W.W. Grainger, Inc. (NYSE:GWW) Q4 2014 Earnings Conference Call - Final Transcript

Jan 26, 2015 • 07:30 am ET


W.W. Grainger, Inc. (NYSE:GWW) Q4 2014 Earnings Conference Call - Final Transcript


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Laura Brown

Hello, this is Laura Brown, Senior Vice President of Communications and Investor Relations. With me is Bill Chapman, Senior Director of Investor Relations. The purpose of this podcast is to provide you with additional information regarding Grainger's fourth quarter 2014 results. Please also reference our 2014 fourth quarter earnings release issued today, January 26th, in addition to other information available on our Investor Relations website, to supplement this podcast.

As a reminder, certain statements and projections of future results made in the press release and in this podcast constitute forward-looking information. These statements are based on current market conditions and competitive and regulatory expectations and involve risk and uncertainty. Please see our Form10-K for a discussion of factors that relate to forward-looking statements.

As mentioned in the press release, we lowered our 2015 guidance to reflect the10% weakening in the Canadian dollar since our Analyst Meeting in November. To put this in perspective, Canada is our second-largest business behind the United States, representing 11% of total company sales in 2014. Roughly 20% of our Canadian sales are tied directly to the oil and gas industry. Beyond our direct exposure, the Canadian economy and the Canadian dollar tend to correlate closely with natural resources prices, more specifically oil. Because of this, we have taken a fresh look at our expected performance in Canada based on current exchange rates and weaker economy.

As a result, we now expect 2015 sales growth of 3% to 7% and earnings per share of $12.60 to $13.60. Our 2015 guidance issued on November 12, 2014, called for sales growth of 5% to 9% and earnings per share of $12.90 to $13.80. At the end of the podcast, we will provide more color around the revised guidance.

Before we analyze the results, let's review some highlights from full year 2014. We saw continued strong performance in the United States with operating margins expanding 60 basis points to 18.2%. As promised, we took actions to address several smaller underperforming businesses. Our single channel online model continued its strong growth. And, we spent an incremental $78 million on growth and infrastructure and $387 million in gross capital spending to create long-term competitive advantage.

With that as a backdrop, let's now take a look at our performance. Today, we reported results for the year 2014. For the full year, Company sales increased 6% to $10 billion. Net earnings increased 1% to $802 million and earnings per share increased 3% to $11.45.

As described in the earnings release, the fourth quarter contained restructuring and impairment charges that lowered reported earnings by $0.66 per share. To better understand our performance, the majority of the analysis and commentary for the remainder of the podcast excludes the effect of charges in 2014 and 2013. Details regarding the charges can be found in the earnings release, posted on the Investor Relations section of our website.

Excluding charges from 2014 and 2013, Company operating earnings increased 6% for the year, while net earnings increased 4%. Adjusted earnings