W.W. Grainger, Inc.

Greetings and welcome to the WW Granger third quarter 2022 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, Kyle Bland, Vice President of Investor Relations. Thank you. You may begin.

Good morning. Welcome to Grainger's third quarter 2022 earnings call. With me are D.J. 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 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 found in the tables at the end of this presentation and in our Q3 earnings release, both of which are available on our investor relations website. This morning's call will focus on our third quarter 2022 results, which are consistent on both a reported and adjusted basis for the respective quarterly 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 U.S. 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'm going to provide an overview of our third quarter performance, and I'll pass it to D to walk through the financials. As I typically do, I'd like to start with our Grainger Edge framework, which guides our strategy and behaviors across the company and with our customer and supplier partners. One of our Granger Edge principles is to do the right thing. Nowhere is that commitment more obvious than when we respond to natural disasters. Granger has a long history of being there for our customers before, during, and after a crisis strikes. Last month, Hurricane Ian destroyed parts of the U.S., most notably in southwest Florida. Our team spent days, nights, and weekends on the front lines, working long hours to get essential products like generators, sandbags, and tarps to our customers. After the storm passed, our sellers, onsite service representatives, and branch team members were on the ground making sure we served our customers. And many of them did this while balancing their own personal recovery efforts. We know the road ahead will not be easy, but the Grainger team will continue to be there to support the community as they recover and rebuild. Before I get into the financial highlights from the quarter, I want to talk a little bit about what I've seen and heard during my market visits with customers. I recently visited an outdoor equipment manufacturer that experienced a surge in demand during the pandemic. As consumers had excess cash and a desire to spend more time outside during COVID, they saw a major uptick in revenue. They're now facing a dip in demand as consumers begin to pull back on spending. I've also visited some of our aerospace customers where it's clear that business activity has picked up, especially in 2022 as COVID impacts have diminished. The industry is now making investments in new airplanes and other equipment to meet ongoing changes in business and leisure travel demands. All told, we continue to experience a dynamic market, with some industries still on the upswing, some that have stabilized, and others that are trending down. And while our customers will face different levels of impact as we navigate through this inflationary period, we know that Grainger wins because of our ability to add tangible value to our customers' operations through inventory management, digital solutions, and product substitutes. This has been true in past economic cycles, and we expect it to continue as more and more customers turn to us for solutions thanks to our relevant product offering, know-how, and advantage supply chain. Turning now to our results, we performed very well in the third quarter with sales growth of 16.9% or 20.3% on a daily constant currency basis. This normalizes for the impact of the significantly depreciating Japanese yen. Our results this quarter include strong growth in both segments as we continue to execute well against our strategic priorities. We outgrew the U.S. MRO market by 700 basis points in our U.S. high-touch business and delivered over 22% sales growth and endless assortment on a daily cost-to-currency basis. Total company gross profit margin finished the quarter at 38.5%, expanding 145 basis points over the prior year third quarter. Profitability, while strong throughout the quarter, was especially strong in the month of September as we benefited from a confluence of factors, including some timing benefits that provided a tailwind to gross margin. Dee will outline the details in a few minutes. The strong gross margin performance coupled with solid SG&A leverage helped us achieve 15.3 percent operating margin, an increase of 230 basis points over the prior year third quarter. We delivered adjusted ROIC of nearly 42 percent, up over 1,000 basis points compared to the same period last year. We also generated $380 million in operating cash flow and returned $286 million to shareholders to share repurchases and dividends. Due to the strong results achieved in the quarter and continued strong trends in October, we are again raising our 2022 full-year guidance. Starting with the customer and living our Grainger Edge principles is helping us deliver value to all of our stakeholders. With that, I will turn it over to Dee to discuss the details.