Earnings Call Excerpt
W.W. Grainger, Inc. (GWW)
Q2 FY08 Earnings Call
July 15, 2008, 08:00 AM ET
Executives
Laura D. Brown - VP, IR
William D. Chapman - Director, IR
Analysts
Presentation
Laura D. Brown - Vice President, Investor Relations
Hello, this is Laura Brown, Vice President of Investor Relations; and I'm here with Bill Chapman, Director of Investor Relations.
Welcome to Grainger's quarterly audio webcast covering results for the second quarter ended June 30th 2008. This recording is intended to provide you with information on our recent performance. Please use this information in conjunction with the earnings release, and other financial information posted on our Investor Relations website.
Before we begin, I'd like to remind you that certain statements and projections of future results made in the press release in this webcast constitute forward-looking information. These statements are based on current market conditions and competitive and regulatory expectations, and involve risks and uncertainty. Please see our Form 10-K for a discussion of factors that relate to forward-looking statements. Grainger posted record sales of $1.8 billion in the 2008 second quarter.
Sales were up 10% versus last year's second quarter. Both quarters contain 64 selling days. Operating earnings increased 11% and net earnings increased 8%. Earnings per share grew by 18% to $1.43. It is important to note that these results include a special charge. During the quarter, the company recognized $0.05 per share in unallocated expenses for our legal reserve. This expense relates to allegations involving sourced items and the Trade Agreement Act compliance under the company's GSA contract.
Excluding this charge, operating earnings were up 14%, net earnings were up12%, and earnings per share were up 22%. Operating margins increased about 10 basis points in the quarter to 10.5%, once again excluding the charge operating increased 40 basis points to 10.8%. This operating margin expansion was due to positive operating expense leverage and an 18 basis point improvement in gross profit margins.
Again excluding the charge, operating expenses as a percent of sales decreased from 29.6% in the second quarter of 2007 to about 29.3% in the 2008 second quarter. The 18% increase in earnings per share for the quarter was a combination of the growth in net earnings in our share repurchase activity. During the quarter, we purchased 85,000 shares for $75 million. Over the last 12 months, we have bought back about 9.3 million shares of stock.
Let's now focus on performance drivers during the quarter. In doing so, we'll cover the following topics: first, sales by customer end market and geography in the quarter and in the month of June; second, an update on our key growth initiatives in the United States; third, our operating performance; and last, out cash generation in capital deployment. Sales growth in the quarter of 10% largely consisted of market share gains as general economic growth was minimal with U.S. GDP growth expected to be 1.7%.
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