This excerpt taken from the GWW 10-Q filed May 2, 2007.
CONDITION AND RESULTS OF OPERATIONS
Operating expenses in this segment were up 8.1% in the quarter. The operating expense growth was primarily driven by payroll and benefits, the result of increased headcount and higher incentive compensation, commission and profit sharing accruals.
Operating earnings were $160.2 million for the first quarter of 2007 and increased 20.6% over $132.9 million for the first quarter of 2006. The earnings improvement resulted from higher sales, improved gross profit margin and operating expenses growing at a slower rate than sales.
Acklands Grainger Branch-based
Net sales for Acklands Grainger in the first quarter of 2007 were 2.2% higher than the comparable quarter of 2006. In local currency, sales increased 3.7%, due to stronger sales in the oil and gas industries, partially offset by weakness in the mining, forestry and manufacturing industries.
The gross profit margin increased 2.7 percentage points in the 2007 first quarter over the comparable quarter of 2006. The improvement in gross profit margin was primarily due to price increases, higher supplier funding and vendor rebates, partially offset by higher freight costs.
Operating earnings of $8.9 million in the first quarter of 2007 were up 130.7%, resulting from increased sales, higher gross profit margin and operating expenses growing slower than sales. This improvement in operating performance is consistent with the Companys expectations.
Net sales for Lab Safety were $109.1 million for the first quarter of 2007, an increase of $5.2 million, or 5.0%, when compared with $103.9 million for the same period in 2006. Sales from the acquisitions made during 2006 contributed approximately 6 percentage points to the growth.
The gross profit margin of 42.7% for the first quarter of 2007 decreased 0.9 percentage point from the first quarter of 2006. The gross profit margin was down as a result of customer and product mix and higher freight costs.
Operating expenses of $32.0 million were $2.0 million, or 6.5% higher in the quarter due primarily to higher media and information technology costs.
Operating earnings of $14.6 million in the first quarter of 2007 were down 4.1% over 2006, resulting from lower gross profit margin and operating expenses which grew at a faster rate than sales.
Graingers effective tax rate was 38.6% for the first quarters of both 2007 and 2006. Excluding the effect of equity in unconsolidated entities, which is recorded net of tax, the effective income tax rate was 38.5% for the first quarter of 2007 and 38.9% for the first quarter of 2006. The full year 2006 rate was 36.4% and benefited from the resolution of uncertainties related to the audit of the 2004 tax year and from a reduction of deferred tax liabilities related to property, buildings and equipment.
W.W. Grainger, Inc. and Subsidiaries