Grainger's Third Quarter Profitability and Adjusted Earnings Update
Grainger Reports Strong Third Quarter Financial Results
Continued execution fueling solid performance; Company narrows full year 2025 earnings outlook
Third Quarter Highlights
- Delivered sales of $4.7 billion, reflecting an increase of 6.1%, or 5.4% on a daily, constant currency basis.
- Achieved an operating margin of 11.0% on a reported basis, down 460 basis points, and 15.2% on an adjusted basis, which excludes the non-cash loss related to the intended exit of the U.K. market.
- Generated diluted EPS of $6.12, which is a reported decrease of 38.0%, or $10.21 on an adjusted basis, reflecting a 3.4% rise.
- Produced $597 million in operating cash flow and returned $399 million to shareholders through dividends and share repurchases.
- Updated full year 2025 guidance, narrowing the adjusted diluted EPS range to $39.00 to $39.75.
Grainger's Chairman and CEO, D.G. Macpherson commented, "We delivered results in line with our expectations for the quarter, which underscores the value and unique experience Grainger provides its customers. Our focus remains on navigating the uncertain environment through strong execution, exceptional service, and innovative capabilities for our stakeholders."
Financial Overview of Q3 2025
Sales for the quarter saw a 6.1% increase year-over-year when compared to Q3 2024. Adjusting for the impact of foreign currency exchange, the constant currency daily sales increased by 5.4%. In the High-Touch Solutions - N.A. segment, sales were up 3.4% on both a daily and constant currency basis. This growth was supported by increases in volume and favorable pricing competition amidst rising tariff costs. On another note, the Endless Assortment segment witnessed a notable sales rise of 18.2%, or 14.6% on a daily constant currency basis, evidencing the strong performance by both MonotaRO and Zoro.
Gross Profit and Earnings Analysis
The gross profit margin was 38.6% during the third quarter of 2025, indicating a reduction of 60 basis points compared to the prior year quarter. In the High-Touch Solutions - N.A. segment, the gross profit margin declined by 50 basis points due to inflation from tariffs affecting the pricing and inventory valuations despite improvements in the Endless Assortment segment, which reflected a 60 basis point increase. Reported operating earnings stood at $511 million, showing a year-over-year decline of 25.5%, while adjusted operating earnings tallied $707 million with a modest rise of 3.1% year-over-year. The adjusted operating margin was recorded at 15.2%. Factors impacting the operating margins were primarily attributed to the unfavorable gross margins experienced within the High-Touch Solutions - N.A. segment, which were partially countered by the expense leverage realized in the Endless Assortment segment.
Tax Rate and Cash Flow
For Q3 2025, the effective tax rate was 34.7%, up from 24.8% in Q3 2024. This increase was largely driven by the anticipated losses tied to exiting the U.K. market without any matching tax benefits. The adjusted effective tax rate, however, stayed consistent at 24.8% for both periods. Grainger generated $597 million in cash flow from operations during this quarter. The Company made capital expenditures amounting to $258 million, resulting in a free cash flow totaling $339 million.
Guidance for the Future
Grainger is revising its guidance range for 2025 to account for various known tariff impacts. The net sales expectation has been adjusted to a range of $17.8 billion to $18.0 billion, with sales growth anticipated between 3.9% and 4.7%. Sales growth achieved in daily organic constant currency is expected to be between 4.4% and 5.1%. Furthermore, the adjusted diluted earnings per share is forecasted to fall between $39.00 and $39.75.
Frequently Asked Questions
What were Grainger's earnings for Q3 2025?
Grainger reported Q3 2025 earnings per share (EPS) of $6.12 on a reported basis and $10.21 on an adjusted basis.
How much did Grainger return to shareholders?
The company returned $399 million to its shareholders through dividends and share repurchases.
What is the updated full year guidance for EPS?
Grainger updated its full year 2025 guidance for adjusted diluted EPS to a range of $39.00 to $39.75.
What is the impact of currency on Grainger's sales?
When adjusting for foreign currency exchange, daily constant currency sales increased by 5.4% compared to the previous year.
How much cash flow did Grainger generate in Q3 2025?
Grainger generated $597 million in cash flow from operating activities during Q3 2025.
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