Sales of $2.5 billion increased 1 percent versus $2.5 billion in the 2014 second quarter. There were 64 selling days in the quarter, the same as in 2014. Net earnings for the quarter increased 7 percent to $221 million versus $206 million in 2014. Earnings per share of $3.25 increased 11 percent versus $2.94 in 2014.
“While this continues to be a difficult economic environment, we are focusing on the things we can control,” said Chairman, President and Chief Executive Officer Jim Ryan. “Despite continued softness in sales and gross profit margins from a tough industrial economy, we continue to invest for the long term while driving significant productivity to fund growth and infrastructure investments and reduce overall margin pressure. We have also leveraged our strong balance sheet with a recent $1 billion bond placement and lowered our tax rate through improved tax planning strategies. We expect the current economic conditions to continue through the end of the year and as a result we are updating our guidance,” Ryan concluded. The company now expects 0 to 2 percent sales growth and earnings per share of $12.00 to $12.50 for the full year 2015. The company’s previous 2015 guidance, issued on April 16, 2015, included 1 to 4 percent sales growth and earnings per share of $12.25 to $12.95.
The 2015 second quarter included charges of $2 million, or $0.02 per share, related to the restructuring at Fabory in Europe and the shutdown of the business in Brazil. During the 2014 second quarter, the company recorded a charge of $10 million after-tax, or $0.15 per share, related to the transition of its employee retirement plan for Fabory in Europe.
Sales increased 1 percent in the 2015 second quarter versus the prior year, including 1 percentage point from acquisitions and a 3 percentage point reduction from foreign exchange. Excluding acquisitions and foreign exchange, organic sales increased 3 percent driven by 4 percentage points from volume, partially offset by a 1 percentage point decline in price.
The company’s gross profit margin for the quarter declined 0.5 percentage point versus the prior year to 42.6 percent, due primarily to faster growth with lower gross margin customers, lower supplier rebates tied to lower-than-expected volume and price deflation versus cost inflation driven by foreign exchange. Operating expenses for the company declined 3 percent, driven by lower payroll and benefits. Incremental growth and infrastructure spending of $25 million was funded by $28 million in productivity savings in the quarter.
Company operating earnings of $357 million for the 2015 second quarter increased 5 percent versus the prior year. Excluding the 2014 retirement plan transition for Fabory in Europe and 2015 restructuring costs, company operating earnings increased 1 percent.
Grainger has two reportable business segments, the United States and Canada, which represented approximately 87 percent of company sales for the quarter. The remaining operating units are included in Other Businesses and are not reportable segments.
United States business activity
Sales for the United States segment increased 2 percent in the 2015 second quarter versus the prior year, driven by 2 percentage points from volume and 1 percentage point from increased sales to Zoro, the single channel online business in the United States, partially offset by a 1 percentage point decline in price. Sales growth to customers in the Commercial, Government, Light Manufacturing and Retail customer end markets contributed to the sales increase in the quarter.
Operating earnings for the United States segment increased 1 percent in the quarter driven by the 2 percent sales growth and positive operating expense leverage, partially offset by lower gross profit margins. Gross profit margins for the quarter declined 0.7 percentage point primarily driven by faster growth with larger customers, higher sales to Zoro reflecting the lower transfer price used to account for these intersegment sales and price deflation exceeding cost deflation. Excluding Zoro, gross profit margins were down 0.4 percentage point versus the prior year. Operating expenses were down in the quarter versus the prior year driven primarily by lower payroll and benefits which offset incremental growth and infrastructure spending of $23 million.
Year-to-date results
For the six months ended June 30, 2015, sales of $5.0 billion increased 1 percent versus $4.9 billion in the six months ended June 30, 2014. There were 127 selling days in the first six months of 2015, the same number of selling days in 2014. Net earnings increased 2 percent to $432 million versus $423 million in the first half of 2014. Earnings per share for the six months increased 5 percent to $6.32 versus $6.00 in the first half of 2014. Excluding the adjustments in both years noted below, net earnings increased 1 percent and earnings per share increased 4 percent.
