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| GWW > SEC Filings for GWW > Form 10-Q on 4-May-2009 | All Recent SEC Filings |
4-May-2009
Quarterly Report
Item 2.
Overview
General
Grainger is the leading broad-line supplier of facilities maintenance and other
related products in North America. Grainger distributes a wide range of products
used by businesses and institutions to keep their facilities and equipment up
and running. Grainger uses a multichannel business model to provide customers
with a range of options for finding and purchasing products through a network of
branches, sales representatives, direct marketing including catalogs, and a
variety of electronic and Internet channels. Grainger serves customers through a
network of more than 600 branches, 18 distribution centers and multiple Web
sites.
Effective January 1, 2009 Grainger revised its segment disclosure. Grainger has two reportable segments: the United States and Canada. In the first quarter of 2009, Grainger integrated the Lab Safety Supply business into the Grainger Industrial Supply business and results are now reported under the United States segment. The Canada segment reflects the results for Acklands - Grainger, Inc., Grainger's Canadian branch-based distribution business. Other Businesses include the following: Grainger, S.A. de C.V. (Mexico), Grainger Caribe Inc. (Puerto Rico), Grainger China LLC (China) and Grainger Panama S.A. (Panama).
Business Environment
Several economic factors and industry trends tend to shape Grainger's business
environment. The overall economy and leading economic indictors provide insight
into anticipated economic factors for the near term and help in forming the
development of projections for the remainder of 2009. In April 2009, Consensus
Forecast-USA projected a 2009 Industrial Production and GDP decline for the
United States of 9.7% and 2.7%, respectively. In April 2009, Consensus
Forecast-USA projected a GDP decline of 2.3% for Canada.
Historically, Grainger's sales trends have tended to correlate positively with industrial production growth. According to the Federal Reserve, overall industrial production decreased 12.8% from March 2008 to March 2009. The continued declines in economic indicators have affected Grainger's sales growth for the first quarter of 2009, which declined 12 percent, or 10 percent on a daily basis.
The light and heavy manufacturing customer sectors have historically correlated with manufacturing employment levels and manufacturing output. Manufacturing output decreased 15.0% from March 2008 to March 2009 while manufacturing employment levels decreased 9.8%. These declines contributed to a mid-twenty percent decline in the heavy manufacturing customer sector and a low teen percent decline in the light manufacturing customer sector for Grainger in the first quarter of 2009.
Grainger expects some continued decline in sales and increased pricing pressure throughout the remainder of the year. Grainger plans to use its financial strength in an effort to increase its customer base during the downturn. Some reductions to margins are expected as a result of expanding the sales force and implementing additional customer incentives. Grainger expects these actions to cost approximately $25-50 million this year.
Given the continued decline in economic trends, in February 2009 Grainger announced the elimination of 300-400 jobs across the Company's workforce. Grainger incurred approximately $5 million in severance expenses for the elimination of about 200 of these positions during the first quarter of 2009.
Matters Affecting Comparability
There were 63 sales days in the first quarter of 2009 compared to 64 sales days
in the first quarter of 2008.
Effective January 1, 2009 Grainger revised its segment disclosure. Prior year amounts have been restated in a consistent manner.
Results of Operations - Three Months Ended March 31, 2009 The following table is included as an aid to understanding the changes in Grainger's Condensed Consolidated Statements of Earnings:
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