Quarterly highlights

- Sales of $1.5 billion down 13 percent

- Net earnings of $92 million down 18 percent

- EPS of $1.21 down 15 percent

- Operating cash flow of $190 million

- Generated pretax ROIC of 23.8 percent*

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CHICAGO, July 15 /PRNewswire-FirstCall/ -- Grainger (NYSE: GWW) today reported second quarter sales of $1.5 billion, which were down 13 percent versus second quarter 2008. Net earnings for the quarter decreased 18 percent to $92 million versus $113 million in 2008. Earnings per share declined by 15 percent to $1.21 versus $1.42 for the second quarter of 2008. Second quarter 2008 reported earnings per share were $1.43. The company adopted FSP 03-6-1 on January 1, 2009, resulting in a one cent reduction in earnings per share in both the second quarters of 2008 and 2009. (See page K-41 of the company's 2008 10-K for additional information). Other items in the second quarter of 2008 included a provision for a legal reserve, which had a negative effect of five cents per share, and the realization of gains on the sale of property, which had a positive effect of approximately two cents per share.

"Although the economy remains a challenge, we are pleased with our results for the second quarter of 2009. We continue to focus on the things we can control, and we're selectively investing for growth. Businesses and institutions still need to repair and maintain their facilities in this difficult economy. Our multi-channel business model and our exceptionally high service levels allow us to serve our customers well even in these tough times," said Jim Ryan, Grainger's Chairman and CEO.

*The GAAP financial statements are the source for all amounts used in the Return on Invested Capital (ROIC) calculation. ROIC is calculated using annualized operating earnings based on year-to-date operating earnings divided by a 7 point average for net working assets. Net working assets are working assets minus working liabilities defined as follows: working assets equal total assets less cash equivalents (non operating cash), deferred taxes, and investments in unconsolidated entities, plus the LIFO reserve. Working liabilities are the sum of trade payables, accrued compensation and benefits, accrued contributions to employees' profit sharing plans, and accrued expenses.

He added, "We have not seen an indication of an economic turnaround at this point but our results indicate that we are gaining market share during this recession. We are in a great position to grow when the economy eventually recovers. We're expanding our sales force to improve customer coverage. Also during the quarter, we announced two ways we'll expand our geographic coverage outside of North America by making small, additional investments in India and in Japan."

Sales for the company decreased 13 percent. Daily sales decreased 15 percent in April, 10 percent in May and 13 percent in June. Sales were negatively affected by foreign exchange, which contributed approximately 2 percentage points to the decline. Price contributed a positive 6 percent while volume was down 19 percent. Sales of products related to the H1N1 virus contributed less than one percent of sales. There was no material contribution from the sales of seasonal products. Acquisitions contributed about 1 percent to sales. There were 64 selling days in the quarter, the same as the 2008 second quarter.

Effective with the first quarter of 2009, the company has two reportable business segments, the United States and Canada, which represent approximately 98 percent of company sales. This new reporting reflects the integration of Lab Safety Supply with Grainger's U.S. branch-based business. The remaining operating units (Mexico, India, Puerto Rico, China, and Panama) are included in other businesses and are not considered a segment. The company acquired Asia Pacific Brands India Private Limited in June 2009 resulting in the inclusion of the India operations in other businesses for the month of June.

Operating earnings for the company were down 17 percent. The operating earnings decrease was the result of lower sales and operating expenses decreasing at a slower rate than sales, partially offset by higher gross profit margin. In February, the company announced the intention to eliminate 300-400 jobs this year; 298 jobs have been eliminated to date with severance expense of $8 million or five cents per share through the second quarter. The company remains on track to meet projected headcount reductions of up to 400 positions.

United States

Sales for the United States segment decreased 12 percent in the 2009 second quarter. Daily sales declined by 14 percent in April, 9 percent in May and 14 percent in June. There was no material effect from the sale of seasonal products. Progress integrating the Lab Safety Supply and the U.S. branch-based business is on track to achieve the incremental sales of $70-$100 million and cost reductions of $20-$30 million. Through June, incremental revenue of approximately $13 million has been recognized and approximately $5 million in cost savings has occurred as a result of the integration. The majority of the revenue and savings are expected in 2010.

Sales declined in all customer end markets except government, which was up slightly. Heavy manufacturing declined almost 30 percent; commercial declined high single digits with most other segments declining in the low to mid teens.

The company continues to expand its product line with 233,000 products included in this year's catalog. Grainger has been adding more products throughout the year and anticipates having almost 300,000 products in the 2010 catalog. Product line expansion contributed $231 million in sales for the second quarter versus $169 million in the second quarter 2008.

Operating earnings for the quarter were down 16 percent in the United States. The operating earnings decrease was the result of lower sales and operating expenses decreasing at slower rate than sales, partially offset by higher gross profit margin. Payroll-related expenses were down due to lower headcount, reduced commissions and profit sharing contributions and no bonus accruals.

Canada

Sales for the Acklands-Grainger business in the quarter were down 19 percent versus the 2008 second quarter. In local currency, sales were down 6 percent. On a daily basis by month, sales in local currency were down 11 percent in April, down 1 percent in May and down 6 percent in June. The Canadian economy remained weak, particularly in the forestry, manufacturing, transportation and mining industries. This contributed to sales growth turning negative to prior year in most provinces during the quarter, though sales to government remained strong, with growth in the utilities and infrastructure related sectors.

Operating earnings decreased 39 percent for the 2009 second quarter (30 percent in local currency), primarily due to the sales decline and a 210 basis point decline in gross margin. The decline in gross profit margin was primarily the result of negative inflation recovery due to unfavorable foreign exchange rates on inventory purchases.