W.W. Grainger, Inc.

Greetings and welcome to the WW Grainger fourth quarter and full year 2022 earnings 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 fourth quarter and full year 2022 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 as a result of various risks and uncertainties, including those detailed in our SEC filings. Reconciliations of any non-GAAP financial measures with our corresponding GAAP measures are found in the tables at the end of this presentation and in our Q4 earnings release, both of which are available on our investor relations website. This morning's call will focus on fourth quarter and full year 2022 adjusted results, which exclude the gain related to the divestiture of Cromwell's enterprise software business, which was sold in the fourth quarter. 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'm going to discuss some of our key accomplishments from 2022, and then I'll pass it to D to walk through the specifics of our fourth quarter performance and our outlook for 2023. Turning to slide four, the Grainger Edge framework has been instrumental in guiding our work in 2022. We know that when we live our principles, focus on the things that matter, and serve our customers well, we can achieve great things. Our customer base is very broad. I've been with customers that are seeing positive economic signs like aerospace, and I've also been with other customers like some retailers that are seeing some concerning economic signs. But in general, our customers continue to be busy. And Grainger has and will remain their trusted partner by providing value to their operations every day. As we look to 2023 and beyond, we are excited to continue living out the Grainger edge, starting with the customer and serving as their valued partner through any cycle. In 2022, the Grainger team stayed relentlessly focused on what matters most, providing our customers exceptional service, supporting each other, and making a positive impact on our communities and the environment. In both models, we made strategic investments to support customers and build the business for the future. This included adding supply chain capacity, including a new bulk warehouse in the U.S. and the startup of the Inagawa Distribution Center in Japan, expanding our digital and data capabilities, including progress with our customer and product information systems and our high-touch business and improved account management tools and our endless assortment model, and executing against our merchandising and marketing initiatives, including Tant Search and Recommendation, functionality. During the year, we also continue to strengthen our purpose-driven culture by ensuring Grainger is a place where our team members can be their true selves and have a fulfilling career. We continue to receive external recognition for our workplace culture, but what means the most to me and the rest of the leadership team is the positive feedback from team members about why they choose to build their career at Grainger. And finally, we continue to make progress with our environmental, social, and governance objectives. both internally and in supporting our customers to help them achieve their own ESG goals. The result of this focus was an outstanding year of profitable growth, and we are extremely proud of our results, which surpassed our own expectations throughout the year. Turning to slide six, we finished the year with over $15.2 billion in sales, up 16.5% on a daily basis, or 19.3% in daily constant currency, as demand across the business remained strong. In our high-touch business in North America, we focused on our growth engines and achieved approximately 775 basis points of U.S. market outlook growth in 2022, far exceeding our updated target of 400 to 500 basis points. In the endless assortment model, both Zorro and Monotaro made progress to achieve high teens growth in local currency and local days. During the year, we drove 250 basis, 15 basis points of gross margin improvement, which, when coupled with 40 basis points of SG&A leverage resulted in 255 basis points of operating margin expansion and a nearly 50% increase in adjusted EPS. We also generated over $1.3 billion in operating cash flow, an increase of 42% over 2021, and returned $949 million to Grainger shareholders through dividends and share repurchases. We accomplished this while also improving our ROIC by 870 basis points to 40.6%. The strong 2022 financials were the result of staying focused throughout the year on what truly matters to our customers, our suppliers, and our team members, and we are well positioned to continue this momentum into 2023. With that, I will turn it over to Dee to discuss the details of the fourth quarter and our outlook.