Earnings Call Excerpt
WW Grainger, Inc. (GWW)
Q1 FY08 Earnings Call
April 14, 2008, 08:00 AM ET
Executives
Laura Brown - VP, IR
Bill Chapman - Director, IR
Analysts
Presentation
Laura Brown - Vice President, Investor Relations
Hello. This is Laura Brown, Vice President of Investor Relations; and I am here with Bill Chapman, Director of Investor Relations. Welcome to Grainger's quarterly audio webcast covering results for the first quarter ending March 31st, 2008. This recording is intended to provide you with information on our recent performance. We invite you to 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 reinforce the fact that certain statements and projections of future results made in the press release and this webcast constitute forward-looking information. This information is based on current market conditions and competitive and regulatory expectations, and involve risk and uncertainty. Please see our Form 10-K for a discussion of factors as they relate to forward-looking statements.
First quarter, 2008 sales were up 7% versus last year's first quarter. Both quarters contained 64 selling days. Net earnings increased 12% and earnings per share grew by 22% to $1.43. Sales, earnings, and earnings per share were all quarterly records. Operating margins increased 70 basis points in the quarter to 11.2%. This operating margin expansion was due to positive operating expense leverage and a modest increase in gross profit margins. As noted at our analyst meeting in November, we expect operating margin expansion going forward to come from a combination of gross margin improvement and operating expense leverage.
Operating expenses as a percent of sales moved down from 30.4% in the first quarter of 2007 to 29.7% in the 2008 first quarter, led by the Grainger branch-based segment. And pretax return on invested capital or ROIC increased 60 basis points to 29.4% from 28.8% a year ago. Earnings contributions from the company's growth programs combined with efforts to improve productivity led to this performance. The 22% increase in earnings per share for the quarter was a combination of the 12% increase in net earnings in our aggressive share repurchase.
During the quarter, we bought back 2.6 million shares of stock for $196 million. This is an addition to the 415,000 shares we received in early January as part of the final settlement of the accelerated share repurchase program. At the November analyst meeting, we disclosed the intention to repurchase between $180 million and $220 million worth of shares in 2008. The company plans to remain active in the market throughout the remainder of the year, although not as aggressively as we were in the first quarter.
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