MRO Magazine

Acklands-Grainger saw sales decline 23% in third quarter of 2015


October 16, 2015
By Bill Roebuck

Chicago – Grainger’s results for the 2015 third quarter ended September 30, 2015 saw sales of $2.5 billion, down 1% versus $2.6 billion in the 2014 third quarter. There were 64 selling days in the quarter, the same as in 2014. Net earnings for the third quarter were down 17% to $192 million versus $230 million in 2014. Earnings per share of $2.92 declined 12% versus $3.30 in 2014.

The 2015 third quarter included charges of $11.0 million, or $0.11 per share. These charges reflect cost actions begun in the third quarter related to the announcement of 26 branch closures in the United States and company restructuring, primarily related to payroll.

“Our results reflect the challenging industrial economy in North America,” said chairman, president and chief executive officer Jim Ryan. “While we remain confident about our ability to gain market share, we are expecting continued revenue deceleration given recent feedback from our customers and suppliers. A number of large customers have announced layoffs, and there are indications of extended year-end holiday shutdowns.

“We have begun the process of aggressively adjusting our cost structure to reflect the weaker economic environment. At the same time, we are staying focused on providing industry-leading service, while making select investments that will accelerate our growth long term. These actions are especially important during an economic downturn and the subsequent recovery.


Given the performance to date and the expectation of continued economic weakness, the company lowered its sales and earnings per share guidance. For 2015, the company now expects sales in the range of -0.5% to 0.5% and earnings per share of $11.60 to $11.80, excluding the $0.16 per share in charges. The new guidance includes the benefit of the recent Cromwell Group (Holdings) Limited acquisition, which is expected to contribute approximately 1.5 percentage points of sales growth and $0.01 to $0.02 to earnings per share for the final four months of 2015.

Sales in the 2015 third quarter declined 1% driven by a three percentage point reduction from foreign exchange and a two percentage point benefit from acquisitions. Excluding foreign exchange and acquisitions, organic sales were flat and consisted of one percentage point from volume and a one percentage point decline in price.

The company’s gross profit margin declined 1.1 percentage point to 41.9% versus 43.0% in the 2014 third quarter, due primarily to faster growth with lower gross margin customers, lower supplier rebates tied to lower-than-expected volume and price deflation versus slight cost inflation.

Excluding the business in Canada, the company experienced slight product cost deflation versus the 2014 third quarter. Operating expenses for the company increased 1% and included approximately $43 million in incremental growth and infrastructure spending versus the 2014 quarter.

Company operating earnings declined 12% to $341 million for the 2015 third quarter versus $386 million in the prior year. The 12% decline was driven by the sales decline, lower gross profit margins and a 1% increase in operating expenses. Excluding the charges in the 2015 third quarter, operating expenses were down 1% and operating earnings declined 9%.

Grainger has two reportable business segments, the United States and Canada, which represented approximately 86% of company sales for the quarter. The remaining operating units are included in Other Businesses and are not reportable segments.

United States

Operating earnings for the United States segment declined 7% in the quarter driven by flat sales and lower gross profit margins. The 2015 third quarter included announced branch closures and restructuring charges of approximately $9 million. Excluding the charges, operating expenses decreased 2% and operating earnings were down 5%.


Sales for Acklands-Grainger declined 23% in US dollars in the third quarter of 2015 and declined 8% in local currency. The 8% sales decrease consisted of a 17 percentage point decline in volume, partially offset by a five percentage point benefit from price and a four percentage point contribution from WFS Enterprises Inc., which was acquired September 2, 2014.

Lower sales to the oil and gas, construction, commercial, transportation, retail, heavy manufacturing, government and light manufacturing sectors were partially offset by growth to customers in the mining, utilities and forestry end markets.

The business in Canada continues to be affected by weak oil and gas prices and lower commodity prices. Sales in the province of Alberta, which represents more than a third of the company’s business in Canada, were down 26% in local currency versus the prior year. In contrast, sales for the remaining provinces in aggregate were down 3% in local currency versus the prior year.

In US dollars, operating earnings in Canada declined 87% in the 2015 third quarter, primarily driven by lower sales and lower gross profit margins. The gross profit margin in Canada declined 1.3 percentage points versus the prior year.

Excluding WFS, the gross profit margin was down 0.8 percentage point versus the prior year primarily related to unfavourable foreign exchange from products sourced from the United States and lower supplier rebates, partially offset by price increases.

Operating expenses included incremental spending of approximately $6 million for the SAP implementation and restructuring costs of approximately $1 million. The SAP implementation and related costs are targeted for completion in the first half of 2016.

Other businesses

During the quarter, Grainger completed the acquisition of Cromwell, which is reported as a part of the Other Businesses. Prior to the acquisition, Cromwell was the largest independent MRO distributor in the United Kingdom, serving more than 35,000 industrial and manufacturing customers worldwide with more than 80,000 industrial products. Sales for the fiscal year ending August 31, 2015, were approximately £285 million GBP ($437 million USD).

Sales for the Other Businesses increased 18% for the 2015 third quarter versus the prior year. This performance consisted of 22 percentage points of growth from volume and price, partially offset by a 16 percentage points decline from unfavorable foreign exchange, and the Cromwell acquisition, which contributed 12 percentage points of growth. The organic sales increase was primarily driven by the single channel online businesses MonotaRO in Japan and Zoro in the United States.

Operating earnings for the Other Businesses were $14 million in the 2015 third quarter versus $5 million in the 2014 third quarter. The earnings increase for the quarter versus the prior year was driven by strong results from the single channel online businesses in Japan and United States and a $2 million contribution from Cromwell, partially offset by an incremental $2 million in start-up costs for the single channel online business in Germany.


Other income and expense was a net $21 million expense in the 2015 third quarter versus a net $3 million expense in the 2014 third quarter. The increase in expense was driven by $12 million in higher net interest expense and $6 million in losses on the company’s clean energy investment.

The net interest expense was driven by the $1 billion in long-term debt issued in June to buy back company shares. Beyond 2015, the company intends to issue new permanent debt of $400 million in 2016 and 2017, respectively, to continue the share buyback program consistent with the announcement made in April.

The company realized $6 million in losses from its investment in a limited liability company established to produce clean energy. As part of supporting the operations of this entity, Grainger receives its share of energy tax credits. For the full year, energy credits are expected to result in a reduction of approximately 1.3 percentage point in the company’s effective tax rate.