W.W. Grainger, Inc.

Good morning and welcome to the WW Granger second quarter 2023 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 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 second quarter 2023 earnings call. With me are D.J. McPherson, Chairman and CEO, and D. Maryweather, 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 the 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 Q2 earnings release, both of which are available on our IR website. This morning's call will focus on our second quarter 2023 results, which are consistent on both a reported and adjusted basis for all periods presented. We will also share results related to Monotauro 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'll provide an overview of our second quarter performance and then pass it to D to walk through the financials in detail. As we work our way through 2023, Grainger continues to stay focused on what matters most, providing our customers with the products and services they need through exceptional service. Everything we do is grounded in our Grainger Edge framework, which I'd like to highlight today in the context of our recently released ESG report. I would encourage you all to check out the full report at graingeresg.com. Grainger has long been a leader in ESG, both for our customers and in our own operations. Internally, we have laid out four near-term ESG focus areas that are important parts of both our culture and operations. Early indications show that we are making meaningful progress. I'll start with our customer sustainability solutions. In 2022, revenue in high-touch US business for environmentally preferred products was more than $1 billion and has increased steadily over the last few years. Customer conversations around their environmental footprint have become commonplace, and we are well-positioned to help customers in this space. On the right side, you'll see how we are helping our customers achieve their goals by tying sustainability to our product and service offerings. We recently worked with a large container terminal operator that was in search of an opportunity to offset fossil fuel-based energy use, enhance its grid resilience, and reduce cost. Through our sustainability services offering, the customer purchased and will install more than 300 solar panels. These panels will help them avoid approximately 4,000 tons of CO2 emissions over the next 20 years. the equivalent of 9 million miles driven by a car. This is just one example, but we partner with our customers like this every day, connecting them to our network of service provider partners and helping ensure we can be the go-to partner for everything they need to run safe, reliable, and sustainable operations. Second, supplier diversity. Grainger plays an important role in championing businesses owned by underrepresented groups, including women, minorities, LGBTQ+, and people with disabilities through this program. Last year, we spent more than $2 billion on products from our diverse supplier base and continue to make further progress as we expand partnerships in this space. Third, energy and emissions. Since 2018, we've reduced our global absolute scope one and scope two emissions by 26%, nearing our 2030 goal of a 30% reduction. And finally, diversity, equity, and inclusion. DEI is a continuous journey. We are proud to have been named one of Fortune's best places to work for women in addition to being recognized by other organizations for our work to celebrate and support all team members, no matter their ethnicity, orientation, age, disability, or veteran status. Each of these near-term priorities are an important part of our ESG focus and are helping us to scale our actions to make a greater impact for both Grainger and our customers. Our team will continue to follow the Grainger edge as we make progress toward our own near-term initiatives and partner with our customers as they work to achieve their ESG goals. together positively impacting the communities where we operate. Now to review highlights for the quarter. As you can see, we again delivered a strong quarter of performance as we continue to show up well in supporting our customers. As expected, year-over-year growth rates are decelerating, but demand remains reasonably steady. For the quarter, we finished with daily sales growth of 9% or 10.1% on a daily constant currency basis. Results again were driven by positive performance in both segments, most notably within the high-touch solution segment, which outpaced the broader MRO market by approximately 525 basis points in the U.S. Total company operating margin was 15.8%, an increase of 190 basis points over the prior year, as improved gross margin performance was driven primarily by continued supply chain efficiencies and lower freight and container costs. Combine this with our strong top-line growth, and we delivered substantial EPS growth, robust operating cash flow, and continued ROIC of over 40%. We also returned a combined $265 million to Grainger shareholders in the quarter through dividends and share repurchases. Alongside these great results, we continue to make progress against our strategic initiatives. In the high-touch model, we are advancing our proprietary product and customer information management systems that fuel our growth engines and allow us to advance marketing, merchandising, and seller investments in the U.S. The endless assortment business is seeing some macro-related demand softening in the U.S., But overall, the team continues to focus on providing reliable service while increasing repeat purchase rates with core B2B customers at Zorro and growing with enterprise customers at Monotaro. Lastly, a few weeks ago, we announced our plans to construct a new 500,000 square foot distribution center outside of Portland, Oregon, which will support our customers across the Pacific Northwest and is expected to open in 2025. In addition, we are implementing three smaller bulk style distribution centers in Pennsylvania, Texas, and North Carolina, which are each slated to open over the next few quarters. These investments enable us to keep up with strong customer demand and allow us to extend our industry-leading service capabilities, which deliver a best-in-class experience focused on next-day complete fulfillment across the United States. As we remain focused on what matters, I'm pleased with the progress we have made through the first half of 2023. With our strong execution and as market demand remains reasonably steady, we are raising the midpoint of our full year 2020 through revenue and DPS guidance. I'll now pass it over to Dee to go through the details.