W.W. Grainger, Inc. (GWW)

GWW 
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W.W. Grainger Inc. (GWW)

BAML 2011 Global Industrials Conference

December 6, 2011; 09:05 am ET

Executives

Ron Jadin - Chief Financial Officer, Senior Vice President

Laura Brown - Senior Vice President, Communications & Investor Relations

John Inch - Analyst, Bank of America Merrill Lynch

Presentation

John Inch

So just as a quick reminder, for those of you who haven’t seen the agenda. Tonight, starting 4:30 we are going to have a cocktail session. I believe it’s on this floor. So this the chance to get free drinks from Bank of America, which I’m always up for that. Hopefully everyone appreciates the format of this year’s conference. I think the age of the obnoxious fireside chat hopefully is going to be put to rest with an analyst drawing on about themselves mostly. So this is your chance to talk to the companies and ask them questions, not listen to analysts take about their own agendas.

With that, it gives me great please to introduce management team of Grainger. If there’s one stock one could own forever, it’s probably this one, at least forever as in a Wall Street context. So I’ll put those brackets around it. Lets call it my lifetime if anyone is listening.

And I would like to introduce both Ron Jadin and Laura Brown. Ron has been the CFO now for a number of years. He stirred this company I think in a direction that we would all agree has been completely and squarely in the interest of creating shareholder value. This is the management team on everyone’s side. So with that, let me introduce Ron.

Ron Jadin

Thanks John and thanks for having us today. I really appreciate it and thanks all of you for attending. I don’t normal make stock recommendations, but I have to admit, I did just place an order with my wife for four shares with GreenBay Packers stock this morning for my four children. So if you do need to place your order while I’m speaking, I certainly understand. There’s only 250,000 shares available.

I’m going to just take about 20 minutes or so with some prepared comments and into Q&A and if there’s two points I could leave with you, one would be that Grainger’s really investing a lot in its foundation and what I mean by that, its ensuring that our customers have a very high availability, today or tomorrow, of a very broad offering of products, so we can serve them better than anyone else in our space.

The second point is, we are investing at a more rapid rate this year and into next year, around a lot of growth investments, so we can take share at a faster rate than before, despite a tough economic outlook.

You’ve had a chance to see our forward-looking statement. For those of you who don’t know Grainger, we are about a 84 year old company. We are a distributor of MRO products, maintenance repair and operating supplies and we’ve been growing internationally and through other means and I’ll go through some of those in the slides to come.

The pie chart on the left hand side gives you a visual idea of the diversity of the end customer segments in which we sell. If we did a pie chart like this for the products who we sell, you’d see a similar picture. We sell a very diverse offering of products to a very diverse set of customers. Our commercial, is commercial office building; its healthcare, its things like that.

Government, we could do a pie chart on government that would also look like this. So federal, state, local, all the arms of the military, the post office, higher education, prison system, I can go on and on, 1000s of buyers within government. Government’s been up 2%, you can see on the right hand side towards the bottom. Actually a pleasant surprise for us; government I don’t think is spending more, but certainly we are taking share. We’ve got a very large, dedicated government sales force. We do a significant amount of business with the government. Barrier to entry, they are very difficult and we are very good at it, so it’s helped us.

Within government we’ve seen some softness in sate and local, but strength in military and then federal and that’s helped us. And you could see, have been manufacturing high teams and so on. The reseller is negative because of tough comps with 2012 sales related to the oil spill cleanup, otherwise that would be positive.

These are year-to-date numbers, but if you looked at every month during the year, very consistent by-segment type of growth rates. So we really haven’t seen any downturn. We expect some softening as we finish the year, but nothing of a significant nature. We haven’t seen it yet, but we are anticipating softening in the economy and that’s what’s influenced our guidance for next year.

When we think about the economy, we use industrial production as a bit of a, at least over time indicator for us of economy growth. You can see the yellow line is industrial production growth over time and the red line is our sales growth over time, you can visually see a decent correlation and you can see towards the right hand side the more recent years, the red line is more often above the yellow and that means we are taking share. And in the far right, you can see that as the economy is predicted to drop off from 2010 to ‘11 and ’12 that we continue to take share and in fact we believe that will be at an expanding rate. We even sold share through the downturn, the most recent one at least.

Read the rest of this transcript for free on seekingalpha.com