W.W. Grainger, Inc.

Greetings and welcome to the WW Granger third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Irene Holman. Vice President of Investor Relations. Thank you. You may begin.

Good morning. Welcome to Granger's third quarter 2021 earnings call. With me are D.G. McPherson, Chairman and CEO, and D. Merriweather, Senior Vice President and CFO. As a reminder, some of our comments today may include forward-looking statements. Actual results may differ materially due to various risks and uncertainties, including those detailed in our SEC filings. Reconciliations of any non-GAAP financial measures with their corresponding GAAP measures are found in the tables at the end of this presentation and in our Q3 earnings release, both of which are available on our IR website. This morning's call will focus on adjusted results, which exclude restructuring and other items that are outlined in our earnings release. We will also share results related to monetaro. Please remember that Monotaro is a public company and follows Japanese GAAP, which differs from U.S. GAAP and is reported in our results one month in arrears. As a result, the numbers disclosed today will differ somewhat from Monotaro's public statements. With that, I'll turn it over to DG.

Thanks, Irene. Good morning, and thank you for joining us. The Grainger Edge is our framework that defines who we are, why we exist, and where we're going. while establishing a set of operating principles. I'm proud of the ways that we use the principles to guide decisions and deliver results. I wanted to start this quarter with a big thank you. Things are very challenging on many fronts. Given the ongoing pandemic and labor and material shortages, nothing in the world seems to be working exactly the way it should. Our manufacturing partners, transportation partners, Grainger team members, and certainly our customers are all finding it harder than ever to keep the world working. I want to thank all of them for their tremendous efforts. I also want to offer a particular thank you to the frontline workers who continue to go above and beyond. Grainger is proud to support the hospital staff, government agencies, teachers, and many others who continue to do great work in a very challenging environment. I might say that in spite of these challenges, we performed very well, but in reality, it's partly because of how we are wired that Grainger is doing so well. We've seen strong demand this quarter, especially in the U.S. We have product available in our network and have been able to ship it to customers quickly. Our service to customers has been exceptional given the circumstances. We are leveraging our scale, demonstrating our agility, and gaining share. Our goal is to always be in an advantaged position to help our customers solve their problems. As I've been out with customers this past quarter time and again, I hear that Grainger is executing well. Customers tell me that they are pleased with our performance, and you can see this in our revenue growth. While the current supply chain environment is volatile and uncertain, we are confident in our current plans and our readiness to respond to any evolving dynamics. In the face of labor and material shortages throughout the supply chain, we are providing strong relative service and helping our customers avoid disruptions. We continue to actively leverage our network even if sometimes we have to fill orders from less optimal locations at a higher cost. We are investing in inventory while actively monitoring the freight market and the West Coast ports. And as it relates to labor, we have made great progress in closing staffing gaps and training team members which has resulted in improvements, especially in our DC operations. Our customer research shows that this is driving customer satisfaction. Turning to our financial highlights, demand in the quarter was robust, resulting in strong revenue and gross margin performance and well-managed SG&A. We achieved organic daily sales growth of 11.9% for the total company on a constant currency basis. When compared to Q3 2019, the quarter was up 17.3% on a daily organic basis, driven primarily by core non-pandemic product sales, which is a positive indicator of our underlying run rate performance. Our high-tech solutions in North America segment grew 11.6% on a daily constant currency basis. In the U.S., we drove approximately 100 basis points of share outgrowth versus the prior year and 475 basis points on a two-year average. We remain confident in our ability to grow 300 to 400 basis points faster than the market on an ongoing basis. Our service to customers, especially the last two years, has contributed to meaningful share gain. Our endless assortment segment finished the quarter with 14.9% daily sales growth on a constant currency basis. I'd like to note two things that temporarily moderated growth in this segment. First, Xoro lapped a very strong third quarter in 2020. For context, we opened up pandemic product supply to Xoro customers in Q3 2020 that was previously reserved mostly for government and healthcare customers. In the third quarter of 2021, Zorro managed to drive 11.9% revenue growth, and when we compare that to Q3 2019, we are up 30.6%, which is really strong. Also, Minotro was impacted by several external factors, including a slow start to vaccinations and a generally slower Japanese economy. In local days and local currency, sales were up about 17.5% compared to Q3 2020, and Minotro continues to take share, especially as COVID restrictions lift and we grow with our targeted enterprise customers. And as we look at results versus Q3 2019, Monotro's sales are up over 37%. We feel that the comparison to 2019 for both businesses is more indicative of our underlying business strength. We still expect the segment to close the year with growth at about 20% above prior year. We saw strong gross margin expansion across all segments, even above our expectations that we discussed last quarter. High Touch Solutions North America was up 140 basis points over Q3 of the prior year, and Endless Assortment was up 115 basis points. Dee will cover the drivers for both segments. Lastly, we returned $327 million to shareholders through dividends and share repurchases in the third quarter, and we maintained strong return on invested capital of 31.4%. Turning to our quarterly results for the company, I've discussed most of what's on this slide, but wanted to point out a few additional items. First, our SG&A was $812 million, right where we thought it would be. We continue to invest in marketing and labor, primarily through increased variable compensation and wage rates in the DCs. And like many companies, we're also starting to see increased healthcare costs as team members return to routine medical visits and undergo deferred elective procedures. And while overall spending is up versus the prior year, we're still gaining significant leverage when compared to 2019. Our operating earnings were $438 million, up 17.4%, And our resulting EPS is $5.65 for the quarter, which is growth of 25%. Overall, it was a really strong quarter. With that, I'll turn it over to Dee to take us through more detail. Dee?