,300
$
2,147
Senior Notes
Between 2015 and 2020, Grainger issued $2.3 billion in unsecured debt (Senior Notes) primarily to provide flexibility in funding general working capital needs, share repurchases and long-term cash requirements. The Senior Notes require no principal payments until maturity and interest is paid semi-annually.
In September 2024, Grainger issued $500 million in unsecured 4.45% senior notes (4.45% Notes). Grainger intends to use the net proceeds from this offering to repay the 1.85% Senior Notes that mature in February 2025 and any remaining net proceeds for general corporate purposes. The 4.45% Notes mature in September 2034, require no principal payments until maturity, and interest is paid semi-annually in arrears, beginning March 15, 2025.
The Company incurred debt issuance costs related to its Senior Notes, representing underwriting fees and other expenses. These costs were recorded as a contra-liability in Long-term debt and are being amortized over the term of the Senior Notes using the straight-line method to Interest expense – net. As of September 30, 2024 and December 31, 2023, the cumulative unamortized costs were $23 million and $19 million, respectively.
The Company uses interest rate swaps to manage the risks associated with its 1.85% Senior Notes. These swaps were designated for hedge accounting treatment as fair value hedges. The resulting carrying value adjustments are presented in Other in Current maturitiesas of September 30, 2024 and Other in Long-term debt as of December 31, 2023 in the table above. For further discussion on the Company's hedge accounting policies, see Note 6.
MonotaRO Term Loan
In August 2020, MonotaRO Co., Ltd (MonotaRO) entered into a ¥9 billion term loan agreement to fund technology investments and the expansion of its distribution center (DC) network. In the third quarter of 2024, the term loan was paid in full.
Fair Value
The estimated fair value of the Company’s Senior Notes was based on available external pricing data and current market rates for similar debt instruments, among other factors, which are classified as Level 2 inputs within the fair value hierarchy.
13
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 6 - DERIVATIVE INSTRUMENTS
The Company's earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange and interest rates. Grainger currently enters into certain derivatives or other financial instruments to hedge against these risks.
Fair Value Hedges
The Company uses interest rate swaps to hedge a portion of its fixed-rate debt. These swaps are treated as fair value hedges and consequently the gain or loss on the derivative as well as the offsetting gain or loss on the hedged item, are recognized in the Condensed Consolidated Statements of Earnings in Interest expense – net. The notional amount of the Company’s outstanding fair value hedges as of September 30, 2024 and December 31, 2023 was $450 million.
Due to the high degree of effectiveness between the hedging instruments and the underlying exposures being hedged, no recognition of ineffectiveness was recorded for the three andnine months ended September 30, 2024 and 2023.
The liability hedged by the interest rate swaps is recorded in Current maturities as of September 30, 2024 and Long-term debt as of December 31, 2023 on the Condensed Consolidated Balance Sheets. The carrying amount of the hedged item, including the cumulative amount of fair value hedging adjustments was $444 million as of September 30, 2024 and $432 million as of December 31, 2023.
The interest rate swaps are reported on the Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 as shown in the following table (in millions of dollars):
As of
September 30, 2024
December 31, 2023
Accrued expenses
$
6
$
—
Other non-current liabilities
$
—
$
16
Fair Value
The estimated fair values of the Company's derivative instruments were based on quoted market forward rates, which are classified as Level 2 inputs within the fair value hierarchy and reflect the present value of the amount that the Company would pay for contracts involving the same notional amounts and maturity dates. No adjustments were required during the current period to reflect the counterparty’s credit risk or the Company’s own nonperformance risk.
14
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 7 - SEGMENT INFORMATION
Grainger's two reportable segments are High-Touch Solutions N.A. and Endless Assortment. The remaining businesses, which include the Company's Cromwell business, are classified as Other to reconcile to consolidated results. These remaining businesses individually and in the aggregate do not meet the criteria of a reportable segment.
The Company's corporate costs are allocated to each reportable segment based on benefits received. Additionally, intersegment sales transactions, which are sales between Grainger businesses in separate reportable segments, are eliminated within the segment to present only the impact of sales to external customers. Service fees for intersegment sales are included in each reportable segment's Selling, general and administrative expenses (SG&A) and are also eliminated in the Company's Condensed Consolidated Financial Statements.
Following is a summary of segment results (in millions of dollars):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Net sales
Operating earnings (losses)
Net sales
Operating earnings (losses)
Net sales
Operating earnings (losses)
Net sales
Operating earnings (losses)
High-Touch Solutions N.A.
$
3,515
$
617
$
3,403
$
612
$
10,378
$
1,818
$
10,052
$
1,833
Endless Assortment
791
70
732
55
2,318
190
2,207
178
Other
82
(1)
73
—
239
(4)
222
(3)
Total Company
$
4,388
$
686
$
4,208
$
667
$
12,935
$
2,004
$
12,481
$
2,008
The Company is a broad line distributor of MRO products and services. Products are regularly added and removed from the Company's inventory. Accordingly, it would be impractical to provide sales information by product category due to the way the business is managed and the dynamic nature of the inventory offered, including the evolving list of products stocked and additional products available online but not stocked. Assets for reportable segments are not disclosed as such information is not regularly reviewed by the Company's Chief Operating Decision Maker.
NOTE 8 - CONTINGENCIES AND LEGAL MATTERS
From time to time the Company is involved in various legal and administrative proceedings, including claims related to: product liability, safety or compliance; privacy and cybersecurity matters; negligence; contract disputes; environmental issues; unclaimed property; wage and hour laws; intellectual property; advertising and marketing; consumer protection; pricing (including disaster or emergency declaration pricing statutes); employment practices; regulatory compliance, including trade and export matters; anti-bribery and corruption; and other matters and actions brought by team members, consumers, competitors, suppliers, customers, governmental entities and other third parties.
The Company remains in litigation involving KMCO, LLC (KMCO) as previously disclosed. The Company continues to contest the remaining KMCO-related lawsuits and cannot predict the timing, outcome or any estimate of possible loss or range of losses on the remaining KMCO lawsuits.
NOTE 9 - SUBSEQUENT EVENTS
On October 30, 2024, the Company’s Board of Directors declared a quarterly dividend of $2.05 per share, payable December 1, 2024, to shareholders of record on November 11, 2024.
15
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
Operating earnings of $686 million for the three months ended September 30, 2024 increased $19 million, or 3%, compared to the same period in 2023. The increase was due to higher gross profit dollars, partially offset by increased SG&A expenses in the third quarter of 2024.
Income tax expense of $166 million and $159 million represents effective tax rates of 24.8% and 24.4% for the three months ended September 30, 2024 and 2023, respectively.
Diluted earnings per share was $9.87 for the three months ended September 30, 2024, an increase of 5% compared to $9.43 for the same period in 2023.
Segment Analysis
In this section, Grainger utilizes non-GAAP measures where it believes it will assist users of its financial statements in understanding its business. For further information regarding the Company's non-GAAP measures including reconciliations to the most directly comparable GAAP measure, see below "Non-GAAP Measures." For further segment information, see Note 7 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1: Financial Statements of this Form 10-Q.
High-Touch Solutions N.A.
The following table shows reported segment results (in millions of dollars):
Three Months Ended September 30,
2024
2023
% Change
Net sales
$
3,515
$
3,403
3.3
%
Gross profit
$
1,462
$
1,418
3.1
%
Selling, general and administrative expenses
$
845
$
806
4.8
%
Operating earnings
$
617
$
612
0.8
%
Net sales of $3,515 million for the three months ended September 30, 2024 increased $112 million, or 3% on a reported and daily, organic constant currency basis, compared to the same period in 2023. The increase was primarily due to volume.
Gross profit of $1,462 million for the three months ended September 30, 2024 increased $44 million, or 3%. Gross profit margin of 41.6% decreased10 basis points compared to the same period in 2023.
SG&A of $845 million for the three months ended September 30, 2024 increased $39 million, or 5%, compared to the same period in 2023. The increase was primarily due to higher marketing and payroll and benefit expenses. SG&A leverage decreased 30 basis points.
Operating earnings of $617 million for the three months ended September 30, 2024 increased $5 million, or 1%, compared to the same period in 2023.
18
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Endless Assortment
The following table shows reported segment results (in millions of dollars):
Three Months Ended September 30,
2024
2023
% Change
Net sales
$
791
$
732
8.1
%
Gross profit
$
233
$
216
7.9
%
Selling, general and administrative expenses
$
163
$
161
1.2
%
Operating earnings
$
70
$
55
27.3
%
Net sales of $791 million for the three months ended September 30, 2024 increased $59 million, or 8%, and on a daily constant currency basis increased 12% compared to the same period in 2023. The increase was due to sales growth of 13%, driven by customer acquisition for the segment and enterprise growth at MonotaRO. Sales growth was partially offset by unfavorable currency exchange of 5% due to changes in the exchange rate between the U.S. dollar and the Japanese yen.
Gross profit of $233 million for the three months ended September 30, 2024 increased $17 million, or 8%, and gross profit margin of 29.5% decreased 10 basis points compared to the same period in 2023.
SG&A of $163 million for the three months ended September 30, 2024 increased $2 million, or 1%, compared to the same period in 2023. SG&A leverage improved 140 basis points as sales growth outpaced SG&A expenses driven by occupancy efficiencies compared to the same period in 2023.
Operating earnings of $70 million for the three months ended September 30, 2024 increased $15 million, or 27%, compared to the same period in 2023.
19
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations – Nine Months Ended September 30, 2024
In this section, Grainger utilizes non-GAAP measures where it believes it will assist users of its financial statements in understanding its business. For further information regarding the Company's non-GAAP measures including reconciliations to the most directly comparable GAAP measure, see below "Non-GAAP Measures."
The following table is included as an aid to understanding the changes in Grainger's Condensed Consolidated Statements of Earnings (in millions of dollars except per share amounts):
Nine Months Ended September 30,
Percent Increase/(Decrease) from Prior Year
As a Percent of Net Sales
2024
2023
2024
2023
Net sales(1)
$
12,935
$
12,481
3.6
%
100.0
%
100.0
%
Cost of goods sold
7,853
7,548
4.0
60.7
60.5
Gross profit
5,082
4,933
3.0
39.3
39.5
Selling, general and administrative expenses
3,078
2,925
5.2
23.8
23.4
Operating earnings
2,004
2,008
(0.2)
15.5
16.1
Other expense – net
42
49
(14.3)
0.4
0.4
Income tax provision
470
468
0.4
3.6
3.7
Net earnings
1,492
1,491
0.1
11.5
12.0
Noncontrolling interest
58
57
1.8
0.4
0.5
Net earnings attributable to W.W. Grainger, Inc.
$
1,434
$
1,434
—
11.1
%
11.5
%
Diluted earnings per share
$
29.00
$
28.32
2.4
%
(1) For further information regarding the Company's disaggregated revenue, see Note 2 of the Notes to Condensed Consolidated Financial Statements in Part 1, Item 1: Financial Statements of this Form 10-Q.
The following table is included as an aid to understanding the changes of Grainger's total net sales, daily net sales and daily, organic constant currency net sales compared from the prior period for the nine months ended September 30, 2024 and 2023 (in millions of dollars):
Nine Months Ended September 30,
2024
% Change(1)
2023
% Change(1)
Net sales
$
12,935
3.6
%
$
12,481
9.2
%
Daily net sales(2)
$
67.0
3.1
%
$
65.7
9.8
%
Daily, organic constant currency net sales(2)
$
68.1
4.8
%
$
66.4
11.1
%
(1) Calculated on the basis of prior year net sales for the nine months ended September 30, 2024 and 2023.
(2) Daily net sales are adjusted for the difference in U.S. selling days relative to the prior year period. Daily, organic constant currency net sales are also adjusted to exclude the impact on net sales due to year-over-year foreign currency exchange rate fluctuations and the prior year period results of E&R divested in the fourth quarter of 2023. There were 192 and 191 sales days in the nine months ended September 30, 2024 and 2023, respectively. For further information regarding the Company's non-GAAP measures, including reconciliations to the most directly comparable GAAP measure, see below "Non-GAAP Measures."
Net sales of $12,935 million for the nine months ended September 30, 2024 increased $454 million, or 4%, and on a daily, organic constant currency basis increased 5% compared to the same period in 2023. Both High-Touch
20
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Solutions N.A. and the Endless Assortment segments contributed to sales growth in the nine months ended September 30, 2024. For further discussion on the Company's net sales, see the Segment Analysis section below.
Gross profit of $5,082 million for the nine months ended September 30, 2024 increased $149 million, or 3%, and gross profit margin of 39.3% decreased 20 basis points compared to the same period in 2023. For further discussion on the Company's gross profit, see the Segment Analysis section below.
SG&A of $3,078 million for the nine months ended September 30, 2024 increased $153 million, or 5%, compared to the same period in 2023. Adjusted SG&A of $3,062 million increased $137 million, or 5%, driven by higher marketing and payroll and benefit expenses in 2024. SG&A leverage decreased40 basis points and adjusted SG&A leverage decreased 30 basis points compared to the same period in 2023.
Operating earnings of $2,004 million for the nine months ended September 30, 2024 decreased $4 million, compared to the same period in 2023. Adjusted operating earnings of $2,020 million increased $12 million, or 1%.
Income taxes of $470 million for the nine months ended September 30, 2024 increased $2 million, compared to the same period in 2023. Adjusted income taxes of $474 million increased $6 million compared to the same period in 2023. Grainger's effective tax rates were 24.0% and 23.9% for the nine months ended September 30, 2024 and 2023, respectively. The adjusted effective tax rate for the nine months ended September 30, 2024 was 24.0%.
Diluted earnings per share was $29.00 and adjusted diluted earnings per share was $29.25 for the nine months ended September 30, 2024. On an adjusted basis, this was an increase of 3% compared to $28.32 for the same period in 2023.
Segment Analysis
In this section, Grainger utilizes non-GAAP measures where it believes it will assist users of its financial statements in understanding its business. For further information regarding the Company's non-GAAP measures including reconciliations to the most directly comparable GAAP measure, see "Non-GAAP Measures." For further segment information, see Note 7 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1: Financial Statements of this Form 10-Q.
High-Touch Solutions N.A.
The following table shows reported segment results (in millions of dollars):
Nine Months Ended September 30,
2024
2023
% Change
Net sales
$
10,378
$
10,052
3.2
%
Gross profit
$
4,328
$
4,213
2.7
%
Selling, general and administrative expenses
$
2,510
$
2,380
5.5
%
Operating earnings
$
1,818
$
1,833
(0.8)
%
Net sales of $10,378 million for the nine months ended September 30, 2024 increased $326 million, or 3% on a reported and daily, organic constant currency basis, compared to the same period in 2023. The increase was primarily due to volume.
Gross profit of $4,328 million for the nine months ended September 30, 2024 increased $115 million, or 3%, and gross profit margin of 41.7% decreased 20 basis points compared to the same period in 2023.
SG&A of $2,510 million for the nine months ended September 30, 2024 increased $130 million, or 6%, compared to the same period in 2023. Adjusted SG&A of $2,495 million increased $115 million, or 5%. The increase was primarily due to higher marketing and payroll and benefit expenses in 2024. SG&A leverage decreased 50 basis points and adjusted SG&A leverage decreased30 basis points compared to the same period in 2023.
21
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Operating earnings of $1,818 million for the nine months ended September 30, 2024 decreased $15 million, or 1%, compared to the same period in 2023. Adjusted operating earnings of $1,833 million was the same as the prior year period.
Endless Assortment
The following table shows reported segment results (in millions of dollars):
Nine Months Ended September 30,
2024
2023
% Change
Net sales
$
2,318
$
2,207
5.0
%
Gross profit
$
682
$
654
4.3
%
Selling, general and administrative expenses
$
492
$
476
3.4
%
Operating earnings
$
190
$
178
6.7
%
Net sales of $2,318 million for the nine months ended September 30, 2024 increased $111 million, or 5% and on a daily constant currency basis increased 11% compared to the same period in 2023. The increase was due to sales growth of 12%, driven by customer acquisition for the segment and enterprise growth at MonotaRO. Sales growth was partially offset by unfavorable currency exchange of 7% due to changes in the exchange rate between the U.S. dollar and the Japanese yen.
Gross profit of $682 million for the nine months ended September 30, 2024 increased $28 million, or 4%, and gross profit margin of 29.4% decreased 20 basis points compared to the same period in 2023. The decrease was driven by unfavorable product mix.
SG&A of $492 million for the nine months ended September 30, 2024 increased $16 million, or 3%, compared to the same period in 2023. The increase was primarily due to higher marketing expenses in 2024. SG&A leverage increased 40 basis points compared to the same period in 2023.
Operating earnings of $190 million for the nine months ended September 30, 2024 increased $12 million, or 7% compared to the same period in 2023.
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 results. 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 financial 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.
22
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following tables provide reconciliations 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 the three months ended September 30, 2024 and 2023 (in millions of dollars):
Three Months Ended September 30,
High-Touch Solutions N.A.
Endless Assortment
Total Company(1)
2024
% Change(2)
2024
% Change(2)
2024
% Change(2)
Reported net sales
$
3,515
3.3
%
$
791
8.1
%
$
4,388
4.3
%
Daily impact(3)
(0.9)
(1.6)
(0.2)
(1.7)
(1.1)
(1.7)
Daily net sales
54.1
1.7
12.2
6.4
67.5
2.6
Foreign currency exchange(4)
0.1
0.3
0.6
5.1
0.7
1.0
Business divestiture(5)
0.3
0.5
—
—
0.3
0.4
Daily, organic constant currency net sales
$
54.5
2.5
%
$
12.8
11.5
%
$
68.5
4.0
%
2023
% Change(2)
2023
% Change(2)
2023
% Change(2)
Reported net sales
$
3,403
7.0
%
$
732
4.3
%
$
4,208
6.7
%
Daily impact(3)
0.9
1.7
0.2
1.7
1.1
1.7
Daily net sales
54.9
8.7
11.8
6.0
67.9
8.4
Foreign currency exchange(4)
(0.1)
(0.2)
0.3
3.2
0.2
0.3
Daily, organic constant currency net sales
$
54.8
8.5
%
$
12.1
9.2
%
68.1
8.7
%
(1) Total Company includes Other. Grainger's businesses reported in Other do not meet the criteria of a reportable segment.
(2) Compared to net sales in the prior year period.
(3) Excludes the impact on net sales due to the difference in U.S. selling days relative to the prior year period on a daily basis. There were 64 and 63 sales days in the three months ended September 30, 2024 and 2023, respectively.
(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 prior year period on a daily basis.
23
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following tables provide reconciliations 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 the nine months ended September 30, 2024 and 2023 (in millions of dollars):
Nine months ended September 30,
High-Touch Solutions N.A.
Endless Assortment
Total Company(1)
2024
% Change(2)
2024
% Change(2)
2024
% Change(2)
Reported net sales
$
10,378
3.2
%
$
2,318
5.0
%
$
12,935
3.6
%
Daily impact(3)
(0.3)
(0.5)
(0.1)
(0.5)
(0.4)
(0.5)
Daily net sales
53.8
2.7
12.0
4.5
67.0
3.1
Foreign currency exchange(4)
—
—
0.8
6.6
0.8
1.2
Business divestiture(5)
0.3
0.6
—
—
0.3
0.5
Daily, organic constant currency net sales
$
54.1
3.3
%
$
12.8
11.1
%
$
68.1
4.8
%
2023
% Change(2)
2023
% Change(2)
2023
% Change(2)
Reported net sales
$
10,052
10.3
%
$
2,207
4.2
%
$
12,481
9.2
%
Daily impact(3)
0.3
0.6
0.1
0.6
0.4
0.6
Daily net sales
52.9
10.9
11.7
4.8
65.7
9.8
Foreign currency exchange(4)
—
—
0.7
6.3
0.7
1.3
Daily, organic constant currency net sales
$
52.9
10.9
%
$
12.4
11.1
%
66.4
11.1
%
(1) Total Company includes Other. Grainger's businesses reported in Other do not meet the criteria of a reportable segment.
(2) Compared to net sales in the prior year period.
(3) Excludes the impact on net sales due to the difference in U.S. selling days relative to the prior year period on a daily basis. There were 192 and 191 sales days in the nine months ended September 30, 2024 and 2023, respectively.
(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 prior year period on a daily basis.
The following tables provide reconciliations of reported SG&A expenses, operating earnings, net earnings attributable to W.W. Grainger, Inc. and diluted earnings per share determined in accordance with GAAP to the Company's non-GAAP measures adjusted SG&A, adjusted operating earnings, adjusted net earnings attributable to W.W. Grainger, Inc. and adjusted diluted earnings per share for the three and nine months ended September 30, 2024 and 2023 (in millions of dollars):
24
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three months ended September 30, 2024
Reported
Adjustment(1)
Adjusted
% Change
Selling, general and administrative expenses
High-Touch Solutions N.A.
$
845
$
—
$
845
Endless Assortment
163
—
163
Other(2)
26
—
26
Selling, general and administrative expenses
$
1,034
$
—
$
1,034
4.7%
Earnings
High-Touch Solutions N.A.
$
617
$
—
$
617
Endless Assortment
70
—
70
Other(2)
(1)
—
(1)
Operating earnings
$
686
$
—
$
686
2.8%
Total other expense – net
(15)
—
(15)
Income tax provision
(166)
—
(166)
Net earnings
$
505
$
—
$
505
Noncontrolling interest
(19)
—
(19)
Net earnings attributable to W.W. Grainger, Inc.
$
486
$
—
$
486
2.1%
Diluted earnings per share
$
9.87
$
—
$
9.87
4.7%
Three months ended September 30, 2023
Reported
Adjustment(1)
Adjusted
% Change
Selling, general and administrative expenses
High-Touch Solutions N.A.
$
806
$
—
$
806
Endless Assortment
161
—
161
Other(2)
21
—
21
Selling, general and administrative expenses
$
988
$
—
$
988
7.9%
Earnings
High-Touch Solutions N.A.
$
612
$
—
$
612
Endless Assortment
55
—
55
Other(2)
—
—
—
Operating earnings
$
667
$
—
$
667
10.7%
Total other expense – net
(15)
—
(15)
Income tax provision
(159)
—
(159)
Net earnings
$
493
$
—
$
493
Noncontrolling interest
(17)
—
(17)
Net earnings attributable to W.W. Grainger, Inc.
$
476
$
—
$
476
11.9%
Diluted earnings per share
$
9.43
$
—
$
9.43
14.1%
(1) There were no non-GAAP adjustments for the three months ended September 30, 2024 and 2023.
(2) Grainger's businesses reported in Other do not meet the criteria of a reportable segment.
25
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Nine Months Ended September 30, 2024
Reported
Adjustment(1)
Adjusted
% Change Reported(2)
% Change Adjusted(2)
Selling, general and administrative expenses
High-Touch Solutions N.A.
$
2,510
$
(15)
$
2,495
Endless Assortment
492
—
492
Other(3)
76
(1)
75
Selling, general and administrative expenses
$
3,078
$
(16)
$
3,062
5.2%
4.7%
Earnings
High-Touch Solutions N.A.
$
1,818
$
15
$
1,833
Endless Assortment
190
—
190
Other(3)
(4)
1
(3)
Operating earnings
$
2,004
$
16
$
2,020
(0.2)%
0.6%
Total other expense – net
(42)
—
(42)
Income tax provision(4)
(470)
(4)
(474)
Net earnings
$
1,492
$
12
$
1,504
Noncontrolling interest
(58)
—
(58)
Net earnings attributable to W.W. Grainger, Inc.
$
1,434
$
12
$
1,446
—%
0.8%
Diluted earnings per share
$
29.00
$
0.25
$
29.25
2.4%
3.3%
Nine Months Ended September 30, 2023
Reported
Adjustment(1)
Adjusted
% Change Reported(2)
% Change Adjusted(2)
Selling, general and administrative expenses
High-Touch Solutions N.A.
$
2,380
$
—
$
2,380
Endless Assortment
476
—
476
Other(3)
69
—
69
Selling, general and administrative expenses
$
2,925
$
—
$
2,925
9.5%
9.5%
Earnings
High-Touch Solutions N.A.
$
1,833
$
—
$
1,833
Endless Assortment
178
—
178
Other(3)
(3)
—
(3)
Operating earnings
$
2,008
$
—
$
2,008
20.2%
20.2%
Total other expense – net
(49)
—
(49)
Income tax provision
(468)
—
(468)
Net earnings
$
1,491
$
—
$
1,491
Noncontrolling interest
(57)
—
(57)
Net earnings attributable to W.W. Grainger, Inc.
$
1,434
$
—
$
1,434
23.3%
23.3%
Diluted earnings per share
$
28.32
$
—
$
28.32
25.7%
25.7%
(1) Reflects restructuring costs incurred in the second quarter of 2024. There were no non-GAAP adjustments for the nine months ended September 30, 2023.
(2) Compared to the reported and adjusted results of the prior year period.
(3) Grainger's businesses reported in Other do not meet the criteria of a reportable segment.
(4) Reflects a tax benefit related to the restructuring costs incurred in the second quarter of 2024. Grainger's reported and adjusted effective tax rates were 24.0% for the nine months ended September 30, 2024.
26
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 September 30, 2024 and December 31, 2023, Grainger had cash and cash equivalents of $1,448 million and $660 million, respectively. The Company had approximately $2.7 billion in available liquidity as of September 30, 2024.
Cash Flows
The following table shows the Company's cash flow activity for the periods presented (in millions of dollars):
Nine Months Ended September 30,
2024
2023
Total cash provided by (used in):
Operating activities
$
1,683
$
1,427
Investing activities
(262)
(307)
Financing activities
(615)
(839)
Effect of exchange rate changes on cash and cash equivalents
(18)
(5)
Increase in cash and cash equivalents
$
788
$
276
Net cash provided by operating activities was $1,683 million and $1,427 million for the nine months ended September 30, 2024 and 2023, respectively. The increase was driven by favorable changes in working capital primarily due to decreased accounts receivable driven by value added services compared to the prior year period.
Net cash used in investing activities was $262 million and $307 million for the nine months ended September 30, 2024 and 2023, respectively. The decrease was due to timing of capital expenditures driven by U.S. supply chain investments in the third quarter of 2024.
Net cash used in financing activities was $615 million and $839 million for the nine months ended September 30, 2024 and 2023, respectively. The decrease in cash used in financing activities was primarily due to the issuance of long-term debt, which includes $500 million in unsecured senior notes partially offset by higher treasury stock repurchases in the third quarter of 2024.
Working Capital
Working capital as of September 30, 2024 was $3,112 million, an increase of $34 million compared to $3,078 million as of December 31, 2023. As of September 30, 2024 and December 31, 2023, the ratio of current assets to current liabilities was 2.7 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 41.9% and 40.1% as of September 30, 2024 and December 31, 2023, respectively.
27
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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.
The following table summarizes the Company's credit ratings as of September 30, 2024:
Corporate
Senior Unsecured
Short-term
Moody's
A2
A2
P1
S&P
A+
A+
A1
Commitments and Other Contractual Obligations
There 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.
There were no material changes to the Company's critical accounting estimates 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.
28
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.
29
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 September 30, 2024, that have materially affected, or are reasonably likely to materially affect, Grainger’s internal control over financial reporting.
30
PART II – OTHER INFORMATION
Item 1: Legal Proceedings
For an update to the description of the Company’s legal proceedings, see 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 – Third Quarter 2024
Period
Total Number of Shares Purchased (A)
Average Price Paid per Share (B)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (C)
Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs
Jul. 1 – Jul. 31
69,119
$934.96
69,119
4,746,710
Aug. 1 – Aug. 31
106,780
$961.49
106,780
4,639,930
Sep. 1 – Sep. 30
57,710
$970.53
57,710
4,582,220
Total
233,609
233,609
A.There were no shares withheld to satisfy tax withholding obligations.
B.Average price paid per share excludes excise tax and commissions of $0.02 per share paid.
C.Prior to April 28, 2024, purchases were made pursuant to a share repurchase program approved by Grainger's Board of Directors and announced on April 28, 2021 (2021 Program). 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 terminated the 2021 Program.
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 September 30, 2024.
Fifth Supplemental Indenture, dated as of September 12, 2024, by and between the Company and U.S. Bank Trust Company, National Association, as Trustee (including Form of Note).
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.
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
32
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.