Q1 2019 Earnings Call W.W. Grainger, Inc. April 22, 2019 Safe - PowerPoint PPT Presentation

Q1 2019 Earnings Call W.W. Grainger, Inc. April 22, 2019

Safe Harbor Statement and Non-GAAP Financial Measures All statements in this communication, other than those relating to historical facts, are “forward - looking statements.” Forward -looking statements can generally be identified by their use of terms such as “anticipate,” “estimate,” “believe,” “expect,” “could,” “forecast,” “may,” “intend,” “plan,” “predict,” “project” “will” or “would” and similar terms and phrases, including references to assumptions. Forward-looking statements are not guarantees of future performance and are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from such statements. Forward-looking statements include, but are not limited to, statements about future strategic plans and future financial and operating results. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, among others: higher product costs or other expenses; a major loss of customers; loss or disruption of source of supply; increased competitive pricing pressures; failure to develop or implement new technology initiatives; the implementation, timing and results of our strategic pricing initiatives; the outcome of pending and future litigation or governmental or regulatory proceedings, including with respect to wage and hour, anti-bribery and corruption, environmental, advertising, privacy and cyber security matters; investigations, inquiries, audits and changes in laws and regulations; disruption of information technology or data security systems; general industry, economic, market or political conditions; general global economic conditions; currency exchange rate fluctuations; market volatility; commodity price volatility; labor shortages; facilities disruptions or shutdowns; higher fuel costs or disruptions in transportation services; natural and other catastrophes; unanticipated and/or extreme weather conditions; loss of key members of management; our ability to operate, integrate and leverage acquired businesses; changes in effective tax rates and other factors which can be found in our filings with the Securities and Exchange Commission, including our most recent periodic reports filed on Form 10-K and Form 10-Q, which are available on our Investor Relations website. Forward-looking statements are given only as of the date of this communication and we disclaim any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. Additional information relating to certain non-GAAP financial measures referred to in this presentation, including adjusted operating earnings, adjusted segment operating earnings, adjusted net earnings and adjusted diluted earnings per share, is available in the appendix to this presentation and our most recent earnings release. 2

Q1 2019 Reported Results – Total Company % vs. PY Q1 2019 Q1 2018 ($ in millions) Fav/(Unfav) Sales $ 2,799 $ 2,766 1% • Reported results included GP 1,095 1,092 0% restructuring items that resulted in a $2 million charge to SG&A 732 757 3% operating earnings and a Op Earnings $ 363 $ 335 8% negative $0.03 impact to EPS EPS $ 4.48 $ 4.07 10% • The remaining slides reference adjusted results, which exclude restructuring charges in Canada. bps vs. PY Q1 2019 Q1 2018 (% of sales) Fav/(Unfav) GP Margin 39.1% 39.5% (40) SG&A Margin 26.2% 27.4% 130 Op Margin 13.0% 12.1% 90 3 Note: There were 63 selling days in Q1 2019 one less than Q1 2018. Numbers may not sum due to rounding.

DG Macpherson Chairman and Chief Executive Officer

Strategic Pillars Business Models Businesses Pillars • U.S. High-Touch Solutions Model • Advantaged MRO Solutions • Canada • • Mexico Differentiated Sales and Services Compelling value-added MRO solutions delivered to customers through teams of • Cromwell • Unparalleled Customer Service experts and curated digital experiences • Fabory Endless Assortment Model • Expansive Product Assortment • Zoro Easy purchasing through a streamlined and • Innovative Customer Acquisition transparent online relationship that • MonotaRO Capabilities provides access to everything a business customer needs 5

U.S. Large and Midsize Sales Performance U.S. Large: daily sales growth U.S. Midsize: daily sales growth on $6.8 billion of revenue on $1.0 billion of revenue 2017 2018 2019 2017 2018 2019 35% 15% 25% 10% 9% 5% 14% 15% 6% 8% 20% 9% 7% 18% 5% 16% 15% 5% 9% 6% 4% 0% -2% 2% 2% 1% -5% 0% -5% Q1 Q2 Q3 Q4* FY Q1 Q2 Q3 Q4* FY *Q4’18 sales are normalized for a negative 1 ppt. impact from Christmas/New Years timing. U.S. Large revenue of $6.8 billion and U.S. Midsize revenue of 6 $1.0 billion as of 12/31/2018.

Performance Expectations 2019 and Beyond • U.S. revenue to grow 300 to 400 basis points faster than market • Canada volume stabilization and profitable growth • Accelerated growth of endless assortment model • Strong SG&A leverage • Continued operating margin improvement • Maintaining 2019 Guidance Note: Guidance as of 4/22/2019. 7

Tom Okray Senior Vice President and Chief Financial Officer

Q1 2019 Adjusted Results – Total Company % vs. PY ($ in millions) Q1 2019 Q1 2018 Fav/(Unfav) • Daily sales increased 3.0%, 4.0% on a constant Sales $ 2,799 $ 2,766 1% currency basis GP 1,096 1,092 0% • Constant currency daily sales increased 4.5% SG&A 731 749 2% after normalizing for a prior year change in accounting estimate, composed of: Op Earnings $ 365 $ 343 6% • Volume growth of 3.0% EPS $ 4.51 $ 4.18 8% • Price inflation of 1.5% bps vs. PY • GP rate normalized for the timing of the N.A. Q1 2019 Q1 2018 (% of sales) Fav/(Unfav) sales meeting declined 15 bps GP Margin 39.2% 39.5% (30) • Operating margin normalized for the timing of SG&A Margin 26.1% 27.1% 95 the N.A. sales meeting increased 80 bps Op Margin 13.0% 12.4% 65 Note: There were 63 selling days in Q1 2019 one less than Q1 2018. Reference slides 19 and 20 for GAAP vs. non-GAAP reconciliation. 9 Numbers may not foot due to rounding.

Q1 2019 Adjusted Results – United States % vs. PY ($ in millions) Q1 2019 Q1 2018 Fav/(Unfav) • Daily sales up 3.5% vs. prior year, up 4.5% Sales $ 2,149 $ 2,108 2% after normalizing for a prior year change in accounting estimate, composed of: GP 869 850 2% • Volume up 2.5% SG&A 505 497 (1%) • Price up 1.5% Op Earnings $ 364 $ 353 4% • Intercompany sales growth 0.5% • bps vs. PY GP rate normalized for the timing of the N.A. Q1 2019 Q1 2018 (% of sales) Fav/(Unfav) sales meeting was up 35 bps GP Margin 40.5% 40.3% 15 • Operating margin normalized for the timing of SG&A Margin 23.5% 23.6% 15 the N.A. sales meeting increased 50 bps Op Margin 17.0% 16.7% 30 • Incremental margin of 31% Note: Reference slides 19 and 20 for GAAP vs. non-GAAP reconciliation. 10 Numbers may not foot due to rounding.

Q1 2019 Adjusted Results – Canada % vs. PY ($ in millions) Q1 2019 Q1 2018 Fav/(Unfav) Sales $ 136 $ 182 (25%) GP 42 59 (28%) • Daily sales down 24.0% vs. prior year, SG&A 45 68 33% down 20.0% on a constant currency basis: Op Earnings $ (3) $ (9) 60% • Price up 4.0% • Volume down 24.0% bps vs. PY Q1 2019 Q1 2018 (% of sales) Fav/(Unfav) • SG&A favorable 33% vs. prior year GP Margin 30.9% 32.2% (125) due to 2018 cost take-out actions SG&A Margin 33.7% 37.3% 365 Op Margin (2.7%) (5.1%) 240 11 Note: Reference slides 19 and 20 for GAAP vs. non-GAAP reconciliation. Numbers may not foot due to rounding.

Q1 2019 Adjusted Results – Other Businesses % vs. PY ($ in millions) Q1 2019 Q1 2018 Fav/(Unfav) Sales $ 633 $ 588 8% • Daily sales increased 9.5%, 12.0% on a constant currency basis: GP 185 183 1% • Price and volume up 12.0% SG&A 155 146 (7%) Op Earnings $ 30 $ 37 (20%) • Performance driven by 22% daily sales growth for the endless assortment businesses bps vs. PY Q1 2019 Q1 2018 (% of sales) Fav/(Unfav) • Operating margin decline impacted GP Margin 29.3% 31.1% (190) by growth investments in the Zoro SG&A Margin 24.5% 24.8% 30 U.S. business and performance at Cromwell in the U.K. Op Margin 4.8% 6.4% (160) Note: Endless assortment businesses include all Zoro businesses and MonotaRO in Japan. International portfolio comprised of Cromwell, Fabory, 12 Mexico, other Latin America businesses and China. Reference slides 19 and 20 for GAAP vs. non-GAAP reconciliation.

Reiterating 2019 Guidance Adjusted Progress vs. Q1 2019A 2019E Guidance $11.7 – $12.2 Sales ($ billions) $2.8 % vs. prior year (daily, constant currency)** 4.5% 4% - 8.5% On Track U.S. Market (price + volume) 2% to 2.5% 1% - 4% Gross Profit Margin 39.2% 38.1% - 38.7% (60) – 0 bps vs. prior year (15)* On Track Op Margin 13.0% 12.2% - 13.0% bps vs. prior year 80* 20 - 100 On Track Tax Rate 25.4% 24.5% - 27.5% EPS $4.51 $17.10 - $18.70 % vs. prior year 8% 2% - 12% On Track Note: Guidance as of 4/22/2019. Reference slides 19 and 20 for GAAP vs. non-GAAP reconciliation. 13 *Normalized for the timing of our N.A. sales meetings. **Daily organic sales exclude the impact of the prior year cash basis accounting change