Grainger Q1 Sales Accelerate Amid Pandemic

While many large distributors were hurt by the impacts of COVID-19 in Q1, Grainger's US segment outgrew the MRO market by 700 basis points.

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Mike Hockett/Industrial Distribution

Grainger’s 2020 first quarter earnings report issued Thursday was much-anticipated across the industrial supply space, given that the company is the biggest market mover as the largest US-based distributor of industrial products.

The Chicago-based company’s results showed that its Q1 sales improved considerably year-over-year and actually accelerated compared to Q4 of 2019. It was a notable differentiation from a handful of other large industrial distributors that saw sales decline in Q1 — both from an ongoing slowdown in demand for industrial products that started in the second half of 2019, and expected slowdowns associated with impacts from the COVID-19 pandemic.

Grainger — No. 1 on Industrial Distribution’s Big 50 List — reported total Q1 sales of $3.0 billion, up 7.2 percent year-over-year (YoY) and up 5.5 percent on a daily basis. That compares with Q4 2019 sales of $2.85 billion that was up 3.0 percent YoY and Q3 sales of $2.95 billion that grew 4.1 percent YoY.

The company’s Q1 gross profit of $1.12 billion grew 2 percent YoY, while its gross profit margin of 37.4 percent fell 180 basis points. Operating profit of $159 million was less than half that of the $363 million of a year earlier, while adjusted operating profit of $343 million was much closer to $365 million of a year earlier. Q1 operating margin of 5.3 percent was far below the 13.0 percent of a year earlier, while adjusted operating margin of 11.4 percent was much closer aligned. Grainger’s Q1 operating profit included $184 million in restructuring and impairment charges primarily related to the Fabory business in the Netherlands.

Grainger 5Grainger’s total Q1 profit of $173 million compared with $253 million of a year earlier.

“During these challenging times, as an essential business, Grainger remains more committed than ever to achieving our purpose … to Keep the World Working,” said DG Macpherson, Grainger chairman and CEO. “We are focused on serving our customers well, ensuring the safety and well-being of our team members, and maintaining a strong financial position to support us through this crisis. By supporting customers who are saving lives and keeping communities safe, we are demonstrating the power of our products and solutions, deep customer relationships and exceptional customer experience. Our strategy matters even more today.”

Grainger’s Q1 US sales (76.9 percent of total) increased 7.4 percent YoY, with daily sales up 5.7 percent driven approximately 8 percent by volume and 2 percent by pricing mix and headwinds. The company said its US segment outgrew the MRO products market by approximately 700 basis points in Q1 — with about half of that driven by pandemic-related product sales. That compares with 285 BPS growth in Q4 2019 and 240 BPS growth in Q3.

The company’s Q1 sales in Other Businesses were $698 million (23.3 percent of total) grew 10.2 percent YoY, with daily sales up 8.5 percent. Grainger’s Q1 Canada sales of $129 million (4.3 percent of total) declined 4.6 percent YoY, with daily sales down 6.1 percent.

By month in Q1, Grainger’s January sales grew 2.2 percent YoY; February grew 6.4 percent and March jumped 8.0 percent. Grainger’s breakdown of its Q1 sales by customer end market help illustrate the spikes in demand for pandemic-related products during February and March, when the pandemic ramped up internationally and then in the US, respectively.

Here’s that Q1 breakdown, with Q4 2019 for comparison.:

  • Retail: up mid-twenties (up mid-teens in Q4)
  • Commercial: up mid-single digits (up mid-single in Q4)
  • Contractor: up mid-single (up low-single in Q4)
  • Government: up high-single (up low-single in Q4)
  • Healthcare: up high-twenties (up high-single in Q4)
  • Light Manufacturing: up high-single (up low-single in Q4)
  • Heavy Manufacturing: down mid-single (down low-single in Q4)
  • Natural Resources: down mid-single (down low-single in Q4)

“In the midst of the uncertainty, we delivered robust top-line growth, solid profitability and continued to produce strong operating cash flow in the first quarter,” Macpherson added. “We also bolstered our already solid financial position, maintaining our flexibility to continue making thoughtful investments for the future. We intend to persevere through this crisis and I am confident that we are well-positioned to come out stronger on the other side.”

On April 1, Grainger announced that it was drawing down $1 billion from its revolving credit facility to boost its cash position amid market volatility caused by the COVID-19 pandemic.

Grainger reported 2019 total sales of $11.49 billion and profit of $849 million.

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