W.W. Grainger, Inc.

Hello, and welcome to the WW Granger first quarter 2022 earnings conference call and webcast. 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, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Kyle Bland, VP Investor Relations. Please go ahead.

Good morning. Welcome to Grainger's first quarter 2022 earnings call. With me are DG McPherson, Chairman and CEO, and Dean Merriweather, Senior Vice President and CFO. As a reminder, some of our comments today may include forward-looking statements. Actual results may differ materially as a result of various risks and uncertainties, including those detailed in our SEC filings. Reconciliations of any non-GAAP financial measures with their corresponding GAAP measures are find in the table at the end of this presentation and in our Q1 earnings release, both of which are available on our IR website. This morning's call will focus on our first quarter 2022 results, which are consistent on both a reported and adjusted basis for all periods presented. We will also share results related to Monotaro. Please remember that Monotaro is a public company and follows Japanese GAAP, which differs from US GAAP and is reported in our results one month in arrears. As a result, The numbers disclosed will differ somewhat from Monotaro's public statements. Now I'll turn it over to DG.

Thanks, Kyle. Good morning and thank you for joining us. Today I'll provide an overview of our first quarter performance and then pass it to D to walk through the financials in detail. I'll begin by quickly highlighting our strategic operating framework, the Grainger Edge. I am proud of our team members as we embrace the edge at every level of the organization and in everything we do day in and day out. This framework serves as the basis for our culture and defines how we work together to serve our customers and communities. I'm excited to share that earlier this month, we were recognized as one of Fortune 100's 100 Best Companies to Work For. This award is a tribute to team members across the organization. Turning to slide five, not unlike the past two years, the first quarter of 2022 threw us some challenges, including the ongoing impacts of the pandemic, heightened inflationary pressures, supply chain and labor challenges, and now the Russian war in Ukraine. I'd like to spend a few minutes on how we are managing through these challenges. First, we continue to manage through the highest inflationary period in our careers. On the cost side, we are leveraging our purchasing scale and working closely with our supplier partners to chart a shared path forward. Despite high inflation, our goal remains to be price competitive while targeting price cost neutrality. On the supply chain front, we continue to work with our supplier and transportation partners to ensure products are available and delivered to customers on a timely basis. U.S. customer service levels are starting to improve as carrier capacity increases. Overseas freight remains pressured with delays, port congestion, and container challenges, and when coupled with increasing fuel prices is pushing costs higher than historical trends. We expect these costs to remain elevated throughout the year. We remain focused on securing product for our customers as we navigate through the continued product shortages and delays. We expect the ongoing COVID related shutdowns in Shanghai and broader China will further challenge supply chains over the coming months. We have been increasing our inventory positions since the middle of last year to maintain service levels and continue to monitor developments to stay ahead of the game. In my visit to our customers in Q1, I continue to hear that we are performing well relative to the market on securing product. We also continue to stay focused on hiring, and maintaining competitive payroll and benefits to ensure we attract, engage, and retain high-performing teams. This is especially important for customer-facing and support roles within our distribution and contact centers. We continue to receive feedback that Grainger is a great place to work, and our team members feel valued as they work to support our customers each day. We continue to invest in our strategic initiatives like marketing, re-merchandising, keep stock, and technology. These efforts, coupled with our advantage service, have allowed Grainger to have strong outgrowth versus the broader MRO market. Switching gears to our financials, demand remained robust and we finished the quarter with sales growth of 18.2% or 17.9% on a daily constant currency basis. Our results were driven by strong performance in both segments. Hightouch Solutions North America had exceptional daily sales growth of 18.2%. In the U.S., we outgrew the broader MRO market by 550 basis points for the quarter, as our supply chain and inventory investments helped us meet our customers' needs. Total company gross profit margin finished the quarter at 37.9%, expanding 245 basis points over the prior year first quarter. The largest component of our expansion over the prior year was lapping the pandemic-related inventory adjustment that we took in the first quarter of 2021. Even when excluding that adjustment, however, we were still up nicely year over year. We delivered 14.6 percent operating margin, an increase of 305 basis points over the prior year, as the improved gross margin performance was further aided by top-line leverage and disciplined cost management. In the quarter, we delivered an adjusted ROIC of 41 percent and returned $163 million to shareholders through share repurchases and dividends. Yesterday, we announced an increase in our dividend, which marks our 51st year of consistent increases and continued commitment to our shareholders. As a result of our strong performance, we are raising our full year 2022 guidance estimates. I continue to be impressed with how our team has come together to deliver such great results. Earlier this year, we talked about our focus areas for 2022, executing on our key growth initiatives, driving operational excellence, and strengthening our culture. We've made strong progress in all three areas and continue to build a company for success. With that, I'll turn it over to Dee to take us through more detail on the quarter and our guidance.