On April 16, industrial supply company W.W. Grainger (NYSE:GWW) released its first-quarter earnings for the period ended March 31.

  • This quarter, Grainger illustrates how operating leverage and share repurchases can turn reasonable sales growth into excellent profit growth.


  • Superb operating performance, coupled with the company continuing "to gain share in this fragmented industry by serving our customers well," caused management to raise the lower end of its guidance.


  • Based on the volume of recommendations in Motley Fool CAPS, I'm guessing most of you know little about the industrial supply sector. Here's a taste. Grainger is a three-star stock, while MSM Industrial Direct (NYSE:MSM), Applied Industrial Technologies (NYSE:AIT), and Fastenal (NASDAQ:FAST) are all five-star stocks. Find out why Fools in our community intelligence database love them -- check out CAPS today.

(Figures in millions, except per-share data)

Income Statement Highlights

Q1 2007

Q1 2006

Change

Sales

$1,547

$1,419

9%

Net Profit

$102

$86

18.1%

EPS

$1.17

$0.93

25.8%

Diluted Shares

86.8

92.5

(6.1%)

Get back to basics with the income statement.

Margin Checkup

Q1 2007

Q1 2006

Change*

Gross Margin

40.9%

40.2%

0.7

Operating Margin

10.5%

9.5%

1.0

Net Margin

6.6%

6.1%

0.5

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

Q1 2007

Q1 2006

Change

Cash + ST Invest.

$325.5

$493.9

(34.1%)

Accounts Rec.

$611.1

$569.6

7.3%

Inventory

$815.9

$805.6

1.3%

Liabilities

Q1 2007

Q1 2006

Change

Accounts Payable

$378.4

$357.9

5.7%

Long-Term Debt

$4.9

$4.9

0%

The balance sheet reflects the company's health.

Cash Flow Highlights

Q1 2007

Q1 2006

Change

Cash From Ops.

$73.1

$26.9

171.9%

Capital Expenditures

$32.2

$28.6

12.5%

Free Cash Flow

$40.9

($1.8)

N/A

Free cash flow is a Fool's best friend.

Related Foolishness:

Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

At the time of publication, retail editor David Meier did not own stock in any of the companies mentioned. Fool rules are here.