Q1 2024 W W Grainger Inc Earnings Call

Please press Star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to Kyle Bland, Vice President of Investor Relations. Thank you you may begin.

Deidra Cheeks Merriwether: Now an update on the remainder of the year. Overall, we said Q1 played out much as we expected, and results align well within the guidance ranges we laid out at the beginning of the year. This has continued into April with daily organic costume currency sales of 5.7% month to date. This gives us confidence to reiterate our current year. Our current full year 2024 guidance, which includes daily organic casting currency sales growth between four and seven percent and EPS ranging between $38 and $40.50, up roughly 7% at the midpoint. On seasonality, top line cops get easier as we move through the year.

Good morning, welcome to <unk> first quarter earnings call with me are D. G Macpherson, Chairman and CEO, Andy Meriwether Senior Vice President and CFO.

As a reminder, some of our comments today may include forward looking statements that are subject to various risks and uncertainties additional information regarding factors that could cause actual results to differ materially is included in the company's most recent form 8-K and other periodic reports filed with the SEC.

This morning's call will focus on our results for the first quarter of 2024, which are consistent on both the reported and adjusted basis.

As a reminder, we have included a daily organic constant currency sales growth metric within these materials to normalize for the divestiture of our Anr industrial sales subsidiary, which was sold at the end of 2023.

Deidra Cheeks Merriwether: Operating margins will dip down sequentially in the second quarter as growth margin moderates slightly and SG&A leverage declines as merit increases go into effect and marketing investments continue to ramp. With that, we expect modest year-over-year EPS growth in the second quarter, with earnings ramping from there in Q3 and Q4. Although we are maintaining our guidance, I did want to call out the increasing hit we're seeing from foreign exchange rates. As it stands today, the dollar to yen spot rate sits roughly at 155, well above the 144 we originally planned in January and still assume in our current guide.

Definitions and full reconciliations of this and any other non-GAAP financial measures with their corresponding GAAP measures.

Found in the table at the end of this presentation and in our earnings release, both of which are available on our IR website.

We will also share results related to monetize row. Please remember that monitor was a public company and filed Japanese GAAP, which differs from U S GAAP and as reported in our results one month in arrears.

As a result, the numbers disclosed will differ from monetize public statements.

With that I'll turn it over to D. G.

Thanks, Kyle good morning, and thanks for joining the call.

2024 started well as we remain grounded in the Grainger edge, we're focused on starting with the customer and staying focused on what matters. Most I've seen this play out in several ways throughout the quarter in February we hosted the Grainger show in Orlando, well over 10000 of our customers suppliers and team members came together to showcase the products and solutions that Grainger offers.

Deidra Cheeks Merriwether: If rates remain at these elevated levels, this will cause roughly $140 million in incremental headwind to our full year 2024 reported net sales guidance and an approximate 13 cent decrease to annual EPS. Overall, we're pleased with how the business is performing and remain confident in holding expectations for the year. With that, I'll pass it back to DG.

<unk> is a great opportunity to work together with our partners to solve customer problems.

We've received great feedback on progress since the event.

I've also had the opportunity to meet with a diverse set of customers for many industries.

Great to see how the Grainger team continues to deliver value and further embed into our customers' operations.

During a recent visit to a musical instrument manufacturer I had the chance to see how our team partnered with the customer got the standardized product foot portfolio to lower costs and improve efficiency.

Donald G. Macpherson: Thanks, D. Grainger's ongoing success is made possible by our people, and I'm fortunate that I am routinely able to spend time with our frontline team members, and it's clear that they are deeply connected to our customers, working side-by-side to help solve their most challenging problems. I believe this commitment to our customers is because we put an emphasis on building a culture where every team member knows that they can make a difference.

This included leveraging our strong supplier relationships and expanding our keep stock solution to ensure they have the right products the right locations.

I also spent time at a large public health system, which is in the process of building a new hospital.

Donald G. Macpherson: Earlier this month, Granger was named to Fortune's Best Workplaces in 2024 for the third consecutive year. This is an exclusive recognition that honors companies with the best cultures, which is a perfect way to describe what we have at Grainger. I'm confident the team will continue to work towards our goals and deliver on the things that matter most for our customers, team members, and all stakeholders in 2024. With that, we will open the line.

Throughout the project, we supported their operations as they transition to the new facility ensuring products remained readily accessible across the campus by.

By supporting this customer throughout the significant change we deepen their trusting grainger and allowed them to focus on their area of expertise patient care, while we took care of their MRO needs.

All my visits it's clear that we continue to show up well for our customers based on what I've seen while each industry dynamic is different overall demand for MRO products has remained soft generally steady to start the year.

Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

<unk> remains a talking point with customers and suppliers and is turning out to be stickier than we had originally anticipated heading into 2024.

Steve will provide details in a bit more.

Moving onto our first quarter performance you can see we started the year largely as expected delivering another year of solid another quarter of solid results.

Operator: Please ask one question and one follow-up question. Please wait while we poll for questions. Our first question is from David Manthey with Baird. Please proceed.

Total company sales were up three 5% or four 9% on a daily organic constant currency basis with positive contributions from both segments and high touch solutions. We continue to advance our five key growth engines, as we leverage our technology and data assets to unlock further value for customers.

Quinn Thomas Fredrickson: Yeah, good morning. This is Quinn Fredrickson on for Dave.

Quinn Thomas Fredrickson: First, morning, can you can you update us on you made some comments about taking some pricing action? I think before you were saying zero to 1% price increase in high touch this year. Can you update us on that? And then just any gross margin implications from here? Yeah, so

Within the endless assortment business, we remain focused on acquiring new customers improving repeat purchase rates across the segment and we made solid progress here in the quarter.

From a profitability standpoint total company operating margin was down as anticipated to 15, 8% a decrease of 80 basis points over the prior year EPS finished the quarter roughly flat versus prior year at $9 62.

Deidra Cheeks Merriwether: Yeah, so I'll, you know, I'll provide a few comments, and then D can provide any details. So, as you mentioned, inflation has been a bit stickier than we expected. Originally, we thought inflation would be 0 to 1 percent. It's likely to be 1 to 2 percent at this point. That outlook is lower than the headline PPI index because our industry-specific factors are different than the PPI index, and that difference has contributed to lower market outgrowth in the last few quarters. And we do see these short-term disconnects from time to time.

Beyond the P&L ROIC remained strong at 42, 9% and operating cash flow finished at record levels, which allowed us to return a total of $360 million, the greater shareholders through dividends and share repurchases.

Lastly, I want to mention that yesterday, we announced a 10% increase to our quarterly dividend, marking the third consecutive year of expected dividend increases something we're very proud of in addition, the board refreshed our repurchase authorization, enabling the buyback of up to 5 million shares of common stock. These combined actions reflect our continued commitment to returning cash to shareholders.

Deidra Cheeks Merriwether: We saw it in 2022 as well, but it smooths out over time. We are a little late to judge the increase in prices this year, and so we are taking action 5-1. We priced in a 5-1 cycle, and that cycle is going to correct, make some corrections. You know, I think that's well in motion, and that's already, basically, executed and will start happening next week. I think it's important to point out that when you strip out the lumpiness,

Through a balanced and return focused approach.

Overall 2024 has started off largely as expected and the business continues to perform well with this we are reiterating our full year 2024 guidance. We're set up to have a strong year results for all stakeholders.

But now pass it to <unk> to go through the details.

Thanks D G.

On slide seven you can see the high level results for the total company, including four 9% growth on a daily organic constant currency basis.

Quinn Thomas Fredrickson: Thank you, that's helpful, DG. Maybe on the endless assortment segment, any color you can share just on that, the B2C portion?

The quarter played out as anticipated despite tough comps continued rebase lining of the endless assortment business and impact from holiday timing in the period.

Deidra Cheeks Merriwether: I guess, are you seeing that kind of progress as you would expect and still anticipating that inflecting positively in the back half of the year? And then, obviously, you reported that 10% segment growth, even in spite of that. So any change to the 7 to 10% constant currency growth assumption for the year?

Operating margins were down 80 basis points year over year, the finished largely as expected in the quarter.

Gross margins were lower by 50 basis points as we lap outside favorability in the prior year period, and SG&A Deleveraged 30 basis points as we ramp demand generating investments to drive long term profitable share gains.

Deidra Cheeks Merriwether: No, we don't have any change. I think, you know, we will still have a bit of a headwind for consumers, B2C, and B2C-like customers through the second quarter. We think that will go away as the year moves on, and that could become a positive. But generally, that's all built into the seven-year plan.

In total we delivered diluted diluted EPS for the quarter of $9 62.

Up one over the prior year period and in line with our expectations to start the year.

Moving on to segment level results.

Nigel Edward Coe: Our next question is from Nigel Coe with Ruth Wolf Research. Please proceed.

Hi Tech solutions segment continues to perform well.

With sales up three 4% on a reported basis or three 8% on a daily organic constant currency basis.

Nigel Edward Coe: Great, thanks guys. I appreciate the question.

Nigel Edward Coe: So, obviously, the yen is a fairly small amount in the scheme of things, to be honest with you, but I'm curious how that impacts potential profits. For instance, Monotaro's margins, for instance. A fair amount of the product is imported into Japan from China and other places. So does that have any impact from a transactional basis as opposed to just translational? Or does that 13 cents cover both transactional and translational impact

Volume growth remained strong, which offset a slight contraction in price due to timing.

All geographies saw growth in the period.

In the first quarter. The U S continued to see strong growth with the contractor government and health care customers.

This growth offset slowing demand in other end markets, including manufacturing and commercial services as well as the impact from holiday timing.

Deidra Cheeks Merriwether: So, yeah, I'll start with the first part of your question. So, the majority of Monetaro's COGs are in the yen. They do have some U.S.-denominated products, but it's a much smaller portion of their COGs. And they've done a really nice job over the last several years of being able to pass on inflation through price to account for, you know, the desegregation between the yen and the dollar.

Overall demand remains soft, but largely unchanged over the last few quarters.

For the segment gross profit finished the quarter at 41, 8% improving sequentially, but below normal seasonality amidst a more muted pricing backdrop.

On a year over year basis gross margin was down 60 basis points, primarily due to the timing of cost sprint along with the lap of a 20 basis 0.1 time favorable freight adjustment in the prior year.

Deidra Cheeks Merriwether: As it relates to, I think you kind of talked about when we then consolidate the business, you have the tax effect that impacts us. And then we just end up really with, once you eliminate the non-controlling interest, just have the translation risk. And we generally, from a philosophical perspective, don't attempt to hedge, you know, translation risk because it's not real economically.

These headwinds were partially offset by continued freight and supply chain efficiencies, which began in the first quarter of 2023 and are now fully normalized.

While the quarter finished in line with our expectations on gross margin in total.

We were a little more price cost negative than anticipated at the timing of price and cost is never perfect.

Nigel Edward Coe: Right, okay, that's helpful. And then just to tie a bow on the second quarter kind of color, I guess, seems like sales growth might be a little bit better year over year, perhaps margins a bit more, a bit more contraction year over year than 1Q. How does the price cost look, you know, in 2Q versus 1Q in light of the price and actions? And maybe just talk about how that price cost develops from 1Q to 2Q. I know there's a lot there, but any more color on 2Q would be helpful. Sure.

As the year progresses, we expect price cost spread will recover and finish the year closer to neutral.

SG&A de Levered 40 basis points as we continue to invest in our demand generating growth engines, including marketing and seller head count.

We will continue to stay disciplined with our spending and rigorous in understanding positive effect, but feel it's prudent to invest through the cycle to gain share over the long term.

Overall these results position us well for another strong year within the high Tech segment.

Deidra Cheeks Merriwether: Sure, yeah, I think the first two statements you made were correct. And as we look at the balance of the year, starting in the second quarter with the actions that DG noted that we are in the process of taking, we expect prices to continue to improve from here. And we expect to be close to price cost neutral in the year. So Latina is working really hard making sure that they're following our two core tenets, which is first and foremost, remaining price competitive, but then also looking through our assortment and estimating the continued cost increases that we're going to experience so that we can time that as close to possible as we can so that we can end up price cost neutral.

Looking at market outgrowth on slide nine we estimate that the U S MRO market, including volume and price in the quarter between two and 3% nearly all from continued price inflation.

This indicates that the high Tech solutions U S business achieved roughly 150 basis points of market outgrowth in the first quarter in total.

Similar to last quarter. This more muted quarterly outgrowth reflects the higher PPA price inflation and ranges first quarter price contribution.

As we mentioned in the past there is no perfect market measurement for our business and when comparing our brother external metric of inflation to our MRO product mix, there can be noise, especially in quarterly period.

Thomas Allen Moll: Our next question is from Tommy Moll with Stevens Incorporated. Please proceed. Good morning.

Thomas Allen Moll: Good morning, and thank you for taking my questions. Bye.

That being said as <unk> alluded earlier inflation has been stickier than we originally anticipated and we're taking some corrective actions in the second quarter to ensure we adhere to our two core pricing tenants.

Thomas Allen Moll: DG, I wanted to start on the core B2B Zorro customers, where I think you said from a customer perspective, you're up high singles this quarter. What can you tell us about some of the initiatives internally where you've redoubled efforts to continue to drive that stickiness and repeat transaction rate among that cohort? And how are those initiatives? Yeah, they're great.

Maintaining market relevant prices, while ensuring price cost neutrality overtime.

Importantly on a pure volume basis, we're looking at our volume contributions versus the growth in industrial production or volume outgrowth is closer to 450 basis points.

Deidra Cheeks Merriwether: Yeah, they're progressing well. Most of the focus is on Zorro has always been a very good acquirer of new businesses, and they continue to do that well. We, you know, we look at the Japanese business and Zorro, and we compare, we compare notes, and the repeat business has been lower historically at Zorro than it's been in Japan, but we steadily increase that. That is, that is a lot of sort of marketing science, looking at what to present to customers after the first order, how to understand who those customers are, presenting the right products and the right offers after we get that first order.

Reflecting continued strong performance for our high Tech growth engine.

Moving to our endless assortment segment.

Sales increased three 7% or 10% on a daily constant currency basis, which adjusts for the impact of the depreciating Japanese yen.

So U S was up five 1%, while monetize <unk> achieved 13, 1% growth in local days local currency.

Deidra Cheeks Merriwether: So, most of it is around marketing actions that we're taking and that the Japanese team and the US team are working very closely to make sure we transfer best practices and drive repeat rates up. And we've seen good results in the last, probably the last six months actually.

At a business level.

<unk> saw continued strong growth from <unk> customers, who remained up year over year in the high single digits.

This helped offset continued declines with noncore BDC and B to C like customers, which were down double digits year over year.

Thomas Allen Moll: And then a follow-up on inflation, which you've hit on a couple of times here. And it sounds like you're going to address some of the price cost issues in early May. Um, what are the factors that changed year to date? Was it more on the cost input side coming in a little hotter than you expected? Or what did you see out there?

We expect these BDC headwinds to subside as the year progresses.

Net monitor all those.

Those are strong.

Our continued growth with enterprise customers, coupled with solid repeat purchase rates within our core <unk> customer base.

On a reported basis. However, these strong results are nearly all offset by continued foreign exchange rate pressures as the yen. Thanks near all time lows versus the dollar.

Deidra Cheeks Merriwether: So I would say it was a couple things. One, you know, Dede talked a little bit about misjudging the path of inflation here. You know, we started to lower some prices at the end of last year, and I think we did that a little too quickly.

Operating margins for the segment declined 20 basis points to seven 9% largely driven by gross margin favorability at monetizing them from freight and supply chain efficiencies, which were more than offset by negative mix at zoro as gross margins continue to normalize following the last few years of inflation.

Deidra Cheeks Merriwether: And then when we started to assess, We have a range of outcomes that we attempt to plan for, you know, as everyone else, and we're looking at market outlooks that are continually changing. You know, it's something that we have to deal with every year, and we work really hard to get, you know, as close as possible as we can to something that, you know, we could definitely execute and hit.

Overall, it was a good quarter for the endless assortment business.

Now an update on the remainder of the year.

Overall, we've said Q1 played out much as we expected.

And results align well within the guidance ranges, we laid out at the beginning of the year.

This has continued into April with daily organic constant currency sales up five 7% month to date.

Deidra Cheeks Merriwether: And so we also have a range of cost outcomes or cost outcomes from our suppliers. And so I would say the second thing is some of those cost outcomes from the range that we said are coming in a little bit higher than what we had anticipated.

This gives us confidence to reiterate our current year.

Our current full year 2024 guidance, which includes daily organic constant currency sales growth between 4% and 7%.

Jacob Frederick Levinson: Our next question is from Jacob Levinson with Mielis Research. Please proceed.

EPS ranging between $38 and $40 50.

Jacob Frederick Levinson: Morning Deidre. Good morning.

Up roughly 7% at the midpoint.

Jacob Frederick Levinson: Just on the investment that you guys are making, I seem to see the Grainger ads everywhere these days, but can you give us a sense of where you're spending the money? And is there any change in the rate of change, if you will, in those investments, or is this just something you've been doing pretty consistently? Or is it a, or is there some sort of opportunity where you can

On seasonality topline comps get easier as we move through the year.

Operating margin will dip down sequentially in the second quarter as gross margin moderate slightly and SG&A leverage declines as merit increases go into effect and marketing investments continue to ramp.

With that we expect modest year over year EPS growth in the second quarter with earnings ramping from there in Q3 and Q4.

Deidra Cheeks Merriwether: That's why I would say that it's all planned. There hasn't been a change on the path.

Now an update on the remainder of the year.

Although we are maintaining our guidance ranges.

Deidra Cheeks Merriwether: Overall, we've said Q1 played out much as we expected.

Didn't want to call out the increasing hit one we're seeing from foreign exchange rates.

Deidra Cheeks Merriwether: And you know, we invest in many ways, I'd say, but from a cash perspective, Supply Chain Investments, you know, we've talked about the new building in the Northwest and Houston; those are in full swing. We also invest in technology. That's the other primary investment we make from a cash perspective. And then from an expense perspective, you know, marketing is a big part of it. We invest up and down the marketing stack; we invest in advertising, we invest in paid search, of course, and then we invest in what we call the mid funnel, which is more targeted direct marketing with our customers. And what I would say is that we're constantly evaluating.

Deidra Cheeks Merriwether: And result alive, well within the guidance range as laid out at the beginning of the year.

As it stands today modality in spot rates, that's roughly at $1 55.

Deidra Cheeks Merriwether: This has continued into April with daily organic constant currency sales up five 7% month to date.

Well above the $1 44, we originally planned.

In January and still assume in our guidance.

Deidra Cheeks Merriwether: This gives us confidence to reiterate our current year.

If rates remain at these elevated levels. This will cost roughly $140 million incremental headwind to our full year 2024 reported net sales guidance.

Deidra Cheeks Merriwether: Our current full year 2024 guidance, which includes daily organic constant currency sales growth between four and 7%.

Deidra Cheeks Merriwether: And EPS ranging between $38 and $40 50 set up roughly 7% at the midpoint.

And an approximate 13 cent decrease to annual EPS.

Overall, we're pleased with how the business is performing and remain confident in honing expectations for the year.

Deidra Cheeks Merriwether: On seasonality topline comps get easier as we move through the year.

Jacob Frederick Levinson: Okay, that makes sense. But on a different topic.

With that I'll pass it back to D G.

Deidra Cheeks Merriwether: Operating margins will dip down sequentially in the second quarter as gross margin moderates slightly and SG&A leverage declines as merit increases go into effect and marketing investments continue to ramp.

Thanks, Steve.

<unk> ongoing success is made possible by our people and unfortunate I am routinely able to spend time with our frontline team members and it is clear that they are deeply connected to our customers working side by side to help solve their most challenging problems.

Jacob Frederick Levinson: Thank you, folks, so bad, pretty consistent repurchase here if you're unstuck for a very long period of time. But the shares have obviously had a phenomenal run the last couple of years. Does that, and you've got a potentially underleveraged balance sheet, does that change the capitalist at all in how you're thinking about the external capital allocation priorities here?

Deidra Cheeks Merriwether: With that we expect modest year over year EPS growth in the second quarter.

I believe this commitment to our customers because of the emphasis we put on building a culture, where every team member knows that they can make a difference earlier.

Deidra Cheeks Merriwether: With earnings ramping from there in Q3 and Q4.

Earlier this month Grainger was named to Fortune's best place workplaces in 'twenty 'twenty four for the third consecutive year.

Deidra Cheeks Merriwether: Although we are maintaining our guidance ranges I did want to call out the increasing hit one we're seeing from foreign exchange rates.

Deidra Cheeks Merriwether: So we expect to maintain the course on our capital allocation strategy because we feel it's been working well for the investment community. It helps us maintain a good level of financial flexibility. But, you know, we're targeting to return any excess cash after we have invested to drive long-term growth back to shareholders in the form of a dividend and share repurchase. Those two vehicles, we feel, are both efficient for us and efficient for shareholders.

This is an exclusive recognition that honors companies with the best cultures and people, which is a perfectly to describe what we have at grainger.

Deidra Cheeks Merriwether: As it stands today the dollar to yen spot rates, it's roughly at $1 55.

I am confident the team will continue to keep working towards our goals and delivering on the things that matter most for our customers team members and all stakeholders in 2024 and beyond.

Deidra Cheeks Merriwether: Well above the 144, we originally planned.

Deidra Cheeks Merriwether: In January and still assume in our current guidance.

With that we will open the line for questions.

Thank you.

Deidra Cheeks Merriwether: If rates remain at these elevated levels. This will cost roughly $140 million incremental headwind to our full year 2024 reported net sales guidance.

Like to ask a question. Please press star one on your telephone keypad confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. Please ask one.

Deidra Cheeks Merriwether: And an approximate 13 cent decrease to annual EPS.

Deidra Cheeks Merriwether: Overall, we're pleased with how the business is performing and remain confident in holding expectations for the year.

Christopher D. Glynn: Our next question is from Christopher Glynn with Oppenheimer. Please proceed.

Question and one follow up question, one moment, while we poll for questions.

DG: With that I'll pass it back to D G.

Our first question is from David Manthey with Baird. Please proceed.

Christopher D. Glynn: Yeah, thanks. Good morning. I was wondering about the utility and commercial services verticals down mid-single digit, if you could provide any color there, particularly maybe on the utility side. It seems like that should be a little stronger.

DG: Thanks, Steve.

DG: <unk> ongoing success is made possible by our people and unfortunate I am I'm routinely able to spend time with our frontline team members and it's clear that they're deeply connected to our customers working side by side to help solve their most challenging problems.

Yeah, Hey, good morning. This is Quinn fredrickson on for Dave.

First.

Good morning can you can you update us on you made some comments about taking some pricing actions I think before you were saying zero to 1% price in high touch. This year can you update us on that and then just any gross margin implications from him.

Donald G. Macpherson: I believe this commitment to our customers because of the emphasis we put on building a culture, where every team member knows that they can make a difference.

Donald G. Macpherson: Earlier this month greater was named to Fortune's best place workplaces in 'twenty 'twenty four for the third consecutive year.

Deidra Cheeks Merriwether: Yeah, so what I would say is that they're both relatively small for us. And so, in utilities, in particular, there's a single customer that has had some challenges, and that has had a big impact there. So it isn't really a sector. We don't play big enough in utilities to really be a sector barometer. So I would say it's sort of noise there.

Donald G. Macpherson: This is an exclusive recognition that honors companies with the best cultures and people, which is a perfect way to describe what we have at Grainger.

So I'll provide a few comments and then and then you can provide any details. So as you mentioned inflation has been a bit stickier than we expected. Originally we thought inflation would be zero to 1%, it's likely to be 1% to 2% at this point.

Donald G. Macpherson: I'm confident the team will continue to keep working towards our goals and delivering on the things that matter most for our customers team members and all stakeholders in 2024 and beyond.

Donald G. Macpherson: With that we will open the line for questions.

That outlook is lower than the headline PPI index because.

Christopher D. Glynn: Okay, great. And then I wanted to ask about the medium customers parallel to, I think, Jake's question about the small ones, but um, you know, you're also developing some regional and vertical models there to support long-term penetration and accelerate the performance there relative to the large customers just given the share differentials and lower penetration with the medium ones. I'd be curious for kind of a diagnostic update on your action plans there with the medium and how you see that unfolding. I mean, a lot of the things that we're doing.

Speaker Change: Thank you.

Donald G. Macpherson: I'd like to ask a question. Please press star one on your telephone keypad confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star T is please ask one.

Our industry specific factors are different in the PPI index and that difference is contribute to lower market outgrowth last few quarters and we do see these short term disconnects from time to time, we saw it in 2022 as well, but they smooth out over time.

We are a little late to judge the increase in prices. This year and so we are taking action five one we price five one cycle and that cycle is going to correct make some corrections.

Speaker Change: Question and one follow up question, one moment, while we poll for questions.

Operator: Our first question is from David Manthey with Baird. Please proceed.

I think thats thats well in motion and that's already already basically executed and will start happening next week.

Deidra Cheeks Merriwether: I mean, a lot of the things that we're doing around the business. Certainly, we have a supply chain that's built very effectively for both large and mid-sized customers. We have a lot of our resources attached to large customers, all of our sales force, our inventory management teams, and some of our support teams. And that is the lion's share of our revenue. Since we made the price change in 2017, we've recaptured virtually all of what we had lost in midsize customers.

Operator: Yeah, Hey, good morning. This is Quinn fredrickson on for Dave.

I think importantly, when you strip out the lumpiness from pricing or volume outgrowth has been very good something like 400 plus basis points. So we continue to see nice volume growth and we think pricing will correct. It's just the timing thing.

Quinn Thomas Fredrickson: First.

Quinn Thomas Fredrickson: Good morning can you can you update us on you made some comments about taking some pricing actions I think before you were saying zero to 1% price in a high touch this year can you update us on that and then just any gross margin.

Okay. Thank you that's helpful DG.

Maybe on the endless assortment segment.

Quinn Thomas Fredrickson: Implications from here, yes.

Speaker Change: Yeah. So I'll provide a few comments and then and then you can provide any details.

Any color you can share just on that the BDC portion I guess are you seeing that kind of progressed as you would expect and sciences pain on selecting positively in the back half of the year and then obviously you reported that 10% segment growth even in spite of that so any change to the 7% to 10%.

Deidra Cheeks Merriwether: And certainly, the marketing initiatives have been helpful for that; the merchandising initiatives have been helpful for that, in terms of helping us regain that share. We continue to grow faster with midsize customers than with large customers, and we expect to do so for a long time. And there's a number of initiatives that we have that are supporting that, although I would say most of our initiatives raise all boats. I mean, we do a lot of things that sort of scale across.

Deidra Cheeks Merriwether: As you mentioned inflation has been a bit stickier than we expected originally we thought inflation would be zero to 1%, it's likely to be 1% to 2% at this point.

Deidra Cheeks Merriwether: That outlook is lower than the headline PPI index because R.

Deidra Cheeks Merriwether: Our industry specific factors are different in the PPI index and that difference is contribute to lower market outgrowth of last few quarters and we do see these short term disconnects from time to time, we saw it in 2022 as well, but they smooth out over time.

On a constant currency growth assumption for the year.

No. We don't any change I think we will still have a bit of a headwind for us for consumers. These b to C and D to C like customers through the second quarter, we think that will go away as the year moves on and that could become a positive but generally that's all built into the 7% to 10%.

Deidra Cheeks Merriwether: We are a little late to judge the increase in prices. This year and so we are taking action five one we price five one cycle and that cycle's going to kind of correct make some corrections.

Deane Michael Dray: Our next question is from Deane Dray with RBC Capital Markets. Please proceed.

Deane Michael Dray: Thank you. Good morning, everyone. Hey, I joined a little bit late. So I apologize if you had gotten any of these specifics. But I know you called out the timing of the holiday just for the Easter holiday. Can you size that?

Our next question is from Nigel Coe with risks.

Deidra Cheeks Merriwether: I think that's that's well in motion and that's already already basically executed will start happening next week I think importantly, when you strip out the lumpiness pricing or volume outgrowth has been very good something like 400 plus basis points. So we could give you see nice volume growth and we think the pricing will correct. It's just the timing thing.

Research. Please proceed.

Great. Thanks, guys I appreciate the question.

So obviously the yen fairly small in the scheme of things to be able to see but I'm curious how that impacts potentially monetize those margins Glenn spent a fair amount of the product is imported.

Deidra Cheeks Merriwether: And was there any impact on January weather that you could detect?

Deidra Cheeks Merriwether: Hi Dean. So yeah, let me start with the last one, which is January weather. So I will say the impact of January weather for us, you know, we started off a little slower than normal, then it impacted the quarter a little bit. But by the time we got to the end of the quarter and started to ramp up, it's really immaterial for the overall quarter. And then moving to, you know, the I think you're referencing the Good Friday holiday, it had about a $10 million impact on us in March. And you know, we laid out where we were month to date at five, seven, so we feel like we're in pretty good stead, you know, starting off for the second quarter.

Into Japan from China, and other places so does that have any impact from a transactional basis as opposed to just translational towards the 13th <unk> does that cover both transactional and translational.

Speaker Change: Okay. Thank you that's helpful D G.

Quinn Thomas Fredrickson: Maybe on the endless assortment segment.

Quinn Thomas Fredrickson: Any color you can share just on that the BDC portion I guess are you seeing that kind of progressed as you would expect and still anticipating on collecting positively in the back half of the year and then.

So yes, I'll start with the first part of your question. So the majority of monetary <unk> Cogs or are in the end they do have.

Deidra Cheeks Merriwether: Obviously, you reported that 10% segment growth even in spite of that so any change to the 7% to 10% constant currency growth assumption for the year.

Some U S denominated, but it's a much smaller portion of their Cogs and they've done a really nice job over the last several years of being able to pass on inflation through price to account.

Deidra Cheeks Merriwether: No. We don't have any change I think we will still have a bit of a headwind for for consumers. These D to C and D to C like customers through the second quarter, we think that will go away as the year moves on and that could become a positive but generally that's all built into the 7% to 10%.

Four.

The disaggregation between the yen and the dollar.

As it relates to I think you kind of talked about when we when we then consolidate the business you have the tax effect.

Deane Michael Dray: That's really helpful. And then just a second question, any change in the outgrowth dynamics, either what you saw this quarter or expectations for the year?

Deidra Cheeks Merriwether: Our next question is from Nigel Coe with Wolfe.

That impacts us and then we just end up really with once you eliminate noncontrolling interests.

Nigel Edward Coe: Wolfe Research. Please proceed.

Nigel Edward Coe: Great. Thanks, guys I appreciate the question.

Deidra Cheeks Merriwether: No, I don't think there's been any change in growth expectations. We talked earlier, if you weren't on, about the fact that, you know, prices in our markets have been a little lower than PPI. Sometimes the broad metrics may not track exactly the market, but that evens out over time. But our volume growth has been very strong through the quarter, and we're taking action to improve the pricing environment starting May 1. So I think I really, there's, you know, we don't think there's really a change.

Just have the translation risk.

Nigel Edward Coe: So obviously the the yen fairly small in the scheme of things to be honest, you, but I'm curious how that impacts potentially monetize rose margins Glenn spent a fair amount of the product is imported.

And we generally from a philosophical philosophical perspective don't attempt to hedge.

Patient risk because it's not real economic risk for us.

Okay. That's helpful. And then just a typo in the second quarter.

Nigel Edward Coe: Into Japan from China, and other places so does that have any impact from a transactional basis as opposed to just translational or does that the intensity does that cover both transactional and translational.

Kind of color I guess it.

It seems like sales growth might be a little bit better year over year, perhaps margins a bit more.

Speaker Change: Yeah, I'll start with the first part of your question. So the majority of our monitor of course.

Christopher M. Dankert: Our next question is from Chris Dankert with Loop Capital Markets. Please proceed.

A bit more contraction year over year in the <unk>.

How does price cost look.

Deidra Cheeks Merriwether: R R.

Christopher M. Dankert: Morning, thank you. Apologies if I missed it, but on the step up in SG&A in the first quarter here, was there anything specific you could maybe walk through some of the moving parts for that kind of

And <unk> in light of the pricing actions.

Deidra Cheeks Merriwether: And they do have.

Deidra Cheeks Merriwether: Some U S denominated, but it's a much smaller portion of their Cogs and <unk>.

And maybe just talk about how that price cost develops from one Q2, Q I know, there's a lot there, but any more color on <unk> would be helpful.

Deidra Cheeks Merriwether: They've done a really nice job over the last several years of being able to pass on inflation.

Deidra Cheeks Merriwether: Yeah, no one-time items to call out in nature. I think as we provide color and provide the guide, we've been pretty consistent in noting that as we move through the year, we expect to continue to invest in demand-generating growth engines. And so a lot of the step up in the quarter was investing in the areas that Gigi kind of called out a couple questions ago. Sorry if you missed that, like marketing and our investment, you know, in capacity goals that kind of fall into the expense line versus the marketing line.

Sure Yeah, I think the first two statements you've made were correct.

Deidra Cheeks Merriwether: Through price to account.

And as we look at the balance of the year starting in the second quarter with the actions that <unk> noted that we are in the process of taking.

Deidra Cheeks Merriwether: For.

Deidra Cheeks Merriwether: The disaggregation between the yen and the dollar.

Deidra Cheeks Merriwether: As it relates to I think you kind of talk about when we when we then consolidate the business you have the tax effect.

We expect price cost to continue to improve from here.

And we expect to in the year close.

Deidra Cheeks Merriwether: That impacts us and then we just end up really with a once you eliminate noncontrolling interests.

Close to price cost neutral so that team is working really hard and making sure that they are following our two core tenant which is first and foremost remaining price competitive, but then also looking through our assortment.

Deidra Cheeks Merriwether: Just have the translation risk.

Deidra Cheeks Merriwether: And we generally from a philosophical philosophical perspective.

Deidra Cheeks Merriwether: <unk> attempt to hedge translation risk because it's not real economic risk for us.

And estimating the continued cost increases that we're going to experience.

Deidra Cheeks Merriwether: I will say that, you know, we are very diligent in our spending if it is what we classify as non-core, which is things that are not demand-generating, and those costs were fairly flat in the quarter. And we intend to, while helping those teams invest while they grow, they have to continue to focus on growing much more than sales.

Speaker Change: Right. Okay. That's helpful. And then just to tie a bow on the second quarter kind of color I guess.

That we can time that is as close to possible as we can so that we can end up price cost neutral.

Nigel Edward Coe: It seems like sales growth might be a little bit better year over year, perhaps margins a bit more.

Our next question is from Tommy Moll with Stephens incorporated please proceed.

Nigel Edward Coe: A bit more contraction you'll be out in the <unk>.

Good morning, and thank you for taking my questions.

Nigel Edward Coe: How does price cost look.

Good morning.

Christopher M. Dankert: And then just any kind of update on the development and deployment of that customer information tool and kind of how that's been impacting things.

D. G. I wanted to start on the core <unk> zoro customers, where I think you said from a customer perspective, Europe high singles this quarter.

Nigel Edward Coe: <unk> in light of the pricing actions and maybe.

Nigel Edward Coe: Maybe just talk about how that price cost develops from one Q2, Q I know, there's a lot there, but any more color on <unk> would be helpful.

What can you tell us about some of the initiatives internally, where you have redoubled efforts to continue to drive that stickiness repeat transaction rate among that cohort and how are those initiatives progressing.

Speaker Change: Sure Yeah, I think the first two.

Deidra Cheeks Merriwether: Yeah, I mean, we've been on a several-year journey to improve our customer information. What I would say is customer information in our market is really messed up. There aren't clean data sources that tell you who customers are and what they do and how many team members they have and that type of thing. So we've been building our own. What I would say is it's been super helpful with some of the seller coverage changes we've made.

Deidra Cheeks Merriwether: Statements you've made were correct.

Deidra Cheeks Merriwether: And as we look at the balance of the year starting in the second quarter with the actions that D. G noted that we are in the process of taking a we.

Yes they.

Progressing well most of the focus is on so zoro has always been a very good acquire new businesses and they continue to do that well.

Deidra Cheeks Merriwether: We expect price cost to continue to improve from here.

Deidra Cheeks Merriwether: And we expect to end the year close to the price cost neutral. So that team is working really hard and making sure you know that they're following our two core tenants, which is first and foremost remaining price competitive, but then also looking through our assortment.

We we look at the Japanese business in Zoro, and we compare.

Deidra Cheeks Merriwether: We're now building it into some of our marketing processes. So it has a lot of tentacles in the business work side about the ability for the tool that was built to be leveraged to improve our ability to serve.

We compare notes and the.

<unk> business has been lower historically zorro than its been at Japan, but we steadily increase that and that is that has a lot of sort of marketing science looking at what to present to customers. After their first order how to understand who those customers are presenting the right products and the right offers after after we get that first first orders. So most of it is around.

Deidra Cheeks Merriwether: And estimating the continued cost increases that we're going to experience.

Patrick Michael Baumann: Our next question is from Patrick Baumann with J.P. Morgan. Please proceed.

Deidra Cheeks Merriwether: That we can time that as close to possible. If we can so that we can end up price cost neutral.

Patrick Michael Baumann: Oh, hi. Good morning.

Patrick Michael Baumann: D, maybe a quick follow-up on April. The 5.7, just wanted to make sure I understood, that excludes divestitures and FX, right? And then, Was, so you said 10 million impacts from holiday timing in March. I guess that's like a percent of sales, maybe I don't know. Was there something like that also benefiting April in terms of timing?

Deidra Cheeks Merriwether: Our next question is from Tommy Moll with Stephens incorporated please proceed.

Marketing actions that we're taking in the Japanese team in the U S and we're working very closely to make sure we transfer best practices and drive repeat rates up and we've seen we've seen good results to last probably the last six months actually in terms of improved repeat rate.

Thomas Allen Moll: Good morning, and thank you for taking my questions.

Thomas Allen Moll: Morning.

Thomas Allen Moll: D G I wanted to start on the core <unk> zoro customers.

And then a follow up on inflation.

Thomas Allen Moll: I think you said from a customer perspective, Europe high singles this quarter.

You've hit on a couple of times here.

Thomas Allen Moll: What can you tell us about some of the initiatives internally, where you have redoubled efforts to continue to drive that stickiness and repeat transaction rate among that cohort and how are those initiatives progressing.

Deidra Cheeks Merriwether: Well, you would expect it to flow, you know, into April to the extent that we could pick that up. Yes. And the answer is yes to your first question, because I think you noted it excludes FX.

And it sounds like Youre going to address some of the price cost issues and in early may.

What are the factors that changed year to date was it more on the on the cost input side coming in a little hotter than you expected or what did you see out there.

DG: Yeah. There are they are progressing well most of the focus is on so zoro has always been a very good acquire new businesses and they continue to do that well.

Patrick Michael Baumann: Okay, yeah, so that's organic. Yes. Okay. Sorry. Sorry. I missed that comment. Okay. Great.

Sales of <unk>.

Couple of things. So one did you talk to a little bit about like misjudging. The path of passive of inflation here, we started to lower some prices.

Deidra Cheeks Merriwether: We look at the Japanese business in Zoro, when we compare with.

Patrick Michael Baumann: And then the follow-up is on SG&A again. So if we get, you know, later in the year, and the top line isn't, you know, picking up from where we started the year, what's the ability or desire to kind of toggle that SG&A growth back? I know you mentioned that you're diligent on spending if it's non-core, but what's your willingness to toggle back on some of the investment spending if growth, you know, doesn't pick up as the guidance expects?

Deidra Cheeks Merriwether: Comparing notes and the B.

Deidra Cheeks Merriwether: Repeat business has been lower historically zorro than its been at Japan, but we steadily increase that and that is that has a lot of sort of marketing science looking at what to present to customers. After their first order how to understand who those customers are presenting the right products and the right offers after after we get that first or first orders. So most of it is around.

At the end of last.

Last year, and so probably did that a little too quickly and then when we started and assess.

The 2020 for increases in Q, and Q1, probably a little softer there we have a range of outcomes that we attempt to plan for as everyone else and we're looking at market outlooks that are continually changing is something that we have to deal with every year and we.

Deidra Cheeks Merriwether: Marketing actions that we're taking in the Japanese team in USD and we're working very closely to make sure we.

Deidra Cheeks Merriwether: Yeah, thanks. You know, what I would say is that we are very focused on productivity improvements. We are seeing productivity improve. You know, the last few years have been a bit odd, to say the least, in terms of some of the challenges that everybody's had to deal with, and we have really sort of refocused our attention on getting better, and getting more productive in every part of the operation. And we're going to continue to do that.

Deidra Cheeks Merriwether: Transfer best practices and drive repeat rates up and you've seen we've seen good results for last probably the last six months actually in terms of improving credit.

Work really hard to get.

Lowe's to as close as possible as we can to something that we could definitely execute and hit and so we also have a range of Cogs.

Deidra Cheeks Merriwether: And then a follow up on inflation.

Thomas Allen Moll: Once you've hit on a couple of times here.

Cost outcome from our suppliers and so I would say the second thing is some of those cost outcomes from the range that we said is coming in a little bit higher than we had anticipated.

Thomas Allen Moll: And it sounds like Youre going to address some of the price cost issues and in early may.

Thomas Allen Moll: What are the factors that changed year to date was it more on the on the cost input side coming in a little hotter than you expected or what did you see out there.

Our next question is from Jacob Levenson with Melius Research. Please proceed.

Deidra Cheeks Merriwether: In terms of demand generation spending, I think you're asking specifically if it's worse spending in good times, but it's probably worse spending in bad times, too, so we wouldn't typically pull back those things. We think that we exist for the long term, and we're trying to win over the cycle, not just in the down cycle, so we would expect to not have dramatic changes in what we spend, but we do expect to continue to have productivity.

Thomas Allen Moll: Well I would say it was a couple of things. So one you know.

Good morning, Steve.

Deidra Cheeks Merriwether: <unk> talked a little bit about like misjudging, the path of a passive.

Okay.

Good morning morning.

Just on the.

The investment that you folks are making.

Deidra Cheeks Merriwether: Other inflation here, we started to lower some prices.

SMIC the grantor adds everywhere. These days, but can you give us a sense of.

Deidra Cheeks Merriwether: At the end of.

Deidra Cheeks Merriwether: Last year, and so probably did that a little too quickly and then when we started and assess the <unk>.

Of where you're spending the money.

And is that.

Is there any change in the rate of change of two well on those investments or is this just something you've been doing pretty consistent way or is it a or is there some sort of opportunity where you see a chance to put a little bit more money to work in.

Deidra Cheeks Merriwether: 24 increases.

Deidra Cheeks Merriwether: And Q and Q1, probably a little softer there are we have a range of outcomes that we attempt to plan for you know as everyone else and we're looking at market outlooks that are continually changing you know it's it's it's something that we have to deal with every year and we work really hard to get close to.

Donald G. Macpherson: We have reached the end of our question and answer session. I would like to turn the conference back over to DG for his closing remarks.

And I'll leave it at that.

That's all.

Donald G. Macpherson: All right, thanks. Thanks for joining us, everybody.

All planned there hasn't been any change in the past.

Operator: I really appreciate it. You know, I would just highlight that, in general, I would say everything in the quarter was as we expected and we feel very Confident in the path we're on. There's not a lot of new news in this quarter, but we do feel good about the path. We do feel good about our ability to gain share, become more productive, and to make sure we remain price custom long term. So all things, all things point to really good results for the year. So I appreciate it. Thank you. This will conclude our conference. You may disconnect your lines at any time.

We invest in.

Many ways I'd say, but from a cash perspective supply chain investments, we talked about the new building in the northwest and Houston those are in full swing. We also invest in technology. That's the other primary investment we made from a cash perspective, and then from an expense perspective marketing is a big part of it we invest up and down the <unk>.

Deidra Cheeks Merriwether: As close as possible as we can to something that we could definitely execute and hit and so we also have a range of cogs outcome or cost outcome from our suppliers and so I would say the second thing is some of those cost outcomes from the range that we said, it's coming in a little bit higher than what we had anticipated.

Getting stack, we invest in advertising.

Deidra Cheeks Merriwether: Our next question is from Jacob Levenson with Melius Research. Please proceed.

Paid search of course in it and we invest in what we call the mid funnel, which is more targeted direct marketing with our customers.

Jacob Frederick Levinson: Good morning, Steve.

Jacob Frederick Levinson: Steve.

Jacob Frederick Levinson: Good morning.

And what I would say is that we're constantly evaluating the returns on those and making minor tweaks that what youre, saying today, that's just normal planned spend.

Jacob Frederick Levinson: Just on the.

Jacob Frederick Levinson: The investment that you folks are making.

Jacob Frederick Levinson: I assume you see the grant drives everywhere. These days, but can you give us a sense of.

Okay that makes sense just on a different topic.

Jacob Frederick Levinson: Where are you spending the money.

Jacob Frederick Levinson: And is that is there any change in the rate of change. If you will on those investments or is this just something you have been doing pretty consistent way or is it a or is there some sort of opportunity where you see a chance to put a little bit more money to work.

Thank you folks.

Pretty consistent.

Purchaser of your own stock for a very long period of time.

But the fares are obviously had a phenomenal run last couple of years does that and you've got it and then potentially under Levered balance sheet change the chart for us at all on how you're thinking about sort of the external capital allocation priorities are.

Deidra Cheeks Merriwether: Yes.

Deidra Cheeks Merriwether: That's I would say that it's all planned there hasnt been any change in that.

Deidra Cheeks Merriwether: And we invest in.

So we expect to maintain the course on our capital allocation strategy, we feel it's been working well for us.

Deidra Cheeks Merriwether: Many ways I'd say, but from a cash perspective supply chain investments we.

Deidra Cheeks Merriwether: You've talked about the new building in the northwest and Houston those are in full swing.

The investment community.

It helps us maintain.

Deidra Cheeks Merriwether: That's a technology that's the other primary investment we make from a cash perspective and that from an expense perspective marketing is a big part of it we invest up and down the marketing stack, we invest in advertising we invest in.

Good level of financial flexibility, but.

Operator: Thank you. This will conclude our conference. You may disconnect your lines at this time, and thank you for your participation.

We're targeting to return any excess cash.

After we have invested to drive long term growth back to shareholders in the form of the dividend and share repurchase.

Deidra Cheeks Merriwether: Search of course, and then we invest in what we call mid funnel, which is more targeted direct marketing with our customers.

Operator: Thank you for watching! BF-WATCH TV 2021, [inaudible] The Ultimate Parody Site!

Those two vehicles, we sell our full sufficient for an efficient for shareholders.

Deidra Cheeks Merriwether: And what I would say is that we're constantly evaluating returns on those and making minor tweaks that what youre, saying today is just the normal planned spend.

Our next question is from Christopher Glynn with Oppenheimer. Please proceed.

Jacob Frederick Levinson: Okay.

Speaker Change: Just on a different topic.

Yes, thanks, good morning.

Speaker Change: Thank you folks.

Was wondering about the utility and commercial services verticals down mid single digits.

Jacob Frederick Levinson: Pretty consistent repurchase serve your own stock for a very long period of time.

Provide any complexion there.

Jacob Frederick Levinson: But the fares are obviously had a phenomenal run last couple of years does that.

Particularly maybe in the utility side, Steve It seems like that should be a little a little stronger.

Jacob Frederick Levinson: Got it and then potentially under Levered balance sheet.

Jacob Frederick Levinson: The chart for us at all on how you are thinking about what are the external capital allocation priorities are.

Yes, so what I would say is that they are both relatively small for us and so a.

Speaker Change: So we expect to maintain the course on our capital allocation strategy, we feel it's been working well for us.

And utilities in particular, there's a single customer that has has had some challenges and that has had a big impact there. So it isn't really a sector, where we don't play a big enough and utilities to really be a sector barometer. So I would say, it's sort of noise there.

Deidra Cheeks Merriwether: The investment community and it helps us maintain.

Deidra Cheeks Merriwether: Good level financial flexibility, but we're.

Deidra Cheeks Merriwether: We're getting to.

Okay, Great and then wanted to ask about the medium customers parallel to <unk> question on the small.

Deidra Cheeks Merriwether: Our return any excess cash.

Deidra Cheeks Merriwether: After we have invested to drive long term growth back to shareholders in the form of the dividend and share repurchase.

You're also developing some regional and vertical models, there to support long term penetration and accelerate.

Deidra Cheeks Merriwether: Those two vehicles, we sell are both efficient for us and efficient for shareholders.

The performance there relative to the large customers just just given the share differentials and lower penetration with medium. So curious for kind of <unk>.

Deidra Cheeks Merriwether: Our next question is from Christopher Glynn with Oppenheimer. Please proceed.

Christopher D. Glynn: Yes, thanks, good morning.

Diagnostic update on.

Christopher D. Glynn: Was wondering about the utility and commercial services verticals down mid single digits.

Your action plans, there with the medium and how you see that unfolding.

I mean, a lot of the things that we're doing around the business certainly we are a supply chain. That's built very effectively for both large and midsize customers.

Christopher D. Glynn: Provide any complexion there.

Christopher D. Glynn: Particularly maybe in the utility side seems it seems like that should be a little stronger.

We have a lot of our resources attached to large customers.

Speaker Change: Yes, so what I would say is that they are both relatively small for us and so a.

All of our sales force for inventory management teams in some of our support teams.

And that is the lion's share of our revenue.

Deidra Cheeks Merriwether: And utilities in particular, there's a single customer that has has had some challenges and that has had a big impact there. So it isn't really a sector.

We made a price change in 2017, we've recaptured virtually all of what we had lost and mid sized customers and certainly the marketing initiatives have been have been helpful for that the merchandising initiatives have been helpful for that in terms of helping us regain that share we continue to grow faster with midsized customers and large.

Deidra Cheeks Merriwether: We don't play a big enough and utilities to really be a sector barometer. So I would say, it's sort of noise there.

Speaker Change: Okay, Great and then wanted to ask about the medium customers parallel to I think was jake's question on the small.

And we expect to do so for a long time and Theres a number of initiatives that we that we have that are supporting that although I would say most of our initiatives raise all boats I mean, we do a lot of things sort of scale across the entire business.

Christopher D. Glynn: You're also developing some regional and vertical models, there to support long term penetration and accelerate.

Got it thank you.

Christopher D. Glynn: The performance there relative to the large customers just just given the share differentials and lower penetration with medium so curious for kind of.

Our next question is from Deane Dray with RBC capital markets. Please proceed.

Thank you and good morning, everyone.

Christopher D. Glynn: Diagnostic update on.

Good morning.

Christopher D. Glynn: Your action plans, there with the medium and how you see that unfolding.

I joined a little bit late so I apologize if you had gotten any of the specifics, but I know you called out.

Deidra Cheeks Merriwether: Yeah, I mean, a lot of the things that we're doing around the business certainly we have a supply chain. That's built very effectively for both large and midsize customers.

The timing of the holiday just for Easter holiday can you size that and was there any impact on January weather that you could detect.

Deidra Cheeks Merriwether: We have a lot of our resources are attached to large customers.

Deidra Cheeks Merriwether: All of ourselves horsepower inventory management teams in some of our support teams.

I think so yes, let me start with the last one which is January weather.

Deidra Cheeks Merriwether: That is the lion's share of our revenue.

So I would say the impact of January weather for US, we started off a little slower than normal and then it impacted the quarter a little bit but by the time, we got to the end of the quarter and started to ramp up.

Deidra Cheeks Merriwether: Since we made the price change in 2017, we've recaptured virtually all of what we get lost and mid sized customers and certainly the marketing initiatives have been at the helm for that the merchandising initiatives have been helpful for that in terms of helping us regain that share.

Deidra Cheeks Merriwether: Continue to grow faster with midsized customers and large.

It's really immaterial for the overall quarter and then moving to the I think youre referencing like the good Friday holiday it was about $10 million impact.

Deidra Cheeks Merriwether: We expect to do so for a long time and Theres a number of initiatives that we that we have that are supporting that although I would say most of our initiatives raise all boats and we do a lot of things that sort of scale across the entire business.

For us in March and we laid out where we're at month to date are up five seven so we feel like we're in pretty good stead.

Speaker Change: Got it thank you.

Deidra Cheeks Merriwether: Our next question is from Deane Dray with RBC capital markets. Please proceed.

Starting off for the second quarter.

That's real helpful and then.

Deane Michael Dray: Thank you and good morning, everyone.

Just second question any change in the outgrowth dynamics, either what you saw this quarter and expectations for the year.

Deane Michael Dray: Got it.

Deane Michael Dray: Hey, I joined a little bit late so I apologize if you had gotten any of the specifics, but I know you called out the.

Deane Michael Dray: The timing of the holiday just for Easter holiday can you size that and was there any impact on January weather that you could detect.

No I don't I don't think Theres any change in outgrowth expectations. We talked earlier, if you went on about the fact that.

Price in our market has been a little lower than PPI, sometimes the broad metrics may not track exactly where market, but that evens out over time, but our volume growth has been very strong through the quarter and we're taking actions to.

Speaker Change: I think so yeah, let me start with the last one which is January weather.

Deidra Cheeks Merriwether: So I would say the impact of January weather for US you know, we started off a little slower than normal and then it impacted the quarter a little bit but by the time, we got to the end of the quarter and started to ramp up.

To improve the pricing environment, starting may one so I think I think really the.

We don't think there's really any change dynamic.

Our next question is from Chris Dankert with loop capital markets. Please proceed.

Deidra Cheeks Merriwether: It is really immaterial for the overall quarter and then moving to the I think you're referencing like the good Friday holiday it was about $10 million impact.

Hey, good morning, Thank you.

I apologize if I missed it but on the step up in SG&A in the first quarter here was there anything one time there maybe just if you could walk through some of the moving parts.

Deidra Cheeks Merriwether: For us in March and we laid out where we're at our month to date up five seven so we feel like we're in pretty good stead.

Kind of drove that step up.

Yeah, No one time items to call out in nature, I think as we provide color and provide the guide we've been pretty consistent in noting that as we move through the year, we expect to continue to invest and.

Deidra Cheeks Merriwether: Starting off for the second quarter.

Deidra Cheeks Merriwether: That's real helpful and then.

Deane Michael Dray: Just a second question any change in the outgrowth dynamics, either what you saw this quarter and expectations for the year.

Demand generating growth engine and so a lot of the step up in the quarter was investing and the areas that did you kind of called out a couple of questions ago, sorry, if you missed that like marketing and our investment.

Speaker Change: No I don't I don't think Theres any change in outgrowth expectations. We talked earlier, if you went on about the fact that.

Deidra Cheeks Merriwether: Price in our market has been a little lower than PPI, sometimes the broad metrics may not track exactly to where market, but that evens out over time, but our volume growth has been very strong through the quarter and and we're taking action to to improve the pricing environment. Starting may one. So I think I think really we don't think there's really a change dynamic.

On capacity those that kind of fall into the expense line versus the.

The marketing line I will say that we are very.

Diligent and our spending if it is what we classify as noncore, which is things that are not demand generating and those costs were fairly flat in the quarter and we intend to Wow help those teams and that's why they grow they have to continue to focus on growing.

Deidra Cheeks Merriwether: Yeah.

Deidra Cheeks Merriwether: Our next question is from Chris Dankert with loop capital markets. Please proceed.

Christopher M. Dankert: Hey, good morning, Thank you.

Much slower than sales.

Christopher M. Dankert: I apologize if I missed it but on the step up in SG&A in the first quarter here was there anything one time there maybe just if you could walk through some of the moving parts for the kind of drove that step up.

Understood. Thanks for the color there.

Just any kind of update on the development and deployment of that customer information tool and kind of how that's been impacting things.

Deidra Cheeks Merriwether: Yeah, No one time items to call out in nature I think as you know we provide color and provide the guy.

Yeah. So we've been we've been on a several year journey to improve our customer information that what I would say is customer information in them and our market is can be messy. So there isn't clean data sources tell you customers are and what they do and how many team members. They have in that type of thing. So we've been building our own what I would say.

Deidra Cheeks Merriwether: Pretty consistent in noting that as we move through the year, we expect to continue to invest and.

Deidra Cheeks Merriwether: Demand generating growth engine and so a lot of the step up in the quarter was the best thing and the areas that D. G kind of called out a couple of questions ago, sorry, if you missed that like our marketing and our investment.

It's been Super helpful with some of the seller coverage changes. We've made we've made we're now building in some of our marketing processes. So it has a lot of tentacles into the business and we're excited about the ability for the tool has been built to be leveraged to improve our ability to serve customers.

Deidra Cheeks Merriwether: You know when capacity, though that kind of fall into the expense line versus.

Deidra Cheeks Merriwether: The marketing line I will say that we are Barry.

Deidra Cheeks Merriwether: Diligent and our spending if it is what we classify as noncore.

Our next question is from Patrick Baumann with Jpmorgan. Please proceed.

Deidra Cheeks Merriwether: Which is things that are not demand generating and those costs were fairly flat in the quarter and we intend to Wow help those teams and that's why they grow they have to continue to focus on growing much slower than sales.

Hi, good morning.

Sure.

Maybe a quick follow up on April.

$5 seven just wanted to make sure I understood that excludes divestitures and FX right and then.

So you said $10 million impact from holiday timing in March I guess it sounds like.

Speaker Change: Understood. Thanks for the color there.

Christopher M. Dankert: And then just any kind of update on the development and deployment of our customer information tool and kind of how that's been impacting things.

A percent of sales maybe I don't know was there something like that also benefiting April in terms of timing.

Speaker Change: Yeah, I mean, so we've been we've been a several year journey to improve our customer information, but what I would say is customer information and arm and our market is really messy. So there isn't clean data sources that would tell you the customers are and what they do and how many team members they have and that type of thing. So we've been building our own what I would.

Well you would expect it to flow.

Into April and to the extent that we could pick that up yes, and the answer is yes to your first question because I think you noted it exclude FX.

Okay. Okay.

That's organic yes, okay, sorry, sorry, I missed that can manage organic okay.

Deidra Cheeks Merriwether: It's been Super helpful with some of the seller coverage changes. We've made we've made we're not building in some of our marketing processes. So it has a lot of tentacles in the business. We're excited about the ability for the tool has been built to be leveraged to improve our ability to serve customers.

Great and then on my follow up is on SG&A again.

So if we get later in the year and the topline is.

Picking up.

From where we started the year.

What's like the.

The ability or desire to kind of toggle that SG&A growth back I know you mentioned that you were diligent on spending if it's noncore.

Deidra Cheeks Merriwether: Our next question is from Patrick Baumann with Jpmorgan. Please proceed.

Patrick Michael Baumann: Hi, good morning.

But what's your willingness to toggle back on some of the investment spending if growth.

Patrick Michael Baumann: <unk>.

Patrick Michael Baumann:

Patrick Michael Baumann: Maybe a quick follow up on April the.

Patrick Michael Baumann: $5 seven just wanted to make sure I understood that that excludes divestitures and FX right and then.

It does it doesn't pick up as the guidance expects.

Yes. Thanks.

I would say is that we are we are very focused on productivity improvements throughout the business I think we are seeing productivity improve.

Patrick Michael Baumann: So you said $10 million impact from holiday timing in March I guess, that's like a percent of sales maybe I don't know it.

You know the last few years have been.

In order to say the least in terms of.

Patrick Michael Baumann: Or was there something like that also benefiting April in terms of timing.

Some of the challenges that that everybody's had to deal with and we have really sort of refocused our attention on getting better getting more productive every operation we're going to continue to do that in terms of of demand generation spending I think youre asking specifically if it's if it's worth spending in good times, it's probably worth spending at that time too. So we wouldnt typically.

D: Well you would expect it to flow.

Deidra Cheeks Merriwether: Into April to the extent that we can pick that up yes, and the answer is yes to your first question because I think you noted that it excludes FX.

Speaker Change: Okay. Okay.

Patrick Michael Baumann: That's organic yes, okay, sorry, sorry, I missed that.

Pull back those things, we think that we exist for the long term and we're trying to win over the cycle.

Patrick Michael Baumann: Okay.

Speaker Change: Great and then on my follow up is on SG&A again.

Not just in the down cycle. So we would expect to not have dramatic changes and what we spend.

Patrick Michael Baumann: So if we get later in the year and the top line isn't.

Patrick Michael Baumann: Picking up.

But we do expect it to continue to drive productivity.

Patrick Michael Baumann: From where we started the year.

Patrick Michael Baumann: What's like the.

We have reached the end of our question and answer session I would like to turn the conference back over to D. G for closing remarks.

Patrick Michael Baumann: The ability or desire to kind of toggle that SG&A growth back I know you mentioned that you were diligent on spending if it's noncore.

Alright, thanks, Thanks for joining everybody really appreciate it.

Patrick Michael Baumann: But what's your willingness to toggle back on some of the investment spending if growth.

I would just highlight that in general I would say everything in the quarter was as we expected and we feel very.

Patrick Michael Baumann: It does doesn't pick up as the guidance expects.

Confident in the path. We're on there's there's not a lot of new news.

Speaker Change: Yes. Thanks, you know what I would say is that we are we are very focused on productivity improvements throughout the business I think we are seeing productivity improve.

In this quarter, but we do feel good about the path, we do feel good about our ability to gain share to become more productive and to make sure. We remain price cost neutral over the long term so.

Deidra Cheeks Merriwether: You know the last few years have been a bit.

Deidra Cheeks Merriwether: To say the least in terms of.

All things all things point to it's a really good results for the year. So I appreciate the time. Thank you.

Deidra Cheeks Merriwether: Some of the challenges that that everybody's had to deal with and we have really sort of refocused our attention on getting better getting more productive in every part of the operation we're going to continue to do that.

Thank you. This will conclude our conference you may disconnect. Your lines at this time and thank you for your participation.

Deidra Cheeks Merriwether: In terms of of demand generation spending I think you were asking specifically if it's it's worth spending in good times, it's probably worth spending at that time too. So we wouldnt typically pull back those things we think that we exist for the long term and we're trying to win over the cycle.

Deidra Cheeks Merriwether: Not just in the down cycle. So we would expect to not have dramatic changes and what we spend.

Deidra Cheeks Merriwether: But we do expect to continue to drive productivity.

Deidra Cheeks Merriwether: We have reached the end of our question and answer session I would like to turn the conference back over to D. G for closing remarks.

Speaker Change: Great. Thanks, Thanks for joining everybody really appreciate it.

Deidra Cheeks Merriwether: Would just highlight that in general I would say everything in the quarter was as we expected and we feel very.

DG: Confident in the path. We're on there's there's not a lot of new news in this quarter, but we do feel good about the path. We do feel good about our ability to gain share to become more productive and to make sure. We remain price cost neutral over the long term so.

Operator: All things all things point to it's a really good results for the year. So appreciate the time. Thank you.

Speaker Change: Thank you. This will conclude our conference you may disconnect. Your lines at this time and thank you for your participation.

Operator: Yeah.

Operator: [music].

Operator: [laughter].

Operator: [music].

Operator: Yes.