WW GRAINGER INC

Previous wording

W.W. Grainger, Inc. is a broad line distributor of maintenance, repair and operating (MRO) products and services with operations primarily in North America, Japan and the United Kingdom (U.K.). Grainger uses a combination of its high-touch solutions and endless assortment businesses to serve its customers worldwide, which rely on Grainger for products and services that enable them to run safe, sustainable and productive operations.

Current wording

W.W. Grainger, Inc. is a broad line distributor of maintenance, repair and operating (MRO) products and services with operations primarily in North America, Japan and the United Kingdom (U.K.). Grainger uses its high-touch solutions and endless assortment businesses to serve customers worldwide, who rely on Grainger for products and services that enable them to run safe, sustainable and productive operations.

Previous wording

The Company’s continued strategic aspiration for 2024 is to relentlessly expand Grainger’s leadership position by being the go-to partner for people who build and run safe, sustainable, and productive operations. To achieve this, each Grainger business has a set of strategic growth drivers to drive top-line revenue and MRO market outgrowth. In the High-Touch Solutions North America (High-Touch Solutions N.A.) segment, businesses are focused on three areas: advantaged MRO solutions, differentiated sales and services, and unparalleled customer service. In the Endless Assortment segment, businesses are focused on product assortment expansion and innovative customer acquisition and retention capabilities. Additionally, all Grainger businesses are focused on continuously enhancing our operational processes to improve service and cost through customer experience, technology and supply chain infrastructure which ultimately delivers long-term returns for shareholders.

Current wording

The Company’s continued strategic aspiration for 2025 is to relentlessly expand Grainger’s leadership position by being the go-to partner for people who build and run safe, sustainable, and productive operations. To achieve this, each Grainger business has a set of strategic growth drivers to drive top-line revenue and MRO market outgrowth. The High-Touch Solutions North America (High-Touch Solutions N.A.) segment is focused on three areas: advantaged MRO solutions, differentiated sales and services, and unparalleled customer service. In the Endless Assortment segment, the business is focused on product assortment expansion and innovative customer acquisition and retention capabilities. Additionally, all Grainger businesses are focused on continuously enhancing our operational processes to improve service and cost through customer experience, technology and supply chain infrastructure which ultimately delivers long-term returns for shareholders.

Previous wording

The global economy continues to experience volatile disruptions including to the commodity, labor and transportation markets, arising from a combination of geopolitical events and various economic and financial factors. These disruptions have affected the Company's operations and may continue to affect the Company's business, financial condition and results of operations.

Current wording

The global economy continues to experience volatility and uncertainty including to the commodity, labor and transportation markets, arising from a combination of geopolitical conditions and events, and various economic and financial factors. These conditions have affected the Company's operations and may continue to affect the Company's business, financial condition and results of operations.

Previous wording

The Company continues to monitor economic conditions in the U.S. and globally, and the impact of macroeconomic pressures, including repercussions from changes in interest rates, currency exchange fluctuations, inflation and a potential recession on the Company’s business, customers, suppliers and other third parties. As a result of continued inflation, the Company has implemented strategies designed to mitigate certain adverse effects of higher costs while also remaining market price competitive. Historically, the Company’s broad and diverse customer base and the nondiscretionary nature of the Company’s products to its customers has helped to insulate it from the effects of recessionary periods in the industrial MRO market. The full extent and impact of these conditions are uncertain and cannot be predicted at this time.

Current wording

The Company continues to monitor economic conditions in the U.S. and globally, and the impact of macroeconomic pressures, including repercussions from changes in interest rates, currency exchange fluctuations, changing inflationary environment, and a potential recession on the Company’s business, customers, suppliers and other third parties. The Company has implemented strategies designed to mitigate certain adverse effects from the impact of the changing inflationary environment while remaining market price competitive. Historically, the Company’s broad and diverse customer base and the nondiscretionary nature of the Company’s products to its customers has helped to insulate it from the effects of recessionary periods in the industrial MRO market. The full extent and impact of these conditions are uncertain and cannot be predicted at this time.

Previous wording

In this section, 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. For further information regarding the Company's non-GAAP measures including reconciliations to the most directly comparable GAAP measures, see below "Non-GAAP Measures."

Current wording

In this section, Grainger utilizes non-GAAP (as defined below) 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. For further information regarding the Company's non-GAAP measures including reconciliations to the most directly comparable U.S. generally accepted accounting principles (GAAP) measures, see "Non-GAAP Measures."

Previous wording

Net sales of $16,478 million for the year ended December 31, 2023 increased $1,250 million, or 8%, and on a daily, organic constant currency basis, net sales increased 10% compared to the same period in 2022. Both High-Touch Solutions N.A. and the Endless Assortment segments contributed to sales growth in 2023. For further discussion on the Company's net sales, see the Segment Analysis section below.

Current wording

Net sales of $17,168 million for the year ended December 31, 2024 increased $690 million, or 4%, and on a daily, organic constant currency basis, net sales increased 5% compared to the same period in 2023. Both High-Touch Solutions N.A. and the Endless Assortment segments contributed to sales growth in 2024. For further discussion on the Company's net sales, see the Segment Analysis section below.

Previous wording

Gross profit of $6,496 million for the year ended December 31, 2023 increased $647 million, or 11%, and gross profit margin of 39.4% increased 100 basis points compared to the same period in 2022. Both segments contributed to margin expansion in 2023. For further discussion on the Company's gross profit, see the Segment Analysis section below.

Current wording

Gross profit of $6,758 million for the year ended December 31, 2024 increased $262 million, or 4%, and gross profit margin of 39.4% was flat compared to the same period in 2023. Both segments contributed to gross profit dollar expansion in 2024. For further discussion on the Company's gross profit, see the Segment Analysis section below.

Previous wording

Selling, general, and administrative (SG&A) expenses of $3,931 million for the year ended December 31, 2023 increased $297 million, or 8%. Adjusted SG&A of $3,905 million increased $250 million, or 7%, compared to the same period in 2022 driven by higher marketing and payroll expenses. Adjusted SG&A leverage improved 30 basis points in 2023.

Current wording

Selling, general, and administrative (SG&A) expenses of $4,121 million for the year ended December 31, 2024 increased $190 million, or 5%. Adjusted SG&A of $4,105 million increased $200 million, or 5%, compared to the same period in 2023 driven by higher marketing and payroll and benefit expenses. SG&A leverage and adjusted SG&A leverage decreased 20 basis points in 2024.

Previous wording

Operating earnings of $2,565 million for the year ended December 31, 2023 increased $350 million, or 16%. Adjusted operating earnings of $2,591 million increased $397 million, or 18%, compared to the same period in 2022 due to higher gross profit dollars, partially offset by increased SG&A consistent with sales growth in 2023. Adjusted operating margin improved 130 basis points in 2023.

Current wording

Operating earnings of $2,637 million for the year ended December 31, 2024 increased $72 million, or 3%. Adjusted operating earnings of $2,653 million increased $62 million, or 2%, compared to the same period in 2023 due to higher gross profit dollars, partially offset by increased SG&A expense. Operating margin and adjusted operating margin decreased 20 basis points in 2024.

Previous wording

Diluted earnings per share was $36.23 for the year ended December 31, 2023. Adjusted diluted earnings per share was $36.67 for the year ended December 31, 2023, an increase of 24% compared to $29.66 for the same period in 2022.

Current wording

Diluted earnings per share was $38.71 for the year ended December 31, 2024, an increase of 7% compared to $36.23 for the same period in 2023. Adjusted diluted earnings per share was $38.96 for the year ended December 31, 2024, an increase of 6% compared to $36.67 for the same period in 2023.

Previous wording

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 measures, see above "Non-GAAP Measures."For further segment information, see Note 13 of the Notes to Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data of this Form 10-K.

Current wording

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 measures, see "Non-GAAP Measures."For further segment information, see Note 12 of the Notes to Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data of this Form 10-K.

Previous wording

Net sales of $2,916 million for the year ended December 31, 2023 increased $129 million, or 5%, and on a daily constant currency basis, increased 10% compared to the same period in 2022. The increase was due to sales growth of 10%, driven by customer acquisition for the segment and ente rprise growth at MonotaRO, partially offset by declining sales at Zoro and non-core, consumer-like customers for the segment. Sales growth was offset by unfavorable currency exchange of 5% due to changes in the exchange rate between the U.S. dollar and the Japanese yen.

Current wording

Net sales of $3,134 million for the year ended December 31, 2024 increased $218 million, or 7%, and on a daily constant currency basis, increased 12% 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 customer growth at MonotaRO. Sales growth was partially offset by unfavorable currency exchange of 5% due to changes in the exchange rate between U.S. dollar and the Japanese yen.

Previous wording

SG&A of $631 million for the year ended December 31, 2023 increased $37 million, or 6%, compared to the same period in 2022. The increase was primarily due to higher marketing and payroll and benefit expenses to support the continued growth of the segment in 2023. SG&A leverage decreased 30 basis points compared to the same period in 2022.

Current wording

SG&A of $663 million for the year ended December 31, 2024 increased $32 million, or 5%, compared to the same period in 2023. The increase was primarily due to higher marketing expenses in 2024. SG&A leverage improved 40 basis points compared to the same period in 2023.

Previous wording

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. Organic net sales results exclude the impact of changes in foreign currency exchange rates and results of certain divested businesses in the comparable prior year period post date of divestiture. 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 measure and may not be comparable to similarly titled measures reported by other companies.

Current wording

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. 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.

Previous wording

In the fourth quarter of 2023, Grainger divested E & R Industrial Sales, Inc. (E&R) and recorded a one-time pre-tax loss on the divestiture of $26 million in SG&A. In the fourth quarter of 2022, Grainger divested Cromwell's wholly owned software business in the U.K. and recorded a one-time pre-tax gain on the divestiture of $21 million in SG&A. The Company does not expect these business exits to have a material effect on its future results of operations.

Current wording

In the fourth quarter of 2023, Grainger divested E & R Industrial Sales, Inc. (E&R) and recorded a one-time pre-tax loss on the divestiture of $26 million in SG&A. The Company does not expect this business exit to have a material effect on its future results of operations.

Previous wording

Grainger believes its current balances of cash and cash equivalents, marketable securities andavailability under its revolving credit facilities 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.

Current wording

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.

Previous wording

As of December 31, 2023 and 2022, Grainger had cash and cash equivalents of $660 million and $325 million, respectively. The increase in cash was primarily due to cash flows from operations and favorable year-over-year working capital, partially offset by higher capital expenditures and higher volume of share repurchases. The Company had approximately $1.9 billion in available liquidity as of December 31, 2023.

Current wording

As of December 31, 2024 and 2023, Grainger had cash and cash equivalents of $1,036 million and $660 million, respectively. The increase in cash was primarily due to cash flows from operations and issuance of new long-term debt, partially offset by continued capital expenditure spend and higher volume of share repurchases. The Company had approximately $2.3 billion in available liquidity as of December 31, 2024.

Previous wording

Net cash provided by operating activities was $2,031 million and $1,333 million for the year ended December 31, 2023 and 2022, respectively. The increase compared to the prior year period was due to higher earnings and favorable changes in year-over-year working capital largely driven by sales growth, inventory management and timing of cash receipts and payments.

Current wording

Net cash provided by operating activities was $2,111 million and $2,031 million for the year ended December 31, 2024 and 2023, respectively. The increase was primarily driven by continued growth in net earnings.

Previous wording

Net cash used in investing activities was $422 million and $263 million for the year ended December 31, 2023 and 2022, respectively. The increase compared to the prior year period primarily reflects increased U.S. supply chain investments including capacity, automation and sustainability initiatives, as well as technology enhancements across the Company.

Current wording

Net cash used in investing activities was $520 million and $422 million for the year ended December 31, 2024 and 2023, respectively. The increase reflects the continued investment in U.S. supply chain capacity expansion throughout 2024.

Previous wording

Net cash used in financing activities was $1,278 million and $972 million for the year ended December 31, 2023 and 2022, respectively. The increase compared to the prior year period was primarily due to higher treasury stock repurchases.

Current wording

Net cash used in financing activities was $1,180 million and $1,278 million for the year ended December 31, 2024 and 2023, respectively. The decrease in cash used in financing activities was due to the issuance of long-term debt, which includes $500 million in unsecured senior notes partially offset by higher treasury stock repurchases in 2024.

Previous wording

Total debt as a percent of total capitalization was 40.1% and 45.9%, as of December 31, 2023 and 2022, respectively.

Current wording

Total debt as a percent of total capitalization was 42.9% and 40.1%, as of December 31, 2024 and 2023, respectively.

Previous wording

Working capital as of December 31, 2023 was $3,078 million, an increase of $214 million compared to $2,864 million as of December 31, 2022. The increase was primarily due to sustained sales growth and inventory management driven by supply chain efficiencies compared to the prior year period. As of December 31, 2023 and 2022, the ratio of current assets to current liabilities was 2.8 and 2.5, respectively.

Current wording

Working capital as of December 31, 2024 was $3,282 million, an increase of $204 million compared to $3,078 million as of December 31, 2023. The increase was primarily due to sustained sales growth. As of December 31, 2024 and 2023, the ratio of current assets to current liabilities was 2.9 and 2.8, respectively.

Previous wording

In fiscal 2023, the Company's capital expenditures were $445 million and $256 million for the years ended December 31, 2023 and 2022, respectively. Capital project spending for 2024 is expected to be in the range of $400 and $500 million. This includes continued supply chain capacity expansion and technology enhancements across the Company. With Grainger's strategic plan to expand its distribution network, the Company completed land purchases in Oregon and Texas in the second and fourth quarters of 2023 for construction of approximately 500,000 and 1,200,000 square foot distribution centers (DC), respectively.

Current wording

In fiscal 2024, the Company's capital expenditures were $541 million and $445 million for the years ended December 31, 2024 and 2023, respectively. Capital project spending for 2025 is expected to be in the range of $450 and $550 million. This includes continued supply chain capacity expansion and technology enhancements across the Company.

Previous wording

For the years ended December 31, 2023 and 2022, Grainger repurchased shares of its common stock in theopen market for $850 million and $603 million, respectively. Share repurchases are executed at prices the Company determines appropriate subject to various factors, including market conditions and the Company's financial performance and may be affected through accelerated share repurchase programs, open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans. Share repurchases for 2024 are expected to be in the range of $900 and $1,100 million.

Current wording

For the years ended December 31, 2024 and 2023, Grainger repurchased shares of its common stock in the open market for $1,201 million and $850 million, respectively. Share repurchases are executed at prices the Company determines appropriate subject to various factors, including market conditions and the Company's financial performance and may be affected through accelerated share repurchase programs, open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans. Share repurchases for 2025 are expected to be in the range of $1,150 and $1,250 million.

Previous wording

For the years ended December 31, 2023 and 2022, Grainger declared and paid $392 million and $370 million, respectively, in dividends to holders of the Company's common stock.

Current wording

For the years ended December 31, 2024 and 2023, Grainger declared and paid $421 million and $392 million, respectively, in dividends to holders of the Company's common stock.

Previous wording

As of December 31, 2023, the Company had outstanding debt obligations with varying maturities for an aggregate principal amount of $2,337 million, with $34 million payable within 12 months. Total future interest payments associated with the Company's outstanding debt obligations was $1,729 million, with $87 million payable within 12 months.

Current wording

As of December 31, 2024, the Company had outstanding debt obligations with varying maturities for an aggregate principal amount of $2,803 million, with $502 million payable within 12 months. Total future interest payments associated with the Company's outstanding debt obligations was $1,855 million, with $101 million payable within 12 months.

Previous wording

Grainger had purchase obligations of approximately$1,453 million as of December 31, 2023, which includes approximately$1,175 million payable within 12 months. Grainger's purchase obligations primarily include commitments to purchase inventory, uncompleted additions to property, buildings and equipment and other goods and services. Purchase obligations are made in the normal course of business to meet operating needs and are primarily noncancelable.

Current wording

Grainger had purchase obligations of approximately $1,687 million as of December 31, 2024, which includes approximately $1,021 million payable within 12 months. Grainger's purchase obligations primarily include commitments to purchase inventory, uncompleted additions to property, buildings and equipment and other goods and services. Purchase obligations are made in the normal course of business to meet operating needs and are primarily noncancelable.

Previous wording

The Company has lease arrangements for certain properties, buildings and equipment (including branches, warehouses, DCs and office space). As of December 31, 2023, the Company had fixed operating lease payment obligations of $492 million, with $87 million payable within 12 months.

Current wording

The Company has lease arrangements for certain properties, buildings and equipment (including branches, warehouses, DCs and office space). As of December 31, 2024, the Company had fixed operating lease payment obligations of $437 million, with $91 million payable within 12 months.

Previous wording

The Company evaluates goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter and more frequently if impairment indicators exist. The fair value of reporting units is calculated primarily using the discounted cash flow method and utilizing value indicators from a market approach to evaluate the reasonableness of the resulting fair values. The Company’s indefinite-lived intangible assets are primarily trade names. The fair value of trade names is calculated primarily using the relief-from-royalty method, which estimates the expected royalty savings attributable to the ownership of the trade name asset.

Current wording

The Company evaluates goodwill for impairment annually during the fourth quarter and more frequently if impairment indicators exist. The fair value of reporting units is calculated primarily using the discounted cash flow method and utilizing value indicators from a market approach to evaluate the reasonableness of the resulting fair values.

Previous wording

The estimates used to calculate the fair values of reporting units and indefinite-lived intangible assets involve the use of significant assumptions, estimates and judgments and changes from year to year based on operating results, market conditions, macroeconomic developments and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and impairment for each reporting unit and indefinite-lived intangible asset. For further information on the Company's goodwill and other intangible assets, see Note 4 of the Notes to Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data of this Form 10-K.

Current wording

The estimates used to calculate the fair values of reporting units involve the use of significant assumptions, estimates and judgments and changes from year to year based on operating results, market conditions, macroeconomic developments and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and impairment for each reporting unit. For further information on the Company's goodwill, see Note 4 of the Notes to Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data of this Form 10-K.