W.W. Grainger, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; this is an annual report, not a stand-alone fourth-quarter earnings report. Grainger distributes maintenance, repair and operating products through High-Touch Solutions N.A. and Endless Assortment. The company began reporting these two segments in 2021 and recast prior-period segment results.
Financial performance
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | $13.022 billion | $11.797 billion | +10.4% |
| Gross profit / margin | $4.720 billion / 36.2% | $4.238 billion / 35.9% | +11.4%; margin +0.3 percentage point |
| Operating earnings / margin | $1.547 billion / 11.9% | $1.019 billion / 8.6% | +51.8% |
| Net earnings attributable to Grainger | $1.043 billion | $695 million | +50.0% |
| Diluted EPS | $19.84 | $12.82 | +54.8% |
| Operating cash flow | $937 million | $1.123 billion | Down $186 million |
| Capital expenditures | $255 million | $197 million | Up $58 million |
- Sales growth reflected a 10.1% increase in volume and product mix, 2.3% pricing and customer mix, and 0.3% foreign exchange, partly offset by 1.4% from prior-year business divestitures. Daily sales increased 11.3%; the year had 254 sales days versus 256 in 2020.
- Gross-margin improvement reflected price realization and favorable mix, partly offset by product-cost inflation and pandemic-related inventory adjustments. SG&A declined 1.4% to $3.173 billion, mainly because 2020 included Fabory impairment and divestiture charges; 2021 costs included higher wages, variable compensation and marketing.
- High-Touch Solutions N.A. sales were $10.186 billion (+10.5%) and operating earnings were $1.334 billion (+12.9%). Endless Assortment sales were $2.576 billion (+18.3%) and operating earnings were $232 million (+39.3%). Other businesses recorded a $19 million operating loss, substantially improved from $329 million in 2020, when Fabory charges were recorded.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $241 million at year-end, down from $585 million. Management reported approximately $1.5 billion of available liquidity and believes cash, securities and revolving-facility availability will meet liquidity needs for the next 12 months.
- Working capital was $2.455 billion; the current ratio was 2.7, versus 2.6 in 2020. Lower operating cash flow primarily reflected increased receivables from sales growth and inventory purchases to meet demand.
- Debt principal was approximately $2.384 billion, with no scheduled principal due within 12 months; total debt and lease liabilities were 55.4% of total capitalization. The company had no revolving-credit or commercial-paper borrowings outstanding and was in compliance with covenants. Credit ratings were investment grade: Moody’s A3 and S&P A+ for corporate and senior unsecured debt.
- 2021 financing cash outflow was $1.039 billion, including $695 million of treasury-stock purchases and $357 million of dividends. Management expects to continue dividends and repurchases subject to its financial condition and other factors.
- 2022 capital spending was projected at $275 million–$325 million, primarily for U.S. and Japan distribution centers and IT enhancements, funded mainly from operating cash flow. This is a spending plan, not earnings guidance.
Outlook, commentary and key risks
- Management’s 2022 strategic priorities include growing High-Touch sales and MRO market share, expanding Endless Assortment product range and customer acquisition, improving customer experience, and investing in technology and supply-chain infrastructure. The filing does not provide a clear numerical forecast for 2022 revenue, earnings or margins.
- Management said pandemic recovery brought stronger demand alongside supply-chain, transportation, raw-material and labor constraints. It could not reasonably estimate the pandemic’s full future effect. Inflation, freight and wage costs, product availability, inventory obsolescence, customer mix and the ability to pass through costs may pressure margins and cash flow.
- Other notable risks include economic or industry downturns, competition and pricing pressure, cybersecurity or IT disruption, foreign-exchange exposure, regulatory and government-contract compliance, climate-related disruption and the company’s indebtedness. A hypothetical 10% currency move was not expected to materially affect 2021 net earnings.
- Legal matters include lawsuits related to a 2019 Texas refinery explosion, with claims involving personal injury and property damage. Grainger intends to contest the matters; management believes their ultimate resolution will not materially adversely affect consolidated financial condition or results, but outcomes remain uncertain.
- No current-year goodwill impairment was recorded. The auditor identified valuation of the Canadian reporting unit’s $129 million goodwill balance as a critical audit matter because the impairment analysis depends on assumptions including forecast revenue growth, operating expenditures and discount rate.
Important facts for investors to verify
- Whether sales growth, pricing and mix improvements can persist as pandemic-related demand normalizes, and whether inflation and freight costs are passed through without margin erosion.
- Whether working-capital investment—especially receivables and inventory—converts into cash, given operating cash flow declined despite higher earnings.
- How the $275 million–$325 million 2022 capital-spending plan and shareholder returns affect liquidity, leverage and investment capacity.
- Progress and profitability of Endless Assortment growth, alongside High-Touch performance and the continuing contribution of Other businesses.
- Developments in the refinery-related litigation, supply-chain and labor constraints, cybersecurity exposure, and the assumptions supporting Canadian goodwill valuation.