PowerPoint template-black background for Auditorium · 8 . GP a modest detractor to op margin...

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Ron Jadin Senior Vice President & Chief Financial Officer

ANNUAL ANALYST MEETING: November 12, 2014

Grainger Financial Update

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2014 guidance

LOW HIGH

Sales $B 9.9$ 10.0$ EPS 12.20$ 12.30$

Sales growth 5.0% 5.5%EPS growth 6% 7%

Op Margin % 14.3% 14.3%Op Margin expansion 10 bps 20 bps

Note: Excludes unusual items as reported by the company in its quarterly earnings releases.

Guidance unchanged from October 16 press release


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4Q 2014 guidance LOW HIGH

Sales $B 2.5$ 2.5$ EPS 2.75$ 2.85$

Sales growth * 4.0% 5.5%EPS growth 6% 10%

Op Margin % 13.1% 13.3%Op Margin expansion 80 bps 100 bps

* Organic Sales growth 6-7% (excludes acquisitions & foreign exchange)


Solid October sales, easier margin comparisons versus 4Q13


4

2015 guidance

LOW HIGH

Sales $B 10.4$ 10.8$ EPS 12.90$ 13.80$ Sales growth 5% 9%EPS growth 6% 13%

Op Margin % 14.3% 14.7%Op Margin % vs PY 0 bps 40 bps


Double digit EPS growth at midpoint of guidance EPS guidance includes loss from Zoro Europe business start-up (-$0.20 to -$0.25 EPS))


5

Economy

Modestly improving economy in 2015


Real Growth 2014E

U.S. MRO Market U.S. Business Investment U.S. Exports

U.S. Industrial Production

CANADA GDP 2.5%EUROZONE GDP 1.2%MEXICO GDP 3.8%JAPAN GDP 1.2%

Sources: "Consensus Forecasts - U.S.A." published October 2014. U.S. MRO Market: statistically derived by Grainger.

2015E

1.1%

3.5% avg (2.5% to 5.0%)

4.9% avg (3.1% to 6.7%)3.0%

3.9%

2.3%0.8%2.5%

2.5% avg (1.6% to 5.1%)2.0%7.5% avg (2.3% to 10.1%)7.0%

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Sales growth drivers

Higher growth due to stronger economy and share gains from expanded growth programs


1%2% 2%3%2% 2%

3%2% 2%

3%

Single ChannelShare GainMultichannelShare GainEconomy

Price

Foreignexchange

5%

HIGHLOW

9%

5%

4Q44Q14E

-1% -1%

2015 GUIDANCE

-1%

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Single channel online model sales

0.0pp

1.0pp

2.0pp

3.0pp

$0

$500

$1,000

$1,500

2011 2012 2013 2014E 2015E

EFFECT on COMPANY SALES GROWTH (pp)

SING

LE C

HANN

EL S

ALES

($M

)

SINGLE CHANNEL SALES EFFECT ON GWW SALES GROWTHNote: Effect on company sales growth shown excludes foreign exchange

Single channel online model has a significant benefit to company sales growth


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GP a modest detractor to op margin expansion

GP% expansion drivers LOW HIGH

Price/Cost Leverage 0 10 bpsLow inflation (headwind)

Product cost scale (tailwind)Transportation scale (tailwind)

Fulfillment scale (tailwind)Customer Mix (30) (20)Private Label 15 20International Businesses 10 20Single Channel mix (30) (20)Acquisitions (5) (5)Total Company (40) 5 bps

2015 GUIDANCE

Similar to 2014, low inflation and mix drives lower gross profit %

Gross Profit % drivers LOW HIGHPrice/cost inflation 20 40 bps Mix effects: faster private label growth 5 15 lower margin WFS acquisition (5) (5) faster growth with lower margin customers (30) (20) faster single channel online model growth (30) (20)Change in gross profit % vs 2014 (40) 10 bps

2015 GUIDANCE


Note: Gross margin for 2014E is ~43.6%.

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Ongoing Drivers Customers shift to eCommerce

Branch consolidation

Back office to low cost markets

DC continuous improvement

Low inflation

2015 New Opportunities Seller & KeepStock productivity

Phone centers productivity

Single channel online model scale

Structural cost changes

Better indirect buying

Extending scale advantage across all elements

Expense leverage opportunities ramping up


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Productivity funds programs

* organic

INCREMENTAL YEAR-OVER-YEAR PRODUCTIVITY & PROGRAM EXPENSE

$115 $115

$190

($100) ($115)($150)($200)

($100)

$0

$100

$200

$ M

ILLI

ON

S

PRODUCTIVITY GROWTH & INFRASTRUCTURE PROGRAMS

2015E LOWOM +0bps

2015E HIGH OM +40bps

2014E

Productivity funds growth and infrastructure programs


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Growth and infrastructure programs

Balanced portfolio of investments

Data shown is mid-point of $110M to $150M range

Enterprise Systems & SAP

$25M

DCs$12M

eCommerce $24M

Sales Coverage$32M

LONG TERM

MEDIUM TERM

SHORT TERM KeepStock$23M

$37M

$130M

$37M

$56M

2015E INCREMENTAL EXPENSEEARNINGS POSITIVE

< 1 year

> 2 years

1-2 years

Marketing$14M

2015E INCREMENTAL

OVER 2014E

Note: Data shown is midpoint of $115M to $150M range


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Operating margin % and drivers

Expense productivity drives operating margin expansion

2014E & 2015E are midpoints of guidance ranges.

9%

11%

13%

15%

-50

0

50

100

2012 2013 2014E 2015E

OP M

ARGIN %

YR /

YR C

HANG

E (b

ps)

GP % CHANGE EXPENSE % CHANGE OP MARGIN %

+20bps+35bps +15bps


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2015 guidance by segment

U.S segment op margin % without intercompany sales is -15 to +25 bps vs. PY. U.S. and Canada reflect high investment levels. Company margin expansion driven by 1) Other businesses (both single channel online &

multichannel businesses) 2) high productivity in headquarters support services (not shown).


LOW HIGH LOW HIGH LOW HIGH LOW HIGH

Sales growth 5% 8% 4% 8% 14% 18% 5% 9%

Op Margin % vs PY (30) 10 (110) (70) 180 220 0 40 bps (as reported)

COMPANY U.S. CANADA OTHER

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Cash and capital strategy

Cash Deployment Maintain $200M cash balance +/- $100M Increase dividend > earnings growth Reinvest one-third of cash flow in CAPEX Remaining cash for share repurchase and acquisitions

Capital Fund small acquisitions (< 5% assets or $300M) with cash Fund larger acquisitions with long term debt Maintain tier 1 CP rating, strong “A” the floor and

$1.5B - $2.0B debt capacity


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Cash flow guidance

Millions of Dollars 2014E 2015E Cash Flow from Operations $1000 - $1020 $1040 - $1100 Capital Expenditures (gross) 375 - 425 375 - 425 % of Cash Flow (midpoint) ~39% ~37% Share Repurchase 475 – 525 375 - 425 Dividends $290 $320 - $335 Depreciation & amortization: 2014E $190-$200; 2015E $200-$210

~2/3 of Cash from Operations

Two-thirds of cash returned to shareholders, even with high capital spending


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Capital spending trend

Note: 2014 and 2015 are mid points of guidance ranges

40%36%

42%37%

21%26% 28%

39% 37%

0%

10%

20%

30%

40%

50%

$0

$100

$200

$300

$400

$500

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ECAPEX $M CAPEX % of OP CASH FLOW

31%

19%

31%

32% AVG

Capital spending ratio peaks in 2014


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ROIC

ROIC = OM% X NWA TURNS Note: excludes unusual items

-

0.8

1.6

2.4

3.2

0%

10%

20%

30%

40%

2008 2009 2010 2011 2012 2013 2014E 2015E

NW

A TUR

NS

RO

IC a

nd O

M%

OP MARGIN %

NWA TURNS

Maintaining strong ROIC, even with high investments


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Dividends and shares outstanding

2014 is the 43rd consecutive year of increased dividends; GWW is among an elite 3% of S&P 500 companies that have increased its dividend each year for more than four decades

2014 is the 43rd consecutive year of increased dividends; GWW is among an elite group of S&P 500 companies that have increased its dividend each year for more than four decades


0

20

40

60

80

100

120

SHARES OUTSTANDINGMillions

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00DIVIDENDS PER SHARE

2008

$1.55

$4.17

18% CAGR

2014E

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Long term operating margins

U.S. 18% - 18% 18% - 19% 19% - 20%Canada 7% - 8% 10% - 11% 11% - 12%Other 4% - 5% 7% - 9% 9% - 10%Company 14% - 15% 15% - 16% 16% - 17%

2015E 2017E 2019E

High end of range assumes 1-2% price inflation and 30 to 60 bps of average annual op margin expansion.

Company guidance unchanged from November 2013, softer Canada offset by Other.


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• This is a great business and competitively advantaged

• We are addressing under performing businesses

• We are focused on: • investing to gain share • driving increased productivity • building on our foundation

Summary

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Appendix


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Financial summary

2014 Strong growth with large customers and single channel online model where pricing is more

aggressive with slow growth elsewhere – mid single digit growth overall Modest op margin expansion with small GP rate decline ... Faster growth with large customers and single channel online model, low price/cost

inflation … offset by stronger cost productivity … Continued shift to internet ordering, DC fulfillment and scaling faster volume growth

2015 Economy expected to modestly improve, inflation to remain low Midpoint of guidance yields high single-digit sales & double-digit EPS growth with positive

op margin expansion Significant cost productivity offsets modest GP rate decline while funding more sellers,

inventory services, broader offer with higher availability and eCommerce capabilities Single channel online model businesses growing rapidly and are adding significantly to

company sales & earnings growth Maintain high ROIC and working capital turns by scaling up supply chain, technology and

internet platforms while scaling down backroom, branch a Deliver top quartile total shareholder returns over 5 years


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2015E 2014EMidpoint Midpoint

Customer Mix (25) bps (50) bpsPrice/Cost Leverage 10 92 Private Label 18 16 International Businesses 12 (11) Single Channel mix (26) (32) Acquisitions (5) (38) Gross Profit (16) (23)

Expense Productivity 166 130 Acquisitions - 8 Growth Spending (130) (100) Expense 36 38

Operating Margin 20 bps 15 bps

Growth & Total Shareholder Return (TSR)

Note: data shown is midpoint of guidance ranges.

Target top quartile 5 year TSR

CAGR2013-2014E 2015E

SALES 5% 7% Op Margin 2% 2%OP EARNINGS 7% 9% Tax Rate & Shares 1% 1%EPS 8% 10% Dividend Yield 2% 1%TSR 10% 11%

Net Working Assets 6% 8%


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Cash Flow & Balance Sheet


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Working capital turns

Working capital turns remain on trend

20

30

40

50

60

70

80

0

1

2

3

4

5

6

2010 2011 2012 2013 2014E 2015E

DSOTU

RNS

WORKING CAPITAL TURNS INVENTORY TURNS DSO


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Cash flow from operations

Strong cash flow continues

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

2010 2011 2012 2013 2014E 2015E

$ B

ILLI

ONS


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Additional information


Sales Days Q1 Q2 Q3 Q4 FULL YEAR2015 63 64 64 642014 63 64 64 64

2015 vs 2014 0 0 0 0

2013 63 64 64 64 2014 vs 2013 0 0 0 0

Variance % vs Prior Year Q1A Q2A Q3A FY-E 2014E Sales (reported) 5% 5% 7% 4.0 - 5.5% 5.0 - 5.5%2014E Sales (organic) 5% 5% 6% 6 - 7% 5 - 6%

2015 estimated effective Tax Rate: 38.1% to 38.5%

Q4E

2552550

2550

ROIC DEFINITIONROIC is calculated using annualized operating earnings divided by average net working assets. Net working assets are working assets minus working liabilities defined as follows: working assets equal total assets less cash equivalents (non operating cash), deferred taxes, and investments in unconsolidated entities, plus the LIFO reserve. Working liabilities are the sum of trade payables, accrued compensation and benefits, accrued contributions to employees’ profit sharing plans, and accrued expenses.

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